EXHIBIT 13

                          ANNUAL REPORT TO STOCKHOLDERS





<PAGE>


                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following tables set forth selected  consolidated  historical financial
and other data of Liberty Bancorp,  Inc. (the  "Company"),  or prior to June 30,
1998,  Liberty Bank (the "Bank," and formerly  "Axia Federal  Savings Bank") for
the periods and at the dates indicated.  The information is derived in part from
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto of the Company contained elsewhere herein.

<TABLE>
<CAPTION>
                                                                        At December 31,
                                                         ------------------------------------------------
                                                           1998              1997                 1996
                                                         --------          --------             --------
                                                                        (In Thousands)
<S>                                                      <C>               <C>                  <C>
Financial Condition Data:

Total assets                                             $260,447          $217,437             $201,574
Loans receivable, net                                     177,877           152,200              130,690
Securities available for sale                              62,735            53,917               59,589
Deposits                                                  223,271           198,363              184,709
Equity capital                                             34,433            16,541               14,812

                                                                    Year Ended December 31,
                                                         ------------------------------------------------
                                                           1998              1997                 1996(1)
                                                         --------          --------             --------
                                                                        (In Thousands)
Operating Data:

Interest income                                          $ 16,014          $ 15,083             $ 13,723
Interest expense                                            9,817             9,004                8,049
                                                         --------          --------             --------
Net interest income                                         6,197             6,079                5,674
Provision for loan losses                                      45               200                   43
                                                         --------          --------             --------
Net interest income after provision for loan losses         6,152             5,879                5,631
                                                         --------          --------             --------
Non-interest income                                           310               442                  351
                                                         --------          --------             --------
Non-interest expense                                        4,307             3,891                5,090(1)
                                                         --------          --------             --------
Income before income taxes                                  2,155             2,430                  892
Income taxes                                                  766               877                  283(1)
                                                         --------          --------             --------
Net income                                               $  1,389          $  1,553             $    609(1)
                                                         ========          ========             ========
</TABLE>

----------

(1)  Operating  data for the year ended December 31, 1996 includes the effect of
     a one-time  Savings  Association  Insurance Fund ("SAIF")  recapitalization
     assessment  of $1.0  million,  or  $648,000  net of taxes.  Excluding  this
     non-recurring  assessment,  total non-interest expense would have been $4.0
     million, income taxes would have totaled $635,000 and net income would have
     been $1.3 million.


                                       2
<PAGE>



                                        KEY OPERATING RATIOS AND OTHER DATA

<TABLE>
<CAPTION>
                                                                                   At or For The Year
                                                                                    Ended December 31,
                                                                            ---------------------------------
                                                                             1998         1997          1996
                                                                            -------      -------      -------
<S>                                                                         <C>          <C>          <C>
Selected Ratios:

Performance Ratios:
   Return on assets (ratio of net income to average total assets)......       0.58%        0.73%        0.32%
   Return on equity (ratio of net income to average equity)............       5.44%        9.95%        4.23%
   Average interest rate spread during period..........................       2.05%        2.54%        2.65%
   Net interest margin (net interest income divided by
     average interest-earning assets) .................................       2.63%        2.92%        3.01%
   Operating expenses to average total assets..........................       1.79%        1.84%        2.64%
   Average interest-earning assets to average
     interest-bearing liabilities .....................................     114.02%      108.77%      108.31%

Asset Quality Ratios:
   Non-performing assets to total assets...............................       0.23%        0.49%        0.46%
   Allowance for loan losses to non-performing loans...................     128.25%       77.41%       57.61%
   Allowance for loan losses to loans receivable, net..................       0.43%        0.48%        0.41%

Capital Ratios:
   Equity to total assets at end of period.............................      13.22%        7.61%        7.35%
   Average equity to average assets....................................      10.61%        7.37%        7.47%

Other Data:
   Number of full service customer facilities at end of period.........          4            4            4
</TABLE>

----------
(1)  Interest rate spread represents the difference between the weighted average
     yield on average  interest-earning  assets and the weighted average cost of
     average interest-bearing liabilities.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

     In   addition   to   historical   information,   this   document   contains
forward-looking  statements.  The forward  looking  statements  contained in the
following  sections are subject to certain  risks and  uncertainties  that could
cause  actual  results  to  differ   materially  from  those  projected  in  the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed. Readers should not place undue
reliance  on these  forward-looking  statements,  as they  reflect  management's
analysis as of the date of this report.  The Company has no obligation to update
or revise these  forward-looking  statements to reflect events or  circumstances
that occur after the date of this report.  Readers should  carefully  review the
risk factors  described in other  documents  the Company files from time to time
with the SEC,  including  quarterly  reports on Form 10-QSB and current  reports
filed on Form 8-K.

General

     The  Company's  primary  business  activity is the ownership of 100% of the
outstanding  common stock of the Bank. The Bank's  results of operations  depend
primarily on its net interest income, which is the difference between the income
earned on its loan and securities  portfolios  and the interest  expense paid on
interest-bearing  liabilities.  Results of  operations  are also affected by the
Bank's  provision  for loan  losses,  fees and service  charges on deposits  and
loans,  and  gains on sales  of  securities.  The  Bank's  non-interest  expense
consists  primarily  of  salaries  and  employee  benefits,  occupancy  expense,
equipment  expense,  federal deposit insurance  premiums,  advertising and other
expenses. Results of operations are also significantly


                                        3
<PAGE>


affected by general economic and competitive conditions, particularly changes in
market   interest   rates,   government   policies  and  actions  of  regulatory
authorities.

Management of Market Risk

     General.  As with other savings  institutions,  the Bank's most significant
form of market  risk is  interest  rate  risk.  The  Bank's  assets,  consisting
primarily  of mortgage  loans,  have  longer  maturities  than its  liabilities,
consisting  primarily of deposits.  As a result,  a principal part of the Bank's
business strategy is to manage interest rate risk and manage the exposure of the
Bank's net interest income to changes in market interest rates. Accordingly, the
Board of Directors has established an Asset/Liability Management Committee which
is  responsible  for  evaluating  the interest  rate risk inherent in the Bank's
assets and liabilities,  determining the level of risk that is appropriate given
the Bank's business  strategy,  operating  environment,  capital,  liquidity and
performance  objectives,  and managing this risk  consistent with the guidelines
approved by the Board of Directors.  The  Asset/Liability  Management  Committee
consists of senior  management  operating under a policy adopted by the Board of
Directors  and meets at least  quarterly  to review the  Bank's  asset/liability
policies and interest rate risk position.

     The Bank has pursued the following strategies to manage interest rate risk:
(1) originating one- to- four family adjustable rate mortgage ("ARM") loans, (2)
purchasing adjustable rate mortgage-backed  securities guaranteed by Fannie Mae,
Freddie Mac or GNMA,  (3)  increasing  adjustable  rate home equity  lending and
fixed-rate  home equity  lending with  maturities of five years or less, and (4)
investing in shorter-term  securities which generally have lower yields compared
to longer term  investments,  but which better position the Bank to reinvest its
assets if market interest rates increase.

     The  Bank's  current  investment  strategy  is  to  maintain  a  securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall   profitability   and  asset  mix  within  given  quality  and  maturity
considerations.  The securities  portfolio  consists primarily of U.S. Treasury,
Federal Government and government sponsored corporation  securities.  All of the
Bank's investment securities and mortgage-backed securities,  other than Federal
Home Loan Bank ("FHLB")  stock,  are classified as available for sale to provide
management  with the  flexibility  to make  adjustments  to the portfolio in the
event of changes in interest rates, to fulfill unanticipated liquidity needs, or
to take advantage of alternative investment opportunities.

     Net  Portfolio  Value.  In past  years,  the Bank  measured  interest  rate
sensitivity by computing the "gap" between the assets and liabilities which were
expected to mature or reprice within certain time periods,  based on assumptions
regarding  loan  prepayment  and deposit  decay rates  formerly  provided by the
Office of Thrift  Supervision  (the  "OTS").  However,  the OTS now requires the
computation of amounts by which the net present value of an  institution's  cash
flow from assets, liabilities and off balance sheet items (the institution's net
portfolio  value or  "NPV")  would  change  in the  event of a range of  assumed
changes in market interest rates. These  computations  estimate the effect on an
institution's  NPV from  instantaneous  and permanent 1% to 4% (100 to 400 basis
point) increases and decreases in market interest rates.


                                        4
<PAGE>


     The  following  table  presents  the Bank's NPV at December  31,  1998,  as
calculated by the OTS, which is based upon quarterly  information  that the Bank
provided voluntarily to the OTS.

                        Percentage Change in Net Portfolio Value
       --------------------------------------------------------------------
          Changes                       Board
         in Market       Projected      Policy     Estimated      Amount of
       Interest Rates     Change(1)   Guidelines     NPV          Change
       --------------    ----------   ----------   ---------      ---------
       (basis points)           (Dollars in Thousands)

            400            (56)%        (75)%     $ 11,614       $(14,761)
            300            (38)%        (50)%       16,306        (10,069)
            200            (23)%        (38)%       20,405         (5,970)
            100            (10)%        (19)%       23,794         (2,581)
              0                          --         26,375
           (100)             7%          15%        28,231          1,856
           (200)            12%          25%        29,466          3,091
           (300)            19%          50%        31,357          4,982
           (400)            26%         100%        33,163          6,788

----------

(1)  Calculated  as the  amount of change in the  estimated  NPV  divided by the
     estimated NPV assuming no change in interest rates.

     Certain  shortcomings  are  inherent in the  methodology  used in the above
interest rate risk measurement.  Modeling changes in NPV requires making certain
assumptions  which may or may not reflect the manner in which actual  yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented  assumes that the composition of the Bank's interest  sensitive assets
and  liabilities  existing at the beginning of a period remain constant over the
period being measured and assumes that a particular  change in interest rates is
reflected  uniformly  across  the yield  curve  regardless  of the  duration  or
repricing  of specific  assets and  liabilities.  Accordingly,  although the NPV
table  provides an  indication  of the Bank's  interest  rate risk exposure at a
particular  point in time,  such  measurements  are not  intended  to and do not
provide a precise  forecast of the effect of changes in market interest rates on
the  Bank's  net  interest   income,   and  will  differ  from  actual  results.
Additionally,  the  guidelines  established  by the Board of  Directors  are not
strict limitations. While a goal of the Asset/Liability Management Committee and
the Board of  Directors  is to limit  projected  NPV changes  within the Board's
guidelines,  the Bank will not necessarily limit projected changes in NPV if the
required  action would  present  disproportionate  risk to the Bank's  continued
profitability.

Comparison of Financial Condition

     Assets.  Total assets for the year ended December 31, 1998 increased by $43
million, or 19.8%, to $260.4 million from $217.4 million.  The increase resulted
primarily from an increase of $25.6 million,  or 16.8%,  in loans  receivable to
$177.8  million at December  31, 1998 from $152.2  million at December 31, 1997.
The Bank also  added $8.8  million,  or 16.4%,  to it  portfolio  of  securities
available for sale, including mortgage backed securities, growing this portfolio
to $62.7  million at December 31, 1998 from $53.9  million at December 31, 1997.
Cash and cash equivalents increased by $7.9 million, or 133.90%, to 13.8 million
at December 31, 1998 from $5.9 million at December 31, 1997.


                                        5
<PAGE>


     Liabilities.  Total  liabilities  for the  year  ended  December  31,  1998
increased by $25.1 million, or 12.5%, to $226 million from $200.8 million.  This
increase  was  primarily  due to an  increase  of $24.9  million  in the  Bank's
deposits.

     Total Equity. Total equity as of the year ended December 31, 1998 increased
by $17.9 million,  or 108.4%, to $34.4 million from $16.5 million.  The increase
in total equity was due to the receipt of $16.3  million from the Bank's  mutual
holding company reorganization and the Company's offering of common stock, which
was completed on June 30, 1998.

Analysis of Results of Operations

     Net Interest Income.  Net interest income represents the difference between
income on interest-earning  assets and expense on interest-bearing  liabilities.
Net interest income depends on the interest yield on interest-earning assets and
the  interest  paid on  interest-bearing  liabilities,  as well as the  relative
amounts of interest-earning assets and interest-bearing liabilities.


                                        6
<PAGE>
     The following table sets forth certain information  relating to the Bank at
December 31, 1998, and for the years ended December 31, 1997, 1997 and 1996. For
the periods  indicated,  the total dollar amount of interest income from average
interest-earning  assets  and the  resultant  yields,  as  well as the  interest
expense on average  interest-bearing  liabilities  and the  resultant  cost,  is
expressed both in dollars and rates.  No tax equivalent  adjustments  were made.
All average balances are monthly averages.

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                           ----------------------------------------------------------------------------------
                                                           1998                                        1997
                                           ------------------------------------       ---------------------------------------
                                           Average                       Yield/       Average                         Yield/
                                           Balance        Interest       Cost         Balance        Interest         Cost
                                           -------        --------       ------       --------       --------       ---------
                                                                      (Dollars in Thousands)
<S>                                        <C>            <C>             <C>         <C>            <C>                <C>
Interest-earning assets:
  Loans receivable (1)(2) ..............   $164,067       $ 12,218        7.46%       $144,513       $ 10,944           7.57%
  Mortgage-backed securities ...........     52,406          2,681        5.23          53,333          3,536           6.63
  Investment securities ................        915             59        6.45           3,126            197           6.30
  Other interest-earning assets ........     18,264          1,035        5.66           7,086            406           5.73
                                           --------       --------                    --------       --------
Total interest-earning assets ..........    235,652         16,014        6.80         208,058         15,083           7.25
                                                          --------                                   --------
Non-interest earning assets ............      4,888                                      3,572
                                           --------                                   --------
Total assets ...........................   $240,540                                   $211,630
                                           ========                                   ========

Interest-bearing liabilities:
  Interest bearing deposits
    Demand .............................   $ 12,049            220        1.83        $ 12,358            244           1.97
    Savings and club ...................     47,914          1,464        3.06          44,803          1,346           3.00
    Certificates of deposit ............    146,704          8,133        5.54         132,467          7,318           5.52
  Borrowed funds .......................         --             --                       1,663             96           5.77
                                           --------       --------                    --------       --------
Total interest-bearing liabilities .....    206,667          9,817        4.75         191,291          9,004           4.71
                                                          --------                                   --------
Non-interest bearing liabilities .......      8,348                                      4,734
Stockholders' equity ...................     25,525                                     15,605
                                           --------                                   --------
Total liabilities and retained earnings    $240,540                                   $211,630
                                           ========                                   ========

Net interest income ....................                  $  6,197                                   $  6,079
                                                          ========                                   ========


Net interest rate spread ...............                                  2.05%                                         2.54%
                                                                          ====                                          ====


Net yield on average interest-earning
  assets ...............................                                  2.63%                                         2.92%
                                                                          ====                                          ====

Ratio of average interest-earning assets
  to interest-bearing liabilities ......       1.14x                                      1.09x
                                           ========                                   ========

</TABLE>



                                            -----------------------------------
                                                          1996
                                            -----------------------------------
                                             Average                    Yield/
                                             Balance       Interest      Cost
                                            --------       --------    --------
                                                   (Dollars in Thousands)
Interest-earning assets:
  Loans receivable (1)(2) ..............    $117,720       $  9,067        7.70%
  Mortgage-backed securities ...........      61,131          4,037        6.60
  Investment securities ................       3,264            249        7.63
  Other interest-earning assets ........       6,602            371        5.62
                                            --------       --------    --------
Total interest-earning assets ..........     188,717         13,724        7.27
                                            --------       --------    --------
Non-interest earning assets ............       3,855
                                            --------
Total assets ...........................    $192,572
                                            ========

Interest-bearing liabilities:
  Interest bearing deposits
    Demand .............................    $ 12,453            290        2.33
    Savings and club ...................      44,426          1,312        2.95
    Certificates of deposit ............     117,347          6,446        5.49
  Borrowed funds .......................          12              1        5.49
                                            --------       --------    --------
Total interest-bearing liabilities .....     174,238          8,049        4.62
                                            --------       --------    --------
Non-interest bearing liabilities .......       3,943
Stockholders' equity ...................      14,391
                                            --------
Total liabilities and retained earnings     $192,572
                                            ========

Net interest income ....................                   $  5,675
                                                           ========

Net interest rate spread ...............                                  2.65%
                                                                       ========

Net yield on average interest-earning
  assets ...............................                                   3.01%
                                                                       ========
Ratio of average interest-earning assets
  to interest-bearing liabilities ......       1.08x
                                            ========

----------
(1)  Calculated net of deferred loan fees and discounts and loans in process.
(2)  Includes non-accrual loans.

                                        7
<PAGE>


     The table  below sets  forth  information  regarding  changes in the Bank's
interest  income  and  interest  expense  for the  periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in volume  multiplied by old rate) and (ii) changes in rate (changes in
rate  multiplied by old volume).  Changes  attributable to both rate and volume,
which cannot be segregated,  have been allocated  proportionately  to the change
due to volume and the change due to rate.

<TABLE>
<CAPTION>
                                                               Year Ended                                   Year Ended
                                                 December 31, 1997 vs December 31, 1998       December 31, 1997 vs December 31, 1996
                                                           Increase (Decrease)                          Increase (Decrease)
                                                                 Due to                                       Due to
                                                 --------------------------------------       --------------------------------------
                                                  Volume          Rate          Total         Volume           Rate          Total
                                                 -------          ----          -----         ------           ----          -----
                                                                                  (In Thousands)
<S>                                              <C>            <C>            <C>            <C>            <C>            <C>
Interest income:
  Loans receivable .......................       $ 1,456        $  (161)       $ 1,295        $ 2,032        $  (155)       $ 1,877
  Investment securities, available
    for sale .............................          (198)          (795)          (993)           (10)           (42)           (52)
  Other interest-earning assets ..........           633             (4)           629             28              7             35
                                                 -------        -------        -------        -------        -------        -------
         Total interest income ...........         1,891           (960)           931          1,531           (172)         1,359
                                                 -------        -------        -------        -------        -------        -------
Interest expense:
 Interest-bearing demand .................            (6)           (18)           (24)            (2)           (44)           (46)
 Savings and club accounts ...............            95             23            118             11             23             34
 Certificates of deposit .................           789             26            815            837             35            872
 Borrowed funds ..........................           (96)            --            (96)            95             --             95
                                                 -------        -------        -------        -------        -------        -------
         Total interest expense ..........           782             31            813            941             14            955
                                                 -------        -------        -------        -------        -------        -------

Change in interest income ................       $ 1,109        $  (991)       $   118        $   590        $  (186)       $   404
                                                 =======        =======        =======        =======        =======        =======
</TABLE>

Comparison of Operating Results

     General.  The  Bank's  net  income  depends  primarily  on its level of net
interest income,  which is the difference  between interest earned on the Bank's
interest-earning  assets,  consisting  primarily of one-to-four  family mortgage
loans,  mortgage-backed  securities,  home equity loans,  commercial real estate
loans,  multi-family  real estate  loans,  and  investment  securities,  and the
interest paid on interest-bearing liabilities, consisting primarily of deposits.
Net  interest  income is  affected  primarily  by (i) the Bank's  interest  rate
spread,   which  is  the   difference   between  the  average  yield  earned  on
interest-earning   assets  and  the  average   rate  paid  on   interest-bearing
liabilities,  and by (ii) the  average  balance  of  interest-earning  assets as
compared to interest-bearing liabilities. The Bank's net income is also affected
by its level of  non-interest  income  consisting  primarily of fees and service
charges on deposits and loans, and gains on sale of securities,  loans and other
assets,  as well as its level of non-interest  expense,  including  salaries and
employee  benefits,  occupancy,  equipment,   advertising,   deposit  insurance,
professional services and other non-interest expenses.

     Interest Income.  Interest income increased by $931,000,  or 6.2%, to $16.0
million for the year ended  December  31, 1998 from $15.1  million for the prior
year.  The increase  was the result of a $1.3  increase in income on loans and a
$629,000 increase in income on other earning assets, which were partially offset
by a $994,000 decrease in income from mortgage backed and other securities.  The
increase  in income  from  loans was  partly  due to a $19.5  million,  or 13.5%
increase in the average  balance of loans to $164.0 million from $144.5 million,
which was  partially  offset by an 11 basis point  decrease in average  yield on
loans to 7.46% in 1998 from 7.57% in 1997. The lower  interest rate  environment
led to  refinances  in the Bank's  loan  portfolio  and is  responsible  for the
decline in average yield in the portfolio.

     Interest on other earning assets increased by $629,000,  or 154.7%,  to 1.0
million from $406,000. The increase in income on other earning assets is largely
the result of higher cash balances in 1998 compared


                                        8
<PAGE>


with 1997.  The  average  balance of other  earning  assets  increased  by $11.1
million,  or 157.8%,  to $18.2 million for the year ended December 31, 1998 from
$7.1 million for the year ended December 31, 1997.

     Income on the Bank's mortgage backed  investments and securities  decreased
$993,000,  or 26.6%,  to $2.7 million for the year ended  December 31, 1998 from
$3.7 million for the year ended December 31, 1997.  Although the average balance
of mortgage-backed and investment  securities decreased $3.1 million or 5.5%, to
$53.3  million  from  $56.4  million,  the  average  yield  on  mortgage  backed
securities  decreased 151 basis points, to 5.23% for the year ended December 31,
1998 from 6.63% for the year ended  December 31, 1997.  This decline in yield is
due to the rapid repayment of the mortgage backed  securities  portfolio and the
write-down of premiums  associated with these securities which had been paid off
during 1998.

     Interest income  increased by $1.4 million,  or 10.2%, to $15.1 million for
the year ended  December  31, 1997 from $13.7  million  for the prior year.  The
increase  was due to a $1.9  million  increase  in income on loans and a $35,000
increase in income on other interest  earning assets,  which were only partially
offset by a $500,000 decrease in income from mortgage-backed  securities,  and a
$52,000  decrease in income from investment  securities.  The increase in income
from loans was attributable  primarily to a $26.8 million, or 22.8%, increase in
the average  balance of loans to $144.5 million from $117.7  million,  which was
partially  offset by a 13 basis point  decrease in the average yield on loans to
7.57% in 1997 from  7.70% in 1996.  The  increase  in the  Bank's  average  loan
portfolio resulted from the Bank's originations  exceeding  repayments and loans
sold by $21.5  million.  The  decrease  in  average  yield  on loans  receivable
resulted  from  originating  lower  yielding  residential  mortgage  loans  in a
relatively low interest rate environment.

     Interest income on the Bank's investment  securities  decreased by $52,000,
or 20.5%,  to $197,000  from  approximately  $249,000.  The decrease in interest
income on  investment  securities  resulted  from a  scheduled  maturity  of one
investment  and another  investment  being  called,  the interest  rate of which
exceeded the average rate for the Bank's investment  securities,  which resulted
in a decrease in the average yield on investment securities to 6.30% during 1997
from 7.63% during 1996. Interest income on mortgage-backed  securities decreased
by $500,000,  or 12.5%,  to $3.5 million in 1997 from $4.0 million in 1996.  The
decrease in interest income on mortgage-backed  securities  resulted from a $7.8
million,  or 12.8%,  decrease  in average  mortgage-backed  securities  to $53.3
million from $61.1 million,  which was partially  offset by a slight increase in
the yield on average  mortgage-backed  securities to 6.63% from 6.60%. The yield
on  mortgage-backed  securities  decreased to 6.51% at December  31,  1997.  The
decline in yield as of December 31, 1997 resulted  primarily  from  management's
strategy to replace $27.0 million of fixed rate mortgage backed  securities with
$27.0  million  of  adjustable-rate  mortgage  securities.   This  strategy  was
implemented in the third and fourth  quarters of 1997 in an effort to reduce the
Bank's  overall  interest  rate risk.  The  decrease in the  average  balance of
mortgage-backed  securities  also resulted from  prepayments  of the  underlying
mortgage loans in a declining  interest rate environment and the reinvestment of
the proceeds of such prepayments in one-to-four family mortgage loans.

     Interest Expense.  Interest expense increased by $813,000, or 9.0%, to $9.8
million for the year ended  December  31,  1998 from $9.0  million for the prior
year.  This increase was the result of an increase in average  interest  bearing
deposits by $15.4 million, or 8.0%, to $206.7 million or the year ended December
31, 1998 from $191.2 million for the year ended December 31, 1997. Additionally,
the average  cost of funds  increased by 4 basis points to 4.75% at December 31,
1998 from 4.71% at December 31, 1997.

     Interest expense  increased by $955,000,  or 11.9%, to $9.0 million for the
year ended December 31, 1997 from $8.0 million for the prior year. This increase
was the result of a $17.1  million,  or 9.8%,  increase  in the  Bank's  average
interest  bearing  liabilities  combined  with a slight  increase  in the Bank's
average cost


                                        9
<PAGE>


of  funds to  4.71%  from  4.62%.  The  increase  in  average  interest  bearing
liabilities  resulted  primarily from  increases in the average  balances of the
Bank's certificate of deposit products, as well as an increase in other borrowed
funds.  The increase in the average cost of the Bank's  deposits  resulted  from
increasing  the rates paid on  deposits  in order to better  compete  with rates
offered by other financial institutions.

     Net Interest Income. Net interest income increased by $117,700, or 1.9%, to
$6.2 million from $6.1  million.  The increase in net interest  income  resulted
from the increase in average interest earning assets relative to the increase in
average interest bearing  liabilities.  The asset growth was partially funded by
the proceeds of the  Company's  offering of common stock which was  completed on
June 30, 1998.

     Net interest  income  increased by $404,000,  or 7.1%, to $6.1 million from
$5.7  million.  The  increase in net  interest  income  resulted  from a greater
increase in average interest earning assets compared to average interest bearing
liabilities,  which was  partially  offset by a narrowing of the Bank's  average
interest  rate spread to 2.54% in 1997 from 2.65% in 1996.  Management  believes
that the  narrowing  of the Bank's  interest  rate  spread is due in part to the
relatively  large  percentage of the Bank's total loan  portfolio  that had been
originated in the low interest rate  environment of the past two years,  and the
fact that  69.2% of the Bank's  total  deposits  consisted  of  certificates  of
deposit at  December  31,  1997.  The Bank's  net  interest  spread was 2.61% at
December 31, 1997.

     Provision for Loan Losses. The Bank establishes provisions for loan losses,
which are charged to  operations,  in order to maintain the  allowance  for loan
losses at a level which is deemed  appropriate  to absorb future  charge-offs of
loans  deemed  uncollectible.  In  determining  the  appropriate  level  of  the
allowance  for loan  losses,  management  considers  past and  anticipated  loss
experience,  valuations  of real  estate  collateral,  current  and  anticipated
economic conditions,  volume and type of lending and the levels of nonperforming
and other  classified  loans.  The amount of the allowance is based on estimates
and the ultimate  losses may vary from such  estimates.  Management  of the Bank
assesses the allowance for loan losses on a quarterly basis and makes provisions
for loan losses monthly in order to maintain the adequacy of the allowance.

     The Bank provided  $45,000 and $200,000 in loan loss provisions  during the
years ended December 31, 1998 and 1997, respectively.  The decrease was based in
part on  management's  assessment of the risk in the loan portfolio  relative to
the existing  provisions for loan loss. At December 31, 1998 and 1997 the Bank's
allowance  for loan losses was  $760,000  and  $723,000,  respectively,  and the
Bank's loans  delinquent  for ninety days or more were  $600,000  and  $934,000,
respectively.  The Bank's  allowance  for loan losses as a  percentage  of total
nonperforming  loans  at  December  31,  1998 and 1997  was  126.6%  and  77.4%,
respectively.  While management  believes that,  based on information  currently
available,  the Bank's  allowance  for loan losses is sufficient to cover losses
inherent  in its  loan  portfolio  at  this  time.  However,  future  loan  loss
provisions may be necessary based on changes in general economic conditions.  In
addition,  various regulatory agencies, as an integral part of their examination
process,  periodically  review the allowance for loan losses and may require the
Bank to recognize  additional  provisions based on their judgment of information
available to them at the time of their examination.

     Noninterest  Income.  Noninterest  income  consists  primarily  of fees and
service  charges on deposit  accounts and loans,  gain on sale of securities and
other assets,  and other income.  Noninterest  income decreased by $132,000,  or
29.8%,  to $310,000 for the year ended  December 31, 1998 from  $442,000 for the
prior year, as a result of a decrease in gain on sale of securities  and student
loans of $133,000 from December 31, 1997.


                                       10
<PAGE>


     Noninterest  income  increased by $181,000,  or 51.6%,  to $532,000 for the
year ended  December  31,  1997 from  $351,000  for the prior  year,  as service
charges increased by $20,000,  or 7.2%, gain on sale of securities  increased to
$129,000 from no gain in the prior year, and other income  increased by $32,000,
or 44.4%.

     Noninterest Expense.  Noninterest expense increased by $416,000,  or 10.7%,
to $4.3  million for the year ended  December 31, 1998 from $3.9 million for the
prior year. The increase was due to $100,000 of  non-recurring  expenses related
to the Bank's name change,  $74,000 in Employee  Stock  Ownership  Plan ("ESOP")
expense and  increases  in the Bank's  audit and legal  expenses  related to the
mutual holding company reorganization and stock offering by the Company.

     Noninterest  expense  decreased by $1.1 million,  or 21.8%, to $4.0 million
for the year ended  December 31, 1997 from $5.1 million for the prior year.  The
decrease was due to a $1.3 million decrease in deposit  insurance as a result of
legislation,  enacted in September 1996, to recapitalize  the SAIF. The one-time
assessment  was 65.7 basis points per $100 in  SAIF-insured  deposits held as of
March 31,  1995,  payable on November  30, 1996.  For the Bank,  the  assessment
amounted to $1.0 million (or  approximately  $648,000,  on an after-tax  basis),
based on the Bank's SAIF-insured  deposits as of March 31, 1995.  Excluding this
one-time  assessment,  non-interest  expense  totaled  $4.0 million for the year
ended December 31, 1996. In addition, beginning January 1, 1997, pursuant to the
legislation,  interest  payments on FICO bonds  issued in the late 1980's by the
Financing  Corporation  to  recapitalize  the former  Federal  Savings  and Loan
Insurance  Corporation  are paid  jointly  by  institutions  insured by the Bank
Insurance Fund (the "BIF") and  SAIF-insured  institutions.  The FICO assessment
will be 1.29 basis  points per $100 of BIF  deposits  and 6.44 basis  points per
$100 in SAIF deposits.  Beginning  January 1, 2000,  the FICO interest  payments
will be paid pro-rata by banks and thrifts based on deposits  (approximately 2.4
basis points per $100 of deposits).

     Salaries and employee  benefits  increased  by $14,000,  or 0.7%,  to $1.98
million for the year ended  December  31, 1997 from $1.97  million for the prior
year. Net occupancy expense decreased  slightly in 1997 because of the sale of a
previously  closed branch office.  Equipment  expense  increased by $60,000,  or
17.0%,  because of an increase in data processing  expense.  Advertising expense
increased  $87,000,  or 88.8%,  because of increased  advertising to promote the
Bank's new consumer loans and other loan products and services.

     Provision  for Income  Taxes.  The Bank's  provision  for income  taxes was
$766,000  and  $877,000  for  the  years  ended  December  31,  1998  and  1997,
respectively.

     Net Income. Net income decreased by $164,000, or 10.5%, to $1.4 million for
the year ended  December  31, 1998 from $1.6  million  for the prior  year.  The
decrease was primarily due to an increase of $416,000,  or 10.7%,  in operations
expenses to $4.3 million for the year ended December 31, 1998.

     Net income increased by $944,000,  or 155.1%,  to $1.6 million for the year
ended  December  31, 1997 from  $609,000  for the prior year.  The  increase was
primarily due to a $404,000 increase in net interest income, a $181,000 increase
in  non-interest  income,  and a $1.1 million  decrease in  noninterest  expense
(primarily  due to the special  assessment  in 1996 to  recapitalize  the SAIF),
which were only  partially  offset by a $157,000  increase in the  provision for
loan losses and a $594,000 increase in the provision for income taxes. Excluding
the special SAIF assessment,  net income totaled $1.3 million for the year ended
December 31, 1996.


                                       11
<PAGE>


Liquidity and Capital Resources

     The  objective  of  the  Bank's  liquidity  management  is  to  ensure  the
availability of sufficient  cash flows to meet all financial  commitments and to
capitalize on opportunities for expansion.  Liquidity  management  addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay  borrowings as they mature,  and to fund new loans and  investments  as
opportunities arise.

     The Bank's primary sources of internally  generated funds are principal and
interest payments on loans receivable, cash flows generated from operations, and
cash flows generated by investments. External sources of funds include increases
in deposits and advances  from the FHLB of New York.  At December 31, 1998,  the
Bank had outstanding $5.2 million in commitments to originate loans. If the Bank
requires funds beyond its internal  funding  capabilities,  agreements  with the
FHLB of New York are available to borrow funds up to $10.5 million.  At December
31, 1998, approximately $105.6 million in certificates of deposit were scheduled
to mature within a year. The Bank's  experience has been that a large portion of
its maturing certificates of deposit accounts remain on deposit with the Bank.

     The Bank is  required  under  applicable  federal  regulations  to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other  investments  having  maturities of five years or less.
Current OTS  regulations  require  that a savings  association  maintain  liquid
assets of not less than 4% of its  average  daily  balance  of net  withdrawable
deposit accounts and borrowings payable in one year or less.  Monetary penalties
may be  imposed  for  failure  to meet  applicable  liquidity  requirements.  At
December 31, 1998, the Bank's  liquidity,  as measured for regulatory  purposes,
was in excess of the minimum OTS requirement.

     The  Company's  primary  source  of  funds,  other  than  income  from  its
investments  and principal and interest  payments  received on the ESOP loan, is
capital  dividends from the Bank. As a stock savings  association,  the Bank may
not declare or pay a cash dividend on or repurchase  any of its capital stock if
the  effect of such  transaction  would be to reduce  its net worth to an amount
which  is  less  than  the  minimum  amount   required  by  applicable   federal
regulations.  At  December  31,  1998,  the  Bank  was in  compliance  with  all
applicable capital requirements.

Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000

     Like many  financial  institutions  the Bank relies upon  computers for the
daily  conduct  of its  business  and for data  processing  generally.  There is
concern among industry  experts that on January 1, 2000 computers will be unable
to "read" the new year and there may be widespread  computer  malfunctions.  The
Year 2000 Issue is the  result of  computer  programs  being  written  using two
digits  rather  than four to  define  the  applicable  year.  Any of the  Bank's
computer programs that would have  date-sensitive  software may recognize a date
ending "00" as the year 1900 rather than the year 2000.  This could  result in a
systems failure or miscalculations causing disruptions of operations,  including
among  other  things,  a  temporary  inability  to  process  transactions,  send
invoices, or engage in similar normal business activities.

     The Bank recognized that a comprehensive and coordinated plan of action was
needed to ensure complete  readiness to perform Year 2000 processing.  Year 2000
compliance  responsibility  has been assigned to initiate and implement the Year
2000 project, policies,  document readiness of the Bank to accommodate Year 2000
processing,  and to track and test progress  towards full  compliance.  The Bank
generally relies on independent third parties to provide data processing service
to the Bank, and has been advised by its data processing service center that the
issue is being addressed. The Bank is also in the


                                       12
<PAGE>


process  of  ensuring  that  external  vendors  and  additional   servicers  are
adequately  addressing the system and software  issues related to the Year 2000.
The Bank's personnel have actively  participated in a proxy testing process with
other  users of the  independent  third  party  vendor.  This  process  involves
developing  implementing and validating  scripts which will test the software of
the independent  third party vendor.  The Bank continues to actively monitor all
external  vendors to ensure that they are  adequately  addressing the system and
software issues related to the Year 2000.

     The Bank has  installed  and tested  vendor  provided  software  updates or
replacements  for all of its systems,  including;  loan  processing and closing,
investment  accounting,  accounts payable, fixed assets and ATM software. By the
end of the first  quarter of 1999,  the Bank will have  completed  an end-to end
testing process with the Bank's independent third party vendor.  This testing is
designed to ensure that the  hardware and  communications  software can properly
function in a Year 2000 date environment. Through December 31, 1998 the Bank has
invested  approximately  $100,000 in the effort to upgrade its computer systems.
The Bank does not  anticipate  future  expenses  related to system  remediation.
Future  expenses are  expected to be related to testing the business  resumption
contingency plan (the "Contingency Plan") and should be nominal.

     The Bank has  developed  a  contingency  plan that would be utilized in the
event of a failure of one or more  systems.  This plan  assigns  responsibility,
identifies  the core  business  processes,  establishes  an event  timeline  and
analyzes the risks in each core business process.  The Bank is in the process of
developing a plan to test the  effectiveness of the contingency  plan. That plan
will include training  employees and simulating a disaster.  The Bank intends to
engage our independent  auditors to validate the effectiveness of the contingent
procedures.

Impact of New Accounting Standards

     In June 1998, the Financial  Accounting  Standards  Board ("FASB") issued a
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  133  establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives),  and for hedging activities.  It requires that an entity recognize
all  derivatives  as either assets or liabilities in the statements of financial
position and measure those instruments at fair value. if certain  conditions are
met, a derivative may be specifically  designated as (a) a hedge of the exposure
to  changes  in  the  fair  value  of a  recognized  asset  or  liability  of an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction,  or (c) a hedge of the foreign currency exposure of
a net investment in a foreign  operation,  an unrecognized  firm commitment,  an
available-for-sale  security,  or  a  foreign-currency-  denominated  forecasted
transaction.  The accounting for changes in the fair value of a derivative (that
is,  gains and losses)  depends on the intended  use of the  derivative  and the
resulting designation.

     At the date of initial  application of SFAS No. 133, an entity may transfer
any  held-to-maturity  security  into  the  available-for-sale  category  or the
trading  category.  An entity  will then be able in the  future to  designate  a
security transferred into the available-for-sale category as the hedged item, or
its variable interest payments as the cash flow hedged transactions,  in a hedge
of the exposure to changes in market interest rates, changes in foreign currency
exchange rates,  or changes in the overall fair value.  SFAS No. 133 precludes a
held-to-maturity  security  from being  designated  as the hedged item in a fair
value hedge of market  interest  rate risk or the risk of changes in its overall
fair value and precludes the variable cash flows of a held-to-maturity  security
from being  designated as the hedged  transaction in a cash flow hedge of market
interest  rate  risk.  SFAS  No.  133  provides  that  such  transfers  from the
held-to-maturity category of the date


                                       13
<PAGE>


of initial  adoption  shall not call into  question an  entity's  intent to hold
other debt securities to maturity in the future.

     SFAS No. 133 is  effective  for all  fiscal  quarters  of all fiscal  years
beginning  after June 15, 1999, the quarter ended March 31, 2000 for the Company
and  subsidiaries.  Initial  application  shall  be as of  the  beginning  of an
entity's  fiscal quarter.  Earlier  application of all of the provisions of SFAS
No. 133 is  permitted  only as of the  beginning  of a fiscal  quarter.  Earlier
application of selected  provisions or retroactive  application of provisions of
SFAS No. 133 are not permitted.

     Management of the Company has not yet determined  when SFAS No. 133 will be
implemented,  but does not believe the ultimate  implementation  of SFAS No. 133
will have a material impact on their consolidated  financial position or results
of operations.

Impact of Inflation and Changing Prices

     The financial  statements and related  financial data presented herein have
been  prepared in  accordance  with GAAP,  which  requires  the  measurement  of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.

     Unlike most  industrial  companies,  virtually all of the Bank's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial  institution's  performance than does the
effect of inflation.


                                       14
<PAGE>


                  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     A summary of selected  financial data for the years ended December 31, 1998
and 1997 is as follows:

<TABLE>
<CAPTION>
                                        First            Second              Third             Fourth
                                       Quarter           Quarter            Quarter            Quarter
                                       -------           -------            -------            -------
                                                    (In Thousands Except Per Share Data)
Fiscal 1998

<S>                                   <C>                <C>                <C>                <C>
Interest income ...................   $3,753             $3,911             $4,201             $4,149
Net interest income ...............    1,448              1,460              1,753              1,534
Provision for losses ..............       15                 15                 15                 --
Income before provision for
  income taxes ....................      494                483                638                540
Net income ........................      308                311                417                353

Net income per common share:
  Basic/Diluted ...................   N/A(1)             N/A(1)                .11                .09


Fiscal 1997

Interest income ...................   $3,639             $3,768             $3,940             $3,757
Net interest income ...............    1,514              1,538              1,605              1,443
Provision for losses ..............       50                 50                 50                 50
Income before provision
  for income taxes ................      554                609                691                576
Net income ........................      330                371                427                425

Net income per common share:
  Basic/Diluted ...................   N/A(1)             N/A(1)             N/A(1)             N/A(1)
</TABLE>


----------
(1)  Liberty Bancorp, Inc. began operations on June 30, 1998.

                        COMMON STOCK AND RELATED MATTERS

     The Company's common stock is listed on the Nasdaq National Market under
the symbol "LIBB." As of December 31, 1998, the Company had seven registered
market makers, 599 stockholders of record (excluding the number of persons or
entities holding stock in street name through various brokerage firms), and
3,901,375 shares outstanding. As of such date, Liberty Bancorp, MHC (the "Mutual
Holding Company"), the Company's mutual holding company, held 2,067,729 shares
of common stock and stockholders other than the Mutual Holding Company held
1,833,646 shares.

     The following  table sets forth market price and dividend  information  for
the Common Stock since the  completion  of the Bank's  reorganization  and stock
offering on June 30, 1998.

    Fiscal Year Ended                                          Cash Dividends
    December 31, 1998        High               Low               Declared
    -----------------     ----------         ---------         --------------

     Third quarter        $    11.69         $     9.38        $       --
     Fourth quarter             9.75               7.25                --

     Payment  of  dividends  on  the  Company's   common  stock  is  subject  to
determination  and  declaration  by the Board of  Directors  and depends  upon a
number of factors, including capital requirements, regulatory limitations on the
payment  of  dividends,  the  Company's  results  of  operations  and  financial
condition, tax considerations and general economic conditions.  No assurance can
be given that dividends will be declared


                                       15
<PAGE>


or,  if  declared,  what the  amount  of  dividends  will be,  or  whether  such
dividends, once declared, will continue.

     OTS regulations  impose  limitations  upon all "capital  distributions"  by
savings   institutions,   including  cash  dividends,   payments  by  a  savings
institution  to  repurchase  or  otherwise   acquire  its  stock,   payments  to
stockholders  of another  savings  institution in a cash-out  merger,  and other
distributions  charged against capital. The regulations establish a three-tiered
system  of  regulation,   with  the  greatest   flexibility  being  afforded  to
well-capitalized or Tier 1 savings associations. As of the date hereof, the Bank
was a Tier 1  institution.  Accordingly,  under  the  OTS  capital  distribution
regulations,  the Bank would be permitted to pay  dividends  during any calendar
year up to 100 percent of its net income  during that  calendar  year,  plus the
amount that would reduce by one-half its surplus  capital ratio at the beginning
of the calendar year.

     The OTS has  proposed  regulations  that would  revise the current  capital
distribution  restrictions.  Under the proposal a savings institution may make a
capital  distribution  without notice to the OTS, unless it is a subsidiary of a
holding  company,  provided  that  it has a  regulatory  rating  in the  two top
categories,   is  not  of  supervisory  concern,  and  would  remain  adequately
capitalized,  as  defined  in the  OTS  prompt  corrective  action  regulations,
following  the proposed  distribution.  Savings  institutions  that would remain
adequately  capitalized  following the proposed distribution but do not meet the
other  noted  requirements  must  notify  the OTS 30 days prior to  declaring  a
capital  distribution.  The OTS stated it will  generally  regard as permissible
that amount of capital distributions that do not exceed 50% of the institution's
excess  regulatory  capital plus net income to date during the calendar  year. A
savings institution may not make a capital  distribution  without prior approval
of the OTS and the FDIC if it is  undercapitalized  before,  or as a result  of,
such a distribution.  As under the current rule, the OTS may object to a capital
distribution if it would constitute an unsafe or unsound practice.  No assurance
may be given as to whether or in what form the regulations may be adopted.

     In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves  and deducted for federal  income tax  purposes are not  available  for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the  then-current  tax rate by the Bank on the  amount  of  earnings
removed from the reserves for such distributions.  The Bank intends to make full
use of this favorable tax treatment and does not contemplate any distribution by
the Bank in a manner  that would limit the Bank's bad debt  deduction  or create
federal tax liability.

     OTS regulations require the Mutual Holding Company to notify the OTS of any
proposed  waiver  of the  right to  receive  dividends.  It is the  OTS'  recent
practice to review  dividend  waiver notices on a case- by  case-basis,  and, in
general,  not object to any such  waiver if:  (i) the mutual  holding  company's
board of  directors  determines  that  such a waiver  is  consistent  with  such
directors' fiduciary duties to the mutual holding company's members; (ii) for as
long as the savings  association  subsidiary is controlled by the mutual holding
company, the dollar amount of dividends waived by the mutual holding company are
considered as a restriction on the retained earnings of the savings  association
as a note to the financial  statements;  (iii) the amount of any dividend waived
by the mutual holding  company is available for declaration as a dividend solely
to the mutual holding company, and, in accordance with SFAS 5, where the savings
association  determines  that the payment of such dividend to the mutual holding
company is probable,  an  appropriate  dollar amount is recorded as a liability;
(iv) the amount of any waived  dividend is considered as having been paid by the
savings  association  (and the savings  association's  capital  ratios  adjusted
accordingly) in evaluating any proposed dividend under OTS capital  distribution
regulations;  and (v) in the event the mutual holding company  converts to stock
form,  the  appraisal  submitted to the OTS in  connection  with the  conversion
application  takes into account the aggregate  amount of the dividends waived by
the mutual holding company.  As of December 31, 1998, the Mutual Holding Company
had not waived the right to receive any dividends paid by the Company.


                                       16


<PAGE>

                       [Letterhead of Radics & Co., LLC]

                          INDEPENDENT AUDITORS' REPORT


To The Board of Directors
Liberty Bancorp, Inc.


We have audited the accompanying consolidated statements of financial condition
of Liberty Bancorp, Inc. (the "Company") and Subsidiaries as of December 31,
1998 and 1997 and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of Liberty Bancorp, Inc. and Subsidiaries as of December 31,
1998 and 1997, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.




/S/ RADICS & CO., LLC

February 12, 1999




                                                                              2.


<PAGE>



<TABLE>
<CAPTION>
                                                    LIBERTY BANCORP, INC.
                                                      AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                                                      December 31,
                                                                                            ---------------------------------
                                                                        Notes                   1998                 1997
                                                                    ------------            ------------         ------------
<S>                                                              <C>                        <C>                  <C>         
Assets

Cash and amounts due from depository institutions                                           $  1,474,529         $  1,192,270
Interest-bearing deposits in other banks                                                      12,349,621            4,738,621
                                                                                            ------------         ------------

              Total cash and cash equivalents                         1 and 12                13,824,150            5,930,891

Securities available for sale                                        1,3 and 12               62,734,597           53,917,520
Loans receivable                                                     1,4 and 12              177,876,607          152,199,868
Premises and equipment                                               1,5 and 11                2,132,110            2,113,904
Foreclosed real estate                                                    1                      105,620              121,064
Federal Home Loan Bank of New York stock                                                       2,007,500            1,804,100
Interest receivable                                                  1,6 and 12                1,315,997            1,219,978
Other assets                                                             10                      450,231              129,395
                                                                                            ------------         ------------

              Total assets                                                                  $260,446,812         $217,436,720
                                                                                            ============         ============

Liabilities and retained earnings

Liabilities

Deposits                                                              7 and 12              $223,270,284         $198,362,828
Advance payments by borrowers for taxes and insurance                                          1,910,748            1,659,615
Other liabilities                                                     9 and 10                   832,722              873,434
                                                                                            ------------         ------------

              Total liabilities                                                              226,013,754          200,895,877
                                                                                            ------------         ------------

Commitments and contingencies                                         11 and 12

Stockholders' equity                                             2, 8, 9, 10 and 13  

Preferred stock; $1.00 par value, 10,000,000 shares
  authorized, none issued and outstanding                                                           --                   --
Common stock; $1.00 par value; 20,000,000 shares
  authorized; 3,901,375 shares issued and outstanding
  at December 31, 1998                                                                         3,901,375                 --
Additional paid-in capital                                                                    13,827,420                 --
Retained earnings - substantially restricted                                                  17,512,659           16,122,933
Unearned employees' stock ownership plan
  ("ESOP") shares                                                                             (1,393,565)                --
Accumulated other comprehensive income - Unrealized
  gain on securities available for sale, net                                                     585,169              417,910
                                                                                            ------------         ------------

              Total stockholders' equity                                                      34,433,058           16,540,843
                                                                                            ------------         ------------

              Total liabilities and stockholders' equity                                    $260,446,812         $217,436,720
                                                                                            ============         ============
</TABLE>


See notes to consolidated financial statements.
                                                                              3.


<PAGE>



<TABLE>
<CAPTION>
                                                    LIBERTY BANCORP, INC.
                                                      AND SUBSIDIARIES
                                             CONSOLIDATED STATEMENTS OF INCOME

                                                                                                 Year Ended December 31,
                                                                                            ---------------------------------
                                                                        Notes                   1998                 1997
                                                                    ------------            ------------         ------------
<S>                                                                   <C>                    <C>                  <C>         
Interest income:
     Loans                                                            1 and 4                $12,238,409          $10,942,843
     Securities available for sale                                       1                     2,739,977            3,733,784
     Other interest-earning assets                                                             1,035,176              406,373
                                                                                             -----------          -----------

          Total interest income                                                               16,013,562           15,083,000
                                                                                             -----------          -----------

Interest expense:
     Deposits                                                         1 and 7                  9,816,890            8,908,267
     Advances                                                                                       --                 95,774
                                                                                             -----------          -----------

          Total interest expense                                                               9,816,890            9,004,041
                                                                                             -----------          -----------

Net interest income                                                                            6,196,672            6,078,959
Provision for loan losses                                             1 and 4                     44,556              200,000
                                                                                             -----------          -----------

Net interest income after provision for loan losses                                            6,152,116            5,878,959
                                                                                             -----------          -----------

Non-interest income:
     Fees and service charges                                                                    211,087              208,911
     Gain on sale of securities available for sale                    1 and 3                       --                128,716
     Gain on sale of loans                                                                           511                4,395
     Miscellaneous                                                                                98,828               99,929
                                                                                             -----------          -----------

          Total non-interest income                                                              310,426              441,951
                                                                                             -----------          -----------

Non-interest expenses:
     Salaries and employee benefits                                      9                     2,001,495            1,980,390
     Net occupance expense of premises                                1 and 11                   432,525              445,516
     Equipment                                                           1                       445,123              415,666
     Advertising                                                                                 237,375              184,000
     Director fees                                                                               168,043              131,100
     Federal insurance premium                                                                   124,842              119,643
     Loss from foreclosed real estate                                    1                        27,444                3,144
     Miscellaneous                                                                               870,219              611,296
                                                                                             -----------          -----------

          Total non-interest expenses                                                          4,307,066            3,890,755
                                                                                             -----------          -----------

Income before income taxes                                                                     2,155,476            2,430,155
Income taxes                                                          1 and 10                   765,750              876,950
                                                                                             -----------          -----------

Net income                                                                                   $ 1,389,726          $ 1,553,205
                                                                                             ===========          ===========

Net income per common share - basic and diluted                          1                        $ 0.37             N/A (1)
Weighted average number common shares
  outstanding - basic and diluted                                        1                     3,758,362             N/A (1)
</TABLE>

(1)  Liberty Bancorp, Inc. converted to stock form on June 30, 1998.


See notes to consolidated financial statements.
                                                                              4.



<PAGE>



                              LIBERTY BANCORP, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


                                                       Year Ended December 31,
                                                      -------------------------
                                                         1998          1997
                                                      -----------   -----------

Net income                                            $ 1,389,726   $ 1,553,205
                                                      -----------   -----------

Other comprehensive income, net of income taxes:
  Unrealized holding gains on securities
    available for sale, net of income taxes
    of $108,597, and $145,385, respectively               167,259       258,253

  Reclassification adjustment
    for realized gains on securities
    available for sale, net of income taxes
    of $ - 0 - and $46,338, respectively                     --         (82,378)
                                                      -----------   -----------

Other comprehensive income                                167,259       175,875
                                                      -----------   -----------

Comprehensive income                                  $ 1,556,985   $ 1,729,080
                                                      ===========   ===========



                                                                              5.


<PAGE>


<TABLE>
<CAPTION>
                                                    LIBERTY BANCORP, INC.
                                                      AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                                                           Retained                     Accumulated
                                                          Additional      earnings -     Unearned          Other           Total
                                             Common        Paid-In      Substantially      ESOP        Comprehensive   Stockholders'
                                             Stock         Capital        Restricted       Shares          Income          Equity
                                          ------------   ------------    ------------   ------------    ------------   ------------
<S>                                       <C>            <C>             <C>            <C>             <C>            <C>         
Balance - December 31, 1996               $       --     $       --      $ 14,569,728   $       --      $    242,035   $ 14,811,763

Net income for the year
  ended December 31, 1997                         --             --         1,553,205           --              --        1,553,205

Unrealized gain on securities available
  for sale, net of income tax effect              --             --              --             --           175,875        175,875
                                          ------------   ------------    ------------   ------------    ------------   ------------

Balance - December 31, 1997                       --             --        16,122,933           --           417,910     16,540,843

Net income for the year
  ended December 31, 1998                         --             --         1,389,726           --              --        1,389,726

Net proceeds from initial
  public stock offering                      3,901,375     13,830,168            --             --              --       17,731,543

Common stock acquired by ESOP                     --             --              --       (1,466,910)           --       (1,466,910)

ESOP shares committed to be released              --           (2,748)           --           73,345            --           70,597

Unrealized gain on securities available
  for sale, net of income tax effect              --             --              --             --           167,259        167,259
                                          ------------   ------------    ------------   ------------    ------------   ------------

Balance - December 31, 1998               $  3,901,375   $ 13,827,420    $ 17,512,659   $ (1,393,565)   $    585,169   $ 34,433,058
                                          ============   ============    ============   ============    ============   ============
</TABLE>





See notes to consolidated financial statements.

                                                                              6.


<PAGE>



<TABLE>
<CAPTION>
                                           LIBERTY BANCORP, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                       Year Ended December 31,
                                                                                  -----------------------------------
                                                                                      1998                   1997
                                                                                  ------------           ------------
<S>                                                                               <C>                    <C>         
Cash flows from operating activities:
      Net income                                                                  $  1,389,726           $  1,553,205
      Adjustments to reconcile net income to net cash
        provided by operating activities:
           Deferred income taxes                                                       (19,069)               (24,501)
           Depreciation and amortization of premises and equipment                     209,586                218,465
           Amortization of premiums, net of accretion of discounts
             and deferred loan fees                                                    393,352                 60,411
           Provision for loss on real estate owned                                      15,444                    520
           Provision for loan losses                                                    44,556                200,000
           Gain on sale of securities available for sale                                  --                 (128,716)
           Gain on sale of loans                                                          (511)                (4,395)
           (Increase) decrease in accrued interest receivable                          (96,019)                 3,509
           (Increase) decrease in other assets                                        (320,836)               243,508
           (Decrease) in accrued interest payable                                         --                   (1,154)
           (Decrease) increase in other liabilities                                   (130,240)               230,278
           ESOP shares committed to be released                                         70,597                   --
                                                                                  ------------           ------------

                     Net cash provided by operating activities                       1,556,586              2,351,130
                                                                                  ------------           ------------

Cash flows from investing activities:
      Purchases of securities available for sale                                   (46,890,204)           (41,279,181)
      Principal repayments on securities available for sale                         35,962,187             13,375,397
      Proceeds from calls of securities available for sale                           2,000,000              2,000,000
      Proceeds from sales of securities available for sale                                --               31,842,498
      Net increase in loans receivable                                             (25,795,395)           (22,422,328)
      Proceeds from sales of loans receivable                                           68,055                651,014
      Net additions to premises and equipment                                         (227,792)               (24,046)
      Capitalized expense on real estate owned                                            --                     (675)
      Proceeds from sale of and recovery
        from insurance on foreclosed real estate                                          --                   20,787
      Purchase of Federal Home Loan Bank of New York stock                            (203,400)              (188,700)
                                                                                  ------------           ------------

                     Net cash (used in) investing activities                       (35,086,549)           (16,025,234)
                                                                                  ------------           ------------

Cash flows from financing activities
      Increase in deposits                                                          28,189,280             13,654,981
      Increase in advance payments by
        borrowers for taxes and insurance                                              251,133                175,231
      Net proceeds from issuance of common stock                                    14,449,719                   --
      Common stock acquired by ESOP                                                 (1,466,910)                  --
                                                                                  ------------           ------------

                     Net cash provided by financing activities                      41,423,222             13,830,212
                                                                                  ------------           ------------

Net increase in cash and cash equivalents                                            7,893,259                156,108
Cash and cash equivalents - beginning                                                5,930,891              5,774,783
                                                                                  ------------           ------------

Cash and cash equivalents - ending                                                $ 13,824,150           $  5,930,891
                                                                                  ============           ============
</TABLE>



See notes to consolidated financial statements.


                                                                              7.


<PAGE>


<TABLE>
<CAPTION>
                                                   LIBERTY BANCORP, INC.
                                                     AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                      Year Ended December 31,
                                                                                ----------------------------------
                                                                                   1998                   1997
                                                                                -----------            -----------
<S>                                                                             <C>                    <C>        
Supplemental disclosure of cash flow information:
      Cash paid during the year for:
           Interest                                                             $ 9,816,890            $ 9,005,195
                                                                                ===========            ===========

           Income taxes, net of refunds                                         $   991,941            $   455,900
                                                                                ===========            ===========

Supplemental disclosure of noncash activities:
      Loans receivable transferred from foreclosed real estate                  $      --              $   204,696
                                                                                ===========            ===========

      Loan to facilitate the sale of foreclosed real estate                     $      --              $   (63,000)
                                                                                ===========            ===========

      Unrealized appreciation on securities available for sale                  $   275,856            $   274,922
      Deferred income taxes                                                        (108,597)               (99,047)
                                                                                -----------            -----------

                                                                                $   167,259            $   175,875
                                                                                ===========            ===========

      Issuance of common stock in exchange for deposits                         $ 3,281,824            $      --
                                                                                ===========            ===========
</TABLE>



See notes to consolidated financial statements.


                                                                              8.

<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of financial statement presentation

     The consolidated financial statements include the accounts of the Company
     and its wholly own subsidiaries, Liberty Bank ("Bank"), formerly Axia
     Federal Savings Bank, and Axia Financial Corporation ("Subsidiary"), and
     have been prepared in conformity with generally accepted accounting
     principles. All significant intercompany accounts and transactions have
     been eliminated in consolidation.

     On June 30, 1998, Axia Federal Savings Bank changed its name to Liberty
     Bank. Such change did not materially impact financial condition or
     operations.

     In preparing the consolidated financial statements, management is required
     to make estimates and assumptions that affect the reported amounts of
     assets and liabilities as of the date of the consolidated statement of
     financial condition and revenues and expenses for the period then ended.
     Actual results could differ significantly from those estimates. Material
     estimates that are particularly susceptible to significant changes relate
     to the determination of the allowance for loan losses and the assessment of
     prepayment risks associated with mortgage-backed securities. Management
     believes that the allowance for loan losses is adequate and that the risks
     associated with mortgage-backed securities prepayments have been properly
     recognized. While management uses available information to recognize losses
     on loans, future additions to the allowance for loan losses may be
     necessary based on changes in economic conditions in the market area.
     Additionally, assessments of prepayment risks related to mortgage-backed
     securities are based upon current market conditions, which are subject to
     frequent change.

     In addition, various regulatory agencies, as an integral part of their
     examination process, periodically review the allowances for loan losses.
     Such agencies may require additions to the allowance for loan losses based
     on their judgments about information available to them at the time of their
     examination.

     Cash and cash equivalents

     Cash and cash equivalents include cash and amounts due from depository
     institutions and interest-bearing deposits in other banks with initial
     maturities of three months or less.

     Securities

     Investments in debt securities that the Company has the positive intent and
     ability to hold to maturity are classified as held-to-maturity securities
     and reported at amortized cost. Debt and equity securities that are bought
     and held principally for the purpose of selling them in the near term are
     classified as trading securities and reported at fair value, with
     unrealized holding gains and losses included in earnings. Debt and equity
     securities not classified as trading securities nor as held-to-maturity
     securities are classified as available for sale securities and reported at
     fair value, with unrealized holding gains or losses, net of applicable
     deferred income taxes, reported in the accumulated other comprehensive
     income component of stockholders' equity.



                                                                              9.



<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)

     Securities (Cont'd.)

     Premiums and discounts on all securities are amortized/accreted using the
     interest method. Interest and dividend income on securities, which includes
     amortization of premiums and accretion of discounts, is recognized in the
     consolidated financial statements when earned. The adjusted cost basis of
     an identified security sold or called is used for determining security
     gains and losses recognized in the consolidated statements of income.

     Loans receivable

     Loans receivable are stated at unpaid principal balances, less the
     allowance for loan losses and net deferred loan origination fees and
     discounts.

     The Bank defers loan origination fees and certain direct loan origination
     costs and accretes such amounts, using a method which approximates the
     level-yield method, as an adjustment of yield over the contractual lives of
     the related loans. Discounts on loans are recognized as income by use of a
     method which approximates the level-yield method over the terms of the
     respective loans.

     Allowance for loan losses

     An allowance for loan losses is maintained at a level considered adequate
     to absorb future loan losses. Management of the Bank, in determining the
     allowance for loan losses, considers the risks inherent in its loan
     portfolio and changes in the nature and volume of its loan activities,
     along with general economic and real estate market conditions. The Bank
     utilizes a two tier approach: (1) identification of impaired loans and the
     establishment of specific loss allowances on such loans; and (2)
     establishment of general valuation allowances on the remainder of its loan
     portfolio. The Bank maintains a loan review system which allows for a
     periodic review of its loan portfolio and the early identification of
     potential impaired loans. Such system takes into consideration, among other
     things, delinquency status, size of loans, types of collateral and
     financial condition of the borrowers. Specific loan loss allowances are
     established for identified losses based on a review of such information
     and/or appraisals of the underlying collateral. General loan loss
     allowances are based upon a combination of factors including, but not
     limited to, actual loan loss experience, composition of the loan portfolio,
     current economic conditions and management's judgment. Although management
     believes that adequate specific and general loan loss allowances are
     established, actual losses are dependent upon future events and, as such,
     further additions to the level of the loan loss allowance may be necessary.

     Impaired loans are measured based on the present value of expected future
     cash flows discounted at the loan's effective interest rate or, as a
     practical expedient, at the loan's observable market price or the fair
     value of the collateral if the loan is collateral dependent. A loan
     evaluated for impairment is deemed to be impaired when, based on current
     information and events, it is probable that the Bank will be unable to
     collect all amounts due according to the contractual terms of the loan
     agreement. All loans identified as impaired are evaluated independently.
     The Bank does not aggregate such loans for evaluation purposes. Payments
     received on impaired loans are applied first to accrued interest receivable
     and then to principal. The Bank does not have any loans deemed to be
     impaired.



                                                                             10.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)

     Concentration of risk

     The Bank's lending activity is concentrated in loans secured by real estate
     located in the State of New Jersey.

     Premises and equipment

     Premises and equipment are comprised of land, at cost, and buildings,
     building improvements, furnishings and equipment and leasehold
     improvements, at cost, less accumulated depreciation and amortization.
     Depreciation and amortization charges are computed on the straight-line
     method over the following estimated useful lives:

          Buildings and improvements                 30 to 50 years
          Furnishings and equipment                  3 to 10 years
          Leasehold improvements                     Shorter of estimated useful
                                                     life or term of lease

     Significant renewals and betterments are charged to the premises and
     equipment account. Maintenance and repairs are charged to operations in the
     year incurred.

     Foreclosed real estate

     Real estate properties acquired through, or in lieu of, foreclosure are
     initially recorded at the lower of cost or estimated fair value at the date
     of acquisition. Subsequent valuations are periodically performed and an
     allowance for losses established by a charge to operations if the carrying
     value of a property exceeds its fair value less estimated selling costs.
     Costs relating to development or improvement of properties are capitalized.
     Income and expenses of holding and operating properties are recorded in
     operations as incurred or earned. Gains and losses from sales of these
     properties are recognized as incurred.

     Allowance for uncollected interest

     The Bank provides an allowance for the loss of uncollected interest on
     loans based upon management's evaluation of the collectibility of such
     interest. Such interest ultimately collected is credited to income in the
     period of recovery.

     Income taxes

     The Company and its subsidiaries file a consolidated federal income tax
     return. Income taxes are allocated based on the contribution of income to
     the consolidated income tax return. Separate state income tax returns are
     filed.


                                                                             11.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)

     Income taxes (Cont'd.)

     Federal and state income taxes have been provided on the basis of reported
     income. The amounts reflected on the Company's tax returns differ from
     these provisions due principally to temporary differences in the reporting
     of certain items for financial reporting and income tax reporting purposes.
     Deferred income tax expense or benefit is determined by recognizing
     deferred tax assets and liabilities for the estimated future tax
     consequences attributable to differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases. Deferred tax assets and liabilities are measured using enacted
     tax rates expected to apply to taxable income in the years in which those
     temporary differences are expected to be recovered or settled. The effect
     on deferred tax assets and liabilities of a change in tax rates is
     recognized in earnings in the period that includes the enactment date. The
     realization of deferred tax assets is assessed and a valuation allowance
     provided, when necessary, for that portion of the asset which is not likely
     to be realized. Management believes, based upon current facts, that it is
     more likely than not that there will be sufficient taxable income in future
     years to realize all deferred tax assets.

     Interest rate risk

     The Bank is principally engaged in the business of attracting deposits from
     the general public and using these deposits, together with other funds, to
     purchase securities and to make loans secured by real estate. The potential
     for interest-rate risk exists as a result of the generally shorter duration
     of the Bank's interest-sensitive liabilities compared to the generally
     longer duration of interest-sensitive assets. In a rising rate environment,
     liabilities will reprice faster than assets, thereby reducing net interest
     income. For this reason, management regularly monitors the maturity
     structure of the Bank's interest-earning assets and interest-bearing
     liabilities in order to measure its level of interest-rate risk and to plan
     for future volatility.

     Net income per share

     Basic and diluted net income per share were computed in 1998 by dividing
     net income for the year ended December 31, 1998 by the weighted average
     number of shares of common stock outstanding, adjusted for unearned shares
     of the ESOP. Such amounts were calculated based upon income for the entire
     year 1998, although the Bank converted to Stock form on June 30, 1998, and
     the weighted average number of shares outstanding since June 30, 1998, as
     if such shares were outstanding during all of 1998. Diluted net income per
     share did not differ from basic net income per share as there were no
     contracts or securities exercisable or which could be converted into common
     stock which would have a diluted effect.

     Reclassification

     Certain amounts for the year ended December 31, 1997 have been reclassified
     to conform to the current year's presentation.


                                                                             12.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   REORGANIZATION TO MUTUAL HOLDING COMPANY FORM OF ORGANIZATION

The Company is a business corporation formed at the direction of the Bank under
the laws of the United States on June 30, 1998. On June 30, 1998: (i) the Bank
reorganized from a federally chartered mutual savings bank to a federally
chartered stock savings bank in the mutual holding company form of organization;
(ii) the Bank issued all of its outstanding capital stock to the Company; and
(iii) the Company consummated its initial public offering of common stock, par
value $1.00 per share (the "Common Stock"), by selling, at a price of $10.00 per
share, 1,686,955 and 146,691 shares of common stock to certain eligible account
holders of the Bank who had subscribed for such shares and the ESOP,
respectively, and by issuing 2,067,729 shares of common stock to Liberty Bancorp
MHC ("MHC"), a mutual holding company formed at the direction of the Bank
(collectively, the "Reorganization and Offering"). The Reorganization and
Offering resulted in net proceeds of $16.3 million, after expenses of $605,000.

In addition to the 20,000,000 authorized shares of Common Stock, the company
authorized 10,000,000 shares of preferred stock with a par value of $1.00 per
share (the "Preferred Stock"). The Board of Directors is authorized, subject to
any limitations by law, to provide for the issuance of the shares of Preferred
Stock in series, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restriction thereof. As of December 31, 1998, there were no shares of
Preferred Stock issued.

3.   SECURITIES AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                                             December 31, 1998
                                                    -----------------------------------------------------------------
                                                                            Gross Unrealized               
                                                     Amortized        -----------------------------        Carrying
                                                        Cost             Gains             Losses            Value
                                                    -----------       -----------       -----------       -----------
<S>                                                 <C>               <C>               <C>               <C>        
Mortgage-backed securities:
      Due in one year or less                       $   627,215             4,145       $      --         $   631,360
      Due after one year through five years           3,045,823            26,023              --           3,071,846
      Due after five years                           58,132,719           921,180            22,508        59,031,391
                                                    -----------       -----------       -----------       -----------

                                                    $61,805,757       $   951,348       $    22,508       $62,734,597
                                                    ===========       ===========       ===========       ===========

<CAPTION>
                                                                             December 31, 1997
                                                    -----------------------------------------------------------------
                                                                            Gross Unrealized               
                                                     Amortized        -----------------------------        Carrying
                                                        Cost             Gains             Losses            Value
                                                    -----------       -----------       -----------       -----------
<S>                                                 <C>               <C>               <C>               <C>        
Mortgage-backed securities:
      Due in one year or less                       $    71,353       $      --         $     1,360       $    69,993
      Due after one year through five years           5,113,106            25,322              --           5,138,428
      Due after five years                           47,080,077           636,835              --          47,716,912
                                                    -----------       -----------       -----------       -----------

                                                     52,264,536           662,157             1,360        52,925,333
U.S. Government Agencies
      due after five years                            1,000,000              --               7,813           992,187
                                                    -----------       -----------       -----------       -----------

                                                    $53,264,536       $   662,157       $     9,173       $53,917,520
                                                    ===========       ===========       ===========       ===========
</TABLE>


                                                                             13.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   SECURITIES AVAILABLE FOR SALE (Cont'd.)

The amortized cost and carrying value of securities at December 31, 1998 and
1997 are shown above by contractual final maturity. Actual maturities will
differ from contractual final maturities due to scheduled monthly payments
related to mortgage-backed securities and due to the borrowers having the right
to call or prepay obligations with or without call or prepayment penalties.

There were no sales of securities available for sale during the year ended
December 31, 1998. Proceeds from the sales of securities available for sale
during the year ended December 31, 1997 totalled $31,842,498. Gross gains of
$389,869 and gross losses of $261,153 were realized on those sales.

Securities available for sale with a carrying value of approximately $184,000
and $220,000 at December 31, 1998 and 1997, respectively, were pledged to secure
public funds.

4.   LOANS RECEIVABLE

                                                             December 31,
                                                   -----------------------------
                                                       1998             1997
                                                   ------------     ------------
Real estate mortgage:
       One-to-four family                          $166,573,554     $143,624,030
       Multi-family                                   1,199,558        1,257,488
       Commercial                                     3,366,711        1,906,160
                                                   ------------     ------------

                                                    171,139,823      146,787,678
                                                   ------------     ------------

Consumer:
       Home equity loans                              7,133,410        5,705,884
       Other                                            388,225          490,831
                                                   ------------     ------------

                                                      7,521,635        6,196,715
                                                   ------------     ------------

              Total loans                           178,661,458      152,984,393
                                                   ------------     ------------

Less:
       Allowance for loan losses                        760,496          723,319
       Deferred loan fees and discounts                  24,355           61,206
                                                   ------------     ------------

                                                        784,851          784,525
                                                   ------------     ------------

                                                   $177,876,607      152,199,868
                                                   ============     ============


                                                                             14.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   LOANS RECEIVABLE (Cont'd)

The Bank has granted loans to its officers and directors and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. Activity in such loans is as follows:

                                                      Year Ended December 31,
                                                  -----------------------------
                                                    1998                 1997
                                                  ---------           ---------
         Balance - beginning                      $ 570,000           $ 438,000
         New loans                                  143,000             323,000
         Repayments                                (292,000)            (19,000)
         Other changes                                 --              (172,000)
                                                  ---------           ---------

         Balance - ending                         $ 421,000           $ 570,000
                                                  =========           =========

Nonaccrual loans totalled approximately $593,000 and $909,000 at December 31,
1998 and 1997, respectively. Interest income on these loans, which is recorded
only when collected, amounted to approximately $6,000 and $36,000 for the years
ended December 31, 1998 and 1997, respectively. Had these loans been performing
in accordance with their original terms, interest income for the years ended
December 31, 1998 and 1997, would have been approximately $51,000 and $84,000,
respectively. The Bank is not committed to lend additional funds to the
borrowers whose loans have been placed on nonaccrual status.

The activity in allowance for loan losses follows:

                                                       Year Ended December 31,
                                                     --------------------------
                                                       1998             1997
                                                     ---------        ---------
         Balance - beginning                         $ 723,319        $ 533,840
         Provisions charged to operations               44,556          200,000
         Loans charged off, net of recoveries           (7,379)         (10,521)
                                                     ---------        ---------

         Balance - ending                            $ 760,496        $ 723,319
                                                     =========        =========

At December 31, 1998 and 1997, loans serviced for the benefit of others totalled
approximately $104,000 and $337,000, respectively.


                                                                             15.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   PREMISES AND EQUIPMENT

                                                            December 31,
                                                     --------------------------
                                                        1998           1997
                                                     -----------    -----------
Land                                                 $   181,386    $   181,386
Buildings and improvements                               628,179        628,179
Leasehold improvements                                 1,425,240      1,423,412
Furniture and equipment                                1,638,611      1,440,226
                                                     -----------    -----------
                                                       3,873,416      3,673,203
Less accumulated deprecation and amortization         (1,741,306)    (1,559,299)
                                                     -----------    -----------

                                                     $ 2,132,110    $ 2,113,904
                                                     ===========    ===========

6.   INTEREST RECEIVABLE

                                                              December 31,
                                                        ------------------------
                                                           1998          1997
                                                        ----------    ----------
Loans, net of allowance for uncollected
 interest of $35,469  (1998) and $134,403 (1997)        $  846,417    $  769,385
Securities available for sale                              468,167       449,997
Other interest-earnings assets                               1,413           596
                                                        ----------    ----------

                                                        $1,315,997    $1,219,978
                                                        ==========    ==========


                                                                             16.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   DEPOSITS

<TABLE>
<CAPTION>
                                                              December 31,
                                    --------------------------------------------------------------
                                             1998                                1997
                                    -------------------------        -----------------------------
                                    Weighted                         Weighted
                                     Average                          Average
                                      Rate          Amount              Rate             Amount
                                    --------     ------------        --------         ------------
<S>                                   <C>        <C>                    <C>           <C>         
Demand accounts:
    Non-interest bearing               -- %      $  4,398,178            -- %         $  3,375,404
    Money Market                      2.64%         2,586,665           2.69%            2,809,401
    NOW                               1.59%         9,995,226           1.50%            9,695,916
Savings and clubs                     3.00%        49,196,933           3.00%           45,168,430
Certificates of deposit               5.46%       157,093,282           5.52%          137,313,677
                                                 ------------                         ------------

                                      4.60%      $223,270,284           4.62%         $198,362,828
                                                 ============                         ============
</TABLE>

The scheduled maturities of certificates of deposit are as follows:

                                                              December 31,
                                                       -------------------------
                                                         1998              1997
                                                       --------         --------
                                                              (In Thousands)
One year or less                                       $106,338         $ 90,301
After one through three years                            49,541           45,697
After three years                                         1,214            1,316
                                                       --------         --------
                                                       $157,093         $137,314
                                                       ========         ========

At December 31, 1998 and 1997, certificates of deposit of $100,000 or more
totalled approximately $10,626,000 and $8,312,000, respectively.


                                                                             17.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   DEPOSITS (Cont'd.)

Interest expense on deposits consists of the following:

                                                        Year Ended December 31,
                                                       -------------------------
                                                          1998           1997
                                                       ----------     ----------
    Money Market                                       $   74,610     $   80,720
    NOW                                                   145,010        163,128
    Savings club                                        1,464,058      1,345,955
    Certificates of deposit                             8,158,431      7,344,414
                                                       ----------     ----------

                                                        9,842,109      8,934,217
    Less penalties for
     early withdrawal of certificates of deposits          25,219         25,950
                                                       ----------     ----------

                                                       $9,816,890     $8,908,267
                                                       ==========     ==========

8.   REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possible additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Bank.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to adjusted total assets (as defined). The following
tables present a reconciliation of capital per generally accepted accounting
principles ("GAAP") and regulatory capital and information as to the Bank's
capital levels at the dates presented:

                                                              December 31,
                                                       ------------------------
                                                         1998            1997
                                                       --------        --------
                                                            (In Thousands)

GAAP capital                                           $ 25,537        $ 16,541
Less: unrealized gain on securities
           available for sale                              (585)           (418)
                                                       --------        --------

Core and tangible capital                                24,952          16,123
Add: loan valuation allowance                               761             711
                                                       --------        --------

          Total regulatory capital                     $ 25,713        $ 16,834
                                                       ========        ========


                                                                             18.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   REGULATORY CAPITAL (Cont'.d)

<TABLE>
<CAPTION>
                                                                                 December 31, 1998
                                                      -----------------------------------------------------------------------------
                                                                                                                    To Be Well
                                                                                                                   Capitalized
                                                                                                                   Under Prompt
                                                                                     Minimum Capital                Corrective
                                                             Actual                    Requirements             Actions Provisions
                                                      --------------------         --------------------        --------------------
                                                       Amount        Ratio         Amount         Ratio        Amount         Ratio
                                                      -------        -----         ------         -----        ------         -----
<S>                                                   <C>            <C>           <C>             <C>         <C>            <C>   
Total Capital
  (to risk-weighted assets)                           $25,713        23.78%        $ 8,650         8.00%       $10,812        10.00%

Tier 1 Capital
  (to risk-weighted assets)                            24,952        23.08%           --           --            6,487         6.00%

Core (Tier 1) Capital
  (to adjusted total assets)                           24,952         9.60%         10,397         4.00%        12,996         5.00%

Tangible Capital
  (to adjusted total assets)                           24,952         9.60%          3,899         1.50%          --           --

<CAPTION>
                                                                                 December 31, 1997
                                                      -----------------------------------------------------------------------------
                                                                                                                    To Be Well
                                                                                                                   Capitalized
                                                                                                                   Under Prompt
                                                                                     Minimum Capital                Corrective
                                                             Actual                    Requirements             Actions Provisions
                                                      --------------------         --------------------        --------------------
                                                       Amount        Ratio         Amount         Ratio        Amount         Ratio
                                                      -------        -----         ------         -----        ------         -----
<S>                                                   <C>            <C>           <C>             <C>         <C>            <C>   
Total Capital
  (to risk-weighted assets)                           $16,834        17.69%        $ 7,614         8.00%       $ 9,517        10.00%

Tier 1 Capital
  (to risk-weighted assets)                            16,123        16.94%           --           --            5,710         6.00%

Core (Tier 1) Capital
  (to adjusted total assets)                           16,123         7.43%          8,680         4.00%        10,850         5.00%

Tangible Capital
  (to adjusted total assets)                           16,123         7.43%          3,255         1.50%          --           --
</TABLE>

As of March 31, 1997, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.

Dividend payments to the Company by the Bank are subject to the profitability of
the Bank and applicable regulations. The Bank did not pay any dividends to the
Company during the year ended December 31, 1998.


                                                                             19.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.   BENEFIT PLANS

Retirement plan

The Bank has a non-contributory pension plan covering all eligible employees.
The plan is a defined benefit plan which provides benefits based on a
participant's years of service and compensation. The Bank's funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes.

Plan assets are comprised primarily of stocks, bonds, mutual funds and bank
deposits. The following tables set forth the plan's funded status and components
of net periodic pension cost:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                             ------------------------------------
                                                                                1998                     1997
                                                                             -----------              -----------
<S>                                                                          <C>                      <C>        
    Actuarial present value of benefit obligations,
          including vested benefits of $1,034,596 and
          $943,459, respectively                                             $ 1,051,640              $   953,621
                                                                             ===========              ===========

     Projected benefit obligation - beginning                                $ 1,366,657              $ 1,066,754
           Service cost                                                           76,958                   77,439
           Interest cost                                                          90,832                   80,404
           Actuarial loss                                                        108,154                   99,248
           Settlements                                                          (168,395)                  (3,040)
           Plan amendments                                                          --                     45,852
                                                                             -----------              -----------

     Projected benefit obligation - ending                                     1,474,206                1,366,657
                                                                             -----------              -----------

     Plan assets at fair value - beginning                                     1,047,217                  808,689
           Actual return on plan assets                                           99,221                   97,001
           Employer contribution                                                 110,881                  144,567
           Settlements                                                          (168,395)                  (3,040)
                                                                             -----------              -----------

     Plan assets at fair value - ending                                        1,088,924                1,047,217
                                                                             -----------              -----------

     Projected benefit obligation in excess of fair value                        385,282                  319,440
     Unrecognized net transition obligation                                      (61,080)                 (72,902)
     Unrecognized loss                                                          (251,397)                (197,687)
     Unrecognized past service liability                                         (15,644)                 (17,412)
                                                                             -----------              -----------

     Accrued pension cost included in other liabilities                      $    57,161              $    31,439
                                                                             ===========              ===========
</TABLE>


                                                                             20.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.   BENEFIT PLANS (Cont'd.)

Retirement plan (Cont'd.)

     Net periodic pension cost for the plan included the following components:

                                                         Year Ended December 31,
                                                         ----------------------
                                                           1998          1997
                                                         ---------    ---------
    Service cost                                         $  76,958    $  77,439
    Interest cost                                           90,832       80,404
    Expected return on plan assets                         (83,174)     (68,660)
    Amortization of net transition obligation               11,822       11,822
    Amortization of unrecognized loss                        9,686        2,811
    Amortization of unrecognized past service liability      1,768       (1,777)
    Settlement charge                                       28,711         --
                                                         ---------    ---------

    Net periodic pension cost
     included in salaries and employee benefits          $ 136,603    $ 102,039
                                                         =========    =========

     Assumptions used in accounting for the plan are as follows:

                                                         Year Ended December 31,
                                                         ----------------------
                                                            1998        1997
                                                         ---------    ---------
    Discount rate                                            6.50%        6.75%
    Rate of increase in compensation                         4.50%        4.50%
    Long-term rate of return on plan assets                  8.00%        8.00%


                                                                             21.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.   BENEFIT PLANS (Cont'd.)

Postretirement benefits

Postretirement benefits offered by the Bank include health care and life
insurance coverage and are provided to all employees retiring after the
attainment of age 60 and fifteen years of service. The plan is unfunded. The
following tables set forth the plan's funded status and components of
postretirement benefit costs:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                         --------------------------------
                                                                           1998                   1997
                                                                         ---------              ---------
<S>                                                                      <C>                    <C>      
    Accumulated postretirement benefit
          obligation - beginning                                         $ 555,818              $ 531,441
              Service cost                                                  22,317                 21,004
              Interest cost                                                 36,703                 38,992
              Actuarial (gain)                                            (110,281)               (12,526)
              Premiums/claims paid                                         (24,134)               (23,093)
                                                                         ---------              ---------

    Accumulated postretirement benefit
          obligation - ending (includes benefit obligation for
             retirees and dependents of $253,686 and
            $274,758, respectively                                         480,423                555,818
               Employer contribution                                       (24,134)               (23,093)
               Premium paid                                                 24,134                 23,093
                                                                         ---------              ---------

    Accumulated and unfunded postretirement
       benefit obligation                                                  480,423                555,818
          Unrecognized transition obligation                              (396,905)              (421,711)
          Unrecognized gain                                                160,424                 50,143
                                                                         ---------              ---------

    Accrued expense included in other liabilities                        $ 243,942              $ 184,250
                                                                         =========              =========
</TABLE>

The following table sets forth the components of net periodic postretirement
benefits costs:

                                                         Year Ended December 31,
                                                         -----------------------
                                                           1998         1997
                                                          -------     -------
    Service cost                                          $22,317     $21,004
    Interest cost on
     accumulated postretirement benefit obligation         36,703      38,992
    Amortization of transition obligation                  24,806      24,806
                                                          -------     -------

    Net postretirement benefit cost included in
      compensation and employee benefits                  $83,826     $84,802
                                                          =======     =======


                                                                             22.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.   BENEFIT PLANS (Cont'd.)

     Assumptions used in accounting for the plan are as follows:

                                                         Year Ended December 31,
                                                         -----------------------
                                                           1998          1997
                                                           ----          ----
         Discount rate                                     6.50%         6.75%
         Rate of increase in compensation                  4.50%         4.50%

For the years ended December 31, 1998 and 1997, a medical cost trend rate of
6.50% and 7.00%, respectively, decreasing 0.5% per year thereafter until an
ultimate rate of 5.00% is reached, was used in the plan's valuation. Increasing
the assumed medical cost trend by one percent in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1998 and 1997,
by $76,000 and $91,000, respectively, and the aggregate of the service and
interest components of net periodic postretirement benefit cost for the years
ended December 31, 1998 and 1997, by $12,000 and $14,000, respectively.
Decreasing the assumed medical cost trend by one percent in each year would
decrease the accumulated postretirement benefit obligation as of December 31,
1998, by $63,000 and the aggregate of the service and interest components of net
periodic postretirement benefit cost for the year ended December 31, 1998 by
$10,000.

ESOP

Effective upon conversion, an ESOP was established for all eligible employees.
The ESOP used $1,466,910 of proceeds from a term loan from the Company to
purchase 146,691 shares of Company common stock in the initial offering. The
term loan from the Company to the ESOP is payable over 10 years. Interest on the
term loan is payable monthly, commencing on July 31, 1998, at the prime rate.
The Bank intends to make discretionary contributions to the ESOP which will be
equal to principal and interest payments required from the ESOP on the term
loan. Shares purchased with the loan proceeds were initially pledged as
collateral for the term loan and are held in a suspense account for future
allocation among participants. Contributions to the ESOP and shares released
from the suspense account will be allocated among the participants on the basis
of compensation, as described by the ESOP, in the year of allocation. During the
year ended December 31, 1998, the Bank made cash contributions of $133,330 to
the ESOP, of which $73,345 was applied to loan principal. At December 31, 1998,
the loan had an outstanding balance of $1,393,565.

The ESOP is accounted for in accordance with Statement of Position 93-6
"Accounting for Employee Stock Ownership Plans", which was issued by the
American Institute of Certified Public Accountants in November 1994.
Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP
shares in the consolidated statements of financial condition. As shares are
committed to be released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for net income per common share computations. Dividends on allocated
ESOP shares are recorded as a reduction of retained earnings. Contributions
equivalent to dividends on unallocated ESOP shares are recorded as a reduction
of debt. ESOP compensation expense was $70,597 for the year ended December 31,
1998.


                                                                             23.

<PAGE>

                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   BENEFIT PLANS (Cont'd.)

ESOP  (Cont'd.)

The ESOP shares are summarized as follows:

    Allocated shares                                                        --
    Shares committed to be released                                        7,335
    Unreleased shares                                                    139,356
                                                                      ----------
                                                                         146,691
                                                                      ==========
    Fair value of unreleased shares                                   $1,254,204
                                                                      ==========

10.  INCOME TAXES

The Bank qualifies as a thrift institution under the provisions of the Internal
Revenue Code and, therefore, must calculate its bad debt deduction using either
the experience or the specific charge off method. Retained earnings at December
31, 1998, includes approximately $3,009,000 of bad debt deductions, for which
income taxes have not been provided. If such amount is used for purposes other
than for bad debts losses, including distributions in liquidation, it will be
subject to income tax at the then current rate.

The components of income taxes are summarized as follows:

                                                      Year Ended December 31,
                                                   ----------------------------
                                                      1998               1997
                                                   ---------          ---------
    Current tax expense:
       Federal income                              $ 717,141          $ 827,699
       State income                                   67,678             73,752
                                                   ---------          ---------

                                                     784,819            901,451
                                                   ---------          ---------

    Deferred tax (benefit):
       Federal income                                (17,545)           (22,466)
       State income                                   (1,524)            (2,035)
                                                   ---------          ---------

                                                     (19,069)           (24,501)
                                                   ---------          ---------

                                                   $ 765,750          $ 876,950
                                                   =========          =========


                                                                             24.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  INCOME TAXES (Cont'd.)

The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                    ---------------------------------
                                                                      1998                    1997
                                                                    ---------               ---------
<S>                                                                 <C>                     <C>      
    Federal income tax expense                                      $ 732,862               $ 826,253
    Increases (reductions) in income taxes resulting from:
       New Jersey savings institution tax,
        net of federal income tax effect                               43,662                  47,333
       Other items, net                                               (10,774)                  3,364
                                                                    ---------               ---------

    Effective income tax                                            $ 765,750               $ 876,950
                                                                    =========               =========
</TABLE>

The tax effects of existing temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                         --------------------------------
                                                                           1998                   1997
                                                                         ---------              ---------
<S>                                                                      <C>                    <C>      
    Deferred tax assets

    Benefit plans                                                        $  88,084              $  84,742
    Deferred loan fees                                                      62,947                 80,311
    Uncollected interest                                                    13,061                 49,729
    Allowance for loss on loans                                            280,052                267,628
    Other items                                                               --                    1,433
                                                                         ---------              ---------

                                                                           444,144                483,843
                                                                         ---------              ---------
    Deferred tax liabilities

    Unrealized gain on securities available for sale                       343,671                235,074
    Depreciation                                                           125,692                128,936
    Bad debt deduction in excess of base year                              269,915                325,439
                                                                         ---------              ---------

                                                                           739,278                689,449
                                                                         ---------              ---------

    Net deferred tax liabilities included in other liabilities           $(295,134)             $(205,606)
                                                                         =========              =========
</TABLE>

Refundable income taxes of $14,606 at December 31, 1998 are included in other
assets. Current income tax liabilities of $192,516 at December 31, 1997 are
included in other liabilities.


                                                                             25.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and purchase securities. The
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statement of
financial condition. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments as it
does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend a customer as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but primarily includes residential real
estate.

Commitments to purchase securities are contracts for delayed delivery of
securities in which the seller agrees to make delivery at a specified future
date of a specified instrument, at a specified price or yield. Risks arise from
the possible inability of counterparties to meet the terms of their contracts
and from movements in securities values and interest rates.

The Bank has the following outstanding commitments to originate loans, expiring
in three months or less:

                                                            December 31,
                                                    ----------------------------
                                                       1998              1997
                                                    ----------        ----------
    Mortgage                                        $4,934,000        $1,950,000
    Fixed rate home equity loans                       297,000            74,000
    Home equity credit lines                              --              29,000
                                                    ----------        ----------

                                                    $5,231,000        $2,053,000
                                                    ==========        ==========

At December 31, 1998, of the $5,231,000 in commitments to originate loans,
$3,082,000 are for loans at fixed interest rates ranging from 6.50% to 7.375%
and $2,149,000 are for loans at adjustable interest rates with initial rates
ranging from 6.49% to 7.00%.

At December 31, 1997, the Bank had outstanding $150,000 in loan participation
purchase commitments. Loan participation purchase commitments represent
commitments to purchase participation interests in loans where the interest rate
will be set at the funding date based upon the Federal Home Loan Bank of New
York C.I.P. advance rates plus a margin.


                                                                             26.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  COMMITMENTS AND CONTINGENCIES (Cont'd.)

At December 31, 1998 and 1997, outstanding commitments related to unused home
equity lines of credit totalled approximately $3,141,000 and $3,098,000,
respectively. Commitments under home equity credit line programs represent
undisbursed funds from approved lines of credit. Unless specifically cancelled
by notice from the Bank, these are firm commitments to the respective borrowers
on demand. The lines of credit are secured by one-to-four family residential
property owned by the borrowers. The interest rate charged for any month on
funds disbursed under the Homeowners' Equity Credit Line Program is 1.75% above
the prime rate as most recently published in The Wall Street Journal prior to
the last business day of the month immediately preceding the month in which the
billing cycle begins. The interest rate charged under the Preferred Home Equity
Credit Line is fixed at 6.49% for one year, and thereafter is adjusted monthly
to a rate of 1.00% above the prime rate as discussed above.

Rentals, including related expenses, under long-term operating leases for
certain branch offices amounted to approximately $168,000 and $178,000 for the
years ended December 31, 1998 and 1997, respectively. At December 31, 1998, the
minimum rental commitments under all noncancellable leases with initial or
remaining terms of more than one year and expiring through March 31, 2002 are as
follows:

                    Year Ending                  Minimum
                    December 31,                   Rent
                    ------------                 --------
                       1999                      $175,000
                       2000                       150,000
                       2001                       105,000
                       2002                        27,000
                                                 --------
                                                 
                                                 $457,000
                                                 ========
                                     
See note 14 to consolidated financial statements.

The Bank also has, in the normal course of business, commitments for services
and supplies. Management does not anticipate losses on any of these
transactions.

The Bank is also a party to litigation which arises primarily in the ordinary
course of business. In the opinion of management, the ultimate disposition of
such litigation should not have a material effect on consolidated financial
position or operations.

12.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. Estimated fair values have been determined
using the best available data and estimation methodology suitable for each
category of financial instruments. The estimation methodologies used and
assumptions made in estimating fair values of financial instruments are set
forth below.


                                                                             27.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)

     Cash and cash equivalents and interest receivable

     The carrying amounts for cash and cash equivalents and interest receivable
     approximate fair value because they mature in three months or less.

     Securities

     The fair values for securities available for sale are based on quoted
     market or dealer prices, if available. If quoted market or dealer prices
     are not available, fair value is estimated using quoted market prices for
     similar securities.

     Loans receivable

     Fair value is estimated by discounting future cash flows, using the current
     rates at which similar loans would be made to borrowers with similar credit
     ratings and for the same remaining maturities, of such loans.

     Deposits

     The fair value of demand deposits, savings accounts and club accounts is
     equal to the amount payable on demand at the reporting date. The fair value
     of certificates of deposit is estimated by discounting future cash flows,
     using rates currently offered for deposits of similar remaining maturities.
     The fair value estimates do not include the benefit that results from the
     low-cost funding provided by deposit liabilities compared to the cost of
     borrowing funds in the market.

     Commitments

     The fair value of loan commitments is estimated using fees currently
     charged to enter into similar agreements taking into account the remaining
     terms of the agreements and the present creditworthiness of the
     counterparties. For fixed rate loan commitments, fair value also considers
     the difference between current levels of interest and the committed rates.


                                                                             28.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)

The carrying amounts and fair values of financial instruments are as follows:

<TABLE>
<CAPTION>
                                                                          December 31,
                                               ------------------------------------------------------------------
                                                           1998                                  1997
                                               -----------------------------         ----------------------------
                                               Carrying          Estimated           Carrying         Estimated
                                                Amount           Fair Value           Amount          Fair Value
                                               --------           ----------         --------          ----------
                                                                        (In Thousands)
<S>                                            <C>                <C>                <C>                <C>     
    Financial assets

    Cash and cash equivalents                  $ 13,824           $ 13,824           $  5,931           $  5,931
    Securities available for sale                62,735             62,735             53,918             53,918
    Loans receivable                            177,877            181,861            152,200            154,192
    Interest receivable                           1,316              1,316              1,220              1,220

    Financial liabilities

    Deposits                                    223,270            224,714            198,363            198,717

    Commitments

    To originate loans                            5,231              5,231              2,053              2,053
    Unused lines of credit                        3,141              3,141              3,098              3,098
    Loan participation purchase                    --                 --                  150                150
</TABLE>

The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

In addition, the fair value estimates were based on existing on-and-off balance
sheet financial instruments without attempting to value anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include premises and equipment and
advances from borrowers for taxes and insurance. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates.

Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.


                                                                             29.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUBSEQUENT EVENTS

     Repurchase of common stock

     The Company received the necessary regulatory approval to repurchase
     275,046 shares of common stock in the open market. As of February 12, 1999,
     186,500 shares were repurchased at an aggregate cost of $1,899,000.

     Recognition and Retention Plan

     On February 3, 1999, the Company established the 1999 Recognition and
     Retention Plan ("RRP") to provide key employees and non-employee directors
     of the Company and their affiliates with a proprietary interest in the
     Company in a manner designed to encourage such persons to remain with the
     Company and its affiliates. The Company intends to contribute shares or
     sufficient funds for the RRP to acquire 73,345 of authorized but unissued
     shares of common stock of the Company, which will be available to be
     awarded to employees and non-employee directors. Under the RRP, awards are
     granted in the form of common stock held by the RRP trust. The awards vest
     over a period of time at a rate not to exceed 20% per year beginning one
     year from the date of grant.

     Stock Option Plan

     The Company adopted the 1999 Stock Option Plan ("Stock Option Plan")
     authorizing the granting of stock options and limited rights to officers,
     employees and non-employee directors of the Company and the Bank to
     purchase 183,364 shares of Company common stock. Options granted under this
     plan may be either options that qualify as incentive stock options as
     defined in Section 422 of the Internal Revenue Code of 1986 as amended, or
     non-statutory options. Options will be exercisable on a cumulative basis in
     equal installments at the rate of 20% per year commencing one year from the
     date of grant.

     All options granted will be exercisable in the event the optionee
     terminates employment due to death or disability. The options expire ten
     years from the date of grant. The Company granted "limited rights" with
     respect to shares covered by options granted to officers and employees,
     which enables the optionee, upon a change of control of the Company or the
     Bank, to elect to receive cash for each option granted, equal to the
     difference between the exercise price of the option and the fair market
     value of the common stock on the date of exercise of the limited rights. In
     1999, the Company granted options for 55,000 shares to non-employee
     directors and 118,000 shares to officers and employees.

     Proposed Branch Locations

     The Bank received necessary regulatory approvals to open three new branches
     in Edison, Milltown and Monroe Township, New Jersey. The Bank also received
     regulatory approval to relocate its Linden, New Jersey branch.

     The Bank signed a twenty year capital lease for the new location of the
     Linden branch, effective March 1, 1999, at an annual lease payment of
     $150,000. The Bank also entered into a five year operating lease for the
     new Edison branch office, to be opened at an unspecified date, with an
     annual lease payment of $125,000, which will be effective when the property
     is ready for occupancy.


                                                                             30.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  PARENT ONLY FINANCIAL INFORMATION

The Company operates its wholly owned subsidiary, the Bank. The earnings of the
Bank are recognized by the Company under the equity method of accounting. The
following are the condensed financial statements for the Company (Parent Company
only) as of and for the period ended December 31, 1998. The Company had no
earnings prior to June 30, 1998.

     Condensed statement of financial condition



                                                                    December 31,
                                                                        1998
                                                                    ------------
         Assets

         Cash and cash equivalents                                  $   120,319
         Investment in Liberty Bank                                  25,536,981
         ESOP loan receivable                                         1,393,565
         Receivable from Liberty Bank                                 7,398,861
                                                                    -----------

              Total assets                                          $34,449,726
                                                                    ===========

         Liabilities and stockholder's equity

         Income taxes payable                                       $    16,668
         Stockholders' equity                                        34,433,058
                                                                    -----------

             Total liabilities and stockholders' equity             $34,449,726
                                                                    ===========


                                                                             31.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  PARENT ONLY FINANCIAL INFORMATION (Cont'd.)

     Condensed statement of income

                                                                From Inception
                                                               June 30, 1998 to
                                                                 December 31,
                                                                     1998
                                                               ----------------

         Interest                                                  $ 59,984
         Equity earnings in Liberty Bank                            738,151
                                                                   --------

                                                                    798,135

         Expenses                                                    13,012
                                                                   --------

         Income before income taxes                                 785,123
         Income taxes                                                16,668
                                                                   --------

         Net income                                                $768,455
                                                                   ========


                                                                             32.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  PARENT ONLY FINANCIAL INFORMATION (Cont'd.)

     Condensed statement of cash flows


                                                                 From Inception
                                                                June 30, 1998 to
                                                                  December 31,
                                                                      1998
                                                                ----------------

    Cash flow from operating activities

    Net income                                                    $    768,455
    Equity earnings on Liberty Bank                                   (738,151)
    Increase in other liabilities                                       16,668
                                                                  ------------

       Net cash provided by operating activities                        46,972
                                                                  ------------

    Investing activities

    Increase in loan receivable from Liberty Bank                   (7,398,861)
    Net increase in loan receivable from ESOP                       (1,393,565)
    Purchase of 100% of the outstanding stock of Liberty Bank       (8,865,770)
                                                                  ------------

       Net cash (used) in investing activities                     (17,658,196)
                                                                  ------------

    Financing activities

    Net proceeds from sale of common stock                          17,731,543
                                                                  ------------

       Net cash provided by financing activities                    17,731,543
                                                                  ------------

    Net increase in cash and cash equivalents                          120,319
    Cash and cash equivalents at beginning of period                      --

    Cash and cash equivalents at end of period                    $    120,319
                                                                  ============


                                                                             33.

<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  QUARTERLY FINANCIAL DATA (UNAUDITED

<TABLE>
<CAPTION>
Year Ended December 31, 1998

                                           First              Second               Third              Fourth
                                          Quarter             Quarter             Quarter             Quarter
                                          -------             -------             -------             -------
                                                       (In Thousands Except Per Share Data)
<S>                                        <C>                 <C>                 <C>                 <C>   
Interest income                            $3,753              $3,911              $4,201              $4,149
Interest expense                            2,305               2,451               2,448               2,613
                                           ------              ------              ------              ------

   Net interest income                      1,448               1,460               1,753               1,536

Provision for loan losses                      15                  15                  15                --
Non-interest income                            84                  73                  75                  79
Non-interest expense                        1,023               1,035               1,175               1,074
Income taxes                                  186                 172                 221                 187
                                           ------              ------              ------              ------

Net income                                 $  308              $  311              $  417              $  354
                                           ======              ======              ======              ======
Net income per common
 share: Basic/diluted                      N/A (1)             N/A (1)             $ 0.11              $ 0.09
                                           ======              ======              ======              ======

<CAPTION>
Year Ended December 31, 1997

                                           First              Second               Third              Fourth
                                          Quarter             Quarter             Quarter             Quarter
                                          -------             -------             -------             -------
                                                       (In Thousands Except Per Share Data)
<S>                                        <C>                 <C>                 <C>                 <C>   
Interest income                            $3,621              $3,768              $3,940              $3,754
Interest expense                            2,125               2,230               2,335               2,314
                                           ------              ------              ------              ------

   Net interest income                      1,496               1,538               1,605               1,440

Provision for loan losses                      50                  50                  50                  50
Non-interest income                            62                  82                 109                 189
Non-interest expense                          954                 961                 973               1,003
Income taxes                                  224                 238                 264                 151
                                           ------              ------              ------              ------

Net income                                 $  330              $  371              $  427              $  425
                                           ======              ======              ======              ======
Net income per common
 share:  Basic/diluted                     N/A (1)             N/A (1)             N/A (1)             N/A (1)
                                           ======              ======              ======              ======
</TABLE>

(1)  Liberty Bancorp, Inc. converted to stock form on June 30, 1998.


                                                                             34.


<PAGE>


                     LIBERTY BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.  IMPACT OF NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statements of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the derivative and the
resulting designation.

At the date of initial application of SFAS No. 133, an entity may transfer any
held-to-maturity security into the available-for-sale category or the trading
category. An entity will then be able in the future to designate a security
transferred into the available-for-sale category as the hedged item, or its
variable interest payments as the cash flow hedged transactions, in a hedge of
the exposure to changes in market interest rates, changes in foreign currency
exchange rates, or changes in the overall fair value. (SFAS No. 133 precludes a
held-to-maturity security from being designated as the hedged item in a fair
value hedge of market interest rate risk or the risk of changes in its overall
fair value and precludes the variable cash flows of a held-to-maturity security
from being designated as the hedged transaction in a cash flow hedge of market
interest rate risk). SFAS No. 133 provides that such transfers from the
held-to-maturity category at the date of initial adoption shall not call into
question an entity's intent to hold other debt securities to maturity in the
future.

SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999, the quarter ended March 31, 2000 for the Company and
subsidiaries. Initial application shall be as of the beginning of an entity's
fiscal quarter. Earlier application of all of the provisions of SFAS No. 133 is
permitted only as of the beginning of a fiscal quarter. Earlier application of
selected provisions or retroactive application of provisions of SFAS No. 133 are
not permitted.

Management of the Company has not yet determined when SFAS No. 133 will be
implemented, but does not believe the ultimate implementation of SFAS No. 133
will have a material impact on their consolidated financial position or results
of operations.


                                                                             35.


<PAGE>



                             STOCKHOLDER INFORMATION

Annual Meeting

The Annual Meeting of Stockholders will be held at 10:00 a.m. on May 12, 1999 at
the Columbia Country Club, 300 Colonia Boulevard, Colonia, New Jersey 07067.

Stock Listing

The Company's Common Stock trades over-the-counter on the Nasdaq National Market
under the symbol "LIBB."

Special Counsel

Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C.  20015

Independent Auditors

Radics & Co., LLC
55 U.S. Highway #46
Pine Brook, NJ 07058

Transfer Agent

ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road, Overpeck Centre
Ridgefield Park, NJ 07660

Annual Report on Form 10-KSB

A copy of the Company's Form 10-KSB for the fiscal year ended December 31, 1998,
will be  furnished  without  charge to  stockholders  as of April 6, 1999,  upon
written  request to the  Secretary,  Liberty  Bancorp,  Inc.,  1410 St.  Georges
Avenue, Avenel, New Jersey 07001.