**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-K**


**(Mark
      One)**


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


For
      the
      fiscal year ended September 30, 2006


OR


o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934.


For
      the
      transition period from  to  .





Commission
      file number: 0-51992





**LIBERTY BANCORP,
      INC.**  ****


(Exact
      name of registrant as specified in its charter)





**Missouri**
            **20-4447023**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)**16
                West Franklin Street, Liberty, Missouri**
            **64068**(Address
                of principal executive offices)
            (Zip
                Code)





Registrant’s
      telephone number, including area code: **(816)
      781-4822**





Securities
      registered pursuant to Section 12(b) of the Act





Title
                of each class
            Name
                of each exchange on which registeredCommon
                stock, par
            Nasdaq
                Capital Marketvalue
                $0.01





Securities
      registered pursuant to Section 12(g) of the Act: **None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act:


YES
o NO x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. YES o NO x





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





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer o Accelerated
      filer o Non-accelerated filer x .





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


YES
o NO
x





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates was $36,085,494, based upon the closing price ($10.25 per share)
      as quoted on the Nasdaq Capital Market on July 24, 2006, the day the
      registrant’s common stock commenced trading.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





The
      following lists the documents incorporated by reference and the Part of the
      Form
      10-K into which the document is incorporated:





1.
            Portions
                of the registrant’s Annual Report to Stockholders for the Fiscal Year
                ended September 30, 2006.(Parts
                II and III)





2.
            Portions
                of the Proxy Statement for registrant’s 2007 Annual Meeting of
                Stockholders. (Part III)







**INDEX**


**PAGE****PART
                  I**Item
                  1.
              Business
              1Item
                  1A.
              Risk
                  Factors
              21Item
                  1B.
              Unresolved
                  Staff Comments
              23Item
                  2.
              Properties
              24Item
                  3.
              Legal
                  Proceedings
              24Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              24**PART
                  II**Item
                  5.
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases
                  of Equity Securities
              25Item
                  6.
              Selected
                  Financial Data
              25Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operation
              25Item
                  7A.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              25Item
                  8.
              Financial
                  Statements and Supplementary Data
              25Item
                  9.
              Changes
                  In and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              25Item
                  9A.
              Controls
                  and Procedures
              25Item
                  9B.
              Other
                  Information
              25**PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the Registrant
              26Item
                  11.
              Executive
                  Compensation
              26Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              26Item
                  13.
              Certain
                  Relationships and Related Transactions
              26Item
                  14.
              Principal
                  Accountant Fees and Services
              26**Part
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              27**SIGNATURES**










*This
      report contains “forward-looking statements” within the meaning of the federal
      securities laws. These statements are not historical fact; rather, they are
      statements based on Liberty Bancorp, Inc.’s current expectations regarding its
      business strategies, intended results and future performance. Forward-looking
      statements are generally identified by use of the words “believe,” “expect,”
“intend,” “anticipate,” “estimate,” “project” or similar
      expressions.*





*Management’s
      ability to predict results or the actual effect of future plans or strategies
      is
      inherently uncertain. Factors which could have a material adverse effect on
      the
      operations of Liberty Bancorp, Inc. and its subsidiary include, but are not
      limited to, changes in interest rates, national and regional economic
      conditions, legislative and regulatory changes, monetary and fiscal policies
      of
      the U.S. Government, including policies of the U.S. Treasury and the Federal
      Reserve Board, the quality and composition of the loan or investment portfolios,
      demand for loan products, deposit flows, competition, demand for financial
      services in BankLiberty’s market area, changes in real estate market values in
      BankLiberty’s market area, changes in relevant accounting principles and
      guidelines and inability or third party service providers to
      perform.*





*These
      risks and uncertainties should be considered in evaluating forward-looking
      statements and undue reliance should not be placed on such statements. Except
      as
      required by applicable law or regulations, Liberty Bancorp, Inc. does not
      undertake, and specifically disclaims any obligation, to release publicly the
      result of any revisions that may be made to any forward-looking statements
      to
      reflect events or circumstances after the date of the statements or to reflect
      the occurrence of anticipated or unanticipated events.*





**PART
      I**





**Item
      1.**  **Business**





**General**




Liberty
      Bancorp, Inc. (the “Company” or “Liberty Bancorp”) was organized as a Missouri
      corporation at the direction of BankLiberty, formerly “Liberty Savings Bank,
      F.S.B.” (the “Bank” or “BankLiberty”), in February 2006 to become the holding
      company for the Bank upon the completion of the “second-step” mutual-to-stock
      conversion (the “Conversion”) of Liberty Savings Mutual Holding Company (the
“MHC”). The Conversion was completed on July 21, 2006. As part of the
      Conversion, the MHC merged into the Bank, thereby ceasing to exist, and Liberty
      Savings Bank, F.S.B. changed its name to “BankLiberty.” A total of 2,807,383
      shares of common stock were sold in the stock offering at the price of $10.00
      per share. In addition, a total of 1,952,754 **** shares
      of
      common stock were issued to the minority shareholders of the former Liberty
      Savings Bank, F.S.B. representing an exchange ratio of 3.5004 shares of Company
      common stock for each share of Liberty Savings Bank, F.S.B. common stock.
      Fractional shares in the aggregate, or 36 shares, were redeemed for cash. Total
      shares outstanding after the stock offering and the exchange totaled 4,760,137
      shares. Net proceeds of $25.6 million were raised in the stock offering,
      excluding $1.2 million which was loaned by the Company to a trust for the
      Employee Stock Ownership Plan (the “ESOP”), enabling it to finance 153,263
      shares of common stock in the offering and exchange. Direct offering costs
      totaled approximately $1.3 million. In addition, as part of the Conversion
      and
      dissolution of Liberty Savings Mutual Holding Company, the Bank received
      approximately $694,000 of cash previously held by the MHC.





The
      Company has no significant assets, other than all of the outstanding shares
      of
      the Bank and the portion of the net proceeds it retained from the Conversion,
      and no significant liabilities. The Company neither owns nor leases any
      property, but instead uses the premises, equipment and furniture of the
      Bank.





The
      Bank
      is a community-oriented financial institution dedicated to serving the financial
      service needs of consumers and businesses within its market area. We attract
      deposits from the general public and use these funds to originate loans secured
      by real estate located in our market area. Our real estate loans include
      construction loans, commercial real estate loans, and loans secured by
      single-family or multi-family properties. To a lesser extent, we originate
      consumer loans and commercial business loans.





The
      Bank
      is subject to extensive regulation, examination and supervision by the Office
      of
      Thrift Supervision, its primary federal regulator, and the Federal Deposit
      Insurance Corporation, its deposit insurer. The Bank has been a member of the
      Federal Home Loan Bank System since its inception and is a member of the Federal
      Home Loan Bank of Des Moines.




1





Our
      website address is www.banklibertykc.com .
      Information on our website should not be considered a part of this Form
      10-K.





**Market
      Area**





The
      Bank’s home office is located in the city of Liberty, Missouri, which is in Clay
      County. In addition to our main office, Bank Liberty operates five full-service
      branch offices - two in Kansas City and one each in Plattsburg, Platte City
      and
      Independence, Missouri.





We
      operate primarily in the northern portion of the Kansas City metropolitan area,
      which is experiencing relatively strong population and economic growth. The
      offices are located in four different counties, including two branches each
      in
      Clay and Platte Counties and single branches in Clinton and Jackson counties.
      All of the counties are included in the Kansas City metropolitan
      area.





The
      following table sets forth demographic information for 2006, according to a
      recent census report, regarding the counties in which our offices are
      located.





**County**
            
            **Approximate
                Population**
            
            **HouseholdGrowth
                Since 2000**
            
            **Per
                Capita Income**
            
            **Median
                Income**
            
            **Unemployment
                Rate**Clay
            
            
            202,000
            
            
            8
            %
            $
            23,144
            
            $
            53,536
            
            
            4.2
            %Platte
            
            
            82,000
            
            
            12
            
            
            26,356
            
            
            60,006
            
            
            3.7Clinton
            
            
            21,000
            
            
            9
            
            
            19,056
            
            
            44,459
            
            
            4.9Jackson
            
            
            663,000
            
            
            6
            
            
            20,788
            
            
            42,066
            
            
            5.5





During
      the past five years, the population for each county BankLiberty serves has
      increased by 1% or more on an annual basis, with the highest growth rate since
      2000 in Platte County. Since 2000, all of the counties experienced higher
      population growth than the State of Missouri, and Clay, Clinton and Platte
      counties grew faster than the United States population. In 2006, per capita
      income for the State of Missouri and the United States was $19,936 and $21,587,
      respectively, and median household income was $40,870 and $43,318,
      respectively.





Our
      market area is the Kansas City metropolitan area, which comprises 11 counties
      in
      Missouri and Kansas. The four counties that the Bank serves have a mix of
      industry groups and employment sectors, including services, manufacturing and
      transportation. In Clay County, top employers include Ford Motor Co., Cerner
      Corporation (health care services), a number of casinos and an amusement park.
      Clinton County’s top employers are within the services sector and include
      Cameron Regional Medical Center, Cameron R-1 (school district) and the county
      government. Platte County relies on the transportation sector of employment,
      attributable to the operations of Kansas City International Airport. Other
      top
      employers in Platte County include American Airlines (which operates a
      maintenance facility), Citicorp Credit Services Inc. and Harley-Davidson Inc.
      Jackson County, the most populous county served and the most urban, includes
      Kansas City and its downtown area. Manufacturing and services are the top
      employment sectors in Jackson County, including the federal government, Health
      Midwest, Hallmark Cards Inc. and DST Systems Inc. As of July 2006, all of the
      counties within the Bank’s market area, except Jackson and Clinton Counties, had
      unemployment rates below the state and national rates.





Our
      primary market area for deposits includes the communities in which we maintain
      our banking office locations. Our primary lending area is broader than our
      primary deposit market area and includes surrounding counties.





**Competition**





We
      face
      significant competition for the attraction of deposits and origination of loans.
      At June 30, 2006, which is the most recent date for which data is available
      from
      the FDIC, we held approximately 13%, .02%, 3.4% and 4.8% of the deposits in
      Clinton, Jackson, Platte and Clay Counties, respectively, which was the third
      largest market share out of eight financial institutions with offices in Clinton
      County, the 41 st largest
      market share out of 43 financial institutions with offices in Jackson County,
      the 12 th largest
      market share out of 19 financial institutions with offices in Platte County
      and
      the fifth largest market share out of 31 financial institutions with offices
      in
      Clay County. In addition, large national or regional bank holding companies
      operate in our market area. These institutions are significantly larger than
      us
      and, therefore, have significantly greater resources.




2




Our
      most
      direct competition for loans and deposits comes primarily from financial
      institutions in our market area, and, to a lesser extent, from other financial
      service providers, such as brokerage firms, credit unions, mortgage companies
      and mortgage brokers. Our main competitors include a number of significant
      independent banks. We also face competition for investors’ funds from money
      market funds and other corporate and government securities. Competition for
      loans also comes from the increasing number of non-depository financial service
      companies entering the lending market, such as insurance companies, securities
      companies and specialty finance companies.





We
      expect
      competition to increase in the future as a result of legislative, regulatory
      and
      technological changes and the continuing trend of consolidation in the financial
      services industry. Technological advances, for example, have lowered barriers
      to
      entry, allowed banks to expand their geographic reach by providing services
      over
      the Internet and made it possible for non-depository institutions to offer
      products and services that traditionally have been provided by banks. Changes
      in
      federal law permit affiliation among banks, securities firms and insurance
      companies, which promotes a competitive environment in the financial services
      industry. Competition for deposits and the origination of loans could limit
      our
      growth in the future.





**Lending
      Activities**





***General.***  Our
      loan
      portfolio consists primarily of real estate loans, which include real estate
      construction loans, single-family residential loans, commercial real estate
      loans and multi-family real estate loans. To a lesser extent, we also originate
      commercial business loans and consumer loans. These loans are originated
      primarily in Clay, Clinton, Platte and Jackson Counties in Missouri, which
      comprise the northern and eastern portions of the Kansas City, Missouri
      metropolitan area. We sell substantially all new, fixed-rate conforming
      single-family loans in the secondary market due to the current low interest
      rate
      environment.





***Construction
      Lending.*** Construction loans constitute the largest portion of our loan portfolio. At
      September 30, 2006, our loan portfolio included $99.8 million in loans secured
      by properties under construction, with such loans representing 43.3% of our
      total loan portfolio at that date. Our construction lending has primarily
      involved single-family residential lending to builders where the residences
      being built have not been sold prior to commencement of construction, known
      as
“spec” construction lending, and to custom homebuilders. In addition, we make
      loans for the acquisition and development of land and loans to fund the
      construction of commercial and multi-family buildings.





Our
      construction loans are secured by the following types of real
      estate:





**At
                September 30,****2006**
            
            **2005****(In
                thousands)**Single-family,
                spec
            
            $
            37,765
            
            $
            33,258Single-family,
                custom built
            
            
            12,252
            
            
            9,967Development
            
            
            23,961
            
            
            24,677Commercial
                (1)
            
            
            25,174
            
            
            11,110Other
            
            
            607
            
            
            967Total
            
            $
            99,759
            
            $
            79,979







(1)  Includes
      loans for the construction of multi-family residential properties.




3





We
      originate spec loans only to builders with experience building and selling
      spec
      single-family residences. Our
      spec
      residential mortgage construction loans generally provide for the payment of
      interest only during the construction phase, which is usually 12 months. Spec
      loans generally can be made with a maximum loan-to-value ratio of 85% of the
      appraised value or 100% of the cost of the project, whichever is less. Interest
      rates on residential construction loans are set at the prime rate plus a margin,
      and adjust with changes in the prime rate. We also generally charge a fee for
      residential construction loans. At September 30, 2006, loans for the
      construction of spec sale homes totaled $37.8 million, or 16.4% of our total
      loan portfolio and 37.9% of our portfolio of construction loans. At September
      30, 2006, the largest spec loan was for $718,250, $464,033 of which was
      outstanding. This loan was performing according to its terms at September 30,
      2006. At September 30, 2006, our largest outstanding indebtedness to a single
      builder for spec loans totaled $2.5 million. All loans to this builder were
      performing in accordance with their terms at September 30, 2006.





We
      also
      originate construction loans for customers to have their personal residences
      custom-built. We do not approve loans to customers acting as their own builder
      for their residences. A custom-build project loan requires the use of an
      approved qualified general contractor experienced in home building and written
      approval for permanent financing. Custom-build project loans can be made with
      a
      maximum loan-to-value ratio of 85%. At September 30, 2006, the largest
      outstanding custom-build project loan was $700,000, of which $9,064 is
      outstanding. This loan was performing according to its terms at September 30,
      2006.





We
      also
      make loans for the construction of non-single-family residential properties,
      including loans for the construction of multi-family residential properties
      such
      as condominiums and planned multi-family communities. We generally do not make
      non-residential construction loans in amounts that exceed a loan-to-value ratio
      of 80% where the value is determined by the fully improved, or completed
      project’s current appraised market value. These
      loans generally have an interest-only phase during construction, which is
      usually 12 to 18 months, and then convert to permanent financing. Disbursements
      of funds are at the sole discretion of the Bank and are based on the progress
      of
      construction. Interest rates and fees on non-residential construction projects
      are negotiated, but such loans generally carry adjustable rates of prime, plus
      a
      margin.





As
      part
      of our non-residential lending program, we offer loans to selected developers
      to
      acquire land and develop residential lots or commercial properties. At September
      30, 2006, such loans amounted to $24.0 million, or 10.4% of our total loan
      portfolio. We make the loans with terms from 12 to 24 months, depending on
      the
      size of the project, at interest rates equal to the prime rate plus a negotiated
      margin of between 0.25% and 1.0% and that adjust daily with changes in the
      prime
      rate. We generally originate these loans at a loan-to-value ratio of the lesser
      of 75% of the appraised value of the security property or 85% of the cost.
      Loans
      generally are structured so that the loan will be completely repaid after the
      developer has sold 75% of the lots being developed.





We
      require that development loans be reviewed by independent architects and
      engineers for verification of costs. Disbursements during the construction
      phase
      are based on monthly on-site inspections and approved certifications. We
      generally commit to provide the permanent financing on residential projects
      and
      usually require some minimum presale commitments. In the case of construction
      loans on commercial projects where we will provide the permanent financing,
      we
      usually require firm lease commitments on some portion of the property under
      construction from qualified tenants for a period covering the duration of the
      loan and usually also require rent assignments in an amount sufficient to
      satisfy debt service requirements. **** At
      September 30, 2006, our largest development loan outstanding was a $5.3 million
      loan for the development of a commercial retail project. This loan was
      originated in December 2005. At September 30, 2006, this loan was performing
      in
      accordance with its terms and conditions.





For
      the
      fiscal year ended September 30, 2006, we originated $74.8 million in
      construction loans. A substantial amount of our construction loans, except
      loans
      to homebuilders, are structured to convert to permanent loans upon completion
      of
      construction, and typically have an initial construction loan term of 12 to
      18
      months prior to converting to a permanent loan. Loan proceeds are disbursed
      during the construction phase according to a draw schedule based on the actual
      work completed. Construction projects are inspected by our officers and, if
      warranted by the complexity of the project, an independent contractor.
      Construction loans are underwritten on the basis of the estimated value of
      the
      property as completed and loan-to-value ratios are based on each project’s
      appraised value.




4





***Single-Family
      Residential Real Estate Lending.*** ** Historically, our primary lending activity was the origination of conventional
      mortgage loans on single-family residential dwellings. However, in recent years,
      we have emphasized the origination of real estate construction and commercial
      real estate loans. As of September 30, 2006, loans on single-family one- to
      four-unit, residential properties accounted for $42.6 million, or 18.5%, of
      our
      loan portfolio.





We
      originate fixed-rate fully amortizing loans with maturities ranging between
      10
      and 30 years. Management establishes the loan interest rates based on market
      conditions. We offer mortgage loans that conform to Fannie Mae and Freddie
      Mac
      guidelines, as well as jumbo loans, which presently are loans in amounts over
      $417,000. Substantially all fixed-rate, single-family loans are sold to
      secondary market investors.





We
      also
      currently offer adjustable-rate loans, with interest rates that adjust annually
      after a three-, five- or seven-year initial fixed period and with terms of
      up to
      30 years. Interest rate adjustments on such loans are generally limited to
      no
      more than 2% during any adjustment period and 6% over the life of the loan.
      Demand for adjustable-rate loans has been low during the past two years due
      to
      the relatively low interest rates available on fixed-rate loans.





We
      underwrite single-family residential loans with loan-to-value ratios of up
      to
      85%. In most instances, we require that a borrower obtains private mortgage
      insurance on loans that exceed 80% of the appraised value or sales price,
      whichever is less, of the secured property. We also require that title, hazard
      insurance and, if appropriate, flood insurance be maintained on all properties
      securing real estate loans made by us. An independent licensed appraiser
      generally appraises all properties.





Our
      single-family loan originations are generally for terms of 15, 20 or 30 years,
      amortized on a monthly basis with interest and principal due each month.
      Residential real estate loans often remain outstanding for significantly shorter
      periods than their contractual terms as borrowers may refinance or prepay loans
      at their option, without penalty. Therefore, average loan maturity is a function
      of, among other factors, the level of purchase and sale activity in the real
      estate market, prevailing interest rates and the interest rates payable on
      outstanding loans. Conventional residential mortgage loans we originate
      customarily contain “due-on-sale” clauses, which permit the Bank to accelerate
      the indebtedness of the loan upon transfer of ownership of the mortgaged
      property.





We
      retain
      some of the adjustable-rate mortgages we originate in order to reduce our
      exposure to changes in interest rates. However, there are unquantifiable credit
      risks resulting from potential increased costs to the borrower as a result
      of
      repricing of adjustable-rate mortgage loans. During periods of rising interest
      rates, the risk of default on adjustable-rate mortgage loans may increase due
      to
      the upward adjustment of interest cost to the borrower.





***Multi-Family
      and Commercial Real Estate Lending*** **.** We offer
      fixed-rate and adjustable-rate mortgage loans secured by income-producing
      multi-family and commercial real estate. Our multi-family and commercial real
      estate loans generally are secured by improved property such as office
      buildings, retail centers, apartment buildings and churches which are located
      in
      our primary market area. At September 30, 2006, loans secured by multi-family
      properties, *i.e* .,
      more
      than four units, amounted to $10.4 million, or 4.5% of our loan portfolio,
      and
      commercial (non-residential) real estate loans amounted to $53.4 million, or
      23.1% of our loan portfolio. In the aggregate, multi-family and commercial
      real
      estate lending totaled approximately $63.8 million, or 27.6%, of our total
      loan
      portfolio at that date.





Multi-family
      and commercial real estate loans generally amortize over a period of from 15
      to
      25 years but must be paid in full or refinanced in either three or five years.
      Multi-family and commercial real estate loans generally are made in amounts
      not
      exceeding 85% of the lesser of the appraised value or the purchase price of
      the
      property. While we offer adjustable-rate multi-family real estate loans and
      commercial real estate loans, most such loans have a fixed interest rate indexed
      to the three- or five-year treasury bill rate plus a margin. At September 30,
      2006, our largest commercial real estate loan had an outstanding balance of
      $3.2
      million, was secured by property for a truck stop and was performing in
      accordance with its terms. At September 30, 2006, our largest multi-family
      real
      estate loan had an outstanding balance of $1.6 million, was secured by thirteen
      duplexes and was performing in accordance with its terms.




5





***Consumer
      Lending*** **.** We have
      a consumer-lending program that primarily targets existing customers. The
      program emphasizes our commitment to community-based lending and is designed
      to
      meet the needs of consumers in our primary market area. Our consumer loans
      consist primarily of home equity loans and lines of credit, and, to a much
      lesser extent, automobile loans, loans secured by deposit accounts and other
      miscellaneous consumer loans. As of September 30, 2006, consumer loans
      constituted approximately $13.2 million, or 5.7%, of our total loan
      portfolio.





The
      procedures for underwriting consumer loans include an assessment of the
      applicant’s payment history and the ability to meet existing obligations and
      payments on the proposed loan. Although the applicant’s creditworthiness is a
      primary consideration, the underwriting process also includes an analysis of
      the
      applicant’s employment stability, capacity to pay debts, and a comparison of the
      value of the collateral, if any, to the proposed loan amount.





We
      generally offer home equity loans and home equity lines of credit with a maximum
      combined loan-to-value ratio of 100%, provided that loans in excess of 85%
      carry
      higher interest rates and are subject to stricter underwriting requirements. **** Home
      equity lines of credit have adjustable rates of interest that are indexed to
      the
      prime rate as reported in *The
      Wall Street Journal* . A
      home
      equity line of credit may be drawn down by the borrower for an initial period
      of
      10 years from the date of the loan agreement. During this period, the borrower
      has the option of paying, on a monthly basis, either principal and interest
      or
      only interest. At September 30, 2006, home equity loans and lines of credit
      totaled $11.7 million, or 5.1% of our loan portfolio.





The
      Bank
      makes loans secured by deposit accounts in amounts that may not exceed the
      account balance plus accrued interest at the due date. The interest rate is
      set
      at least 2% above the rate being paid on the collateral deposit account with
      the
      account pledged as collateral to secure the loan. At September 30, 2006, loans
      secured by deposit accounts totaled $211,405, or 0.1% of our loan
      portfolio.





Our
      automobile loans are generally underwritten in amounts up to 90% of the lesser
      of the purchase price of the automobile or, with respect to used automobiles,
      the loan value as published by the National Automobile Dealers Association.
      The
      terms of most such loans do not exceed 60 months. We require that the vehicles
      be insured and that we be listed as mortgagee on the insurance policy. At
      September 30, 2006, automobile loans totaled $608,431, or 0.3% of our loan
      portfolio.





***Commercial
      Lending*** **.** On a
      limited basis, we originate commercial business loans to small businesses in
      our
      market area. At September 30, 2006, commercial business loans totaled $11.3
      million, or 4.9% of our total loan portfolio. We extend commercial business
      loans on a secured basis that generally are secured by inventory, business
      equipment, marketable securities and/or bonds and cash surrender value life
      insurance. We originate both fixed- and adjustable-rate commercial loans with
      terms generally up to five years based on the purpose of the loan. Interest
      rates on adjustable-rate commercial loans are usually based on the prime rate
      as
      published in *The
      Wall Street Journal* ,
      plus a
      margin, and adjust as the prime rate changes. We also originate lines of credit
      to finance short-term working capital needs, with repayment from asset
      conversion in the normal course of business. Closed end credit lines are also
      provided for planned equipment purchases or other finite purposes.





When
      providing commercial business loans, we consider the borrower’s financial
      condition, the payment history on corporate and personal debt, debt service
      capabilities and actual and projected cash flows. In addition, the borrower’s
      inherent industry risks and the collateral value are analyzed. At September
      30,
      2006, our largest commercial loan was a $1.9 million loan secured by car hauling
      equipment. At September 30, 2006, this loan was performing in accordance with
      its terms.





***Loan
      Underwriting Risks***





*Construction
      Loans* *.* Construction financing is generally considered to involve a higher degree of
      risk of loss than long-term financing on improved, occupied real estate. Risk
      of
      loss on a construction loan depends largely upon the accuracy of the initial
      estimate of the property’s value at completion of construction and the estimated
      cost (including interest) of construction. During the construction phase, a
      number of factors could result in delays and cost overruns. If the estimate
      of
      construction costs proves to be inaccurate, we may be required to advance funds
      beyond the amount originally committed to permit completion of the building
      or
      project. If the estimate of value proves to be inaccurate, we may be confronted,
      at or before the maturity of the loan, with a building or project having a
      value
      that is insufficient to assure full repayment. If we are forced to foreclose
      on
      a building before or at completion due to a default, there can be no assurance
      that we will be able to recover all of the unpaid balance of, and accrued
      interest on, the loan as well as related foreclosure and holding
      costs.




6





*Adjustable-Rate
      Loans.* While we
      anticipate that adjustable-rate loans will better offset the adverse effects
      of
      an increase in interest rates as compared to fixed-rate mortgages, the increased
      mortgage payments required of adjustable-rate loan borrowers in a rising
      interest rate environment could cause an increase in delinquencies and defaults.
      The marketability of the underlying property also may be adversely affected
      in a
      high interest rate environment. In addition, although adjustable-rate mortgage
      loans help make our loan portfolio more responsive to changes in interest rates,
      the extent of this interest sensitivity is limited by the annual and lifetime
      interest rate adjustment limits.




*Multi-Family
      and Commercial Real Estate Loans.* Loans
      secured by multi-family and commercial real estate generally have larger
      balances and involve a greater degree of risk than single-family residential
      mortgage loans. Of primary concern in multi-family and commercial real estate
      lending is the project’s cash flow potential. Payments on loans secured by
      income properties often depend on successful operation and management of the
      properties. As a result, repayment of such loans may be subject to a greater
      extent than residential real estate loans to adverse conditions in the real
      estate market or the economy. To monitor cash flows on income properties, we
      generally require borrowers and loan guarantors, if any, to provide annual
      financial statements on multi-family and nonresidential real estate loans.
      In
      reaching a decision on whether to provide a multi-family or commercial real
      estate loan, we consider the net operating income of the property, the
      borrower’s expertise, credit history and profitability and the value of the
      underlying property. We have generally required that the properties securing
      these real estate loans have debt service coverage ratios (the ratio of net
      operating income before debt service to debt service) of at least 1.25x.
      Environmental surveys are obtained when circumstances suggest the possibility
      of
      the presence of hazardous materials.





*Consumer
      Loans.* Consumer
      loans may entail greater risk than do residential mortgage loans, particularly
      in the case of consumer loans that are unsecured or secured by assets that
      depreciate rapidly. In such cases, repossessed collateral for a defaulted
      consumer loan may not provide an adequate source of repayment for the
      outstanding loan and the remaining deficiency often does not warrant further
      substantial collection efforts against the borrower. In addition, consumer
      loan
      collections depend on the borrower’s continuing financial stability, and
      therefore are more likely to be adversely affected by job loss, divorce, illness
      or personal bankruptcy. Furthermore, the application of various federal and
      state laws, including bankruptcy and insolvency laws, may limit the amount
      that
      can be recovered on such loans.




*Commercial
      Loans.* Unlike
      residential mortgage loans, which generally are made on the basis of the
      borrower’s ability to make repayment from his or her employment or other income,
      and which are secured by real property the value of which tends to be more
      easily ascertainable, commercial loans are of higher risk and typically are
      made
      on the basis of the borrower’s ability to make repayment from the cash flow of
      the borrower’s business. As a result, the availability of funds for the
      repayment of commercial loans may depend substantially on the success of the
      business itself. Further, any collateral securing such loans may depreciate
      over
      time, may be difficult to appraise and may fluctuate in value.




***Loan
      Originations, Purchases and Sales.*** Loan
      originations are derived from a number of sources. Residential mortgage loan
      originations primarily come from walk-in customers and referrals by realtors,
      depositors and borrowers. We advertise our mortgage loan services primarily
      through local builder periodicals, billboard advertisements, and to a lesser
      extent, direct mailings. Commercial, commercial real estate and construction
      loans are typically derived from the business development efforts of the Bank’s
      commercial banking officers. Applications are taken at all offices but are
      processed in the Bank’s main office and submitted for approval.





We
      sell
      in the secondary market substantially all fixed-rate single-family mortgage
      loans we originate that conform to Fannie Mae and Freddie Mac guidelines. These
      loans are sold with servicing released. We also sell participation interests
      in
      loans to local financial institutions, primarily on the portion of loans that
      exceed our borrowing limits. We sold $8.75 million and $9.1 million of
      participation interests in loans during the fiscal years ended September 30,
      2006 and 2005, respectively. The participations sold in 2006 include $5.5
      million in participation loans sold from BankLiberty to our holding company,
      Liberty Bancorp, Inc.




7





In
      fiscal
      2006, we purchased participation interests, primarily in commercial real estate
      loans. The aggregate outstanding balance of all such purchased loans totaled
      $6.2 million at September 30, 2006. We perform our own underwriting analysis
      on
      each of our participation interests before purchasing such loans and therefore
      believe there is no greater risk of default on these obligations. However,
      in a
      purchased participation loan, we do not service the loan and thus are subject
      to
      the policies and practices of the lead lender with regard to monitoring
      delinquencies, pursuing collections and instituting foreclosure proceedings.
      We
      are permitted to review all of the documentation relating to any loan in which
      we participate, including any annual financial statements provided by a
      borrower. Additionally, we receive periodic updates on the loan from the lead
      lender. We have not historically purchased any whole loans. However, we would
      entertain doing so if a loan was presented to us that met our underwriting
      criteria and fit within our interest rate strategy.





***Loan
      Approval Procedures and Authority.*** Upon
      receipt of a loan application from a prospective borrower, a credit report
      and
      verifications are ordered to confirm specific information relating to the loan
      applicant’s employment, income and credit history. Where applicable, an
      appraisal of the real estate intended to secure the proposed loan is undertaken
      by an independent fee appraiser approved by the Bank. Our Board of Directors
      has
      the responsibility and authority for general supervision over our lending
      policies. The Board has established written lending policies and has delegated
      to the Officers Loan Committee (the “OLC”) the authority to approve all loan
      proposals exceeding individual authorities up to a maximum relationship amount
      of $750,000. The individual authority limits range from $15,000 to $250,000
      based on experience, lending history and seniority. The OLC consists of the
      Chief Executive Officer, the Chief Lending Officer, the Internal Auditor
      (non-voting member) and all Vice President loan officers.





The
      Board
      has further established a Directors Loan Committee (the “DLC”) as a joint
      Directors and Senior Officers committee. This committee has approval authority
      for all loan proposals in excess of the authority level given to the OLC and
      for
      all loans to directors and executive officers. The DLC has approval authority
      for individual loan proposals exceeding $500,000, or aggregate relationship
      proposals exceeding $750,000. The DLC consists of the non-officer members of
      the
      Board of Directors.





State
      certified or licensed appraisers must perform all real estate appraisals
      performed in connection with federally related transactions. Federally related
      transactions include real estate related financial transactions that the Office
      of Thrift Supervision regulates and which include mortgages made by the Bank.
      Office of Thrift Supervision regulations require that all federally related
      transactions having a transaction value of more than $250,000, other than those
      involving appraisals of one- to four-family residential properties, require
      an
      appraisal performed by a state certified appraiser. Single-family residential
      property financing may require an appraisal by a state certified appraiser
      if
      the amount involved exceeds $1.0 million or the financing involves a “complex”
one- to four-family property appraisal. Appraisals are generally not required
      for transactions when the transaction value is $250,000 or less, or when the
      transaction is not secured by real estate. In some instances, an appropriate
      evaluation of real estate may be required.





***Loans
      to One Borrower.*** At
      September 30, 2006, the maximum amount that the Bank could have loaned to any
      one borrower under the 30%, 25% and 15% limits of risk-based capital was
      approximately $11.5 million, $9.6 million and $5.7 million, respectively. At
      that date, our largest lending relationship totaled $5.8 million and consisted
      of loans secured by commercial real estate. The loans were performing according
      to their original terms at September 30, 2006. See “ *Regulation
      and Supervision—Lending Limits* ”
for
      further discussion of loans to one borrower lending limits.





***Loan
      Commitments.*** We issue
      commitments for fixed-rate and adjustable-rate mortgage loans conditioned upon
      the occurrence of certain events. Commitments to originate mortgage loans are
      legally binding agreement to lend to our customers.





***Interest
      Rates and Loan Fees.*** The
      interest rates we charge on mortgage loans are primarily determined by
      competitive loan rates offered in its market area. Mortgage loan interest rates
      reflect factors such as general market interest rate levels, the supply of
      money
      available to the financial institutions industry and the demand for such loans.
      These factors are in turn affected by general economic conditions, the monetary
      policies of the Federal government, including the Board of Governors of the
      Federal Reserve System (the “Federal Reserve Board”). In some cases, market
      interest rates have caused the Bank to modify borrowers’ interest rates, as an
      alternative to refinancing, in order to retain these loans in the Bank’s loan
      portfolio.




8





In
      addition to interest earned on loans, we receive fees in connection with loan
      commitments and originations, loan modifications, late payments and for
      miscellaneous services related to its loans. Income from these activities varies
      from period to period with the volume and type of loans originated, which in
      turn is dependent on prevailing mortgage interest rates and their effect on
      the
      demand for loans in the markets we serve.





**Investment
      Activities**





***Mortgage-Backed
      Securities.***  We
      invest
      in mortgage-backed securities primarily issued or guaranteed by the United
      States government or an agency thereof. Mortgage-backed securities represent
      a
      participation interest in a pool of single-family or multi-family mortgages,
      the
      principal and interest payments on which are passed from the mortgage
      originators, through intermediaries (generally quasi-governmental agencies)
      that
      pool and repackage the participation interests in the form of securities, to
      investors such as the Bank. Such quasi-governmental agencies, which guarantee
      the payment of principal and interest to investors, primarily include Ginnie
      Mae, Freddie Mac and Fannie Mae. Mortgage-backed securities typically are issued
      with stated principal amounts, and the securities are backed by pools of
      mortgages that have loans with varying interest rates and maturities. The
      underlying pool of mortgages can be composed of either fixed-rate or
      adjustable-rate mortgages. As a result, the interest rate risk characteristics
      of the underlying pool of mortgages, *i.e.* ,
      fixed-rate or adjustable-rate, are passed on to the certificate holder.
      Historically, we have invested in adjustable-rate and short-term (five- to
      seven-year maturities) mortgage-backed securities to supplement local loan
      originations, as well as to reduce interest rate risk exposure, because
      mortgage-backed securities are more liquid than mortgage loans. However, in
      recent years, we have purchased primarily five- to seven-year balloon issues
      and
      fixed-rate 15-year issues, and, to a lesser extent, collateralized mortgage
      obligations. At September 30, 2006, our mortgage-backed securities totaled
      $24.2
      million.





***Investment
      Securities.*** It is
      our policy to consistently maintain a liquid portfolio. Liquidity levels may
      be
      increased or decreased depending upon the yields on investment alternatives,
      our
      judgment as to the attractiveness of the yields then available in relation
      to
      other opportunities, our expectations of the level of yield that will be
      available in the future and our projections as to the short-term demand for
      funds to be used in our loan origination and other activities.





The
      general objectives of our investment policy are to (i) maintain liquidity levels
      sufficient to meet our operating needs, (ii) minimize interest rate risk by
      managing the repricing characteristics of our assets and liabilities, (iii)
      reduce credit risk by maintaining a balance of high quality diverse investments,
      (iv) absorb excess liquidity when loan demand is low and/or deposit growth
      is
      high, (v) maximize returns without compromising liquidity or creating undue
      credit or interest rate risk and (vi) provide collateral for pledging
      requirements. Our investment activities are conducted by senior management,
      specifically, the Chief Financial Officer, and supervised by the Board of
      Directors. The investment policy adopted by the Board currently provides for
      maintenance of an investment portfolio for the purposes of providing earnings,
      ensuring a minimum liquidity reserve and facilitating our asset/liability
      management objectives of limiting the weighted average terms to maturity or
      repricing of our interest-earning assets. In accordance with the policy, we
      have
      invested primarily in government and agency securities backed by the full faith
      and credit of the United States, and as discussed above, mortgage-backed
      securities and participation certificates issued by Ginnie Mae, Freddie Mac
      and
      Fannie Mae. To a lesser extent, we also invest in municipal
      securities.





For
      information regarding the carrying values and market values and other
      information for our mortgage-backed securities and other securities, see notes
      1, 3 and 4 of the notes to consolidated financial statements included in the
      2006 Annual Report to Stockholders.





**Deposit
      Activities and Other Sources of Funds**





***General.*** Deposits
      are a significant source of funds for lending and other investment purposes.
      In
      addition to deposits, we derive funds from loan principal repayments, interest
      payments and maturing investment securities. Loan repayments and interest
      payments are a relatively stable source of funds, while deposit inflows and
      outflows are significantly influenced by general interest rates and money market
      conditions. Borrowings may be used on a short-term basis to compensate for
      reductions in the availability of funds from other sources, or on a longer-term
      basis for general business purposes. During recent years, we have used primarily
      customer deposits to fund loans. We continuously monitor and evaluate the
      pricing of Federal Home Loan Bank of Des Moines advances as an alternative
      to
      retail deposits as a source of funds.




9





***Deposits.*** We
      attract principally from within our market area by offering a variety of deposit
      instruments, including accounts and certificates of deposit ranging in term
      from
      91 days to 60 months, as well as NOW, passbook and money market deposit
      accounts. Deposit account terms vary, principally on the basis of the minimum
      balance required, the time periods the funds must remain on deposit and the
      interest rate. We also offer individual retirement accounts.





Our
      policies are designed primarily to attract deposits from local residents. We
      do
      not presently accept deposits from brokers due to the volatility and rate
      sensitivity of such deposits. We establish interest rates, maturity terms,
      service fees and withdrawal penalties on a periodic basis. Determination of
      rates and terms are predicated upon funds acquisition and liquidity
      requirements, rates paid by competitors, growth goals and federal regulations.
      In order to increase our transaction accounts, we continuously evaluate these
      products and then develop new interest-bearing and noninterest-bearing checking
      accounts in order to appeal to varied customer needs. Automated teller machine
      services are offered as an additional incentive to attract transaction accounts.
      Also, we have increased advertising and marketing efforts in an attempt to
      attract such accounts.




***Borrowings.*** Retail
      deposits historically have been the primary source of funds for our lending
      and
      investment activities and for our general business activities. We also use
      advances from the Federal Home Loan Bank of Des Moines to supplement our supply
      of lendable funds and to meet deposit withdrawal requirements. The Federal
      Home
      Loan Bank of Des Moines functions as a central reserve bank providing credit
      for
      savings institutions and certain other member financial institutions. As a
      member, the Bank is required to own capital stock in the Federal Home Loan
      Bank
      of Des Moines and is authorized to apply for advances on the security of such
      stock and certain of its home mortgages and other assets (principally,
      securities which are obligations of, or guaranteed by, the United States)
      provided certain standards related to creditworthiness have been met. Advances
      from the Federal Home Loan Bank of Des Moines are secured by our stock in the
      Federal Home Loan Bank of Des Moines, a portion of mortgage loans and certain
      securities. Advances from the Federal Home Loan Bank of Des Moines totaled
      $34.1
      million at September 30, 2006, with a weighted average interest rate of 4.48%,
      and had maturity dates which varied up to September 2012.





We
      also
      borrow funds pursuant to the Federal Home Loan Bank’s Community Investment
      Program, which funds are used to make loans to low and moderate income borrowers
      at rates established pursuant to the program. Community Investment Program
      advances amounted to $2.1 million at September 30, 2006. During the year ended
      September 30, 2004, we borrowed $5.8 million pursuant to the Community
      Investment Program, which funds were used to make loans in federally declared
      disaster areas in Missouri. During the years ended September 30, 2006 and 2005,
      we did not borrow any funds pursuant to the Community Investment Program.





In
      addition, we borrow funds pursuant to agreements to repurchase. Securities
      sold
      under agreements to repurchase are customer funds that are invested overnight
      in
      mortgage-related securities. These types of accounts are often referred to
      as
      sweep accounts and reprice daily.





**Personnel**





As
      of
      September 30, 2006, the Bank had 67 full-time and 14 part-time employees. The
      employees are not represented by a collective bargaining group. We consider
      our
      relations with our employees to be excellent.




10





**Executive
      Officers**




The
      executive officers of the Company are elected annually by the Board of Directors
      and serve at the Board’s discretion. Unless otherwise stated, each executive
      officer has held his position for at least five years. The ages presented are
      as
      of September 30, 2006. The executive officers are:





**Name**
            ****
            **Age**
            ****
            **Position**Brent
                M. Giles
            
            39
            
            President
                and Chief Executive Officer of the Company and the BankMarc
                J. Weishaar
            
            45
            
            Senior
                Vice President and Chief Financial Officer of the Company and the
                BankMark
                E. Hecker
            
            40
            
            Senior
                Vice President and Chief Lending Officer of the
                Bank





*Brent
      M. Giles* has
      served as our President and Chief Executive Officer since September 2003. Prior
      to joining the Bank, from August 2001 to August 2003, Mr. Giles was President
      of
      Lawson Bank, Lawson, Missouri, a Missouri-based community bank. From May 2000
      to
      July 2001, Mr. Giles served as a financial services consultant with Rightworks
      Corporation, San Jose, California, and from April 1998 to May 2000, Mr. Giles
      served as Vice President of UMB Bank, Kansas City, Missouri. From 1989 to April
      1998, Mr. Giles was a financial institutions examiner with the Federal Deposit
      Insurance Corporation. Director since 2003.





*Marc
      J. Weishaar* is
      Senior Vice President and Chief Financial Officer of Liberty Bancorp and the
      Bank. He has served as Chief Financial Officer at the Bank since January 1995.
      From November 1991 to January 1995, Mr. Weishaar was Assistant Vice President,
      Compliance Officer of the Bank. From 1989 to November 1991, Mr. Weishaar was
      employed as a loan officer with UMB Bank, Kansas City, Missouri. From 1985
      to
      1989, Mr. Weishaar was employed in public accounting. He has a B.S. in Business
      Administration from the University of Kansas, Lawrence, Kansas and an M.B.A.
      from the University of Missouri, Kansas City.




*Mark
      E. Hecker* has
      served as the Bank’s Senior Vice President and Chief Lending Officer since June
      2004. From March 1996 to June 2004, Mr. Hecker served in various capacities,
      including Commercial Loan Officer and Vice President, Commercial Manager, in
      Lee’s Summit, Missouri with Commercial Federal Bank, Omaha, Nebraska. From 1990
      to March 1996, Mr. Hecker was a financial institutions examiner with the Federal
      Deposit Insurance Corporation. He has a B.S. in accounting from Central Missouri
      State University, Warrensburg, Missouri.





**Subsidiaries**





As
      of
      September 30, 2006, the Bank was the Company’s only subsidiary. The Bank is
      wholly owned by the Company.





**Regulation
      and Supervision**





***General.*** As a
      federally chartered savings bank, the Bank is subject to extensive regulation
      by
      the OTS. The lending activities and other investments of the Bank must comply
      with various federal regulatory requirements and the FDIC and to OTS regulations
      governing such matters as capital standards, mergers, establishment of branch
      offices, subsidiary investments and activities and general investment authority.
      The OTS periodically examines the Bank for compliance with various regulatory
      requirements and the FDIC also has the authority to conduct special examinations
      of insured institutions. The Bank must file reports with the OTS describing
      its
      activities and financial condition. The Bank is also subject to certain reserve
      requirements promulgated by the Federal Reserve Board. This supervision and
      regulation is intended primarily for the protection of depositors. Certain
      of
      these regulatory requirements are referred to below or appear elsewhere herein.
      This summary of regulatory requirements does not purport to be a complete
      description and is qualified in its entirety by reference to the actual statutes
      and regulations involved.





***Business
      Activities.*** The
      activities of federal savings banks are governed by federal law and regulations.
      These laws and regulations delineate the nature and extent of the activities
      in
      which federal savings banks may engage. In particular, certain lending authority
      for federal savings banks, *e.g.,* commercial,
      non-residential real property loans and consumer loans, is limited to a
      specified percentage of the institution’s capital or assets.




***Regulatory
      Capital Requirements.*** Under
      OTS capital standards, savings institutions must maintain “tangible” capital
      equal to 1.5% of adjusted total assets, “core” or “Tier 1” capital equal to 4%
      (or 3% if the institution is rated CAMELS 1 under the OTS examination rating
      system) of adjusted total assets and a combination of core and “supplementary”
capital equal to 8% of “risk-weighted” assets. In addition, the OTS regulations
      impose certain restrictions on savings institutions that have a total risk-based
      capital ratio that is less than 8%, a ratio of Tier 1 capital to risk-weighted
      assets of less than 4% or a ratio of Tier 1 capital to adjusted total assets
      of
      less than 4% (or 3% if the institution is rated CAMELS 1 under the OTS
      examination rating system). See “ *―Prompt
      Correc* *tive
      Regulatory Action* .”
The
      Bank is in compliance with all currently applicable capital requirements. For
      purposes of this regulation, Tier 1 capital has the same definition as core
      capital, *i.e.,* common
      stockholders’ equity (including retained earnings), noncumulative perpetual
      preferred stock and related surplus, minority interests in the equity accounts
      of fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged
      deposits and “qualifying supervisory goodwill.” Core capital is generally
      reduced by the amount of the savings institution’s intangible assets. Limited
      exceptions to the deduction requirement are provided for purchased mortgage
      servicing rights, purchased credit card relationships and qualifying supervisory
      goodwill held by an eligible savings institution. Tangible capital is given
      the
      same definition as core capital, but does not include qualifying supervisory
      goodwill and is reduced by the amount of all the savings institution’s
      intangible assets with only a limited exception for purchased mortgage servicing
      rights.




11





Both
      core
      and tangible capital are further reduced by an amount equal to a savings
      institution’s debt and equity investments in subsidiaries engaged in activities
      not permissible for national banks, other than subsidiaries engaged in
      activities undertaken as agent for customers or in mortgage banking activities
      and subsidiary depository institutions or their holding companies. At September
      30, 2006, the Bank had no such investments.





Adjusted
      total assets include a savings institution’s total assets as determined under
      generally accepted accounting principles, increased for certain goodwill amounts
      and by a prorated portion of the assets of unconsolidated includable
      subsidiaries in which the savings institution holds a minority interest.
      Adjusted total assets are reduced by the amount of assets that have been
      deducted from capital, the portion of savings institution’s investments in
      subsidiaries that must be netted against capital under the capital rules and,
      for purposes of the core capital requirement, qualifying supervisory goodwill.
      At September 30, 2006, the Bank’s adjusted total assets for purposes of core and
      tangible capital requirements were $283.8
      million .





In
      determining compliance with the risk-based capital requirement, a savings
      institution is allowed to include both core capital and supplementary capital
      in
      its total capital, provided the amount of supplementary capital does not exceed
      the savings institution’s core capital. Supplementary capital includes certain
      preferred stock issues, nonwithdrawable accounts and pledged deposits that
      do
      not qualify as core capital, certain approved subordinated debt, specified
      other
      capital instruments, a portion of the savings institution’s general loss
      allowances and up to 45% of unrealized gains of equity securities. Total core
      and supplementary capital are reduced by the amount of capital instruments
      held
      by other depository institutions pursuant to reciprocal arrangements and all
      equity investments. At September 30, 2006, the Bank had no equity investments
      for which OTS regulations require a deduction from total capital.





The
      risk-based capital requirement is measured against risk-weighted assets which
      equal the sum of each asset and the credit-equivalent amount of each off-balance
      sheet item after being multiplied by an assigned risk weight. Under the OTS
      risk-weighting system, one- to four-family first mortgages with specified
      loan-to-value ratios that are not more than 90 days past due are assigned a
      risk
      weight of 50%. Consumer and residential construction loans are assigned a risk
      weight of 100%. Mortgage-backed securities issued, or fully guaranteed as to
      principal and interest by the FNMA or FHLMC are assigned a 20% risk weight.
      Cash
      and U.S. Government securities backed by the full faith and credit of the U.S.
      Government (such as mortgage-backed securities issued by GNMA) are given a
      0%
      risk weight. As of September 30, 2006, the Bank’s risk-weighted assets were
      approximately $210.9
      million .




12





The
      table
      below provides information with respect to the Bank’s compliance with its
      regulatory capital requirements at September 30, 2006.





**Amount**
            
            **Percent
                of Assets (1)****(Dollars
                in thousands)**Tangible
                capital
            
            $
            36,117
            
            
            12.7
            %Tangible
                capital requirement
            
            
            4,257
            
            
            1.5
            %Excess
            
            $
            31,860
            
            
            11.2
            %Tier
                1/core capital
            
            $
            36,117
            
            
            12.7
            %Tier
                1/core capital requirement (2)
            
            
            11,351
            
            
            4.0
            %Excess
            
            $
            24,766
            
            
            8.7
            %Tier
                1/risk-based capital
            
            $
            36,117
            
            
            17.1
            %Tier
                1/risk-based capital requirement
            
            
            8,437
            
            
            4.0
            %Excess
            
            $
            27,680
            
            
            13.1
            %Total
                risk-based capital
            
            $
            38,261
            
            
            18.1
            %Total
                risk-based capital requirement
            
            
            16,874
            
            
            8.0
            %Excess
            
            $
            21,387
            
            
            10.1
            %







(1)
            Based
                upon adjusted total assets for purposes of the tangible capital and
                core
                capital requirements, and risk-weighted
                assets for purposes of the risk-based capital
                requirements.




(2)
                Reflects
                    the capital requirement that we must satisfy to avoid regulatory
                    restrictions that may be imposed pursuant to prompt corrective
                    action
                    regulations.





In
      addition to requiring generally applicable capital standards for savings
      institutions, the OTS is authorized to establish the minimum level of capital
      for a savings institution at such amount or at such ratio of capital-to-assets
      as the OTS determines to be necessary or appropriate for such institution in
      light of the particular circumstances of the institution. Such circumstances
      would include a high degree of exposure to interest rate risk, prepayment risk,
      credit risk, concentration of credit risk and certain risks arising from
      nontraditional activities. The OTS may treat the failure of any savings
      institution to maintain capital at or above such level as an unsafe or unsound
      practice and may issue a directive requiring any savings institution which
      fails
      to maintain capital at or above the minimum level required by the OTS to submit
      and adhere to a plan for increasing capital.





At
      September 30, 2006, the Bank exceeded all regulatory minimum capital
      requirements.





***Prompt
      Corrective Regulatory Action.*** ** Under
      the
      Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), the federal
      banking regulators are required to take prompt corrective action if an insured
      depository institution fails to satisfy certain minimum capital requirements,
      including a leverage limit, a risk-based capital requirement, and any other
      measure deemed appropriate by the federal banking regulators for measuring
      the
      capital adequacy of an insured depository institution. All institutions,
      regardless of their capital levels, are restricted from making any capital
      distribution or paying any management fees if the institution would thereafter
      fail to satisfy the minimum levels for any of its capital requirements. An
      institution that fails to meet the minimum level for any relevant capital
      measure (an “undercapitalized institution”) may be: (i) subject to increased
      monitoring by the appropriate federal banking regulator; (ii) required to submit
      an acceptable capital restoration plan within 45 days; (iii) subject to asset
      growth limits; and (iv) required to obtain prior regulatory approval for
      acquisitions, branching and new lines of businesses. The capital restoration
      plan must include a guarantee by the institution’s holding company that the
      institution will comply with the plan until it has been adequately capitalized
      on average for four consecutive quarters, under which the holding company would
      be liable up to the lesser of 5% of the institution’s total assets or the amount
      necessary to bring the institution into capital compliance as of the date it
      failed to comply with its capital restoration plan.




13





A
      “significantly undercapitalized” institution, as well as any undercapitalized
      institution that does not submit an acceptable capital restoration plan, may
      be
      subject to regulatory demands for recapitalization, broader application of
      restrictions on transactions with affiliates, limitations on interest rates
      paid
      on deposits, asset growth and other activities, possible replacement of
      directors and officers, and restrictions on capital distributions by any bank
      holding company controlling the institution. Any company controlling the
      institution may also be required to divest the institution or the institution
      could be required to divest subsidiaries. The senior executive officers of
      a
      significantly undercapitalized institution may not receive bonuses or increases
      in compensation without prior approval and the institution is prohibited from
      making payments of principal or interest on its subordinated debt. In their
      discretion, the federal banking regulators may also impose the foregoing
      sanctions on an undercapitalized institution if the regulators determine that
      such actions are necessary to carry out the purposes of the prompt corrective
      provisions. If an institution’s ratio of tangible capital to total assets falls
      below the “critical capital level” established by the appropriate federal
      banking regulator, the institution will be subject to conservatorship or
      receivership within specified time periods.





Under
      the
      implementing regulations, the federal banking regulators, including the OTS,
      generally measure an institution’s capital adequacy on the basis of its total
      risk-based capital ratio (the ratio of its total capital to risk-weighted
      assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
      risk-weighted assets) and leverage ratio (the ratio of its core capital to
      adjusted total assets). The following table shows the capital ratios required
      for the various prompt corrective action categories.


Adequately
              
              
              
              SignificantlyWell
                  Capitalized
              
              Capitalized
              
              Undercapitalized
              
              UndercapitalizedTotal
                  risk-based capital ratio
              
              10.0%
                  or more
              
              8.0%
                  or more
              
              Less
                  than 8.0%
              
              Less
                  than 6.0%Tier
                  1 risk-based capital ratio
              
              6.0%
                  or more
              
              4.0%
                  or more
              
              Less
                  than 4.0%
              
              Less
                  than 3.0%Leverage
                  ratio
              
              5.0%
                  or more
              
              4.0%
                  or more
              *
              Less
                  than 4.0%
              *
              Less
                  than 3.0%








*
      3.0% if
      institution has a composite 1 CAMELS rating.




A
      “critically undercapitalized” savings institution is defined as an institution
      that has a ratio of “tangible equity” to total assets of less than 2.0%.
      Tangible equity is defined as core capital plus cumulative perpetual preferred
      stock (and related surplus) less all intangibles other than qualifying
      supervisory goodwill and certain purchased mortgage servicing rights. The OTS
      may reclassify a well capitalized savings institution as adequately capitalized
      and may require an adequately capitalized or undercapitalized institution to
      comply with the supervisory actions applicable to institutions in the next
      lower
      capital category (but may not reclassify a significantly undercapitalized
      institution as critically undercapitalized) if the OTS determines, after notice
      and an opportunity for a hearing, that the savings institution is in unsafe
      or
      unsound condition or that the institution has received and not corrected a
      less-than-satisfactory rating for any CAMELS rating category.





***Qualified
      Thrift Lender Test.*** The Bank
      is subject to OTS regulations which use the concept of a qualified thrift lender
      (“QTL”). A savings institution that does not meet the Qualified Thrift Lender
      Test (“QTL Test”) must either convert to a bank charter or comply with the
      following restrictions on its operations: (i) the institution may not engage
      in
      any new activity or make any new investment, directly or indirectly, unless
      such
      activity or investment is permissible for both a national bank and savings
      association; (ii) the branching powers of the institution shall be restricted
      to
      those of a national bank located in the institution’s home state; and (iii)
      payment of dividends by the institution shall be subject to the rules regarding
      payment of dividends by a national bank. In addition, any company that controls
      a savings institution that fails to qualify as a QTL will be required to
      register as, and to be deemed, a bank holding company subject to all of the
      provisions of the Bank Holding Company Act of 1956 (the “BHCA”) and other
      statutes applicable to bank holding companies. Upon the expiration of three
      years from the date the institution ceases to be a QTL, it must cease any
      activity and dispose of any investment not permissible for a national
      bank.





To
      comply
      with the QTL test, a savings institution must either qualify as a “domestic
      building and loan association” under the Internal Revenue Code or maintain at
      least 65% of its “portfolio assets” in Qualified Thrift Investments. Portfolio
      assets are defined as total assets less intangibles, the value of property
      used
      by a savings institution in its business and liquidity investments in an amount
      not exceeding 20% of total assets. Qualified Thrift Investments include loans
      made to purchase, refinance, construct or improve residential or manufactured
      housing, home equity loans, mortgage-backed securities, education, credit card
      and small business loans and other specified investments.




14





A
      savings
      institution must maintain its status as a QTL on a monthly basis in nine out
      of
      every 12 months. A savings institution that fails to maintain QTL status will
      be
      permitted to requalify once, and if it fails the QTL test a second time, it
      will
      become immediately subject to all penalties as if all time limits on such
      penalties had expired.





At
      September 30, 2006, the percentage of the Bank’s portfolio assets invested in
      Qualified Thrift Investments was in excess of the percentage required to qualify
      the Bank under the QTL Test.





***Dividend
      Restrictions.*** **** Under
      OTS
      regulations, the Bank may not pay dividends on its capital stock if its
      regulatory capital would thereby be reduced below the amount then required
      for
      the liquidation account established for the benefit of certain depositors of
      the
      Bank at the time of the Bank’s conversion to stock form.





OTS
      regulations require that savings institutions submit notice to the OTS prior
      to
      making a capital distribution if (a) they would not be well capitalized after
      the distribution, (b) the distribution would result in the retirement of any
      of
      the institution’s common or preferred stock or debt counted as its regulatory
      capital, or (c) the institution is a subsidiary of a holding company. A savings
      institution must apply to the OTS to pay a capital distribution if (x) the
      institution would not be adequately capitalized following the distribution,
      (y)
      the institution’s total distributions for the calendar year exceeds the
      institution’s net income for the calendar year to date plus its net income (less
      distributions) for the preceding two years, or (z) the distribution would
      otherwise violate applicable law or regulation or an agreement with or condition
      imposed by the OTS. If neither the savings institution nor the proposed capital
      distribution meet any of the foregoing criteria, then no notice or application
      is required to be filed with the OTS before making a capital distribution.
      The
      OTS may disapprove or deny a capital distribution if in the view of the OTS,
      the
      capital distribution would constitute an unsafe or unsound
      practice.





Under
      the
      OTS’ prompt corrective action regulations, the Bank is also prohibited from
      making any capital distributions if, after making the distribution, the Bank
      would fail to meet any of the regulatory capital requirements.





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 the Company 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. See “ *Taxation.* ”





***Safety
      and Soundness Standards.*** By
      statute, each federal banking agency was required to establish safety and
      soundness standards for institutions under its authority. The federal banking
      agencies, including the OTS, have released Interagency Guidelines Establishing
      Standards for Safety and Soundness establishing deadlines for submission and
      review of safety and soundness compliance plans. The guidelines require savings
      institutions to maintain internal controls and information systems and internal
      audit systems that are appropriate for the size, nature and scope of the
      institution’s business. The guidelines also establish certain basic standards
      for loan documentation, credit underwriting, interest rate risk exposure and
      asset growth. The guidelines further provide that savings institutions should
      maintain safeguards to prevent the payment of compensation, fees and benefits
      that are excessive or that could lead to material financial loss, and should
      take into account factors such as comparable compensation practices at
      comparable institutions. Additionally, the federal banking agencies have
      established standards relating to the asset quality and earnings that the
      agencies determine to be appropriate. Under these guidelines, a savings
      institution should maintain systems, commensurate with its size and the nature
      and scope of its operations, to identify problem assets and prevent
      deterioration in those assets, as well as to evaluate and monitor earnings
      and
      ensure that earnings are sufficient to maintain adequate capital and reserves.
      If the OTS determines that a savings institution is not in compliance with
      the
      safety and soundness guidelines, it may require the institution to submit an
      acceptable compliance plan to the OTS within 30 day of receipt of a request
      for
      such a plan. Failure to submit or implement a compliance plan may subject the
      institution to regulatory sanctions. Management believes that the Bank
      substantially meets all the standard adopted in the interagency guidelines,
      and
      therefore does not believe that these regulatory standards have materially
      affected the Bank’s operations.





Federal
      banking regulations also require that savings institutions adopt and maintain
      written policies that establish appropriate limits and standards for extensions
      of credit that are secured by liens or interests in real estate or are made
      for
      the purpose of financing permanent improvements to real estate. These policies
      must establish loan portfolio diversification standards, prudent underwriting
      standards, including loan-to-value limits, that are clear and measurable, loan
      administration procedures and documentation, approval and reporting
      requirements. A savings institution’s real estate lending policy must reflect
      consideration of the Interagency Guidelines for Real Estate Lending Policies
      (the “Real Estate Lending Guidelines”) that have been adopted by the federal
      banking regulators. The Real Estate Lending Guidelines, among other item, call
      upon savings institutions to establish internal loan-to-value limits for real
      estate loans that are not in excess of the specified loan-to-value limits for
      the various types of real estate loans. The Real Estate Lending Guidelines
      state, however, that it may be appropriate in individual cases to originate
      or
      purchase loans with loan-to-value ratios in excess of the supervisory
      loan-to-value limits.




15


***Lending
      Limits.*** **** With
      certain limited exceptions, the maximum amount that a savings institution may
      lend to any borrower outstanding at one time may not exceed 15% of the
      unimpaired capital and surplus of the institution. Loans and extensions of
      credit fully secured by specified readily marketable collateral (having a market
      value at least equal to the funds outstanding) may comprise an additional 10%
      of
      unimpaired capital and surplus. Under the OTS Pilot Program, the Bank can
      originate certain one-to-four family loans and commercial real estate and
      non-real estate loans to any one borrower up to 25% of impaired capital and
      surplus of the institution. Savings institutions are additionally authorized
      to
      make loans to one borrower, for any purpose: (i) in an amount not to exceed
      $500,000; or (ii) by order of the Director of OTS, in an amount not to exceed
      the lesser of $30.0 million or 30% of unimpaired capital and surplus to develop
      residential housing, provided: (a) the purchase price of each single-family
      dwelling in the development does not exceed $500,000; (b) the savings
      institution is and continues to be in compliance with regulatory capital
      requirements; (c) the loans comply with applicable loan-to-value requirements,
      and; (d) the aggregate amount of loans made under this authority does not exceed
      150% of unimpaired capital and surplus, or (iii) loans to finance the sale
      of
      real property acquired in satisfaction of debts previously contracted in good
      faith, not to exceed 50% of unimpaired capital and surplus of the
      institution.





***Transactions
      with Related Parties.*** The
      Bank’s authority to engage in transactions with “affiliates” ( *e.g.* ,
      any
      company that controls or is under common control with an institution, including
      the Company and its non-savings institution subsidiaries) is limited by federal
      law. The aggregate amount of covered transactions with any individual affiliate
      is limited to 10% of the capital and surplus of the savings institution. The
      aggregate amount of covered transactions with all affiliates is limited to
      20%
      of the savings institution’s capital and surplus. Certain transactions with
      affiliates are required to be secured by collateral in an amount and of a type
      described in federal law. The purchase of low quality assets from affiliates
      is
      generally prohibited. The transactions with affiliates must be on terms and
      under circumstances that are at least as favorable to the institution as those
      prevailing at the time for comparable transactions with non-affiliated
      companies. In addition, savings institutions are prohibited from lending to
      any
      affiliate that is engaged in activities that are not permissible for bank
      holding companies and no savings institution may purchase the securities of
      any
      affiliate other than a subsidiary.





Our
      authority to extend credit to executive officers, directors and 10% shareholders
      (“insiders”), as well as entities such persons control, is limited. Federal law
      limits both the individual and aggregate amount of loans the Bank may make
      to
      insiders based, in part, on the Bank’s capital position and requires certain
      board approval procedures to be followed. Such loans are required to be made
      on
      terms substantially the same as those offered to unaffiliated individuals and
      do
      not involve more than the normal risk of repayment. There is an exception for
      loans made pursuant to a benefit or compensation program that is widely
      available to all employees of the institution and does not give preference
      to
      insiders over other employees. Loans to executive officers are further
      restricted as to types and amounts that are permissible.





***Enforcement*** *.* The OTS
      has primary enforcement responsibility over savings institutions and has the
      authority to bring actions against the institution and all
      institution-affiliated parties, including stockholders, and any attorneys,
      appraisers and accountants who knowingly or recklessly participate in wrongful
      action likely to have an adverse effect on an insured institution. Formal
      enforcement action may range from the issuance of a capital directive or cease
      and desist order to removal of officers and/or directors to institution of
      receivership, conservatorship or termination of deposit insurance. Civil
      penalties cover a wide range of violations and can amount to $25,000 per day,
      or
      even $1.0 million per day in especially egregious cases. The FDIC has the
      authority to recommend to the OTS Director that enforcement action be taken
      with
      respect to a particular savings institution. If action is not taken by the
      Director, the FDIC has authority to take such action under certain
      circumstances. Federal law also establishes criminal penalties for certain
      violations.




16




***Assessments.*** Savings
        institutions are required to pay assessments to the Office of Thrift Supervision
        to fund the agency’s operations. The general assessments, paid on a semi-annual
        basis, are computed based upon the savings institution’s (including consolidated
        subsidiaries) total assets, financial condition and complexity of its portfolio.
        The Office of Thrift Supervision assessments paid by the Bank for the fiscal
        year ended September 30, 2006 totaled $24,539.




***Deposit
      Insurance.*** The
      Bank
      is required to pay assessments based on a percent of its insured deposits to
      the
      Federal Deposit Insurance Corporation for insurance of its deposits. Under
      the
      Federal Deposit Insurance Act, the Federal Deposit Insurance Corporation is
      required to set semi-annual assessments for insured institutions at a level
      necessary to maintain the designated reserve ratio at 1.25% of estimated insured
      deposits, or at a higher percentage of estimated insured deposits that the
      Federal Deposit Insurance Corporation determines to be justified for that year
      by circumstances indicating a significant risk of substantial future losses
      to
      the fund.





Under
      the
      Federal Deposit Insurance Corporation’s risk-based deposit insurance assessment
      system, the assessment rate for an insured depository institution depends on
      the
      assessment risk classification assigned to the institution by the Federal
      Deposit Insurance Corporation, which is determined by the institution’s capital
      level and supervisory evaluations. Based on the data reported to regulators
      f or
      the
      date closest to the last day of the seventh month preceding the semi-annual
      assessment period, institutions are assigned to one of three capital groups―well
      capitalized, adequately capitalized or undercapitalized―using the same
      percentage criteria a s
      in the
      prompt corrective action regulations. See “ *― Prompt
      Corrective Regulatory Action.* ”
Within
      each capital group, institutions are assigned to one of three subgroups on
      the
      basis of supervisory evaluations by the institution’s primary supervisory
      authority and such other information as the Federal Deposit Insurance
      Corporation determines to be relevant to the institution’s financial condition
      and the risk posed to the deposit insurance fund. Subgroup A consists of
      financially sound institutions with only a few minor weaknesses. Subgroup B
      consists of institutions that demonstrate weaknesses that, if not corrected,
      could result in significant deterioration of the institution and increased
      risk
      of loss to the deposit insurance fund. Subgroup C consists of institutions
      that
      pose a substantial probability of loss to the deposit insurance fund unless
      effective corrective action is taken.





The
      deposit insurance assessment rates set by the Federal Deposit Insurance
      Corporation currently range from zero for “well-capitalized” institutions with
      the highest supervisory ratings to 0.27% of insured deposits for institutions
      in
      the highest risk-based premium category. In addition, Federal Deposit Insurance
      Corporation-insured institutions are required to pay assessments to the Federal
      Deposit Insurance Corporation to help fund interest payments on certain bonds
      issued by the Financing Corporation (“FICO”), an agency of the federal
      government established to finance takeovers of insolvent thrifts.





***Federal
      Deposit Insurance Reform Act of 2005.*** The
      Federal Deposit Insurance Reform Act of 2005 (the “Act”), signed by the
      President on February 8, 2006, revised the laws governing the federal deposit
      insurance system. The Act provides for the consolidation of the Bank and Savings
      Association Insurance Funds into a combined “Deposit Insurance Fund.”





Under
      the
      Act, insurance premiums are to be determined by the Federal Deposit Insurance
      Corporation based on a number of factors, primarily the risk of loss that
      insured institutions pose to the Deposit Insurance Fund. The legislation
      eliminates the current minimum 1.25% reserve ratio for the insurance funds,
      the
      mandatory assessments when the ratio fall below 1.25% and the prohibition on
      assessing the highest quality banks when the ratio is above 1.25%. The Act
      provides the FDIC with flexibility to adjust the new insurance fund’s reserve
      ratio between 1.15% and 1.5%, depending on projected losses, economic changes
      and assessment rates at the end of a calendar year.





The
      Act
      increased deposit insurance coverage limits from $100,000 to $250,000 for
      certain types of Individual Retirement Accounts, 401(k) plans and other
      retirement savings accounts. While it preserved the $100,000 coverage limit
      for
      individual accounts and municipal deposits, the FDIC was furnished with the
      discretion to adjust all coverage levels to keep pace with inflation beginning
      in 2010. Also, institutions that become undercapitalized will be prohibited
      from
      accepting certain employee benefit plan deposits.





The
      Act
      provided that the consolidation of the Bank and Savings Association Insurance
      Funds occur no later than the first day of the calendar quarter that begins
      90-days after the date of the Act’s enactment, *i.e.* ,
      July 1,
      2006. Pursuant to the Act, the FDIC consolidated the two funds on March 31,
      2006. The Act also states that the FDIC must promulgate final regulations
      implementing the remainder of its provisions not later than 270 days after
      its
      enactment.




17




At
      this
      time, management cannot predict the effect, if any, that the Act will have
      on
      insurance premiums paid by the Bank.





***Federal
      Home Loan Bank System.*** The Bank
      is a member of the Federal Home Loan Bank System, which consists of 12 district
      Federal Home Loan Banks subject to supervision and regulation by the Federal
      Housing Finance Board (“FHFB”). The Federal Home Loan Banks provide a central
      credit facility primarily for member institutions. As a member of the Federal
      Home Loan Bank of Des Moines, the Bank is required to acquire and hold shares
      of
      capital stock in the Federal Home Loan Bank of Des Moines. The Bank was in
      compliance with this requirement with investment in Federal Home Loan Bank
      of
      Des Moines stock at September 30, 2006 of $1,952,900 .
      The
      Federal Home Loan Bank of Des Moines serves as a reserve or central bank for
      its
      member institutions within its assigned district. It offers advances to members
      in accordance with policies and procedures established by the FHFB and the
      Board
      of Directors of the Federal Home Loan Bank of Des Moines. Long-term advances
      may
      be used for the purpose of funding loans to residential housing finance, small
      businesses, small farms and small agri-businesses. At September 30, 2006, the
      Bank had $34.1
      million in
      advances outstanding from the Federal Home Loan Bank of Des Moines. See
“ *Business―Deposit
      Activity and Other Sources of Funds―Borrowings* .”





***Federal
      Reserve System.*** Pursuant
      to regulations of the Federal Reserve Board, all FDIC-insured depository
      institutions must maintain average daily reserves against their transaction
      accounts. The Bank must maintain reserves equal to 3% on transaction accounts
      of
      over $7.8 million up to $48.3 million, plus 10% on the remainder. These
      requirements are subject to adjustment annually by the Federal Reserve Board.
      Because required reserves must be maintained in the form of vault cash or in
      a
      noninterest bearing account at a Federal Reserve Bank, the effect of the reserve
      requirement is to reduce the amount of the institution’s interest-earning
      assets. As of September 30, 2006, the Bank met its reserve requirements
      applicable at that time.





***Community
      Reinvestment Act.*** Under
      the
      Community Reinvestment Act (the “CRA”), as implemented by OTS regulations, a
      bank has a continuing and affirmative obligation, consistent with its safe
      and
      sound operation, to help meet the credit needs of its entire community,
      including low and moderate income neighborhoods. The CRA does not establish
      specific lending requirements or programs for financial institutions, nor does
      it limit an institution’s discretion to develop the types of products and
      services that it believes are best suited to its particular community. The
      CRA
      requires the OTS, in connection with its examination of a bank, to assess the
      institution’s record of meeting the credit needs of its community and to take
      the record into account in its evaluation of certain applications by the
      institution. The CRA also requires all institutions to make public disclosure
      of
      their CRA ratings. The Bank received a “satisfactory” rating as a result of its
      most recent CRA assessment.





**Regulation
      of the Holding Company**





***General.*** Liberty
      Bancorp is a nondiversified unitary savings and loan holding company. Under
      prior law, a unitary savings and loan holding company, such as Liberty Bancorp,
      was not generally restricted as to the types of business activities in which
      it
      may engage, provided that the Bank continued to be a qualified thrift lender.
      See “ *—Qualified
      Thrift Lender Test* .”
The
      Gramm-Leach-Bliley Act of 1999 provides that no company may acquire control
      of a
      savings institution after May 4, 1999 unless it engages only in the financial
      activities permitted for financial holding companies under the law or for
      multiple savings and loan holding companies as described below. Further, the
      Gramm-Leach-Bliley Act specifies that existing savings and loan holding
      companies may only engage in such activities. The Gramm-Leach-Bliley Act,
      however, grandfathered the unrestricted authority for activities with respect
      to
      unitary savings and loan holding companies existing prior to May 4, 1999, so
      long as the holding company’s savings institution subsidiary continues to comply
      with the QTL Test. Liberty Bancorp does not qualify for the grandfathering.
      Liberty Bancorp is therefore limited to activities permissible for financial
      holding companies under the Bank Holding Company Act of 1956 and activities
      permitted for multiple holding companies. These include activities that are
      financial in nature but exclude commercial activities. Upon any non-supervisory
      acquisition by Liberty Bancorp of another savings institution or savings bank
      that meets the qualified thrift lender test and is deemed to be a savings
      institution by the Office of Thrift Supervision, Liberty Bancorp would become
      a
      multiple savings and loan holding company (if the acquired institution is held
      as a separate subsidiary) and would generally be limited to activities
      permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
      Company Act, subject to the prior approval of the Office of Thrift Supervision,
      and certain activities authorized by Office of Thrift Supervision regulation.
      However, the Office of Thrift Supervision has issued an interpretation
      concluding that multiple savings and loan holding companies may also engage
      in
      activities permitted for financial holding companies.




18




A
      savings
      and loan holding company is prohibited from, directly or indirectly, acquiring
      more than 5% of the voting stock of another savings institution or savings
      and
      loan holding company, without prior written approval of the Office of Thrift
      Supervision and from acquiring or retaining control of a depository institution
      that is not insured by the Federal Deposit Insurance Corporation. In evaluating
      applications by holding companies to acquire savings institutions, the Office
      of
      Thrift Supervision considers the financial and managerial resources and future
      prospects of the company and institution involved, the effect of the acquisition
      on the risk to the deposit insurance funds, the convenience and needs of the
      community and competitive factors.





The
      Office of Thrift Supervision may not approve any acquisition that would result
      in a multiple savings and loan holding company controlling savings institutions
      in more than one state, subject to two exceptions: (i) the approval of
      interstate supervisory acquisitions by savings and loan holding companies and
      (ii) the acquisition of a savings institution in another state if the laws
      of
      the state of the target savings institution specifically permit such
      acquisitions. The states vary in the extent to which they permit interstate
      savings and loan holding company acquisitions.





Although
      savings and loan holding companies are not currently subject to specific
      regulatory capital requirements or specific restrictions on the payment of
      dividends or other capital distributions, federal regulations do prescribe
      such
      restrictions on subsidiary savings institutions as described below. The Bank
      must notify the Office of Thrift Supervision 30 days before declaring any
      dividend to Liberty Bancorp. In addition, the financial impact of a holding
      company on its subsidiary institution is a matter that is evaluated by the
      Office of Thrift Supervision and the agency has authority to order cessation
      of
      activities or divestiture of subsidiaries deemed to pose a threat to the safety
      and soundness of the institution.





***Acquisition
      of the Company*** **.** Under
      the
      Federal Change in Bank Control Act, a notice must be submitted to the Office
      of
      Thrift Supervision if any person (including a company), or group acting in
      concert, seeks to acquire “control” of a savings and loan holding company or
      savings association. Under certain circumstances, a change of control may occur,
      and prior notice is required, upon the acquisition of 10% or more of Liberty
      Bancorp’s outstanding voting stock, unless the Office of Thrift Supervision has
      found that the acquisition will not result in a change of control of Liberty
      Bancorp. Under the Change in Bank Control Act, the Office of Thrift Supervision
      has 60 days from the filing of a complete notice to act, taking into
      consideration certain factors, including the financial and managerial resources
      of the acquirer and the anti-trust effects of the acquisition. Any company
      that
      acquires control would then be subject to regulation as a savings and loan
      holding company.





**Federal
      and State Taxation**





***General.*** **** The
      Bank
      and Company file a consolidated tax return and report their taxable income
      on a
      fiscal year basis ending September 30, using the accrual method of accounting.
      The federal income tax laws apply to us in the same manner as other corporations
      with some exceptions, including particularly our reserve for bad debts discussed
      below. The following discussion of tax matters is intended only as a summary
      and
      does not purport to be a comprehensive description of the tax rules applicable
      to us. Our last federal audit by the Internal Revenue Service (the “IRS”) was
      for the fiscal year ended September 30, 1993 and was audited in 1995. As a
      result of this audit, the IRS disallowed certain minor deductions.





***Bad
      Debt Reserves.*** For
      fiscal years beginning before June 30, 1996, thrift institutions that qualified
      under certain definitional test and other conditions of the Internal Revenue
      Code were permitted to use certain favorable provisions to calculate their
      deductions from taxable income for annual additions to their bad debt reserve.
      A
      reserve could be established for bad debts on qualifying real property loans,
      generally secured by interests in real property improved or to be improved,
      under the percentage of taxable income method or the experience method. The
      reserve for nonqualifying loans was computed using the experience method.
      Federal legislation enacted in 1996 repealed the reserve method of accounting
      for bad debts and the percentage of taxable income method for tax years
      beginning after 1995 and require savings institutions to recapture or take
      into
      income certain portions of their accumulated bad debt reserves. Approximately
      $3.6 million of our accumulated bad debt reserves would not be recaptured into
      taxable income unless BankLiberty makes a “non-dividend distribution” to Liberty
      Bancorp as described below.




19


***Distributions.*** If
      BankLiberty makes “non-dividend distributions” to Liberty Bancorp, such
      distributions will be considered to have been made from BankLiberty’s
      unrecaptured tax bad debt reserve as of September 30, 1988 (the “base year
      reserve”), to the extent thereof and then from BankLiberty’s supplemental
      reserve for losses on loans, to the extent of those reserves, and an amount
      based on the amount distributed, but not more than the amount of those reserves,
      will be included in BankLiberty’s taxable income. Non-dividend distributions
      include distributions in excess of the Bank’s current and accumulated earnings
      and profits, distributions in redemption of stock and distributions in partial
      or complete liquidation. Dividends paid out of the Bank’s current or accumulated
      earnings and profits will not be included in the Bank’s income.





The
      amount of additional income created from a non-dividend distribution is equal
      to
      the lesser of the base year reserve and supplemental reserve for losses on
      loans
      or an amount that, when reduced by the tax attributable to the income, is equal
      to the amount of the distribution. Thus, in some situations, approximately
      one
      and one-half times the non-dividend distribution would be includable in gross
      income for federal income tax purposes, assuming a 34% federal corporate income
      tax rate. Liberty Savings Bank does not intend to pay dividends that would
      result in the recapture of any portion of the bad debt reserves.





***Corporate
      Alternative Minimum Tax.*** ****** The Code
      imposes a tax on alternative minimum taxable income at a rate of 20%. Only
      90%
      of alternative minimum taxable income can be offset by alternative minimum
      tax
      net operating loss carryovers of which the Bank currently has none. Alternative
      minimum taxable income is also adjusted by determining the tax treatment of
      certain items in a manner that negates the deferral of income resulting from
      the
      regular tax treatment of those items. Alternative minimum tax is due when it
      exceeds the regular income tax. The Bank has not had a liability for a tax
      on
      alternative minimum taxable income during the past five years.





***Dividends
      Received Deduction and Other Matters.*** The
      Company may exclude from its income 100% of dividends received from the Bank
      as
      a member of the same affiliated group of corporations. The corporate dividends
      received deduction is generally 70% in the case of dividends received from
      unaffiliated corporations with which the Company and the Bank will not file
      a
      consolidated tax return, except that if the Company or the Bank own more than
      20% of the stock of a corporation distributing a dividend, then 80% of any
      dividends received may be deducted.





**State
      Taxation**





***Missouri
      Taxation.*** The
      Company and Bank file Missouri income tax returns. Missouri-based thrift
      institutions are subject to a special financial institutions tax, based on
      net
      income without regard to net operating loss carryforwards, at the rate of 7%
      of
      net income. This tax is in lieu of certain other state taxes on thrift
      institutions, on their property, capital or income, except taxes on tangible
      personal property owned by the Bank and held for lease or rental to others
      and
      on real estate, contributions paid pursuant to the Unemployment Compensation
      Law
      of Missouri, social security taxes, sales taxes and use taxes. In addition,
      the
      Bank is entitled to credit against this tax all taxes paid to the State of
      Missouri or any political subdivision except taxes on tangible personal property
      owned by the Bank and held for lease or rental to others and on real estate,
      contributions paid pursuant to the Unemployment Compensation Law of Missouri,
      social security taxes, sales and use taxes and taxes imposed by the Missouri
      Financial Institutions Tax Law. Missouri thrift institutions are not subject
      to
      the regular state corporate income tax. In January 2006, the Bank completed
      a
      routine sales/use tax return audit for the year ended June 30, 2005, under
      which
      we were found to owe no additional funds. The Company is subject to the regular
      state corporate income tax at the rate of 6.25% of taxable income derived from
      Missouri sources.




20


**ITEM
      1A.** **Risk
      Factors**





**Our
      emphasis on construction, commercial and multi-family real estate lending and
      commercial business lending may expose us to increased lending
      risks.**





At
      September 30, 2006, we had $99.8 million in real estate construction loans,
      $53.4 million in commercial real estate loans, $10.4 million in multi-family
      loans and $11.3 million in commercial business loans, which represented 43.25%,
      23.13%, 4.52% and 4.89%, respectively, of our total loan portfolio.
 Moreover, we intend to increase our emphasis on commercial real estate,
      multi-family, commercial and multi-family real estate construction and
      commercial business lending. These types of loans generally expose a lender
      to
      greater risk of non-payment and loss than single-family residential mortgage
      loans because repayment of the loans often depends on the successful operation
      of the property, the income stream of the borrowers and, for construction loans,
      the accuracy of the estimate of the property’s value at completion of
      construction and the estimated cost of construction.  Such loans typically
      involve larger loan balances to single borrowers or groups of related borrowers
      compared to single-family residential mortgage loans.  Commercial business
      loans expose us to additional risks since they typically are made on the basis
      of the borrower’s ability to make repayments from the cash flow of the
      borrower’s business and are secured by non-real estate collateral that may
      depreciate over time. Nonperforming assets totaled $5.8 million, or 2.02% of
      total assets, at September 30, 2006, which was an increase of $3.0 million
      or
      9.84%, from $2.8 million, or 1.20% of total assets, at September 30, 2005.
      Nonperforming assets at September 30, 2006 consisted of $1.5 million in
      non-accrual loans, $2.7 million in other impaired loans, $1.6 million in
      foreclosed real estate and a $58,000 accruing loan past due 90 days or more.
      At
      September 30, 2006, non-accrual loans consisted of $828,000 in single-family
      and
      multi-family loans, $304,000 in real estate construction loans and $349,000
      in
      consumer loans. Other impaired loans totaling $2.7 million at September 30,
      2006
      were secured by 15 single-family spec homes in various states of completion
      and
      two lots. In November 2006, after principal repayments on these loans, 16
      remaining properties totaling $2.3 million were foreclosed.





During
      the year ended September 30, 2004, $640,000 of our provision for loan losses
      was
      related to certain identified loans totaling $2.9 million and secured by
      single-family investment properties. We discovered irregularities in these
      loans
      that suggested the collateral may not have been sufficient to properly secure
      the amount owed. The loans involved six different borrowers where we loaned
      funds for the purchase of single-family investment properties. Five of the
      borrowers purchased the collateral properties from a common seller. These loans
      were impaired loans at September 30, 2004. In 2005, the Bank received payoffs
      at
      an average discount of 4.9% for $1.1 million of the impaired loans and acquired
      through foreclosure an additional $1.5 million of the original loans totaling
      $2.9 million in loans. Of the $1.5 million in impaired loans foreclosed in
      2005,
      $1.3 million have been sold through September 30, 2006. At September 30, 2006,
      we had $157,000 in foreclosed real estate attributable to these
      loans.





At
      September 30, 2006, we had loans totaling $545,000 which were not currently
      classified as non-accrual, 90 days past due, restructured or impaired but where
      known information about possible credit problems of borrowers caused management
      to have serious concerns as to the ability of the borrowers to comply with
      present loan repayment terms and would result in disclosure as non-accrual,
      90
      days past due, restructured or impaired. At September 30, 2006, these loans
      consisted of two spec single-family construction loans and one loan secured
      by
      three single-family rental properties.





**Our
      loan portfolio has significant concentrations among a small number of borrowers;
      as a result, we could be adversely affected by difficulties experienced by
      a
      small number of borrowers.**




As
      a
      result of large loan concentrations among a relatively small number of
      borrowers, we could incur significant losses if a small number of our borrowers
      are unable to repay their loans to us. At September 30, 2006, we had 26
      borrowers with aggregate loan balances exceeding 5.0% of our stockholders’
equity at that date. Loans to these borrowers aggregated $98.0
      million ,
      which
      represented 42.51% of our total loan portfolio at that date. These loans
      primarily are residential real estate development, residential real estate
      construction or commercial real estate loans. Aggregate loan balances to these
      customers ranged from $2.5 million
      to $5.8 million
      for our largest borrower. While we seek to control our risk and minimize losses
      on these large loan concentrations, if one or more of our large borrowers were
      to default on their loans we could incur significant losses.




21


**A
      downturn in the local economy or a decline in real estate values could hurt
      our
      profits.**





Nearly
      all of our real estate loans are secured by real estate in the Kansas City
      metropolitan area.  In addition, through our portfolio of real estate
      construction loans, which includes loans to acquire land for development of
      residential property and loans to builders for the construction of residences,
      we have significant exposure to the residential construction market in the
      Kansas City metropolitan area. As a result, a downturn in the local economy,
      and, particularly, a downturn in the residential construction industry, could
      cause significant increases in non-performing loans, which would adversely
      affect our profits. Additionally, a decrease in asset quality could require
      additions to our allowance for loan losses through increased provisions for
      loan
      losses, which would negatively affect our profits. A decline in real estate
      values could cause some of our mortgage loans to become inadequately
      collateralized, which would expose us to a greater risk of loss.  For a
      discussion of our market area, see “ *Item
      1. Business - Market Area.”*





**Strong
      competition within our market area could hurt our profits and slow
      growth.**





We
      face
      intense competition both in making loans and attracting deposits. This
      competition has made it more difficult for us to make new loans and has
      occasionally forced us to offer higher deposit rates. Price competition for
      loans and deposits might result in our earning less on our loans and paying
      more
      on our deposits, which reduces net interest income. Some of the institutions
      with which we compete have substantially greater resources and lending limits
      than we have and may offer services that we do not provide. We expect
      competition to increase in the future as a result of legislative, regulatory
      and
      technological changes and the continuing trend of consolidation in the financial
      services industry. See *“Item
      1. Business - Competition.”*





**We
      will incur additional expenses relating to our strategic plan to expand through
      de novo branching in the Kansas City metropolitan area.**




We
      opened
      one new branch in Independence, Missouri in May 2005 and a second new branch
      in
      Kansas City, Missouri in January 2006.  We anticipate that over the next
      three to five years, based on and subject to local market conditions, we will
      open additional branch offices in suburban Kansas City growth areas that
      complement our existing branch network. In connection with the expansion of
      our
      branch network, we intend to hire additional lending and other employees to
      support our expanded infrastructure.





While
      we
      anticipate that this expansion strategy will enhance long-term shareholder
      value, it is possible that our
      branch expansion strategy may not become accretive to our earnings over the
      short term.  N ew
      branches generally require a significant initial capital investment and take
      three years or longer to become profitable. New branches require an upfront
      investment of between $2.0 million and $3.0 million for land and building
      expenses. Accordingly, we anticipate that, in the short term, net income will
      be
      negatively affected as we incur significant capital expenditures and noninterest
      expense in opening and operating new branches before the new branches can
      produce sufficient net interest income to offset the increased expense. In
      addition, the need to use capital to fund de novo branching may limit our
      ability to pay or increase dividends on our common stock. There also is
      implementation risk associated with new branches. Numerous
      factors will determine whether our branch expansion strategy will be successful,
      such as our ability to select suitable branch locations, real estate acquisition
      costs, competition, interest rates, managerial resources, our ability to hire
      and retain qualified personnel, the effectiveness of our marketing strategy
      and
      our ability to attract deposits.





**Certain
      interest rate movements may hurt our earnings and asset
      value.**





Interest
      rates have recently been at historically low levels. However, since
      June 30, 2004, the U.S. Federal Reserve has increased its target for the
      federal funds rate 17 times to 5.25%. While these short-term market interest
      rates (which we use as a guide to price our deposits) have increased,
      longer-term market interest rates (which we use as a guide to price our
      longer-term loans) have not. Although this “flattening” of the market yield
      curve has not had a negative impact on our interest rate spread and net interest
      margin to date, if short-term interest rates continue to rise, and if rates
      on
      our deposits and borrowings continue to reprice upwards faster than the rates
      on
      our loans and investments, we would experience compression of our interest
      rate
      spread and net interest margin, which would have a negative effect on our
      profitability. Conversely, if short-term interest rates decline and if rates
      on
      our loans and investments reprice downward faster than our rates on deposits,
      then we would also experience compression of our interest rate spread and net
      interest margin, which would have a negative effect on our profitability.




22


Changes
      in interest rates also affect the value of our interest-earning assets and
      in
      particular our securities portfolio. Generally, the value of fixed-rate
      securities fluctuates inversely with changes in interest rates. Unrealized
      gains
      and losses on securities available for sale are reported as a separate component
      of equity, net of tax. Decreases in the fair value of securities available
      for
      sale resulting from increases in interest rates could have an adverse effect
      on
      stockholders’ equity. Our interest rate risk models project that, based on a
      variety of assumptions, in the event of an immediate 200 basis point increase
      in
      interest rates our estimated net portfolio value, which represents the market
      value of our assets minus the market value of our liabilities, would be expected
      to decrease by 6.0%. Conversely, in the event of an immediate 200 basis point
      decrease in interest rates our estimated net portfolio value would be expected
      to increase by 5.0%.





**The
      loss of our President and Chief Executive Officer could hurt our
      operations.**





We
      rely
      heavily on our President and Chief Executive Officer, Brent M. Giles. The loss
      of Mr. Giles could have an adverse effect on us because, as a small community
      bank, Mr. Giles has more responsibility than would be typical at a larger
      financial institution with more employees. In addition, as a small community
      bank, we have fewer management-level personnel who are in position to succeed
      and assume the responsibilities of Mr. Giles. We have entered into a three-year
      employment contract with Mr. Giles. We do not have key-man life insurance on
      Mr.
      Giles.




**We
      operate in a highly regulated environment and we may be adversely affected
      by
      changes in laws and regulations.**





The
      Bank
      is subject to extensive regulation, supervision and examination by the Office
      of
      Thrift Supervision, our primary federal regulator, and by the Federal Deposit
      Insurance Corporation, as insurer of its deposits. Liberty Bancorp will also
      be
      subject to regulation and supervision by the Office of Thrift Supervision.
      Such
      regulation and supervision govern the activities in which an institution and
      its
      holding company may engage, and are intended primarily for the protection of
      the
      insurance fund and for the depositors and borrowers of the Bank. The regulation
      and supervision by the Office of Thrift Supervision and the Federal Deposit
      Insurance Corporation are not intended to protect the interests of investors
      in
      Liberty Bancorp common stock. Regulatory authorities have extensive discretion
      in their supervisory and enforcement activities, including the imposition of
      restrictions on our operations, the classification of our assets and
      determination of the level of our allowance for loan losses. Any change in
      such
      regulation and oversight, whether in the form of regulatory policy, regulations,
      legislation or supervisory action, may have a material impact on our
      operations.





**Office
      of Thrift Supervision regulations and anti-takeover provisions in our articles
      of incorporation restrict the accumulation of our common stock, which may
      adversely affect our stock price.**





Office
      of
      Thrift Supervision regulations provide that, for a period of three years
      following the date of completion of the conversion, no person, acting alone,
      together with associates or in a group of persons acting in concert, may
      directly or indirectly offer to acquire or acquire the beneficial ownership
      of
      more than 10% of our common stock without the prior written approval of the
      Office of Thrift Supervision. In addition, Liberty Bancorp’s articles of
      incorporation provide that, for a period of five years from the date of the
      conversion, no person may acquire directly or indirectly the beneficial
      ownership of more than 10% of any class of any equity security of Liberty
      Bancorp. In the event a person acquires shares in violation of this charter
      provision, all shares beneficially owned by such person in excess of 10% will
      be
      considered “excess shares” and will not be counted as shares entitled to vote or
      counted as voting shares in connection with any matters submitted to the
      stockholders for a vote. These factors may make it more difficult and less
      attractive for stockholders to acquire a significant amount of our common stock,
      which may adversely affect our stock price.





**ITEM
      1B. Unresolved Staff Comments** ****





None.


23


**Item
      2.  Properties**





The
      following table sets forth the location and certain additional information
      regarding The Bank’s offices at September 30, 2006, all of which it owns.





**Year
                Opened**
            
            **Square
                Footage**
            
            **Date
                of Lease Expiration**
            
            **Owned/**
              **Leased**
            
            **Deposits**
              **as
                of**
              **September
                30,**
              **2006**
            
            **Net
                Book Value**
              **as
                of**
              **September
                30, 2006****(In
                thousands)****Main
                Office:**16
                West Franklin
              Liberty,
                Missouri
            
            
            1955
            
            
            6,000
            
            
            N/A
            
            
            Owned
            
            $
            72,387
            
            $
            751**Branch
                Offices:**Hwy.
                92 & Bello Mondo Drive
              Platte
                City, Missouri
            
            
            1973
            
            
            1,500
            
            
            N/A
            
            
            Owned
            
            
            30,819
            
            
            3481206
                West Clay
              Plattsburg,
                Missouri
            
            
            1974
            
            
            1,650
            
            
            N/A
            
            
            Owned
            
            
            29,285
            
            
            1399200
                N.E. Barry Rd.
              Kansas
                City, Missouri
            
            
            2001
            
            
            6,160
            
            
            N/A
            
            
            Owned
            
            
            37,779
            
            
            2,9444315
                S. Noland Road
              Independence,
                Missouri
            
            
            2005
            
            
            3,000
            
            
            N/A
            
            
            Owned
            
            
            18,938
            
            
            1,2338740
                N. Ambassador Drive
              Kansas
                City, Missouri
            
            
            2006
            
            
            5,000
            
            
            November
                30,2021
            
            
            Leased(1
            )
            
            9,263
            
            
            1,285$
            198,471
            
            $
            6,700





(1)
      The
      lease is on the land only. The branch building is owned by the
      Bank.





For
      additional information regarding premises and equipment, see note 6 of the
      notes
      to consolidated financial statements.





**Item
      3.**  **Legal
      Proceedings**





Periodically,
      there have been various claims and lawsuits against us, such as claims to
      enforce liens and contracts, condemnation proceedings on properties in which
      we
      hold security interest, claims involving the making and servicing of real
      property loans and other issues incident to our business. We are not a party
      to
      any pending legal proceedings that we believe would have a material adverse
      effect on our financial condition, results of operations or cash
      flows.





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





None.





24


**PART
      II**





**Item
      5.**  **Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities**




The
      information required by this item is incorporated herein by reference to the
      section captioned *“Common
      Stock”* in
      the
      2006 Annual Report to Stockholders.





**Item
      6.  Selected Financial Data** **.**





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Selected
      Financial Highlights”* in the
      2006 Annual Report to Stockholders.





**** **Item
      7. Management’s Discussion and Analysis of Financial Condition and Results of
      Operation.**





The
      information regarding management’s discussion and analysis of financial
      condition and results of operation is incorporated herein by reference to
      Liberty Bancorp’s 2006 Annual Report to Stockholders in the section captioned *“Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.”*





**Item
      7a.  Quantitative and Qualitative Disclosures About Market
      Risk**





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Management’s
      Discussion and Analysis of Financial Condition and Results of Operations—Risk
      Management—Interest Rate Risk Management”* in the
      2006 Annual Report to Stockholders.





**Item
      8.   Financial Statements and Supplementary
      Data**





The
      financial statements required by this item are incorporated by reference to
      the
      Company’s audited consolidated financial statements and the notes thereto found
      in Liberty Bancorp’s 2006 Annual Report to Stockholders.





**Item
      9.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure**





Not
      applicable.





**Item
      9A.  Controls and Procedures**





As
      of the
      end of the period covered by this report, management of the Company carried
      out
      an evaluation, under the supervision and with the participation of the Company’s
      principal executive officer and principal financial officer, of the
      effectiveness of the Company’s disclosure controls and procedures. Based on this
      evaluation, the Company’s principal executive officer and principal financial
      officer concluded that the Company’s disclosure controls and procedures are
      effective in ensuring that information required to be disclosed by the Company
      in reports that it files or submits under the Securities Exchange Act of 1934,
      as amended, is recorded, processed, summarized and reported, within the time
      periods specified in the Securities and Exchange Commission’s rules and forms.




There
      have been no changes in the Company ’s
      internal control over financial reporting identified in connection with the
      evaluation required by paragraph (d) of Securities and Exchange Commission
      Rule
      13a-15 that occurred during the Company’s last fiscal quarter that has
      materially affected, or is reasonably likely to materially affect, the Company’s
      internal control over financial reporting.





**Item
      9B. Other Information**





None.




25


**Part
      III**





**Item
      10.****Directors and Executive Officers of the Registrant**





The
      information relating to the directors and officers of Liberty Bancorp and
      information regarding compliance with Section 16(a) of the Exchange Act is
      incorporated herein by reference to Liberty Bancorp’s Proxy Statement for the
      2007 Annual Meeting of Stockholders and to Part I, Item 1, *“Description
      of Business—Executive Officers.”*





**Code
      of Ethics and Business Conduct**





We
      have
      adopted a Code of Ethics and Business Conduct that is designed to ensure that
      the Company’s directors, executive officers and employees meet the highest
      standards of ethical conduct. A copy of the Code of Ethics and Business Conduct
      is available, without charge, upon written request to Steven K. Havens,
      Corporate Secretary, at Liberty Bancorp, Inc., 16 West Franklin Street, Liberty,
      Missouri 64068.





**Item
      11.  Executive Compensation**





The
      information contained under the sections captioned *“Executive
      Compensation”* and *“Director
      Compensation”* in the
      definitive proxy statement for the 2007 annual meeting of stockholders (the
      “Proxy Statement”) are incorporated herein by reference.





**Item
      12.  Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters**





(a)  Security
      Ownership of Certain Beneficial Owners





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Stock
      Ownership”* in the
      Proxy Statement.





(b)  Security
      Ownership of Management





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Stock
      Ownership”* in the
      Proxy Statement.





(c)  Changes
      In Control





Management
      of the Company is not aware of any arrangements, including any pledge by any
      person of securities of the Company, the operation of which may at a subsequent
      date result in a change in control of the Company.




(d)  Equity
      Compensation Plan Information





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Equity
      Compensation Plan Information”* in
      the
      Proxy Statement.





**Item
      13.**  **Certain
      Relationships and Related Transactions**





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Transactions
      with Management”* in the
      Proxy Statement.





**Item
      14.**  **Principal
      Accountant Fees and Services**





The
      information required by this item is incorporated herein by reference to the
      section captioned *“Audit
      and Other Fees Paid to Independent Registered Public
      Accountant”* in the
      Proxy Statement.




26


**Part
      IV**





**Item
      15.**  **Exhibits
      and Financial Statement Schedules**





(a)(1)
      The financial statements filed as a part of this report are as
      follows:


●
            Report
                of Independent Registered Public Accounting
                Firm


●
            Consolidated
                Balance Sheets as of September 30, 2006 and
                2005


●
            Consolidated
                Statements of Earnings for the Years Ended September 30, 2006, 2005
                and
                2004


●
            Consolidated
                Statements of Comprehensive Earnings for the Years Ended September
                30,
                2006, 2005 and 2004


●
            Consolidated
                Statements of Stockholders’ Equity for the Years Ended September 30, 2006,
                2005 and 2004


●
            Consolidated
                Statements of Cash Flows for the Years Ended September 30, 2006,
                2005 and
                2004


●
            Notes
                to Consolidated Financial
                Statements




(2)
            All
                schedules are omitted as the required information either is not applicable
                or is included in the financial


statements
      or related notes.





(3)  Exhibits


3.1
            Articles
                of Incorporation of Liberty Bancorp
                (1)


3.2
            Bylaws
                of Liberty Bancorp (1)


4.0
            Specimen
                Stock Certificate of Liberty Bancorp, Inc.
                (1)


10.1*
            Amended
                and Restated Liberty Savings Bank, F.S.B. Employee Stock Ownership
                Plan
                (1)


10.2*
            Form
                of ESOP Loan Commitment Letter and ESOP Loan Documents
                (1)


10.3*
            BankLiberty
                and Liberty Bancorp, Inc. Employment Agreement with Brent M.
                Giles


10.4*
            BankLiberty
                Change in Control Agreement with Marc J.
                Weishaar


10.5*
            BankLiberty
                Change in Control Agreement with Mark E.
                Hecker


10.6*
            Liberty
                Savings Bank Directors’ Retirement Plan
                (1)


10.7*
            Liberty
                Bancorp, Inc. 2003 Incentive Equity and Deferred Compensation Plan,
                as
                Amended and Restated (2)


13.0
            Annual
                Report to Stockholders


14.0
            Code
                of Ethics


21.0
            List
                of Subsidiaries


23.0
            Consent
                of Michael Trokey & Company,
                P.C.


31.0
            Rule
                13a-14 Certifications


32.0
            Section
                1350 Certification





*  Management
      contract or compensatory plan, contract or arrangement.


(1)  Incorporated
      by reference to Company’s Registration Statement on Form S-1, as amended (File
      No. 333-133849) initially filed with the Securities and Exchange Commission
      on
      May 5, 2006.


(2)  Incorporated
      by reference to the Company’s Form S-8 filed on August 14, 2006.




27




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




LIBERTY
                BANCORP, INC.Date:
              December 22, 2006
            By:
            /s/
              Brent M. GilesBrent
                M. GilesChief
              Executive Office(Duly
              Authorized Representative)




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




By:
/s/
              Brent M. Giles
            
            
            Date: December 22, 2006Brent
                M. GilesChief
                Executive Officer and Director(Principal
                Executive Officer)





By: /s/
              Marc J. Weishaar
            
            
            Date:
                December 22, 2006Marc
                J. WeishaarChief
                Financial Officer(Principal
                Financial and Accounting Officer)


By: /s/
              Daniel G. O’Dell
            
            
            Date:
                December 22, 2006Daniel
                G. O’DellChairman
                of the Board




By: /s/
              Ralph W. Brant, Jr.
            
            
            Date:
              December 22, 2006Ralph
                W. Brant, Jr.Director





By: /s/
              Marvin J. Weishaar
            
            
            Date: December 22, 2006Marvin
                J. WeishaarDirector


By: /s/
              Robert T. Sevier
            
            
            Date: December 22, 2006Robert
                T. SevierDirector


By: /s/
              Steven K. Havens
            
            
            Date: December 22, 2006Steven
                K. HavensDirector