Annual Report (Form 10-K), fiscal year 1994

ITEM 1 BUSINESS ITEM 2



ITEM 2 PROPERTIES ITEM 3

ITEM 3 LEGAL PROCEEDINGS ITEM 4

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS NONE
PART II ITEM 5

ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITYHOLDER MATTERS ITEM 6

ITEM 6 SELECTED FINANCIAL DATA ITEM 7

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERA- TIONS (FINANCIAL REVIEW) Guide 3 - Statistical Information ITEM 8


ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Liberty Bancorp, Inc. and Subsidiaries (consolidated) Report of Independent Public Accountants Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Shareholders' Investment Consolidated Statement of Cash Flows Notes to Consolidated Financial Statement Reports of Other Independent Auditors Applicable to Certain Subsidiaries (of which separate financial statements are not required) Liberty Mortgage Company Liberty Real Estate Company Selected Quarterly Financial Data
ITEM 9

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III (1) ITEM 10



ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11

ITEM 11 EXECUTIVE COMPENSATION ITEM 12

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV ITEM 14

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K SIGNATURES
(1) The information required by Part III is incorporated by reference from the Registrant's Proxy Statement, to be filed pursuant to Regulation 14A, relating to the Annual Meeting of Shareholders of the Registrant pursuant to General Instruction G to Form 10-K.
An Overview of the Company's Operations
Liberty Bancorp, Inc. ("Liberty") is incorporated under the laws of the State of Oklahoma and is registered as a bank holding company under the Bank Holding Company Act of 1956. As such, it holds all of the shares of its two major banking subsidiaries, Liberty Bank and Trust Company of Oklahoma City, N.A. ("Liberty Oklahoma City") and Liberty Bank and Trust Company of Tulsa, N.A. ("Liberty Tulsa"), as well as several other subsidiaries.
Liberty coordinates the financial resources of the consolidated enterprise and also makes investments in and advances funds to its subsidiaries to provide portions of their capital and credit requirements. In addition, it supplies various managerial and support services to the subsidiaries and coordinates their general policies and activities.
Both Liberty Oklahoma City and Liberty Tulsa provide a broad range of financial services to individuals, business enterprises, financial institutions and governmental authorities. Liberty Oklahoma City, which has twenty banking centers in Oklahoma City and the surrounding communities of Choctaw, Edmond, Harrah, Midwest City and Norman, is Liberty's largest subsidiary having assets of $1.9 billion and deposits of $1.6 billion at December 31, 1994. Liberty Tulsa has eleven banking centers in Tulsa and the surrounding communities of Broken Arrow and Jenks, and is the second largest subsidiary of Liberty with assets of $964 million and deposits of $779 million at December 31, 1994.
Liberty Mortgage Company, a subsidiary of Liberty Oklahoma City, engages in mortgage banking activities. Liberty Real Estate Company, a nonbank subsidiary of Liberty, owns and operates Liberty Tower, in which Liberty and Liberty Oklahoma City maintain principal offices. Other subsidiaries are in- volved in insurance activities.
Capital Market Services
The capital markets group of each bank provides investment and money market services to individuals, trust accounts, corporations and correspondent banks. The capital markets groups are responsible for portfolio management, investment banking activities and the coordination of Liberty's funding and asset/liability management. The capital markets groups also serve as broker/dealer in eligible investment securities and make available a wide variety of investments to both retail and institutional customers. In addition, some 200 financial organizations utilize all or a portion of Liberty's institutional products including safekeeping, investment portfolio accounting, asset/liability consulting, and advanced portfolio strategies.
Commercial Banking Services
Liberty Oklahoma City and Liberty Tulsa deliver comprehensive, competitively priced commercial banking services to commercial customers located in Oklahoma and contiguous states. Commercial customers use many commercial banking services including credit, depository and cash management services. The commercial loan portfolio grew to $488.4 million at December 31, 1994 compared to $376.5 million at year end 1993. The commercial portfolio comprises approximately 41% of Liberty's loan portfolio. Liberty's statewide presence strengthens its ability to serve corporate, institutional, and individual financial requirements. In addition, Liberty's experienced lending staff coordinate their customer's use of other Liberty services including group plan banking services provided to customer's employees. Commercial banking services encompass real estate financing, correspondent and international banking activities.
Real Estate Financing
Liberty Oklahoma City and Liberty Tulsa actively provide construction, development and intermediate term loan products along with related real estate services. Real estate mortgage loans totaled $269.2 million at December 31, 1994 and accounted for 23% of total loans. Other real estate loans, including construction and development loans, were $97.3 million at December 31, 1994 and comprised 8% of total loans. This compares to real estate mortgage loans of $199.1 million (21% of total loans) and other real estate loans of $85.6 mil- lion (9% of total loans) one year ago.
Correspondent Banking Activities
Liberty Oklahoma City and Liberty Tulsa provide financial services to over 300 banks in Oklahoma and other parts of the Midwest. Both banks work closely with community and country banks, assisting them in satisfying the loan demands of their customers by participating in their lending activities. In addition, correspondents are provided with lending, investment, operations and other financial and advisory services. At December 31, 1994, correspondent and regional loans totaled $19.3 million or 2% of total loans. This compares to $17.3 million, or 2% of total loans at December 31, 1993.
International Banking Activities
Liberty Oklahoma City and Liberty Tulsa provide international trade finance and trade services to customers across Oklahoma and to banks within Oklahoma and in surrounding states. Liberty's broad network enhances the capabilities of trade service representatives, foreign exchange traders and international tellers in providing wire and draft services, documentary collections, retail foreign currency products, foreign exchange contracts and letters of credit. At December 31, 1994, Liberty Oklahoma City's and Liberty Tulsa's outstanding international standby and commercial letters of credit totaled $5.2 million compared to $44.1 million at the end of 1993.
Designated as a Priority Lender by the Export-Import Bank of the United States, Liberty works with exporters and local banks in providing government- backed financing for export sales. The trade finance officers work together with trade services to provide full service for Liberty customers requiring international financial expertise and service.
Fiduciary Services
The principal activities of the trust departments of both banks include administration and investment management of personal trusts and estates, private and public employee benefit plans, including IRA's, corporate trusts and agencies for individuals, corporations, foundations and political entities. Trust assets under management at December 31, 1994 totaled $3.7 billion. As- sets held in trust totaled $6.6 billion. These assets include fixed income and equity securities, residential, commercial and agricultural properties, mineral interests (mainly oil and gas) and private businesses throughout Oklahoma and the Southwest. In addition, Liberty Oklahoma City's Trust Department provides stock transfer, registration, dividend disbursing and dividend reinvestment services for corporations.
Mortgage Banking Services
Liberty Mortgage Company's ("LMC") residential mortgage operations are carried out through the main Liberty Oklahoma City location and two banking centers, one in Oklahoma City and one in Tulsa. Commercial mortgage operations are available at the main bank locations of Liberty Oklahoma City and the LMC branch in Tulsa. A major service provided by mortgage companies is the servicing of the loans marketed to investors through individual loan sales or by creating mortgage-backed pass-through securities. As of year-end 1994, LMC was servicing approximately $1.3 billion in mortgage loans.
Personal Banking Services
Liberty Oklahoma City and Liberty Tulsa provide an extensive array of retail banking products and services. Through aggressive expansion efforts, Liberty Oklahoma City now has 20 banking centers throughout Oklahoma City, Edmond, Norman, Midwest City, Choctaw and Harrah. Liberty Tulsa has eleven banking centers in Tulsa, Jenks and Broken Arrow. All banking centers offer individual and small business lines of credit, automobile loans, boat and recreational vehicle loans, home improvement and second mortgage loans. Depository products offered include checking, savings, certificates of deposit, money market investments, IRA's, Keogh qualified retirement plan accounts, and safe deposit services.
Financial Review
Management's discussion and analysis of the 1994 financial results, important events and trends should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and the supplemental statistical and financial data presented elsewhere in this report.
Performance Summary
Liberty reported net income of $25.9 million for 1994. This compares to net income of $36.5 million for 1993 and $18.1 million for 1992. Net income per share for 1994 was $2.64, compared to $3.74 in 1993 and $2.01 in 1992. Income for the fourth quarter of 1994 was $5.2 million or $.53 per share. This com- pares with income of $6.3 million or $.64 per share for the fourth quarter of 1993. The decrease in net income in 1994 was due primarily to the benefit of $14.3 million recorded in 1993 for the cumulative effect of a change in accounting for income taxes. Income for 1993 also included negative provisions for loan losses of $7.4 million. The negative provisions were made to reduce the reserves to a level considered appropriate for the inherent risk in the loan portfolio.
Net Interest Income
A volume/rate analysis of the changes in net interest income on a fully tax-equivalent basis is shown below. The volume/rate analysis reflects the changes in net interest income from both changes in asset and liability volumes and changes in interest rates. Because of numerous simultaneous balance and rate changes, it is not possible to allocate precisely such changes between balances and rates. For purposes of this table, changes which are not due solely to balance changes or solely to rate changes are allocated to such categories based on the respective percentage changes in average daily balances and average rates.
On a tax-equivalent basis, net interest income increased $3.0 million or 3.9% in 1994 to $79.9 million compared to $76.9 million in 1993 and $66.5 million in 1992. Liberty's tax-equivalent interest margin has decreased to 3.65% for 1994 from 3.76% in 1993. The increase in net interest income between 1994 and 1993 is due principally to the increased levels of average loans, partially offset by lower average loan yields and higher cost of funds. Further discussion of Liberty's management of net interest income can be found in "Interest Rate Sensitivity."
Tax-equivalent interest income increased $12.8 million to $143.6 million in 1994. The increase is due to higher average loan levels which increased $265.4 million. Funding for the increased loan levels was provided by paydowns and maturities of investment securities and increased deposit levels. Net decreases occurred in both securities balances ($78.9 million) and yields (15 basis points) as a result of significant sales, maturities and early pay downs reinvested at lower rates. Although the national prime interest rate increased by 250 basis points beginning in the first quarter of 1994, Liberty's average yield on loans declined from 7.99% to 7.83%, principally due to the refinancing and repricing of a large portfolio of fixed-rate real estate loans coupled with competitive pricing of loans at rates sometimes below national prime. As a result of the significant increase in loans and other yield and volume mix changes, the yield on average earning assets increased from 6.39% in 1993 to 6.56% in 1994.
Total interest expense increased $9.8 million to $63.7 million in 1994 compared to $53.8 million in 1993. This increase was attributable to the $142.6 million in higher average interest-bearing deposits and higher interest rates on all fund sources. Market rates, in general, reversed direction in the first quarter of 1994 when the Federal Reserve Bank raised the bank borrowing discount rate for the first time since mid-1992 and raised it several more times during 1994. The most significant rate increases occurred in the large deposit liabilities and other borrowings, especially where some maturities have been extended. As a result, Liberty's cost of funds increased from 3.40% in 1993 to 3.73% in 1994.
Noninterest Income
Noninterest income for the previous three years is shown below. The primary changes were in service charges on deposits, mortgage banking income, net securities gains and other noninterest income.
--------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ---------------------------------------------------------------------------- Trust fees $15,582 $15,508 $15,523 Service charges on deposits 14,603 12,925 10,900 Mortgage banking income 6,242 7,449 7,391 Trading account profits and commissions 4,176 4,591 3,713 Loan fees 2,047 1,992 2,053 Credit card fees 2,041 1,402 1,286 Net securities gains 1,174 2,750 11 Other 13,196 10,099 7,779 ---------------------------------------------------------------------------- Total $59,061 $56,716 $48,656 ============================================================================
Service charges on deposits increased $1.7 million or 13.0% during 1994. Of this amount, $751 thousand is attributable to service charges on deposits of banks acquired during 1993 with the remainder due to service fee schedule increases. Net security gains decreased $1.6 million or 57.3% due to sales in 1993 as part of Liberty's tax planning strategies. Net securities gains for 1994 included a $1.4 million gain on the sale of majority-owned stock of a bank acquired in settlement of previously contracted debt in 1989. Mortgage banking income declined $1.2 million or 16.2% as a result of a smaller portfolio due to sales of mortgage servicing during 1994 and 1993. Sales of mortgage servicing in 1994 resulted in a gain of $1.1 million which was recorded in other noninterest income. Other noninterest income also included gains on sales of other assets totaling $1.9 million in 1994.
Noninterest Expenses
Noninterest expenses, excluding income from the operation of other real estate and assets owned ("OREO") which are discussed separately in "Provisions for Loan Losses and Net Income From Other Real Estate and Assets Owned," decreased in 1994 by 5.9%. The following table shows the significant noninterest expense categories.
------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Salaries $ 43,542 $ 44,701 $ 37,643 Employee benefits 9,725 9,088 6,281 Equipment 9,408 8,094 6,785 Occupancy, net 9,065 8,806 7,336 Professional and other services 8,581 10,001 8,543 Data processing 6,498 5,901 5,866 Printing, postage and supplies 5,257 5,789 4,757 Deposit insurance assessment 4,387 4,564 3,814 Advertising and business development 3,535 4,382 3,119 Amortization of intangibles, including purchased mortgage servicing rights 2,429 6,741 3,528 Other 12,569 14,069 10,861 ------------------------------------------------------------------------------- Total $114,996 $122,136 $98,533 ===============================================================================
Salaries and employee benefits decreased $522 thousand during 1994. Expenses in 1993 included $1.4 million accrued for severance and other costs to reduce noninterest expenses. Other than base salary increases, 1994 included $991 thousand in salary and benefits for employees of new banking locations. As a result of management's expense reduction efforts, the employee count was reduced by 5% during 1994 to 1,364 employees at year-end.
The amortization of intangibles decreased $4.3 million or 64.0%, as a result of accelerated write offs in 1993 of the intangibles associated with purchased mortgage servicing rights. This decrease is partially offset by the amortization of bank acquisition premiums which increased $567 thousand in 1994.
Professional and other services decreased $1.4 million due to reductions in outside services, most notably a $500 thousand accrual in 1993 for an outside consultant to aid in the reduction of noninterest expenses and due to reductions in the use of temporary employee services. Equipment expense increased $1.3 million or 16.2% primarily due to increased depreciation on new data processing and other equipment.
Other noninterest expense decreased $1.5 million or 10.7% during 1994 as a result of numerous items, none of which were individually significant. Both 1994 and 1993 included provisions of $1.8 million for other corporate risk reserves or losses on mortgage receivables in process of foreclosure.
The Federal Deposit Insurance Corporation ("FDIC") has proposed a reduction of deposit insurance assessment rates, which, if enacted, will reduce deposit insurance costs. The specific amount of this reduction is not possible to predict.
Liberty's operating efficiency ratio for 1994 was 81.1% compared to 90.7% in 1993. The operating efficiency ratio is defined as noninterest expense as a percent of net interest income on a tax equivalent basis plus noninterest income less security gains or losses.
Provision for Loan Losses and Net Income from the Operation of Other Real Estate and Assets Owned
The provision for loan losses and losses on OREO amounted to a negative $450 thousand during 1994 compared to a negative $8.6 million during 1993 and a negative $548 thousand in 1992.
No provisions were made to the reserve for loan losses in 1994. During 1993 negative provisions were made to this reserve totaling $7.4 million. Charges of $1.8 million were made during 1992. Liberty reviews the adequacy of its reserve for loan losses on a quarterly basis. The reserve is based on a financial model which estimates the range of inherent loss in Liberty's loan portfolio. The model incorporates various factors required by guidelines of the Comptroller of the Currency, including trends and results in collecting loans, loss experience, evaluation of underlying collateral values, identification and review of specific problem loans, size of the loan portfolio and anticipated increases or declines in size, overall quality of the portfolio and business and economic conditions and trends. Variations in any or all of these factors may cause variations in quarterly provisions or annual provisions to the reserve. A similar analysis is conducted in connection with the reserve for losses on OREO.
As a result of continuing improvement in asset quality trends and low levels of net charge-offs, the amount of the reserve was maintained at substantially the same level as year-end 1993. The level of reserves is also influenced by the overall size of Liberty's loan portfolio. Since the volume of Liberty's loans has increased during 1994, the overall level of the reserve for loan losses may require adjustments to take into consideration any additional aggregate loan risk. These adjustments might offset, in whole or in part, the effects of any improving asset quality trends. Because reserve adequacy is based on a future evaluation of various factors, Liberty is unable to predict the specific level of provisions (or negative provisions) that may be appropriate in future periods.
Net income from the operation of OREO is comprised of the following:
------------------------------------------------------------------------------- Net Income from OREO ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Provisions $ 450 $1,207 $2,341 Expenses (501) (856) (1,676) Income 283 792 1,524 Gains on sales 2,993 2,265 3,793 ------------------------------------------------------------------------------- Net income from OREO $3,225 $3,408 $5,982 ===============================================================================
Income Taxes
Liberty recorded a net income tax benefit of $906 thousand for 1994 compared with a benefit of $2.4 million during 1993. The net income tax benefit in 1994 resulted from Liberty's determination that it would generate sufficient taxable income in future periods to use a significant portion of its net operating loss carryforwards which had been impaired in 1993. The benefit in 1994 from this determination was approximately $8.8 million. During 1993, Liberty generated taxable income sufficient to utilize $18.8 million of net operating loss carryforwards for which a valuation allowance had previously been provided. Liberty recorded $97 thousand in net alternative minimum tax expense in 1992. At December 31, 1994, Liberty had net operating loss carryforwards totaling $25 million which can be used to reduce its future income tax liabilities.
Balance Sheet
Earning Assets
Average earning assets increased 7.0% during 1994. The increase is attributable to Liberty's loan growth. During 1994, average earning assets comprised approximately 85% of average total assets compared to 84% in 1993 and 1992. Liberty's percentage of earning assets to total assets is lower than its peer group (which is in the 90% range) partially because of the significant amount of public funds processing done by Liberty. This activity, in which Liberty generates fee income, increases demand deposits and items in process in Liberty's consolidated balance sheet.
The following table shows the major classifications of Liberty's average earning assets and their percent of total average earning assets for the last three years.
------------------------------------------------------------------------------- Average Earning Assets ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Loans $1,051,694 48.1% $ 786,275 38.5 $ 698,162 38.5 Investment securities 1,076,669 49.2 1,155,574 56.5 894,407 49.3 Trading account securities 3,831 .2 3,833 .2 6,444 .4 Federal funds sold and other 55,473 2.5 99,132 4.8 214,858 11.8 ------------------------------------------------------------------------------- Total $2,187,667 $2,044,814 $1,813,871 ===============================================================================
Investment and Trading Account Securities
Liberty adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("SFAS No. 115") on December 31, 1993. The statement requires securities to be classified into three categories: "securities held to maturity" reported at amortized cost; "trading securities" reported at fair value with unrealized gains and losses included in earnings; and "securities available for sale" reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' investment. As a result of applying SFAS No. 115 shareholders' investment was reduced by $6.9 million at year-end 1994 compared to an increase in shareholders' investment at the end of 1993 of $6.2 million.
The following table shows the recorded amounts for Liberty's investment securities, which do not include trading account securities, as of the end of the previous three years.
Investment Securities ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Available for sale U.S. Treasury $ 599,272 $ 605,586 $ 49,137 U.S. Government agencies Mortgage-backed 23,639 226 _ Other 9,546 108,550 _ State and political 490 9,393 _ Corporate debt and other 23,188 43,072 _ ------------------------------------------------------------------------------- Total available for sale 656,135 766,827 49,137 ------------------------------------------------------------------------------- Held to maturity U.S. Treasury 53,793 54,478 380,583 U.S. Government Agencies Mortgage-backed 218,942 216,519 370,326 Other _ 51,467 122,656 State and political 71,945 63,346 70,668 Corporate debt and other 71,404 77,274 6,515 ------------------------------------------------------------------------------- Total held to maturity 416,084 463,084 950,748 ------------------------------------------------------------------------------- Equity securities 18,455 18,628 12,875 ------------------------------------------------------------------------------- Total investment securities $1,090,674 $1,248,539 $1,012,760 ===============================================================================
The market value of Liberty's investment securities portfolio was approximately 98.9% of book value at December 31, 1994. Gross unrealized gains included in the investment portfolio amounted to $6.6 million and are primarily related to equity securities, U.S. government agencies and other corporate bonds and debentures. Gross unrealized losses in the securities portfolio amounted to $28.8 million, with $17.6 million of the unrealized losses related to Liberty's U.S. Treasury securities portfolio and the balance falling throughout each of the other categories.
The following tables show the maturities of Liberty's investment securities. The tables do not include Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock of $18.5 million. The weighted average yields are calculated on the basis of cost, adjusted for accretion and amortization. Weighted average yields on the tax-exempt obligations have been computed on a fully tax-equivalent basis at the statutory rate.
------------------------------------------------------------------------------- Maturity of Held to Maturity Investment Securities ------------------------------------------------------------------------------- After One After Five Within But Within But Within After Ten (In thousands) One Year Five Years Ten Years Years ------------------------------------------------------------------------------- Amount Yield Amount Yield Amount Yield Amount Yield ------------------------------------------------------------------------------- U.S. Treasury $ 75 3.9% $ _ _ % $ _ _ % $ 53,718 6.5% U.S. Government Agencies Mortgage-backed 1,942 9.7 25,109 7.6 63,049 6.7 128,842 6.6 State and politica 13,830 5.7 16,218 6.7 11,442 8.1 30,455 8.4 Corporate debt and other 14,292 4.9 55,472 5.2 1,640 5.6 _ _ ------------------------------------------------------------------------------- Total $30,139 5.6% $96,799 5.8% $76,131 6.9% $213,015 6.8% ===============================================================================
------------------------------------------------------------------------------- Maturity of Available for Sale Investment Securities ------------------------------------------------------------------------------- After One After Five Within But Within But Within After Ten (In thousands) One Year Five Years Ten Years Years ------------------------------------------------------------------------------- Amount Yield Amount Yield Amount Yield Amount Yield ------------------------------------------------------------------------------- U.S. Treasury $354,643 5.1% $229,501 5.8% $15,128 7.4% $ _ _ U.S. Government Agencies Mortgage-backed 12,718 4.9 10,070 6.8 _ _ 851 9.4 Other 8,095 7.8 1,451 5.2 _ _ _ _ State and political _ _ 490 7.7 _ _ _ _ Corporate debt and other 6,255 4.8 16,703 5.3 _ _ 230 6.6 ------------------------------------------------------------------------------- Total $381,711 5.1% $258,215 5.8% $15,128 7.4% $1,081 8.8% ===============================================================================
Loans
Loan concentrations are an important factor in the assessment of risk in the loan portfolio. The composition of the loan portfolio at year-end for the past five years is presented below.
------------------------------------------------------------------------------- Loan Portfolio ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Commercial and other (1) $ 488,400 $376,454 $262,837 $388,493 $324,650 Energy 71,883 57,089 68,576 60,668 57,852 Real estate _ construction 97,344 85,566 67,417 89,704 84,388 Real estate _ mortgage 269,232 199,104 154,410 172,693 171,169 Correspondent and regional 19,266 17,336 16,855 29,063 36,364 Personal 233,654 195,392 106,958 104,970 105,011 ------------------------------------------------------------------------------- Total $1,179,779 $930,941 $677,053 $845,591 $779,434 =============================================================================== (1) Includes term federal funds of $115.0 million in 1991 and $35.5 million in 1990. Liberty had no term federal funds at the end of 1994, 1993 or 1992.
Liberty's loan portfolio reflects significant sensitivity to the movement of interest rates because of its relatively short-term nature and variable pricing. Scheduled maturities of Liberty's loan portfolio (excluding real estate _ mortgage and personal loans) at December 31, 1994 are summarized below:
------------------------------------------------------------------------------- After One Within But Within After (In thousands) One Year Five Years Five Years Total ------------------------------------------------------------------------------- Commercial, correspondent and other $208,164 $250,368 $49,134 $507,666 Energy 50,947 20,789 147 71,883 Real estate _ construction 59,086 32,906 5,352 97,344 ------------------------------------------------------------------------------- Total $318,197 $304,063 $54,633 $676,893 ===============================================================================
The loans shown above include both loans with an adjustable or floating rate as well as those with a fixed, predetermined rate. The adjustable or floating rate is tied to the national prime rate, Liberty's base rate or other market rates of interest. The total amount of these loans due after one year which have predetermined or floating or adjustable rates is summarized in the following table.
----------------------------------------------------------- (In thousands) ----------------------------------------------------------- Predetermined rate $139,485 Floating or adjustable rate 219,211 ----------------------------------------------------------- Total $358,696 ===========================================================
Liberty's loans have increased $248.8 million or 26.7% during 1994. This growth is a result of continued emphasis on growing the loan portfolio. Liberty also commenced credit card issuances during 1993. Credit card loans increased from $31 thousand at the end of 1992 to $1.2 million at the end of 1993 to $4.2 million at the end of 1994.
Liberty's practices in granting commitments and establishing lines of credit are typical of industry practices and standards. Terms, particularly rates and commitment fees, are subject to individual negotiations, with most commitments extended for a one year period. Liberty's credit standards and review practices with respect to loans are also used in granting commitments and establishing lines of credit. At December 31, 1994, the bank subsidiaries had legally binding loan commitments outstanding amounting to $500.7 million. Liberty does not expect a significant portion of these commitments to be exercised during the near-term. Management is of the opinion that no firm, unfunded commitments of material amounts which represent unusual risks are outstanding, except to the extent included in potential problem loans and/or allocated for in the reserve for loan losses.
Nonperforming Loans
Liberty's nonperforming loans consist of nonaccrual, 90 days or more past due and restructured loans. Liberty's consolidated financial statements are prepared on the accrual basis of accounting, including recognition of interest income on its loan portfolio. However, when the full collectibility of interest or principal on any loan becomes uncertain or is collectible only after an extended period of time, that loan is placed on nonaccrual status. Any accrued yet uncollected interest is usually reversed. Thereafter, interest is recognized as income only as it is collected in cash and only to the extent that the collectibility of the principal is not in doubt. Restructured loans include those loans earning interest at rates less than originally contracted due to a troubled debtor situation. Interest on such loans is included in income only to the extent of the reduced rate if it is deemed collectible. Past due loans, while not performing contractually, do not meet the criteria to become nonaccrual. Interest is accrued and payments are divided between income and principal based on the loan contract.
Nonperforming loans decreased 14.1% or $1.9 million to $11.6 million at year-end 1994 from $13.5 million at year-end 1993. This decrease reflects Liberty's effort in reducing nonperforming loans since their year-end peak of $147.7 million in 1987. Of the nonperforming loans at December 31, 1994, approximately 52% were real estate-related.
Nonaccrual loans totaled $7.8 million at December 31, 1994. Of these loans, $2.5 million or 32% were contractually current with a total of $4.1 million or 53% representing loans that have met at least 85% of their con- tractual payments during 1994. The contractual balance on total nonaccrual loans was $10.6 million at year-end 1994 with $4.0 million or 37.5% of these loans contractually current and a total of $6.3 million or 60% rated 85% current or better.
------------------------------------------------------------------------------- Nonperforming Loans ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Nonaccrual $ 7,808 $10,138 $19,244 $37,026 $27,307 Restructured _ _ _ _ _ Past due 90 days or more 3,748 3,313 487 750 1,058 ------------------------------------------------------------------------------- Total nonperforming loans $11,556 $13,451 $19,731 $37,776 $28,365 =============================================================================== Nonperforming Loans as % of Total Loans .98% 1.44% 2.91% 4.47% 3.64% ===============================================================================
------------------------------------------------------------------------------- Analysis of Nonperforming Loans by Type ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Commercial and other $ 3,119 $ 3,604 $ 6,436 $ 8,999 $ 6,101 Energy 321 632 706 1,685 1,496 Real estate _ construction 2,021 3,236 3,826 7,921 1,197 Real estate _ mortgage 3,938 5,135 8,126 13,378 12,041 Correspondent and regional _ _ _ 4,547 6,387 Personal 2,157 844 637 1,246 1,143 ------------------------------------------------------------------------------- Total $11,556 $13,451 $19,731 $37,776 $28,365 ===============================================================================
The gross interest income from nonaccrual loans outstanding at December 31, 1994, had they been performing in accordance with their original terms, would have been approximately $932 thousand for 1994. The amount of interest from nonaccrual loans included in interest income for 1994 was approximately $133 thousand. Foregone interest income from nonaccrual and restructured loans for the past five years beginning with 1994 was approximately $799 thousand, $1.1 million, $1.5 million, $3.0 million and $1.6 million, respectively.
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), and in October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan _ Income Recognition and Disclosures." Both SFAS No. 114 and SFAS No. 118 are effective for fiscal years beginning after December 15, 1994. SFAS No. 114 addresses the accounting by creditors for impairment of a loan by specifying how reserves for losses related to impaired loans, as defined, shall be determined. A discounted cash flow analysis using the original contractual interest rate as the discount rate or use of the fair value of the collateral for collateral dependent loans is required for loans meeting the definition of impaired. If the discounted value is less than the contractual balance, the difference must be provided for through the reserve for loan losses. SFAS No. 118 amends SFAS No. 114 to require information about the recorded investment in certain impaired loans as well as how interest income related to those impaired loans is recognized. This adoption will not have a material adverse effect on Liberty's financial position when adopted in 1995, based on impaired loans, as defined, at December 31, 1994.
Potential Problem Loans
"Potential problem loans" are those loans which, although currently performing, have credit weaknesses such that management has serious doubts as to the borrowers' future ability to comply with present terms, and thus may result in a change to nonperforming status. Management has identified, through internal credit ratings, certain performing loans which demonstrate some dete- rioration in credit quality and, accordingly, are scrutinized more carefully. At December 31, 1994, these loans totaled $177 thousand compared to $17.0 million and $5.1 million at December 31, 1993 and 1992, respectively. Of these amounts, approximately $98 thousand and $415 thousand represented letters of credit and unfunded loan commitments at December 31, 1993 and 1992, respectively. There were no unfunded balances at the end of 1994. The decrease at year-end 1994 was primarily attributable to the repayment of one large problem loan relationship during 1994. Exposure to loss of principal on such loans and commitments has been considered in the establishment of the reserve for loan losses.
Reserve for Loan Losses
Liberty allocates the reserve for loan losses according to the amount deemed by management to be reasonably necessary to provide for inherent losses within the categories of loans set forth in the following table. It should be recognized that such allocations are not precise and are not necessarily indicative of future loan losses. Although the loan loss reserve has been allocated among loan categories, all of such reserve is available to absorb all losses on loans from any category. Known loan losses and recoveries are charged to the loan loss reserve on a monthly basis.
------------------------------------------------------------------------------- Allocation of Reserve for Loan Losses ------------------------------------------------------------------------------- (Dollars In thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Commercial and other Reserve amount $1,592 $1,151 $2,382 $2,518 $3,610 Loans as a percent of total loans 41.40% 40.76% 39.55% 46.26% 41.93% Energy Reserve amount 57 3,305 2,603 635 939 Loans as a percent of total loans 6.09% 6.10% 10.00% 7.13% 7.38% Real estate _ construction Reserve amount 872 999 2,533 4,611 3,605 Loans as a percent of total loans 8.25% 9.14% 9.84% 10.55% 10.77% Real estate _ mortgage Reserve amount 389 452 2,533 1,041 1,187 Loans as a percent of total loans 22.82% 21.27% 22.54% 20.30% 21.88% Correspondent and regional Reserve amount 134 183 545 3,490 3,756 Loans as a percent of total loans 1.63% 1.85% 2.46% 3.42% 4.64% Personal Reserve amount 2,683 1,834 1,232 1,191 1,676 Loans as a percent of total loans 19.81% 20.88% 15.61% 12.34% 13.40% Unallocated reserve 13,354 12,062 13,753 12,502 10,057 ------------------------------------------------------------------------------- Total reserve $19,081 $19,986 $25,581 $25,988 $24,830 =============================================================================== Reserve for loan losses as a % of total loans 1.62% 2.14% 3.73% 3.06% 3.17% Reserve for loan losses as a % of nonperforming loans 165.12% 148.58% 129.65% 68.80% 87.54%
The following table summarizes: average loan balances, changes in the reserve for loan losses arising from loans charged off and recoveries on loans pre- viously charged off by loan category, and additions to the reserve which have been charged to operating expense.
------------------------------------------------------------------------------- Analysis of Reserve for Loan Losses ------------------------------------------------------------------------------- (Dollars in thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Balance at beginning of year $ 19,986 $ 25,581 $ 25,988 $ 24,830 $ 32,145 ------------------------------------------------------------------------------- Charge-offs Commercial and other 481 258 1,369 1,901 1,653 Energy _ _ 22 81 957 Real estate _ construction 4 378 1,511 190 3,749 Real estate _ mortgage 3 61 435 224 890 Correspondent and regional _ 22 433 22 _ Personal 1,698 1,154 835 779 1,111 ------------------------------------------------------------------------------- Total charge-offs 2,186 1,873 4,605 3,197 8,360 ------------------------------------------------------------------------------- Recoveries Commercial and other 485 680 520 863 818 Energy 174 106 100 338 1,542 Real estate _ construction 180 679 620 377 962 Real estate _ mortgage 29 264 562 55 166 Correspondent and regional 25 1 173 56 339 Personal 388 670 360 414 585 ------------------------------------------------------------------------------- Total recoveries 1,281 2,400 2,335 2,103 4,412 ------------------------------------------------------------------------------- Net charge-offs 905 (527) 2,270 1,094 3,948 Provisions for loan losses _ (7,363) 1,793 2,252 (3,367) Reserves from acquired banks _ 1,241 70 _ _ ------------------------------------------------------------------------------- Balance at end of year $ 19,081 $ 19,986 $ 25,581 $ 25,988 $ 24,830 =============================================================================== Average loans outstanding $1,051,694 $786,275 $698,162 $757,411 $749,585 =============================================================================== Ratio of net charge-offs (recoveries) to average loans outstanding .09% (.07%) .32% .14% .53% ===============================================================================
Other Real Estate and Assets Owned
OREO (net of reserves) decreased $5.5 million during 1994. The following tables show OREO and the reserve for OREO for the past five years.
------------------------------------------------------------------------------- Other Real Estate and Assets Owned ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Land $4,522 $ 8,791 $14,516 $21,773 $38,200 Commercial _ office buildings and motels 792 2,487 2,481 7,541 20,639 Commercial _ shopping centers _ 200 660 8,429 17,125 Residential _ single-family 1,031 1,631 1,122 1,754 2,087 Residential _ multi-family _ _ 57 3,756 4,427 Oil and gas properties _ _ 306 523 765 Other 25 256 1,520 3,851 4,321 ------------------------------------------------------------------------------- Total other real estate and assets owned $6,370 $13,365 $20,662 $47,627 $87,564 Less reserve for losses (1,042) (2,521) (5,001) (11,447) (22,078) ------------------------------------------------------------------------------- Other real estate and assets owned, net $5,328 $10,844 $15,661 $36,180 $65,486 ===============================================================================
------------------------------------------------------------------------------- Reserve for Losses on Other Real Estate and Assets Owned ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------- Balance at beginning of year $2,521 $5,001 $11,447 $22,078 $26,516 Charge-offs (1,029) (1,515) (4,105) (10,791) (16,652) Provisions for losses (450) (1,207) (2,341) 160 12,214 Reserves from acquired banks _ 242 _ _ _ ------------------------------------------------------------------------------- Balance at end of year $1,042 $2,521 $ 5,001 $11,447 $22,078 =============================================================================== Reserve for losses on other real estate and assets owned as % of total other real estate and assets owned 16.36% 18.86% 24.20% 24.03% 25.21% ===============================================================================
Charge-offs include losses on sales and market writedowns. The reserves are in addition to recording foreclosed real estate at or below current ap- praisal values.
Capital Funds
Year-end shareholders' investment as a percentage of total assets amounted to 8.1% for 1994, compared to 8.5% for 1993 and 7.4% for 1992.
Capital adequacy is currently measured by banking regulators using various capital criteria and ratios under the heading of risk-based capital. Tier 1 capital for bank holding companies includes common equity and perpetual preferred stock (subject to certain limitations) minus intangible assets. The adjustment to shareholders' investment for unrealized gains and losses for securities available for sale as required by SFAS 115 is disregarded in this calculation. There are also limitations on the amount of deferred tax assets that may be included in Tier 1 capital. Tier 2 capital includes supplementary elements such as limited amounts of reserve for loan losses, perpetual pre- ferred stock (in excess of Tier 1 limits), subordinated debt and other items. The leverage ratio, defined as Tier 1 capital divided by average adjusted total assets, limits the amount of leverage a bank can undertake because of the ratio's emphasis on equity or core capital.
All but the most highly-rated banks are required to carry a minimum leverage ratio of 3% plus a cushion of 1 to 2%. The risk-based capital ratio, defined as total capital (Tier 1 plus Tier 2) divided by risk-weighted assets, is the regulators' other primary determinant of capital adequacy and was de- signed principally as a measure of credit risk. Banking organizations have been given a risk-based capital ratio requirement of 8%. The FDIC assesses insurance premiums based in part on the level of capital, with banks which are "well capitalized" paying assessments at lower rates. Liberty's and its subsidiary banks' capital ratios are significantly higher than the current guidelines and the subsidiary banks are "well capitalized" for deposit insurance purposes.
------------------------------------------------------------------------------- Risk-based Capital ------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Tier 1 Capital Shareholders' investment $ 234,380 $ 227,245 Unrealized (gains) losses on available for sale securities disallowed 6,854 (6,184) Deferred tax asset disallowed (5,537) (12,586) Intangible assets disallowed (9,312) (10,650) Total Tier 1 Capital 226,385 197,825 Tier 2 Capital Reserve for loan losses (1) 19,081 17,519 ------------------------------------------------------------------------------- Total capital 245,466 215,344 =============================================================================== Risk-weighted Assets $1,590,539 $1,401,496 =============================================================================== Leverage Ratio 8.67% 7.87% Risk-based Ratio 15.43 15.37 (1) Limited to 1.25% of risk-weighted assets.
Liberty Oklahoma City had a risk-based capital ratio of 13.83% and Liberty Tulsa had a risk-based capital ratio of 15.24%. Liberty and its subsidiary banks exceed required ratios for 1994 and plan to do so in the future.
Deposits
Deposits represent the principal source of funds for Liberty. Average deposit levels totaled approximately 81% of total average assets in 1994. Levels of deposits increased in 1994 and 1993 due to bank acquisitions and product marketing.
------------------------------------------------------------------------------- Average Deposits ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Noninterest-bearing demand deposits $ 616,552 $ 615,567 $ 551,121 Interest-bearing demand deposits 564,142 481,595 408,474 Savings 147,716 142,174 98,196 Time deposits 772,485 717,977 682,799 ------------------------------------------------------------------------------- Total $2,100,895 $1,957,313 $1,740,590 ===============================================================================
The previous table includes average deposits with the branches of Liberty Oklahoma City and Liberty Tulsa in Nassau, The Bahamas of $29.4 million, $33.0 million and $39.5 million for the years 1994, 1993 and 1992, respectively.
As of December 31, 1994, time certificates of deposit and other time deposits issued in amounts of $100,000 or more mature as follows:
------------------------------------------------------------------------------- (In thousands) ------------------------------------------------------------------------------- Within three months $173,377 After three but within six months 122,682 After six but within twelve months 34,654 After twelve months 93,292 ------------------------------------------------------------------------------- Total $424,005 ===============================================================================
Both Liberty Oklahoma City and Liberty Tulsa continue to be primarily funded in the local market place. In management's opinion, funding and liquidity at Liberty's bank subsidiaries are adequate to meet current and projected financial commitments.
Other Borrowings
The details of the major sources of short-term borrowings are included in the following tables. The general terms of these borrowings are consistent with industry standards.
------------------------------------------------------------------------------- Federal Funds Purchased and Securities Sold Under Agreements to Repurchase ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Borrowings outstanding At year-end $139,700 $116,486 $144,400 Average for the year 134,444 122,103 120,173 Maximum month-end balance 219,662 167,608 144,400 Interest rates Average for the year 4.1% 2.9% 3.3% Average at end of year 4.9 2.9 2.5
------------------------------------------------------------------------------- Treasury, Tax and Loan Deposits and Other Borrowings ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Borrowings outstanding At year-end $ 90,452 $161,626 $140,693 Average for the year 89,893 110,847 106,944 Maximum month-end balance 191,704 241,434 281,423 Interest rates Average for the year 4.4% 3.2% 3.4% Average at end of year 5.3 2.9 2.7
International Exposure
Liberty has little direct exposure to foreign credits. Cross-border outstandings include loans, acceptances, interest-bearing deposits with other banks and interest-bearing investments or other monetary assets denominated in nonlocal currencies of foreign banks (including domestic branches of foreign banks). At December 31, 1994, Liberty had $2.2 million in cross-border outstandings (none of which was with domestic branches of foreign banks), compared to $1.2 million at December 31, 1993 and $35.9 million at December 31, 1992. There were no cross-border outstandings of foreign countries exceeding 1% of total assets at December 31, 1994 or 1993. Cross-border outstandings of foreign countries exceeding 1% of total assets at December 31, 1992 included $25.0 million with Japan.
Asset and Liability Management
A senior management committee, the Investment/Asset/Liability Committee, has the responsibility for monitoring and coordinating the asset and liability positions, interest rate sensitivity, liquidity and other resource planning strategies of Liberty on an ongoing basis. This committee monitors interest rate moves from 50 to 400 basis points and the anticipated effects of these interest rate changes on both earnings and market value of capital. In addition, the committee has recommended policies which the Board of Directors has adopted setting limits within which the asset/liability risk positions are to be maintained.
As a result of increased holdings of loans and continued high levels of marketable investment securities, Liberty was a net purchaser of federal funds averaging $80.9 million for 1994 compared to $28.5 million in 1993 and a net seller of federal funds averaging $91.7 million in 1992.
Liquidity is the ability to meet financial obligations for the payment of funds. Some of the sources of funds to provide liquidity include core deposits, large certificates of deposit, federal funds purchased from both upstream and downstream banks, sale of securities under agreements to repurchase, Treasury Tax and Loan accounts, investment securities held in the available for sale account which can be sold or pledged for borrowing at the Federal Reserve discount window or the Federal Home Loan Bank and the availability of loans and investment securities held in the held-to-maturity account which can be pledged for borrowing at the Federal Reserve discount window or the Federal Home Loan Bank.
Interest Rate Sensitivity
Liberty's long-standing policy is to maintain as balanced a position in interest-sensitive assets and liabilities as possible with a goal to achieve consistent interest margins in all interest rate environments. Liberty is liability sensitive largely due to the short-term nature of its deposits, especially savings and money market accounts, and short-term borrowings. Be- cause of this liability sensitivity, Liberty's net interest margin may be vulnerable to upward trends in interest rates.
The net interest margin of Liberty has been impacted by an increase in interest rates, as experienced in the past year. Because Liberty is liability sensitive, its liabilities reprice at the higher rates sooner than its assets. As such, the net interest margin is narrowed as liabilities are repriced or mature. However, the increase in liability rates, particularly in a increasing rate environment, may not increase as much as asset rates because of the lagging increase in consumer deposit rates. Liberty monitors its interest-sen- sitivity posture on a continuing basis to ensure that interest rate changes do not create a material adverse impact. Liberty also adjusts its asset and li- ability structures, to the extent possible, to allow for projected rate changes.
A table showing the repricing of Liberty's earning assets and interest-bearing liabilities at December 31, 1994 is outlined below. Deposits without maturities, such as savings, now accounts and money market accounts, are classified as less than 90 days.
Parent Company Funding Sources and Dividends
At December 31, 1994 and 1993 the parent company had cash, including interest-bearing deposits, of $6.2 million. Liberty's ability to fund various operating expenses and dividends is generally dependent on parent-only earnings, cash reserves and funds derived from its subsidiaries, principally Liberty Oklahoma City and Liberty Tulsa. These funds historically have been provided primarily by intercompany dividends and management fees. Management fees are generally limited to reimbursement of actual expenses. It is anticipated that Liberty's recurring cash sources will continue to include dividends and management fees from subsidiaries, proceeds from the sale of other assets (principally other real estate and assets owned) and retained rights to any gains from the sales of mortgage servicing or other assets. Dividends may be paid by subsidiary banks from time to time to support Liberty's acquisition activities or to provide funds for other purposes, such as dividends on Liberty common stock. Liberty Oklahoma City and Liberty Tulsa are limited in their ability to pay dividends based on applicable provisions of the National Bank Act pertaining to earnings and undivided profits. As of January 1, 1995 the ability of Liberty Oklahoma City and Liberty Tulsa to pay dividends without regulatory approval was limited to $29.9 million and $13.4 million, respectively.
Liberty Real Estate Company, a wholly-owned subsidiary, is dependent upon Liberty for financial support to cover deficits in operating cash flows result- ing from operating costs, debt service, capital expenditures and other needs. These costs are primarily intercompany and insignificant to Liberty as a whole. It is anticipated that Liberty will continue to provide such support.
Liberty paid four quarterly cash dividends of $.15 per common share in 1994, totaling $5.7 million. During 1993, Liberty paid three quarterly cash dividends of $.10 per common share, totaling $2.7 million. It is expected that such cash dividends, at levels to be determined by the Board of Directors from time to time, will continue if justified by Liberty's earnings, capital adequacy and financial condition. In January, 1995 the Board of Directors approved an increase in the quarterly dividend rate to $.20 per common share.
In management's opinion, Liberty's current liquidity and cash sources are anticipated to be adequate to meet its obligations in the near-term.
------------------------------------------------------------------------------- SELECTED QUARTERLY INFORMATION Liberty Bancorp, Inc. ------------------------------------------------------------------------------- Consolidated Summary of Quarterly Financial Information (In thousands, except per share data) ------------------------------------------------------------------------------- 1994 Fourth Third Second First ------------------------------------------------------------------------------- Interest income $38,796 $35,957 $34,129 $32,458 Interest income (tax equivalent) 39,353 36,412 34,703 33,088 Interest expense 19,002 16,417 15,019 13,222 Net interest income 19,794 19,540 19,110 19,236 Provision for loan losses _ _ _ _ Trust fees 3,641 3,771 4,010 4,160 Mortgage banking income 1,418 1,434 1,625 1,765 Other noninterest income 11,135 7,902 9,318 8,882 Noninterest expense 28,212 27,330 28,004 28,225 Net income 5,159 10,608 5,157 4,952 Net income per share .53 1.08 .53 .51
At Quarter End Shares of Common Stock, net of treasury stock Outstanding 9,474 9,484 9,484 9,478 Fully-diluted 9,803 9,836 9,825 9,780
------------------------------------------------------------------------------- 1993 Fourth Third Second First ------------------------------------------------------------------------------- Interest income $34,015 $31,143 $31,152 $32,091 Interest income (tax equivalent) 34,603 31,702 31,722 32,694 Interest expense 13,453 13,166 13,342 13,872 Net interest income 20,562 17,977 17,810 18,219 Provision for loan losses 206 85 (2,737) (4,917) Trust fees 3,715 3,975 3,846 3,972 Mortgage banking income 1,913 1,871 1,987 1,678 Other noninterest income 10,178 7,560 7,920 8,101 Noninterest expense 36,410 26,828 27,097 28,393 Net income 6,262 3,428 5,144 21,698 Income per share Income before cumulative effect of change in accounting principle .64 .35 .53 .77 Net income .64 .35 .53 2.25
At Quarter End Shares of Common Stock, net of treasury stock Outstanding 9,478 9,478 9,477 9,470 Fully-diluted 9,775 9,782 9,774 9,760
-------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET Liberty Bancorp, Inc. -------------------------------------------------------------------------------- December 31,(In thousands, except share data) 1994 1993 -------------------------------------------------------------------------------- Assets Cash and due from banks Noninterest-bearing $ 361,953 $ 310,127 Interest-bearing 1,103 2,587 Federal funds sold and securities purchased under agreements to resell 52,900 24,565 -------------------------------------------------------------------------------- Total cash and cash equivalents 415,956 337,279 -------------------------------------------------------------------------------- Trading securities 21,207 1,891 Investment securities Available for sale 656,135 766,827 Held to maturity 416,084 463,084 Equity 18,455 18,628 -------------------------------------------------------------------------------- Total investment securities 1,090,674 1,248,539 -------------------------------------------------------------------------------- Loans 1,179,779 930,941 Less: Reserve for loan losses (19,081) (19,986) -------------------------------------------------------------------------------- Loans, net 1,160,698 910,955 -------------------------------------------------------------------------------- Property and equipment, net 68,471 64,152 Accounts receivable 25,642 17,639 Accrued income receivable 25,354 23,675 Deferred tax asset, net 21,661 13,584 Other real estate and assets owned, net 5,328 10,844 Other assets 48,708 31,218 -------------------------------------------------------------------------------- Total assets $2,883,699 $2,659,776 ================================================================================
Liabilities and Shareholders' Investment Deposits Noninterest-bearing $ 728,240 $ 689,227 Interest-bearing 1,645,947 1,435,917 -------------------------------------------------------------------------------- Total deposits 2,374,187 2,125,144 -------------------------------------------------------------------------------- Other borrowings Federal funds purchased and securities sold under agreements to repurchase 139,700 116,486 Other 90,452 161,626 Accrued interest, expenses and taxes 17,606 15,503 Accounts payable 26,339 11,621 Other liabilities 1,035 2,151 -------------------------------------------------------------------------------- Total liabilities 2,649,319 2,432,531 -------------------------------------------------------------------------------- Shareholders' Investment Common stock ($.01 par value; 50,000,000 shares authorized) 95 95 1994 1993 --------------------------------------------- Shares issued 9,488,428 9,477,870 Shares outstanding 9,474,413 9,477,819 Capital surplus 211,733 211,708 Retained earnings 31,972 11,785 Treasury stock, at cost _ 14,015 shares at December 31, 1994 and 51 shares at December 31, 1993 (435) (1) Unrealized security gains (losses), net of tax (6,854) 6,184 Deferred compensation (2,131) (2,526) -------------------------------------------------------------------------------- Total shareholders' investment 234,380 227,245 -------------------------------------------------------------------------------- Total liabilities and shareholders' investment $2,883,699 $2,659,776 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements.
-------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME Liberty Bancorp, Inc. -------------------------------------------------------------------------------- For the year (In thousands, except per share data) 1994 1993 1992 -------------------------------------------------------------------------------- Interest Income Loans $ 81,698 $ 62,093 $ 54,982 Investments Taxable 54,076 60,261 58,137 Nontaxable 2,899 2,765 3,058 Trading 221 199 383 Federal funds sold and other 2,446 3,083 7,546 -------------------------------------------------------------------------------- Total interest income 141,340 128,401 124,106 -------------------------------------------------------------------------------- Interest Expense Deposits 54,241 46,162 51,846 Other borrowings 9,419 7,079 7,657 Long-term notes _ 592 700 -------------------------------------------------------------------------------- Total interest expense 63,660 53,833 60,203 -------------------------------------------------------------------------------- Net Interest Income 77,680 74,568 63,903 -------------------------------------------------------------------------------- Provision for loan losses _ (7,363) 1,793 -------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 77,680 81,931 62,110 -------------------------------------------------------------------------------- Noninterest Income Trust fees 15,582 15,508 15,523 Service charges on deposits 14,603 12,925 10,900 Mortgage banking income 6,242 7,449 7,391 Trading account profits and commissions 4,176 4,591 3,713 Loan fees 2,047 1,992 2,053 Credit card fees 2,041 1,402 1,286 Net securities gains 1,174 2,750 11 Other 13,196 10,099 7,779 -------------------------------------------------------------------------------- Total noninterest income 59,061 56,716 48,656 -------------------------------------------------------------------------------- Noninterest Expense Salaries 43,542 44,701 37,643 Employee benefits 9,725 9,088 6,281 Equipment 9,408 8,094 6,785 Occupancy, net 9,065 8,806 7,336 Professional and other services 8,581 10,001 8,543 Data processing 6,498 5,901 5,866 Printing, postage and supplies 5,257 5,789 4,757 Deposit insurance assessments 4,387 4,564 3,814 Advertising and business development 3,535 4,382 3,119 Amortization of intangibles, including purchased mortgage servicing rights 2,429 6,741 3,528 Net income from operation of other real estate and assets owned (3,225) (3,408) (5,982) Other 12,569 14,069 10,861 -------------------------------------------------------------------------------- Total noninterest expense 111,771 118,728 92,551 -------------------------------------------------------------------------------- Income Before Provision (Benefit) for Income Taxes 24,970 19,919 18,215 Provision (benefit) for income taxes (906) (2,358) 4,737 -------------------------------------------------------------------------------- Income Before Cumulative Effect of Change in Accounting Principle and Extraordinary Item 25,876 22,277 13,478 Cumulative effect of change in accounting principle _ 14,255 _ Extraordinary item-use of net operating loss carryforwards _ _ 4,640 -------------------------------------------------------------------------------- Net Income $25,876 $36,532 $18,118 ================================================================================ Income Per Share (Primary and Fully-Diluted) Income before cumulative effect of change in accounting principle $2.64 $2.28 $1.49 and extraordinary item Cumulative effect of change in accounting principle _ 1.46 _ Extraordinary item - use of net operating loss carryforwards _ _ .52 -------------------------------------------------------------------------------- Net Income - Primary and Fully-Diluted $2.64 $3.74 $2.01 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements.
------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS Liberty Bancorp, Inc. ------------------------------------------------------------------------------- For the year (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Cash provided (absorbed) by operating activities Net income $ 25,876 $ 36,532 $ 18,118 Adjustments to reconcile net income to net cash provided (absorbed) by operating activities: Provisions for losses 1,400 (7,335) 407 Cumulative effect of change in accounting principle _ (14,255) _ Extraordinary item - use of net operating loss carryforwards _ _ (4,640) Provision (benefit) for income taxes (906) (2,358) 4,737 Depreciation and amortization 9,322 12,833 8,018 Net amortization (accretion) of investment securities 12,460 12,125 (340) Gain on sale of assets (9,346) (9,418) (7,267) Change in trading account securities (14,586) 5,265 6,582 Loans made for purposes of resale (148,102) (143,722) (121,993) Proceeds from sale of loans held for resale 70,113 116,748 124,955 Change in accrued interest, expenses and taxes, accounts payable and other liabilities (78) (3,423) (19,882) Change in accrued income receivable, accounts receivable and other assets (15,368) (11,752) 36,135 ------------------------------------------------------------------------------- Net cash provided (absorbed) by operating activities (69,215) (8,760) 44,830 ------------------------------------------------------------------------------- Cash provided (absorbed) by investing activities Proceeds from maturities and paydowns on Available for sale securities 124,299 68,031 _ Held to maturity securities 71,634 330,992 265,814 Proceeds from sales of Available for sale securities 749,596 301,240 86,933 Held to maturity securities _ 199,668 123,843 Equity securities 1,455 7,063 14,252 Purchases of Available for sale securities (788,831) (495,540) (134,861) Held to maturity securities (30,348) (531,370) (493,042) Equity securities (641) (11,262) (15,422) Change in net loans made by bank subsidiaries (167,911) (109,283) 168,550 Principal payments received on loans made by parent company and nonbank subsidiaries 5,730 1,545 2,226 Loans made to customers by nonbank subsidiaries (6,659) (2,370) (212) Expenditures for property and equipment (11,549) (16,111) (5,777) Proceeds from sale of property and equipment 44 487 164 Sale proceeds and collections from other real estate and assets acquired in settlement of loans 9,052 9,938 27,489 Cash and cash equivalents received in financial institution acquisitons, net of consideration _ (1,552) 5,814 Proceeds from sales of mortgage servicing contracts 1,301 _ _ Purchases of mortgage servicing contracts (4,155) (191) (3,176) ------------------------------------------------------------------------------- Net cash provided (absorbed) by investing activities (46,983) (248,715) 42,595 ------------------------------------------------------------------------------- Cash provided (absorbed) by financing activities Change in savings and demand deposits 111,065 50,264 28,880 Change in time deposits 137,978 (73,734) (41,891) Change in short-term borrowings (47,960) (7,709) (79,094) Payment on long-term notes _ (7,627) (2,377) Proceeds from issuance of common and treasury stock 738 949 595 Purchase of treasury stock (1,257) (440) _ Dividends paid on common stock (5,689) (2,702) _ ------------------------------------------------------------------------------- Net cash provided (absorbed) by financing activities 194,875 (40,999) (93,887) ------------------------------------------------------------------------------- Net change in cash and cash equivalents 78,677 (298,474) (6,462) Cash and cash equivalents at beginning of year 337,279 635,753 642,215 ------------------------------------------------------------------------------- Cash and cash equivalents at end of year $415,956 $337,279 $635,753 =============================================================================== The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Liberty Bancorp, Inc.
Note 1 Accounting Policies
The accounting and reporting policies of Liberty Bancorp, Inc. ("Liberty") reflect industry practices and are in accordance with generally accepted accounting principles. Certain reclassifications have been made to provide con- sistent financial statement classifications in the periods presented herein. Such reclassifications had no effect on net income or total assets. The more significant accounting policies are described below.
Consolidation - The consolidated financial statements include the accounts of the parent company and all significant subsidiaries including Liberty Bank and Trust Company of Oklahoma City, N.A. ("Liberty Oklahoma City") and Liberty Bank and Trust Company of Tulsa, N.A. ("Liberty Tulsa"). All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.
Investment and Trading Account Securities - Securities purchased for trading purposes are held in the trading portfolio at estimated market value, with unrealized gains and losses reported in earnings. Securities that are being held for indefinite periods of time, including securities that management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital or other situations are classified as available for sale and are carried at estimated market value with unrealized gains and losses reported as a separate component of shareholders' investment, net of income tax. Other debt securities that management has the ability and intent to hold to maturity are classified as held to maturity and are carried at cost, adjusted for amortization of premiums and accretion of discounts. Equity securities which do not have a readily determinable market value are carried at cost. Gains and losses on the sale of investment securities are reported as of the trade date and are included as a component of noninterest income. Applicable income taxes are included in the provision for income taxes in the accompanying consolidated statement of income. Gains and losses are determined by the use of the specific cost identification method.
Loans - Loans are placed on nonaccrual status when they become 90 days past due unless their collateral position or other conditions warrant continued accrual status. Previously accrued but uncollected interest on these loans is usually reversed. Interest on nonaccrual loans is recognized only as it is re- ceived and only to the extent that the collectibility of the principal is not in doubt. Loan fees are deferred and recognized over the commitment and/or loan period. Fees that are an adjustment of yield are included in interest income and all other fees are included in noninterest income. Costs associated with the origination of loans are expensed as incurred rather than capitalized and amortized, as the amount is not considered material. Loans which Liberty does not intend or does not expect to hold until maturity are identified as held for sale. These loans are carried at the lower of cost or estimated market value. Gains and losses on the sale of loans held for sale are determined by the use of the specific identification method and are reflected as a component of noninterest income.
Reserve for Loan Losses - The reserve for loan losses is established by charges to income. The reserve is an amount which management believes will be adequate to absorb losses on existing loans that become uncollectible. The level of the reserve is based on a number of factors, including the collection of loans and the evaluation of underlying collateral values, loss experience, identification and review of specific problem loans, overall quality of the portfolios, and current business and economic conditions. The adequacy of the reserve is periodically reviewed and approved by the Board of Directors. Ul- timate losses, however, may differ from the current estimates. To the extent that adjustments to increase or decrease the reserve for loan losses become necessary, they are reported in earnings in the periods in which they become known. It is Liberty's policy to charge off any loan or portion thereof when it is deemed uncollectible in the ordinary course of business. Loan losses and recoveries are charged or credited directly to the reserve for loan losses. Other Real Estate and Assets Owned - Other real estate and assets owned are carried at the lower of loan carrying amount or fair value, net of estimated selling costs. Write-downs at the time of acquisition are accounted for as loan losses. The reserve for losses on other real estate and assets owned is established by charges to income. The reserve is an amount which management believes will be adequate to absorb inherent losses from the dispo- sition and/or decreases in fair value of those properties. Losses and subsequent writedowns are charged to the reserve for other real estate and assets owned. Operating income received and gains from the subsequent disposi- tion of these assets are included as a component of net income from operation of other real estate and assets owned.
Property and Equipment - Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the estimated useful lives of the assets or the terms of the leases, whichever is shorter. Maintenance and repairs are charged to expense as incurred.
Intangible Assets - Intangible assets consist primarily of premiums paid as a result of branch and bank acquisitions and purchased mortgage servicing rights. These assets are included as a component of other assets and amounted to $12,403,000 and $13,892,000, net of accumulated amortization totaling $14,847,000 and $17,233,000, at December 31, 1994 and 1993, respectively. The intangible assets, other than purchased mortgage servicing rights, are being amortized over their estimated lives (ranging from 10 to 18 years) by either the straight-line or interest methods. Purchased mortgage servicing rights, which totaled $3,397,000 and $3,728,000 at the end of 1994 and 1993, respectively, are being amortized over the estimated servicing lives of the loans to which they relate in proportion to net servicing income.
Income Taxes - Effective January 1, 1993, deferred income taxes are provided to reflect the future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the consolidated balance sheet. Prior to January 1, 1993 deferred taxes, if any, were provided for timing differences between items of income or expense reported for financial statement purposes and those reported for income tax purposes.
Transactions with Related Parties - In the ordinary course of business, directors of Liberty, members of the advisory board, executive officers and principal shareholders of Liberty and their associates engage in business transactions with Liberty. These transactions are conducted on substantially the same terms as those prevailing at the time for comparable transactions with other persons and, in management's opinion, do not involve more than normal risk or present other unfavorable features.
Earnings per Share - Earnings per share is calculated using Liberty's weighted average common and common-equivalent shares (primarily stock options) outstanding during the periods. The weighted average number of shares used to compute primary and fully-diluted earnings per share are presented as follows:
------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Weighted average shares outstanding Primary 9,801 9,765 8,995 Fully-diluted 9,801 9,765 9,061
Statement of Cash Flows - For purposes of reporting cash flows, cash and cash- equivalents represent cash and due from banks, including interest-bearing deposits with original maturities less than 90 days, federal funds sold and securities purchased under agreements to resell. Supplemental cash flow information includes the following:
------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Cash paid for Interest $60,464 $54,899 $64,979 Income taxes 2,079 762 100 Noncash items included in investing activities Loans transferred to other real estate and assets owned _ 1,559 1,203 Loans made to finance the sale of other real estate and assets owned 1,980 630 10,156 Receipt of preferred stock as partial proceeds for sale of other assets 700 _ _
Note 2 Acquisitions
Purchase Transactions _ On August 1, and October 1, 1993, Liberty acquired the First Oklahoma Bank and Trust Co. of Edmond and The First National Bank of Edmond, respectively, for a total cash purchase price of $20,148,000. The transactions were accounted for as purchases. Total assets acquired amounted to approximately $142,155,000. For each of these acquisitions, the consolidated statement of income includes only the income and expense of the acquired banks since acquisition. The purchase price was allocated to the net assets acquired based on their estimated fair values with the excess allocated to cost in excess of net assets acquired. The effect on Liberty's results of operations for 1993, had these transactions occurred at the beginning of the year, was not significant. There were no significant purchases in either 1994 or 1992.
Poolings-of-Interest _ The following table presents the business combinations which occurred during 1993 accounted for as poolings-of-interests. A total of 637,312 shares of common stock were issued in connection with these business combinations. The consolidated statement of income for 1992 has not been restated due to the immateriality of each business combination. Adjustments to conform the acquired banks' accounting policies to those of Liberty were not material.
------------------------------------------------------------------------------- Assets (In thousands) Acquired ------------------------------------------------------------------------------- First National Bank of Jenks $ 33,408 Midwest National Bank 38,581 Bank of Tulsa 62,820 ------------------------------------------------------------------------------- Total $134,809 ===============================================================================
The following table shows the effect of the three banks' 1993 results of operations prior to combination.
------------------------------------------------------------------------------- Pooled (In thousands) Liberty Banks Combined ------------------------------------------------------------------------------- Interest income $121,285 $7,116 $128,401 Net interest income 70,074 4,494 74,568 Cumulative effect of change in accounting principle 14,412 (157) 14,255 Net income (loss) 36,643 (111) 36,532
There were no poolings-of-interest in either 1994 or 1992.
Note 3 Cash and Due from Banks
As members of the Federal Reserve System, Liberty's subsidiary banks are required to maintain certain cumulative reserve balances based on deposits. Actual reserve balances amounted to $31,465,000 and $29,877,000, respectively, at December 31, 1994 and 1993, and averaged $34,237,000 and $26,603,000 for 1994 and 1993, respectively. These reserve balances are included in cash and due from banks in the accompanying consolidated balance sheet. This balance sheet category also includes checks in process of collection, and cash balances maintained at correspondent banks for services rendered.
Note 4 Investment and Trading Securities
As of December 31, 1993, Liberty changed its method of accounting for certain investment securities as allowed by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This standard recognizes unrealized gains and losses on available for sale securities, net of income taxes, as a component of shareholders' investment. At December 31, 1994 this component for losses totaled $6,854,000 compared to a gain position at December 31, 1993 of $6,184,000.
The following table is a summary of investment securities at December 31, 1994 and 1993.
The following table is a summary of trading securities at December 31, 1994 and 1993.
The estimated market values of investment and trading securities are based upon available market data and estimates, which often reflect transactions of relatively small size and are not necessarily indicative of the price at which large amounts of particular issues could be readily sold.
The carrying value and estimated market value of debt securities at December 31, 1994 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
------------------------------------------------------------------------------ Estimated Amortized Market (In thousands) Cost Value ------------------------------------------------------------------------------
Available for sale Due within one year $371,316 $368,995 Due after one but within five years 255,312 247,963 Due after five but within ten years 15,528 15,128 Due after ten years 82 81 Mortgage-backed 24,443 23,968 ------------------------------------------------------------------------------ Total $666,681 $656,135 ============================================================================== Held to maturity Due within one year $ 28,196 $ 28,002 Due after one but within five years 71,691 68,066 Due after five but within ten years 13,082 12,635 Due after ten years 84,173 73,646 Mortgage-backed 218,942 217,866 ------------------------------------------------------------------------------ Total $416,084 $400,215 ==============================================================================
Proceeds from sales of investment securities during 1994 were $751,334,000 compared to $507,971,000 and $225,028,000 in 1993 and 1992, respectively. Gross gains on sales amounted to $1,951,000, $3,114,000 and $137,000 along with gross losses of $777,000, $364,000 and $126,000 for the respective years 1994, 1993 and 1992.
Dividends on investments totaled $1,638,000 for 1994 compared to $1,863,000 for 1993 and $1,153,000 for 1992.
Securities with carrying values of approximately $903,911,000 at December 31, 1994 were pledged to secure public and trust deposits and for other purposes as required or permitted by law.
In October 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS No. 119 is effective for fiscal years ending after December 15, 1994. SFAS No. 119 requires disclosures about off-balance sheet derivative financial instruments such as futures, forwards, swaps, option contracts and other off- balance sheet financial instruments with similar characteristics. Liberty does not engage in these types of transactions; therefore, the adoption of SFAS No. 119 had no impact on Liberty's consolidated financial statements.
Note 5 Loans
The composition of the loan portfolio is shown below. ------------------------------------------------------------------------------- Loans ------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Commercial and other $ 488,400 $376,454 Energy 71,883 57,089 Real estate _ construction 97,344 85,566 Real estate _ mortgage 244,809 172,652 Correspondent and regional 19,266 17,336 Personal 233,654 195,392 Mortgage loans held for sale 24,423 26,452 ------------------------------------------------------------------------------- Total (1) $1,179,779 $930,941 =============================================================================== (1) Includes unearned income of $2,638,000 and $3,525,000 at December 31, 1994 and 1993, respectively.
Loans to executive officers and directors (or their associates) of Liberty and its principal subsidiaries and loans guaranteed by such persons are con- sidered related-party loans. The aggregate amount of such loans is presented in the following table.
------------------------------------------------------------------------------- Related Party Loans ------------------------------------------------------------------------------- (In thousands) ------------------------------------------------------------------------------- Balance at beginning of year $16,571 Advances 848 Payments (7,452) ------------------------------------------------------------------------------- Balance at end of year $ 9,967 ===============================================================================
The following table summarizes the components of nonperforming loans.
------------------------------------------------------------------------------- Nonperforming Loans ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Nonaccrual $ 7,808 $10,138 $19,244 Past due 90 days or more 3,748 3,313 487 ------------------------------------------------------------------------------- Total $11,556 $13,451 $19,731 ===============================================================================
Generally, the largest concentrations of nonperforming loans for 1994, 1993 and 1992 were in the real estate and commercial categories.
The gross interest income from nonaccrual loans outstanding at year-end, had they been performing in accordance with their original terms, would have been approximately $932,000 for 1994, $1,109,000 for 1993 and $1,493,000 for 1992. The amount of interest included in interest income from these loans was approximately $133,000 in 1994, $64,000 in 1993, and $37,000 in 1992.
In addition, Liberty had certain loans which, although currently performing, have credit weaknesses such that doubts exist as to the borrowers' future ability to comply with present terms. At December 31, 1994, these po- tential problem loans totaled $177,000 compared to $16,979,000 at December 31, 1993 and $5,147,000 at December 31, 1992. The decrease at year-end 1994 was primarily attributable to the repayment of one large problem loan relationship during 1994. The balances at December 31, 1993 and 1992 included approximately $98,000 and $415,000, respectively, in letters of credit and unfunded loan com- mitments. There were no unfunded balances in potential problem loans at the end of 1994. The principal portion of these loans and commitments exposed to loss has been considered in the establishment of the reserve for loan losses.
The following is an analysis of the reserve for loan losses.
------------------------------------------------------------------------------- Reserve for Loan Losses ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Balance at beginning of year $19,986 $25,581 $25,988 Additions Recoveries 1,281 2,400 2,335 Provisions _ (7,363) 1,793 Reserves of acquired banks _ 1,241 70 Less _ Charge-offs (2,186) (1,873) (4,605) ------------------------------------------------------------------------------- Balance at end of year $19,081 $19,986 $25,581 ===============================================================================
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), and in October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan _ Income Recognition and Disclosures." Both SFAS No. 114 and SFAS No. 118 are effective for fiscal years beginning after December 15, 1994. SFAS No. 114 addresses the accounting by creditors for impairment of a loan by specifying how reserves for losses related to impaired loans, as defined, shall be determined. A discounted cash flow analysis using the original contractual interest rate as the discount rate or use of the fair value of the collateral for collateral dependent loans is required for loans meeting the definition of impaired. If the discounted value is less than the contractual balance, the difference must be provided for through the reserve for loan losses. SFAS No. 118 amends SFAS No. 114 to require information about the recorded investment in certain impaired loans as well as how interest income related to those impaired loans is recognized. This adoption will not have a material adverse effect on Liberty's financial position when adopted in 1995, based on impaired loans, as defined, at December 31, 1994. . Note 6 Property and Equipment
Property and equipment is stated at cost as follows.
------------------------------------------------------------------------------- Extimated Useful (In thousands) 1994 1993 Lives ------------------------------------------------------------------------------- Land $ 10,433 $ 9,745 N/A Buildings and other bank premises 64,116 59,649 3-40 Years Leasehold improvements 7,497 8,264 5-40 Years Equipment, furniture and fixtures and other 43,500 37,071 3-10 Years ------------------------------------------------------------------------------- Total property and equipment 125,546 114,729 Less _ Accumulated depreciation and amortization (57,075) (50,577) ------------------------------------------------------------------------------- Property and equipment, net $ 68,471 $ 64,152 ===============================================================================
Depreciation and amortization expense for the years 1994, 1993 and 1992 was approximately $7,097,000, $5,365,000 and $4,577,000, respectively.
Note 7 Other Real Estate and Assets Owned
The following table summarizes the components of other real estate and assets owned.
------------------------------------------------------------------------------- Other Real Estate and Assets Owned ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Land $4,522 $ 8,791 $14,516 Residential _ single-family 1,031 1,631 1,122 Commercial _ office buildings and motels 792 2,487 2,481 Other 25 456 2,543 ------------------------------------------------------------------------------- Total other real estate and assets owned 6,370 13,365 20,662 Less reserve for losses (1,042) (2,521) (5,001) ------------------------------------------------------------------------------- Other real estate and assets owned, net $5,328 $10,844 $15,661 ===============================================================================
An analysis of the reserve for losses on other real estate and assets owned is presented below.
------------------------------------------------------------------------------- Reserve for Losses on Other Real Estate and Assets Owned ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Balance at beginning of year $2,521 $5,001 $11,447 Charge-offs (1,029) (1,515) (4,105) Provisions for losses (450) (1,207) (2,341) Reserve from acquired banks _ 242 _ ------------------------------------------------------------------------------- Balance at end of year $1,042 $2,521 $5,001 ===============================================================================
Note 8 Interest-Bearing Deposits
The components of interest-bearing deposits are presented in the following table.
------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Savings and money market accounts $ 794,531 $ 722,479 Time _ $100 or more 206,720 131,829 Public funds 217,285 181,990 Other time deposits 427,411 399,619 ------------------------------------------------------------------------------- Balance at end of year $1,645,947 $1,435,917 ===============================================================================
Time deposits over $100,000 include brokered deposits which totaled $87,015,000 at December 31, 1994 compared to $5,100,000 at December 31, 1993. Time deposits over $100,000 also include international deposits with the branches of Liberty Oklahoma City and Liberty Tulsa in Nassau, The Bahamas of $32,805,000 and $24,981,000 at December 31, 1994 and 1993, respectively.
Note 9 Other Borrowings
The components of other borrowings are presented below.
------------------------------------------------------------------------------- Federal Funds Purchased and Securities Sold Under Agreements to Repurchase ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Borrowings outstanding At year-end $139,700 $116,486 $144,400 Average for the year 134,444 122,103 120,173 Maximum month-end balance 219,662 167,608 144,400 Interest rates Average for the year 4.1% 2.9% 3.3% Average at end of year 4.9 2.9 2.5
------------------------------------------------------------------------------- Treasury, Tax and Loan Deposits and Other Borrowings ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Borrowings outstanding At year-end $ 90,452 $161,626 $140,693 Average for the year 89,893 110,847 106,944 Maximum month-end balance 191,704 241,434 281,423 Interest rates Average for the year 4.4% 3.2% 3.4% Average at end of year 5.3 2.9 2.7
Federal funds purchased and securities sold under agreements to repurchase are generally issued on an overnight or demand basis. Treasury, tax and loan deposits and other borrowings generally have maturities of three years or less. The fair value of these borrowings has been estimated to approximate their carrying value.
Note 10 Income Taxes
Effective January 1, 1993, Liberty adopted SFAS No. 109, "Accounting for Income Taxes." This standard requires, among other things, recognition of future tax benefits, measured at enacted tax rates, attributable to deductible temporary differences between financial statement and income tax bases of assets and liabilities and to tax net operating loss carryforwards, to the extent the realization of such benefits is more likely than not. Similarly, future tax liabilities are also required to be recognized. The adoption of SFAS No. 109 resulted in a net deferred asset and related benefit of $14.3 million or $1.46 per share on January 1, 1993. This change is reflected in the consolidated statement of income as a cumulative effect of change in accounting principle. The 1992 consolidated statement of income has not been restated.
The total provision (benefit) for income taxes has been allocated as follows:
------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Income from continuing operations ($ 906) ($2,358) $4,737 Shareholders' investment (7,052) 3,362 _ ------------------------------------------------------------------------------- Total ($7,958) $1,004 $4,737 ===============================================================================
The provision (benefit) for income taxes on income from continuing operations before cumulative effect of change in accounting principle and extraordinary item is summarized below:
------------------------------------------------------------------------------- Provision (Benefit) for Income Taxes ------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Current expense $ _ $ 330 $ 97 Deferred expense (benefit) (906) (2,688) 4,640 ------------------------------------------------------------------------------- Total provision (benefit) for income taxes ($906) ($2,358) $4,737 ===============================================================================
Deferred tax assets are composed of the following at December 31, 1994 and 1993.
------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Deferred tax assets _ Net operating loss carryforwards $ 8,643 $12,913 Reserve for loan losses 6,678 6,807 Reserve for losses and writedowns on other real estate and assets owned 4,107 6,061 Unrealized losses on investment securities for financial reporting purposes 3,690 _ Other reserves for uninsured risk 2,901 3,039 Accelerated amortization of purchased mortgage servicing rights 1,993 2,232 Tax credit carryforwards 1,975 1,975 Alternative minimum tax credit carryforward 1,012 359 Accrued compensation and benefits 806 984 Unrealized gains on investment securities for income tax purposes _ 3,801 Other 1,353 1,147 ------------------------------------------------------------------------------- 33,158 39,318 ------------------------------------------------------------------------------- Deferred tax liabilities _ Accelerated depreciation of property and equipment (6,987) (6,413) Unrealized losses on investment securities for income tax purposes (2,490) _ Unrealized gains on investment securities for financial reporting purposes _ (3,362) Income reported on the cash basis for income tax purposes _ (1,071) ------------------------------------------------------------------------------- (9,477) (10,846) ------------------------------------------------------------------------------- Net deferred tax asset 23,681 28,472 Valuation allowance (2,020) (14,888) ------------------------------------------------------------------------------- Deferred tax asset, net $21,661 $13,584 ===============================================================================
The effective income tax rates differ from the statutory federal income tax rate of 35% in 1994 and 1993 and 34% in 1992. A reconciliation of the provision (benefit) for income taxes based on the statutory rates with the effective rates follows.
------------------------------------------------------------------------------- (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Income tax at statutory rate $8,739 $6,971 $6,193 Change in valuation allowance (8,363) (6,901) _ Nontaxable interest and dividend income (1,671) (1,805) (1,766) Amortization of costs related to branch and other bank acquisitions 306 137 204 Interest expense related to funding tax-exempt assets 98 53 99 Current year statutory rate change _ (406) _ Other, net (15) (407) 7 ------------------------------------------------------------------------------- Total provision (benefit) for income taxes ($ 906) ($2,358) $4,737 ===============================================================================
At December 31, 1994, Liberty had net operating loss carryforwards approximating $25,000,000. Approximately $1,000,000 of the net operating loss carryforwards can be used to offset future taxable income through 2000. The remaining net operating loss carryforwards can be used through 2009. Liberty also has approximately $2,000,000 in investment tax credit carryforwards which will expire through 2000. At December 31, 1994 Liberty also had approximately $1,000,000 in alternative minimum tax credit carryforwards with no expiration.
Management had previously provided a valuation allowance for the expected future tax benefit of all of Liberty's available net operating loss carryforwards and investment tax credit carryforwards until a record of proven taxable income had been established. During 1994, management determined that these positive trends had been established and that based on Liberty's recent history of earnings and its expectations for the future, it is more likely than not that Liberty will receive benefit from its net operating loss carryforwards. As a result, the valuation allowance at December 31, 1993 was reduced by $8.4 million to give effect for this expected benefit. The remaining change in the valuation allowance during 1994 of $4.5 million represents the expiration of net operating loss carryforwards totaling approximately $13.0 million.
Liberty's federal and state income tax returns have been examined by and/or settled with the Internal Revenue Service ("IRS") through 1990. There are currently no significant issues outstanding in this regard with either the IRS or the Oklahoma Tax Commission.
Note 11 Shareholders' Investment
Liberty's cash dividends declared during 1994 totaled $.60 per share compared with $.30 per share for 1993. Total dividends paid during 1994 were $5,689,000 compared to $2,702,000 in 1993. Liberty Oklahoma City and Liberty Tulsa are limited in their ability to pay dividends based on applicable provisions of the National Bank Act pertaining to earnings and undivided profits. As of January 1, 1994 the amount of retained earnings of Liberty Oklahoma City and Liberty Tulsa available for the payment of dividends without regulatory approval was approximately $29,893,000 and $13,425,000, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") contains "prompt corrective action" provisions in which banks are classified into one of five categories based primarily upon capital adequacy, ranging from "well capitalized" to "critically undercapitalized" and which require, subject to certain exceptions, the appropriate federal banking agency to take prompt corrective action with respect to an institution which becomes "undercapitalized" and to take additional actions if the institution becomes "significantly undercapitalized" or "critically undercapitalized." At December 31, 1994, the regulatory capital ratios of Liberty's subsidiary banks were in excess of those necessary to be considered "well capitalized."
Note 12 Stock Options
A summary of Liberty's stock options are as follows.
------------------------------------------------------------------------------- Shares Price Range ------------------------------------------------------------------------------- December 31, 1991 600,694 $ 9.50-$12.40 Options granted 217,200 14.75- 28.89 Options exercised (4,800) 12.40 Options canceled (3,200) 12.40 ------------------------------------------------------------------------------- December 31, 1992 809,894 9.50- 12.40 Options exercised (2,664) 12.40 ------------------------------------------------------------------------------- December 31, 1993 807,230 9.50- 28.89 Options exercised (14,912) 12.40 Options canceled (2,000) 12.40 ------------------------------------------------------------------------------- December 31, 1994 790,318 9.50- 28.89 ------------------------------------------------------------------------------- Exercisable 580,158 9.50- 28.89 Available for grant 2,000
Pursuant to an employment agreement with Liberty's former Chairman and Chief Executive Officer, options to purchase 289,694 shares of common stock were granted. An option covering 144,847 shares was granted on June 28, 1988 at an option price of $11.25 per share and an option on an additional 144,847 shares was granted on June 28, 1989 at a price of $9.50 per share, each price representing the fair market value at the date of grant. Each option is im- mediately exercisable and expires ten years from the date of grant.
The Liberty Stock Option Plan, adopted in 1990, reserved 400,000 shares of common stock for granting options and was increased to 525,000 shares in 1992. Options may be granted to employees of Liberty and its subsidiaries who are executive, administrative, professional or technical personnel and who have principal responsibility for the management and direction of the financial success of Liberty. An employee owning more than 5% of the total combined voting power or value of all classes of stock of Liberty will not be eligible to receive options under the plan. Options terminate and are no longer exer- cisable after ten years from the date of the grant or three months from termination of the employment of an optionee for any reason other than death, or twelve months after the date of death of an optionee.
Note 13 Employee Benefits
Liberty sponsors the Liberty Bancorp, Inc. Profit Sharing, Salary Deferral and Employee Stock Ownership Plan (the "Plan"). Eligible participants may contribute from 1% to 10% of their regular monthly earnings. Liberty matches from 50% to 125% of employee contributions not exceeding 6% of regular monthly earnings. Vesting ranges from 20% after two years of service to 100% after six years of service. Employee contributions can be invested in a variety of funds while the matching contributions are invested in Liberty's common stock. As part of Liberty's 1988 restructuring, the Plan borrowed $4,105,000 from Liberty to purchase stock for funding in future periods. The loan is serviced from annual plan contributions made by Liberty. The loan is included in deferred compensation in the accompanying consolidated statement of shareholders' investment and had a remaining balance of $2,017,000 at December 31, 1994. In addition to the contributions required to service the loan, the Board of Di- rectors may make discretionary contributions to the Plan. Expense accrued for contributions to the Plan amounted to $1,449,000 for 1994, $1,182,000 for 1993 and $1,224,000 for 1992. Dividends paid on Liberty stock, mentioned previously as held by the plan for future funding, are also contributed to plan participants.
Liberty also sponsors several incentive bonus plans and awards for the purpose of rewarding persons serving in key management positions throughout Liberty. These bonuses and awards are tied primarily to the achievement of both corporate and personal goals. Expenses accrued under these bonus plans and awards totaled $1,338,000 in 1994, $1,148,000 in 1993 and $1,150,000 in 1992 and are included in salaries in the accompanying consolidated statement of income.
These accrued expenses include the cost of stock awards available from certain of the bonus plans. Total shares initially approved as available for such awards totaled 75,000 shares. Shares awarded during 1994, 1993 and 1992 under this portion of the bonus plans totaled 918, 4,078 and 6,495 shares, respectively. Shares remaining for award at December 31, 1994 totaled 63,507. Shares awarded in 1992 vest at 20% per year. The cost of these shares not vested at December 31, 1994 totaled $114,000 and is included in deferred compensation in the accompanying statement of shareholders' investment. Shares awarded subsequent to December 31, 1992 vest 100% one year after their award date. Related expenses are recorded in the year the award is granted.
The Stock Appreciation Rights Plan (the "SAR Plan"), adopted in 1990, reserved 50,000 rights to be used as an incentive to employees of Liberty and its subsidiaries. Persons receiving a right pursuant to the SAR Plan will not be in any way construed to be a stockholder of Liberty or have any right to receive shares of common stock. Each right becomes exercisable at the rate of 20% per year, beginning one year following the date of grant. Expenses accrued under this plan, based on the fair market value of Liberty's common stock, totaled $145,000 in 1994, $95,000 in 1993 and $473,000 in 1992 and are included as salaries in the accompanying consolidated statement of income.
The following table summarizes this plan for the past three years.
------------------------------------------------------------------------------- Rights Price Range ------------------------------------------------------------------------------- December 31, 1991 23,500 $10.00 Rights granted or reissued 28,000 14.75 Rights exercised or made available for reissue (1,930) 10.00 ------------------------------------------------------------------------------- December 31, 1992 49,570 10.00 - 14.75 Rights exercised or made available for reissue (6,265) 10.00 - 14.75 ------------------------------------------------------------------------------- December 31, 1993 43,305 10.00 - 14.75 Rights exercised or made available for reissue (14,750) 10.00 - 14.75 ------------------------------------------------------------------------------- December 31, 1994 28,555 10.00 - 14.75 ------------------------------------------------------------------------------- Exercisable 10,030 10.00 - 14.75
During 1993, Liberty adopted the Supplemental Executive Retirement Plan. The plan is intended to be an unfunded nonqualified deferred compensation arrangement for a select group of management employees. Liberty will contribute annually to a trust for each participant an amount equal to 7% of the participant's base compensation plus an amount, if any, necessary to fund the participant's trust account such that the balance would approximate a projected benefit as defined in the plan. A participant's benefit vests at a rate of 20% per year based upon number of years of participation service. A participant shall also become fully vested upon death, disability or on a change in control. Charges to expense under the plan totaled $150,000 and $141,000 in 1994 and 1993, respectively.
Liberty provides certain health care benefits and life and disability insurance benefits to employees subject to beneficiary-paid premiums, co- payment provisions and deductibles. Expenses relating to these benefits provided to current employees totaled $2,659,000 in 1994, $2,181,000 in 1993 and $1,551,000 in 1992.
Note 14 Postretirement Benefits
Employees of Liberty over the age of 55 with fifteen years of service or over the age of 65 with ten years of service are entitled to postretirement health care and life insurance benefits subject to retiree-paid premiums, co- payment provisions and deductibles.
Liberty adopted SFAS No. 106, Accounting for Postretirement Benefits Other Than Pensions ("SFAS No. 106") effective January 1, 1993. This standard re- quires a current charge to expense for anticipated postretirement benefits. Prior to 1993 these benefits were expensed as paid by Liberty and totaled $535,000 in 1992.
At the date of the adoption of this standard, Liberty's estimate of this obligation totaled approximately $10.8 million based on actuarial evaluations. The obligation at adoption represents benefits earned by current and retired employees through that date and is termed the "transition obligation." As allowed by the standard, Liberty is recognizing the liability related to the transition obligation through charges to earnings over a 20 year period.
An actuarial evaluation of the present value of the total postretirement benefit obligation, which includes the transition obligation, is performed annually. Estimates of the obligation are based on various assumptions, including health care costs, employee contributions, work force demographics, interest rates and plan changes and may be different from actual expenses incurred.
Liberty's policy is to fund claims from the liability established as they arise; therefore, no plan assets were available to offset the retirement benefit obligation as of December 31, 1994 and 1993. The following table reflects the postretirement obligation by participant type as well as the amount of the obligation reflected as a liability in the accompanying consolidated balance sheets as of December 31, 1994 and 1993:
------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Current retirees ($ 8,440) ($ 9,001) Active plan participants (1,671) (1,484) Other fully eligible participants (1,182) (725) ------------------------------------------------------------------------------- Total estimated present value of benefit obligation (11,293) (11,210) ------------------------------------------------------------------------------- Unamortized transition obligation 9,762 10,304 Unrecognized net gain due to assumption changes (645) _ ------------------------------------------------------------------------------- Total obligation included in other liabilities ($ 2,176) ($ 906) ===============================================================================
Amounts included as expense within employee benefits represent the following for the years ending December 31, 1994 and 1993:
------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Interest cost $ 768 $ 869 Service cost 199 150 Prior service cost (11) _ Amortization of unrecognized obligation 542 542 ------------------------------------------------------------------------------- Net periodic postretirement benefit cost $1,498 $1,561 ===============================================================================
The trend assumptions for medical, dental, vision and hearing cost components of the retirement benefit obligation as of December 31, 1994 and 1993 were as follows.
------------------------------------------------------------------------------- Benefit Trend Assumptions Reduced to For Fiscal ------------------------------------------------------------------------------- 1994 1993 1994 1993 1994 1993 ------------------------------------------------------------------------------- Medical benefits for persons under age 65 10.5% 12.0% 6.0% 6.0% 2004 over 2003 2003 over 2002 Medical benefits for persons over age 65 8.5 10.5 5.0 6.0 2002 over 2001 2003 over 2002 Dental, vision and hearing for all ages 8.5 8.5 5.0 5.0 2002 over 2001 2005 over 2004
Life insurance benefit trend assumptions for 1994 and 1993 were based on final pay of each eligible retiring employee adjusted for an assumed compensation rate increase of 4.0%. The initial estimated benefit was then subject to a 10% annual reduction but increased for each eligible retiring employee with age. For purposes of evaluating the benefit obligation an assumed discount rate of 7.5% and 8.3% were utilized during 1994 and 1993, respectively.
A 1% increase in the assumed health care cost trend rates for each future year would increase the accumulated postretirement benefit obligation to approximately $12.1 million, an increase of 7%. Additionally, the aggregate of the service and interest cost components of net periodic postretirement benefit cost would increase to approximately $1.0 million, an increase of 3%.
Note 15 Fair Value of Financial Instruments
Liberty discloses certain information regarding the fair value of its financial instruments. A financial instrument is defined as cash, evidence of ownership interest in an entity or a contractual arrangement that involves cash or another financial instrument. Market prices are the best evidence of the fair value of financial instruments. If quoted market prices are not available, a best estimate is made based on quoted market prices of a financial instrument with similar characteristics or on valuation techniques. Although the fair value of financial instruments with quoted market prices are generally indicative of the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, the fair value of financial instruments without an available quoted market price can vary greatly depending on the method and assumptions used in the valuation techniques.
The process of determining the best estimate of the fair value of financial instruments is complex and requires significant judgments to be made by management. Computation of fair values for these financial instruments without an available quoted market price is based upon the computation of the present value of estimated future cash flows, utilizing a discount rate com- mensurate with the risks associated with the various financial instruments. The discount rate is based upon the U.S. Treasury yield curve with adjustments determined by management for consideration of, among others, credit risk, pre- payment risk and operational costs.
The fair value of a given financial instrument may change substantially over time as a result of, among other things, changes in scheduled or fore- casted cash flows, movement of the U.S. Treasury yield curve, and changes in management's estimates of the related credit risk or operational costs. Conse- quently, significant revisions to fair value estimates may occur during future periods. Management believes it has taken reasonable efforts to ensure that fair value estimates presented are accurate. However, adjustments to fair value estimates may occur in the future and actual amounts realized from financial instruments may differ from the amounts presented herein.
The fair values presented apply only to financial instruments and, as such, do not include such items as fixed assets, other real estate and assets owned, other assets and liabilities as well as other intangibles which have resulted over the course of business. As a result, the aggregation of the fair value estimates presented herein do not represent, and should not be construed to represent, the underlying value of Liberty.
------------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------------- Carrying Fair Carrying Fair (In thousands) Value Value Value Value ------------------------------------------------------------------------------- Financial assets Cash and cash-equivalents $ 415,956 $ 415,956 $ 337,279 $ 337,279 Trading account securities 21,207 21,207 1,891 1,891 Investment securities 1,090,674 1,078,983 1,248,539 1,256,976 Loans 1,179,779 1,147,615 930,941 914,000 Less: reserve for loan losses (19,081) _ (19,986) _
Financial liabilities Noninterest-bearing deposits 728,240 728,240 689,227 689,227 Interest-bearing deposits 1,645,947 1,649,313 1,435,917 1,442,000 Other borrowings 230,152 230,152 278,112 278,112
The estimated fair value of cash and cash-equivalents, noninterest-bearing deposits and other borrowings approximates the carrying value of these instruments. The estimated fair value of trading securities, investment securities and loans held for sale are based upon available market data and estimates. Trading securities and investment securities available for sale are carried at their estimated fair value.
Variable rate loans whose rates are tied to Liberty's base rate have been valued at their respective carrying values. Loans with a fixed rate of inter- est have been estimated using a discounted cash flow analysis. Discount rates used ranged from 9.2% to 11.0% in 1994 and 5.4% to 7.0% in 1993. Future cash flows are projected based on contractual rates then discounted at an estimated current market rate. The entire portfolio is adjusted to allow for estimated future losses of principal and interest.
The estimated fair value of savings and money market accounts approximates the carrying value as shown. The fair value of the remaining classes of time deposits were estimated using a discounted cash flow analysis based on the market rate of interest being paid for similar deposits at December 31, 1994 and 1993. Discount rates used ranged from 5.3% to 6.0% in 1994 and 3.6% to 4.0% in 1993.
Note 16 Commitments and Contingencies
In the normal course of business, Liberty is a party to commitments to extend credit, letters of credit and foreign exchange contracts . These instruments expose Liberty to varying degrees of credit and/or market risk in excess of the amount recognized in the accompanying consolidated balance sheet. To manage this risk, Liberty uses the same credit and trading risk management processes for financial instruments with off-balance sheet risk as it does for financial instruments whose risk is reflected on the consolidated balance sheet. The fair value of loan commitments and letters of credit, whether that value is an asset or liability, is considered negligible. Interest-rate forward and foreign exchange contracts used in trading activities are carried at their market value. Standby letters of credit and other commitments, including legally binding loan commitments, primarily variable rate in nature, were outstanding in the total amount of $500,654,000 at December 31, 1994 and $558,844,000 at December 31, 1993. Liberty does not expect a significant portion of these commitments to be exercised during the near-term.
Liberty's bank subsidiaries have sold to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation certain residential mortgage loans with recourse. Approximately $6,888,000 and $9,559,000 of loans subject to this condition remained outstanding at December 31, 1994 and 1993, respectively. For financial reporting purposes these loans have been treated as sales and therefore are not included in total loans. Liberty does not anticipate any significant adverse impact on its consolidated financial position or results of future operations as a result of the "with recourse" feature of these loans. Management believes Liberty has no other significant off-balance sheet exposure.
At December 31, 1994, Liberty was committed to make future payments under several long-term lease agreements and a data processing agreement. The minimum payments required by these agreements are summarized below:
------------------------------------------------------------------------------- Equipment Bank Data and (In thousands) Premises Processing Other Total ------------------------------------------------------------------------------- 1995 $ 3,155 $ 5,050 $ 616 $ 8,821 1996 3,013 5,145 555 8,713 1997 2,198 5,242 484 7,924 1998 2,096 5,340 476 7,912 1999 2,087 3,174 476 5,737 Remainder 6,416 _ 238 6,654 ------------------------------------------------------------------------------- Total $18,965 $23,951 $2,845 $45,761 ===============================================================================
Lease rentals included in Liberty's operating expenses for the years ended December 31, 1994, 1993 and 1992 amounted to $5,695,000, $5,631,000 and $5,043,000, respectively. Contingent rentals amounted to $541,000 in 1994, $324,000 in 1993 and $910,000 for 1992. Occupancy expense has been reduced by rental income from premises leased to third parties of $2,346,000, $2,282,000 and $2,108,000 for 1994, 1993 and 1992, respectively.
In August 1992, an agreement with a facilities manager to manage Liberty's data processing operation was renewed for a seven year term. Under certain conditions the agreement may be terminated after August 1, 1995 by Liberty paying a fee that decreases from $4.8 million in 1995 to $1.2 million in 1998. Under the agreement, data processing fees paid are increased semi-annually for the effects of inflation. The 1994 inflation adjustment of 1.88% has been assumed to remain constant in determining the data processing minimum payments. These fees totaled $5,429,000, $5,043,000 and $5,378,000 for 1994, 1993 and 1992, respectively, and are included in total data processing expense in the accompanying consolidated statement of income.
In the ordinary course of business, Liberty and its subsidiaries are subject to legal actions and complaints. Management, after consultation with legal counsel, and based upon available facts and proceedings to date, which are in preliminary stages in some instances, believes that the ultimate liability, if any, arising from such legal actions or complaints, will not have a material adverse effect on the financial position or results of future operations of Liberty or its subsidiaries.
Many financial services companies, including Liberty, have been unable, or have chosen not to, obtain insurance for various risks. Consequently, Liberty is to some degree self-insured for various risks, including those associated with lender and fiduciary liability. Liberty has recorded estimated liabili- ties for uninsured risks to the extent permitted by generally accepted ac- counting principles.
Note 17 Parent Company
Summarized financial information for Liberty Bancorp, Inc. (parent company only) is presented in the following statements:
------------------------------------------------------------------------------- Condensed Balance Sheet ------------------------------------------------------------------------------- December 31 (In thousands) 1994 1993 ------------------------------------------------------------------------------- Assets Cash in subsidiary banks $ 6,220 $ 6,228 Investment securities 1,716 1,400 Advances to subsidiary 24,405 22,530 Loans 691 847 Less _ Reserve for loan losses (38) (38) ------------------------------------------------------------------------------- Net loans 653 809 ------------------------------------------------------------------------------- Investment in subsidiaries Liberty Oklahoma City 130,843 129,227 Liberty Tulsa 88,088 90,377 Other subsidiaries (15,636) (19,225) ------------------------------------------------------------------------------- Total investment in subsidiaries 203,295 200,379 ------------------------------------------------------------------------------- Other real estate and assets owned, net 28 673 Other assets 4,259 4,336 ------------------------------------------------------------------------------- Total assets $240,576 $236,355 ===============================================================================
Liabilities Accrued interest and other expenses $ 3,242 $ 3,168 Advances from subsidiary 1,605 1,605 Other payables to subsidiaries 1,349 4,337 ------------------------------------------------------------------------------- Total liabilities 6,196 9,110 Shareholders' investment 234,380 227,245 ------------------------------------------------------------------------------- Total liabilities and shareholders' investment $240,576 $236,355 ===============================================================================
------------------------------------------------------------------------------- Condensed Statement of Income ------------------------------------------------------------------------------- For the year (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Dividends received from subsidiaries Cash dividends received from bank subsidiaries $ 7,500 $12,000 $ _ Noncash dividends received from subsidiaries _ _ 77 Interest income Loans to subsidiaries _ 29 29 Commercial and real estate loans 61 52 22 Interest-bearing deposits with subsidiary banks 133 152 302 Dividends on investments 644 1,017 258 Management fees and expense reimbursements Bank subsidiaries 16,190 15,473 14,119 Nonbank subsidiaries 239 262 117 Other income (a) 2,540 81 (33) ------------------------------------------------------------------------------- Total income 27,307 29,066 14,891 -------------------------------------------------------------------------------
Interest expense 59 212 135 Salaries and employee benefits 4,684 3,818 2,828 Data processing 5,727 5,094 5,318 Equipment 2,378 2,394 1,904 Occupancy 667 597 629 Professional and other services 1,064 1,659 1,416 Net income from operation of other real estate and assets owned (185) (246) (630) Other expenses 2,266 2,972 2,446 ------------------------------------------------------------------------------- Total expenses 16,660 16,500 14,046 Income before provision (benefit) for income taxes 10,647 12,566 845 Provision (benefit) for income taxes 725 (1,249) (216) ------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle and equity in undistributed income of subsidiaries 9,922 13,815 1,061 Cumulative effect of change in accounting principle _ 533 _ Equity in undistributed income of subsidiaries 15,954 22,184 17,057 ------------------------------------------------------------------------------- Net income $25,876 $36,532 $18,118 =============================================================================== (a) Includes net securities gains of $351,000 in 1994 and losses of $60,000 in 1992. There were no securities gains or losses in 1993.
------------------------------------------------------------------------------- Condensed Statement of Cash Flows ------------------------------------------------------------------------------- For the year (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Cash provided (absorbed) by operating activities Net income $25,876 $36,532 $18,118 Adjustments to reconcile net income to net cash provided (absorbed by) operating activities Provisions for losses on loans and other real estate and assets owned (80) (85) 35 Cumulative effect of change in accounting principle _ (533) _ Deferred income taxes 725 (1,249) (216) Depreciation and amortization 601 607 376 Noncash dividend and equity in undistributed income of subsidiaries (15,954) (22,184) (17,134) Gain on sale of assets (442) (147) (492) Change in accrued income and accounts receivable 379 (218) (346) Change in other assets 321 529 (199) Change in accrued interest, accounts payable and other liabilities (1,714) (992) 328 Change in other payables to subsidiaries (2,988) 3,300 724 ------------------------------------------------------------------------------- Net cash provided by operating activities 6,724 15,560 1,194 ------------------------------------------------------------------------------- Cash provided (absorbed) by investing activities Sales of investment securities 200 _ _ Principal payments received on loans 336 36 304 Advances on loans _ (162) (145) Advances to subsidiaries (1,875) (11,524) (2,826) Expenditures for property and equipment (80) (50) (31) Proceeds from sale of other real estate and other assets acquired in settlement of loans 895 882 2,167 Consideration, including cash and cash equivalents received or paid in bank acquisition and merger of nonbank subsidiary _ (3,593) (375) ------------------------------------------------------------------------------- Net cash absorbed by investing activities ( 524) (14,411) ( 906) ------------------------------------------------------------------------------- Cash provided (absorbed) by financing activities Payments on long-term notes _ _ (1,769) Advances from subsidiary 1,605 1,605 1,605 Repayments of advances from subsidiary (1,605) (1,605) (1,605) Proceeds from issuance of common stock and treasury stock 738 949 595 Purchase of treasury stock (1,257) (440) _ Dividends paid (5,689) (2,702) _
------------------------------------------------------------------------------- Net cash absorbed by financing activities (6,208) (2,193) (1,174) ------------------------------------------------------------------------------- Net change in cash and cash-equivalents (8) (1,044) (886) Cash and cash-equivalents at beginning of year 6,228 7,272 8,158 ------------------------------------------------------------------------------- Cash and cash-equivalents at end of year $ 6,220 $ 6,228 $ 7,272 =============================================================================== Supplemental disclosure of cash flow information: Income taxes paid $2,079 $ 762 $100 Interest paid 56 57 170
Supplemental disclosure of noncash investing activities: Transfer of advances to investment in nonbank subsidiary _ 4,807 _ Contribution of stock of acquired banks to subsidiary banks _ 10,919 _ Receipt of preferred stock as partial proceeds for sale of other assets 700 _ _
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Liberty Bancorp, Inc.
TO LIBERTY BANCORP, INC:
We have audited the accompanying consolidated balance sheets of Liberty Bancorp, Inc. (an Oklahoma corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended De- cember 31, 1994. These financial statements are the responsibility of Liberty's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain consolidated subsidiaries, which statements reflect assets constituting approximately 2% of the related December 31, 1994 and 1993 consolidated totals, and revenues of approximately 5%, 6% and 8% of consolidated revenues for 1994, 1993 and 1992, respectively. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for such subsidiaries, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant esti- mates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all ma- terial respects, the financial position of Liberty Bancorp, Inc. and sub- sidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 4 to the consolidated financial statements, effective December 31, 1993, Liberty changed its method of accounting for certain investment securities. Additionally, as explained in Notes 10 and 14, respectively, to the consolidated financial statements, effective January 1, 1993, Liberty changed its methods of accounting for income taxes and postretirement benefits other than pensions.
ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma, January 20, 1995
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING Liberty Bancorp, Inc.
The management of Liberty Bancorp, Inc. has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles. The statements include amounts that are based on management's best estimates and judgment, where necessary. Management believes that all representations made to our external auditors during their audit of the financial statements were valid and appropriate.
To meet its responsibility, management has established and maintained a comprehensive system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, that assets are safeguarded, and that transactions are properly executed and reported. This system can provide only reasonable, not absolute, assurance that errors and irregularities can be prevented or detected. The concept of reasonable assur- ance is based on the recognition that the cost of a system of internal control must be related to the benefits derived. The system of internal control is subject to close scrutiny by management and is revised as considered necessary.
The accounting policies and system of internal control are under the general oversight of the Liberty Bancorp, Inc. Board of Directors, acting through its Audit Committee, which is comprised entirely of outside directors who are not officers or employees of Liberty Bancorp, Inc. Liberty's General Auditor, who reports directly to the Audit Committee, conducts an extensive program of operational, financial and special audits to ensure the system of control is adequate and operating as intended. In addition, Arthur Andersen LLP, independent public accountants, has been engaged to conduct an audit and to express an opinion as to the fairness of the presentation of the consolidated financial statements.
Liberty Bancorp, Inc. is also examined periodically by the examiners from the Federal Reserve Board and other regulatory agencies. The Board of Directors and management appropriately consider and comply with all reports that arise from such examinations.
Management maintains and enforces a strong code of corporate conduct designed to foster a strong ethical climate so that the affairs of the corporation are conducted according to the highest standards of personal and corporate conduct. This code of conduct is furnished to and signed by all employees annually and is periodically audited to ensure compliance.
OTHER BUSINESS MATTERS Liberty Bancorp, Inc.
Personnel
On December 31, 1994, Liberty and its subsidiaries employed 1,364 full- time persons, compared with 1,435 on December 31, 1993. The decrease is due to efforts in 1994 to reduce the number of employees to lower noninterest expenses.
Competition
The Oklahoma market is highly competitive, especially in the area of competition for loans and deposits. Liberty also competes with money center and regional banks, money market funds, consumer finance companies and mortgage banks, mutual fund sponsors, brokerage firms, insurance companies and various other entities in connection with the banking and related services provided by its subsidiaries. The market for such services is highly competitive.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by ref- erence to the particular statutory and regulatory provisions described. Any change in applicable law or regulation may have a material effect on the business and prospects of Liberty, Liberty Oklahoma City or Liberty Tulsa.
Various bills relating to the banking and financial service industry are under consideration in the United States Congress and the Oklahoma legislature which could have a material effect on the banking industry and Liberty, or result in additional regulations. It cannot be predicted whether new legislation or regulations will be adopted and, if so, how they would affect Liberty and its subsidiaries.
Bank Holding Companies
Liberty is registered as a "bank holding company" under the Bank holding Company Act of 1956, as amended (the "Act"). As a bank holding company, Liberty is subject to regulation by the Federal Reserve Board. Registered bank holding companies are required to file certain reports and information with the Federal Reserve Board and are subject to examination by the Federal Reserve Board.
The Act requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority owned by it or to merge or consolidate with any other bank holding company. The Act further provides that the Federal Reserve Board shall not approve any such acquisition, merger or consolidation which would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States, or the effect of which may be to substantially lessen competition or to tend to create a monopoly in any section of the country, or which in any other manner would be in restraint of trade, unless the anti- competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.
Prior to September 29, 1995 the Act prohibits the Federal Reserve Board from approving an application from a bank holding company to acquire shares of a bank located outside the state in which the operations of the holding com- pany's banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank whose shares are to be acquired is located. After September 29, 1995, under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act"), this prohibition is eliminated subject to certain limitations and, accordingly, after such date a bank holding company will be legally permitted to acquire banks or bank holding companies in any state.
The Act also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the Act, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company whose activities the Federal Reserve Board has determined to be so closely related to banking or to managing or to controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to weigh the expected benefits to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the Act. These activities include operating a savings association, mortgage company, finance company, credit card company or loan company, providing certain data processing operations, providing investment financial advice, acting as insurance agent or serving as underwriter for certain types of credit-related insurance, leasing personal property on a full-payout nonoperating basis, providing management consulting advice to nonaffiliated banks, operating a discount brokerage firm and certain other activities. Under the Act, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit or provisions of property or services.
The Oklahoma Banking Code permits a bank holding company to own or control more than one bank, subject to a limitation that a bank holding company may not acquire a bank if the acquisition would result in such bank holding company controlling banks whose deposits exceeded 11% of total deposits of insured banks, savings associations and credit unions in Oklahoma, as reported in the most recent reports of such institutions available at the time of any acquisition. At the end of 1994, 11% of Oklahoma's total insured deposits amounted to approximately $3.0 billion.
Oklahoma also has enacted an interstate banking law. Under the law, out- of-state bank holding companies are permitted to acquire any Oklahoma bank or bank holding company; however, further expansion by the acquiring holding company within Oklahoma is prohibited for a four-year period from the date of any acquisition unless its principal place of business is in a state which has enacted reciprocal legislation authorizing Oklahoma bank holding companies to acquire banks or bank holding companies in such state. These limitations will be eliminated on September 29, 1995 under the provisions of the Riegle-Neal Act.
Banks
National banking associations, such as Liberty Oklahoma City and Liberty Tulsa, are subject to the supervision of, and are regularly examined by, the Office of the Comptroller of the Currency ("Comptroller"). Each of these banks is a member of the Federal Reserve System and is therefore subject to applicable provisions of the Federal Reserve Act which restricts the ability of any such bank to extend credit to or purchase assets from its parent holding company or any of the parent's subsidiaries or to invest in the stock or securities thereof, or to take such stock or securities as collateral for loans to any borrower, and which require that the terms of any such transactions between a bank and its parent holding company or other subsidiaries meet certain fairness standards. Affiliates of national banks are also subject to certain restrictions concerning engaging in certain securities activities.
Certain restrictions are placed on the banks' abilities to pay dividends by the National Banking Act and regulations of the Comptroller. Without the approval of the Comptroller, total dividends declared by a national bank of common stock in any calendar year may not exceed its net profits (as defined) for that year combined with its retained net profits (as defined) of the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Further, a national bank may not pay any dividends on common stock if it does not have undivided profits available. Under these provisions, Liberty Oklahoma City and Liberty Tulsa could pay dividends of no more than $29.9 million and $13.4 million, respectively, as of January 1, 1995. The Comptroller also has authority to prohibit a national bank from engaging in unsafe or unsound practices in the conduct of its business. Depending upon the financial condition of a national bank, the pay- ment of dividends could be deemed to constitute such an unsafe or unsound practice. It is anticipated that the banks will pay common dividends to the parent in 1995.
The Comptroller has the authority to take various administrative actions concerning national banks when such actions are deemed necessary by the Comptroller. These actions include imposing civil monetary penalties against a bank or its directors and officers, removing directors or officers, entering cease and desist orders, requiring formal or informal agreements between the Comptroller and the bank, and various other actions.
National banks are required by the National Banking Act to adhere to branch banking laws applicable to state banks in the states in which they are located. Under current Oklahoma law, a state or national bank located in Oklahoma may establish and maintain up to two branches (i) located within the same city as the main bank; or (ii) located within 25 miles of the main bank if located in a city or town which has no state or national bank. In addition, a state or national bank located in Oklahoma may acquire, maintain and operate as branches an unlimited number of banks, so long as such acquisitions do not result in a bank having direct or indirect ownership or control of more than eleven percent (11%) of the aggregate deposits of all financial institutions located in Oklahoma which have insured deposits. Certain exceptions to the deposit limitation exist in connection with the acquisition of stock of a bank which is acquired (i) in a good faith fiduciary capacity; (ii) in the regular course of securing or collecting a debt previously contracted in good faith; or (iii) at the request of or in connection with the exercise of regulatory authority in order to prevent imminent failure of a bank or to protect the depositors of a bank. Under the Riegle-Neal Act, interstate branching will be permitted beginning June 1, 1997 unless an individual state by legislation before June 1, 1997 elects to prohibit interstate mergers involving out-of- state banks. Individual states may also elect to permit interstate bank mergers earlier than June 1, 1997 and may also elect to permit "de novo" branching by out-of-state banks.
Insured depository institutions are liable for any losses incurred by the Federal Deposit Insurance Corporation in connection with the closing of another insured depository institution under common control. These "cross-guarantee" provisions may have an effect on the ability of multi-bank holding companies, such as Liberty, and their subsidiary banks to raise capital and borrow funds because of the increased risk of loss.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") provided for the recapitalization of the Bank Insurance Fund (which resulted in an increase in deposit insurance costs). FDICIA also made many far-reaching changes in the regulatory environment for insured banks and savings associations, many of which have a significant impact on the operations of banks and bank holding companies. These changes include: major revisions in the supervision, examination and audit processes; new requirements for corrective actions for undercapitalized institutions; required adoption of uniform safety and soundness standards; increases in disclosure requirements for deposit accounts; substantial new reporting requirements; changes in terms of insurance coverage for certain deposits; and a number of other changes. Most of the requirements of FDICIA are being implemented through regulations which have been and will continue to be promulgated by the appropriate regula- tory authority. FDICIA has resulted in increased regulatory compliance costs but does not affect Liberty to any materially greater extent than other comparable institutions.
Government Policies
The earnings of Liberty are affected not only by general economic conditions, both domestic and foreign, but also by legislative and administrative changes which, among other things, affect maximum lending rates, and by the monetary and fiscal policies of the U.S. Government and its agencies, including the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve Board are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, changes in reserve requirements against member bank deposits and limitations on interest rates which member banks may pay on time and savings deposits. These means are used in varying combinations to influence overall growth of bank loans, investments and deposits, and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future.
In view of the changing conditions in the national economy and in the money markets and the effect of actions by monetary and fiscal authorities, as well as other federal agencies and authorities, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the impact on the business and earnings of Liberty or its subsidiaries.
Properties
The principal business operations of Liberty and its Oklahoma City subsidiaries are conducted from Liberty Tower, located at 100 North Broadway, Oklahoma City, Oklahoma. Liberty owns this 36-story structure of approximately 512,000 square feet through a wholly-owned subsidiary. Approximately 44% of the property is leased to Liberty.
Liberty Tulsa maintains its offices in the 40-story First Place Tower and adjoining 20-story First Place Midrise Building, located in the central business district of Tulsa, Oklahoma. Liberty Tulsa leases approximately 213,000 square fee of the combined buildings and has an option to lease an additional 37,000 square feet. The original lease dated December 14, 1977, providing for a 25-year primary lease term, was amended April 7, 1994 to provide a ten-year extension of the original term. The replacement indenture of lease also provides an option to terminate approximately 45,000 square feet with certain conditions and timing. A first amendment to replacement indenture of lease was signed March 24, 1995, allowing Liberty Tulsa to terminate at the bank's request approximately 19,000 to 24,000 square feet from the lease. The terminations are anticipated to be effective during the second quarter of 1995. The remaining square footage subject to options to terminate continue under certain conditions.
Corporate Responsibility
Liberty strives to serve its communities in a variety of ways. Reports regarding Liberty's community investment activities, The Community Reinvestment Act performance evaluation, certain related Home Mortgage Disclosure Act data and Liberty's philanthropic programs are available to interest shareholders upon request to Community Reinvestment, P.O. Box 25848, Oklahoma City, OK 73125.
Legal Proceedings
In 1988 Cadijah Helmerich Patterson filed a civil action in the state District Court of Tulsa County, Oklahoma against Liberty Tulsa claiming breaches of fiduciary duty by Liberty Tulsa as trustee of a 1939 trust of which Ms. Patterson is a contingent beneficiary. The lawsuit also named other beneficiaries as defendants because of their beneficial interest in the trust, including Ms. Patterson's mother, Cadijah C. Helmerich, and her brother, Walter H. Helmerich, III, a director of Liberty and Liberty Tulsa. The plaintiff alleges that Liberty Tulsa breached its duty of prudence by failing to diversify properly trust investments, breached its duty of loyalty by investing in securities of First Tulsa Bancorporation, Inc., Liberty and Helmerich & Payne, Inc. and breached its duty to keep the plaintiff informed of the status of the trusts. Plaintiff seeks compensatory damages of $21.5 million, and $5.0 million in punitive damages. The litigation is in a relatively preliminary stage despite its filing date. Limited document discovery has been conducted. Liberty Tulsa intends to vigorously contest this action and management of Liberty believes, based upon the facts available at this time and after consultation with legal counsel, that it will not have any material adverse effect on the financial position of Liberty.
In the ordinary course of business, Liberty and its subsidiaries are subject to other legal actions and complaints. Management believes, after consultation with legal counsel, based upon available facts and proceedings to date, which are in preliminary stages in some instances, that the ultimate liability, if any, arising from such legal actions or complaints, will not have a material adverse effect on the financial position or result of future operations of Liberty or its subsidiaries.
Changes in Accountants
Since 1971, Ernst & Young LLP, independent public accountants, served as the independent auditors of certain subsidiaries, principally Liberty Mortgage Company ("LMC") and subsidiaries, of Liberty. LMC is an operating subsidiary of Liberty Bank and Trust Company of Oklahoma City, N.A. On March 6, 1995 that firm's appointment as independent auditor of LMC terminated and Arthur Andersen LLP, Liberty's principal accountant since 1971, was engaged as independent auditor for LMC. In its reports on the consolidated financial statements of the Company, Arthur Andersen LLP expressed reliance on the reports of Ernst & Young LLP. The decision to change accountants was approved by the audit committee of the board of directors.
In connection with the audits of the consolidated financial statements of LMC for the two years ended December 31, 1994, and in the subsequent interim period, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their opinion or reports.
The audit reports of Ernst & Young LLP on the consolidated financial statements of LMC as of and for the years ended December 31, 1994 and 1993 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.
REPORT OF OTHER INDEPENDENT AUDITORS APPLICABLE TO SUBSIDIARY
REPORT OF INDEPENDENT AUDITORS
The Board of Directors Liberty Mortgage Company
We have audited the consolidated balance sheets of Liberty Mortgage Company as of December 31, 1994 and 1993, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 31, 1994 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reason- able basis for our opinion.
Liberty Mortgage Company is one of several affiliated members of Liberty Bancorp, Inc. and a substantial portion of its activities is with or is ar- ranged by members of the affiliated group.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Liberty Mort- gage Company at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
Liberty Mortgage Company changed its method of accounting for income taxes and postretirement benefits other than pensions as more fully described in the notes to the consolidated financial statements (not presented separately herein).
ERNST & YOUNG LLP
Oklahoma City, Oklahoma, January 18, 1995
------------------------------------------------------------------------------- STATEMENT OF CONDITION (Unaudited) Liberty Bank and Trust Company of Oklahoma City, N.A. and Subsidiaries ------------------------------------------------------------------------------- December 31 (In thousands) 1994 1993 ------------------------------------------------------------------------------- Assets Cash and due from banks $ 258,132 $ 245,364 Federal funds sold and other 64,299 17,964 Trading account securities 15,490 205 Investment securities 703,480 721,703 Loans 776,848 649,536 Less: Reserve for loan losses (13,253) (13,498) ------------------------------------------------------------------------------- Loans, net 763,595 636,038 -------------------------------------------------------------------------------
Property and equipment, net 28,790 25,625 Other real estate and assets owned, net 4,569 7,823 Deferred tax asset, net 12,781 10,416 Other assets 79,940 49,189 ------------------------------------------------------------------------------- Total assets $1,931,076 $1,714,327 ===============================================================================
Liabilities and Shareholders' Investment Deposits Noninterest-bearing $ 504,779 $ 480,662 Interest-bearing 1,098,805 946,495 ------------------------------------------------------------------------------- Total deposits 1,603,584 1,427,157 ------------------------------------------------------------------------------- Short-term borrowings 166,756 140,626 Other liabilities 29,893 17,317 ------------------------------------------------------------------------------- Total Liabilities 1,800,233 1,585,100 Total shareholders' investment 130,843 129,227 ------------------------------------------------------------------------------- Total Liabilities and Shareholders' Investment $1,931,076 $1,714,327 ===============================================================================
Liberty Bank and Trust Company of Oklahoma City, N.A. provides banking services at the following locations:
Oklahoma City Norman Edmond 100 N. Broadway 116 S. Peters 18 E. 15th 320 N. Broadway 3600 W. Robinson 24 E. 1st 1112 N.W. 23rd 320 E. Comanche 300 S. Bryant 12324 N. May Avenue Midwest City 2307 W. Edmond Road 12200 N. Rockwell Avenue 301 N. Midwest Blvd. Choctaw 9350 S. Western Avenue 10100 S.E. 15th 14483 N.E. 23rd 1200 N.W. 63rd 2201 N. Douglas Harrah 200 N. Air Depot 19625 N.E. 23rd
------------------------------------------------------------------------------- STATEMENT OF CONDITION (Unaudited) ------------------------------------------------------------------------------- Liberty Bank and Trust Company of Tulsa, N.A. and Subsidiaries ------------------------------------------------------------------------------- December 31 (In thousands) 1994 1993 ------------------------------------------------------------------------------- Assets Cash and due from banks $105,183 $ 73,274 Federal funds sold and other 5,601 8,601 Trading account securities 5,717 1,687 Investment securities 385,403 525,361 Loans 424,799 308,369 Less: Reserve for loan losses (5,789) (6,450) ------------------------------------------------------------------------------- Loans, net 419,010 301,919 -------------------------------------------------------------------------------
Property and equipment, net 11,349 10,108 Other real estate and assets owned, net 786 2,392 Deferred tax asset, net 7,183 4,942 Other assets 24,082 21,347 ------------------------------------------------------------------------------- Total assets $964,314 $949,631 ===============================================================================
Liabilities and Shareholders' Investment Deposits Noninterest-bearing $225,400 $216,047 Interest-bearing 553,360 495,322 ------------------------------------------------------------------------------- Total deposits 778,760 711,369 ------------------------------------------------------------------------------- Short-term borrowings 80,396 139,485 Other liabilities 18,075 9,404 ------------------------------------------------------------------------------- Total Liabilities 877,231 860,258 Total shareholders' investment 87,083 89,373 ------------------------------------------------------------------------------- Total Liabilities and Shareholders' Investment $964,314 $949,631 ===============================================================================
Liberty Bank and Trust Company of Tulsa, N.A. provides banking services at the following locations:
Tulsa Broken Arrow 15 E. Fifth Street 701 W. New Orleans 615 S. Boston Avenue Jenks 6660 S. Sheridan Road 700 W. Main 6985 S. Lewis 815 E. 71st Street 2070 Utica Square 5307 E. 41st Street 601 E. Apache 575 N. Gilcrease Museum Road
SHAREHOLDER INFORMATION Liberty Bancorp, Inc.
Executive Offices Stock Transfer Agent and Registrar
Liberty Bancorp, Inc. Liberty Bank and Trust Company of Oklahoma City, N.A. Liberty Tower 100 North Broadway 100 North Broadway P.O. Box 25848 Oklahoma City, OK 73102 Oklahoma City, OK 73125 (405) 231-6000
If you receive duplicate copies of this report, this indicates that you hold stock in more than one account name. By reviewing the mailing label on each report, you can determine the account listing for your holdings of Liberty Bancorp, Inc.'s stock. Consolidating your accounts decreases the cost of our stockholder relations activity. If you wish to consolidate any of your accounts, you can do so by writing to the stock transfer agent.
Contact our stock transfer agent at the above address for assistance regarding:
* Change of address * Transfer of stock certificates * Replacement of lost, stolen or destroyed certificates * Elimination of duplicate mailings
Stock Prices
The Common Stock of Liberty is traded over-the-counter on the NASDAQ National Market System under the symbol LBNA. As of December 31, 1994 there were 2,615 shareholders of record.
The following sets forth the range of closing prices of Common Stock and cash dividends declared for the periods indicated. These quotations represent inter-dealer prices, do not include mark-up, mark-down or commissions and do not necessarily represent actual transactions.
------------------------------------------------------------------------------- Dividends Per Share High Low ------------------------------------------------------------------------------- First Quarter $ _ $33.75 $31.25 Second Quarter .10 34.25 28.75 Third Quarter .10 35.50 32.50 Fourth Quarter .10 34.00 28.00
First Quarter .15 $28.25 $26.50 Second Quarter .15 33.50 27.25 Third Quarter .15 33.50 30.75 Fourth Quarter .15 33.50 27.75
Liberty's annual report on Form 10-K for the fiscal year ended December 31, 1994 (other than the exhibits thereto) is available upon written request without charge. Requests for such copies should be directed to the attention of Corporate Secretary, Liberty Bancorp, Inc., P.O. Box 25848, Oklahoma City, OK 73125. Your comments, questions or suggestions on any aspect of our business are welcome.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements and Schedules 1. Financial Statements 2. Financial Statements Schedules. All schedules have been omitted because they are not applicable or not required.
(b) Reports on Form 8-K No reports 8-K were filed during the last quarter of the period covered by this report.
(c) Exhibits. The following Exhibits (unless incorporated by reference to another report) are filed with this report and are identified by the numbers indicated. References to Liberty are to Liberty National Corporation, File No. 0-4547.
Exhibit No. Description ------------------------------------------------------------------------------ 3.1 Certificate of Incorporation of Liberty Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Registrant's Form 8-B dated May 26, 1992) 3.2 By-laws of Liberty Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to Registrant's form 8-B dated May 26, 1992) 10.1 Copy of Lease Agreement between Liberty Bank and Trust Company of Oklahoma City, N.A. and Mid-America Plaza, Ltd. (incorporated by reference to Exhibit 9.75 to Liberty's Form 10-K for the year ended December 31, 1979) 10.2 Liberty Bancorp, Inc., 1990 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-B dated May 26, 1992) 10.3 Copy of documents relating to Liberty Bancorp, Inc. Executive Mortgage Assistance Plan (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to Liberty's Registration Statement on Form S-14, Registration No. 2-87751) 10.4 Copy of Memorandum of Lease entered into December 14, 1977, between First Place Corporation and Liberty Tulsa (incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended December 31, 1990) 10.7 Option to Purchase Common Stock between Registrant and Frank X. Henke, III (incorporated by reference to Exhibit 10.16 to Amend- ment No. 1 to Registrant's Registration Statement on Form S-1, Registration No. 33-17239) 10.8 Management Incentive Bonus Plan (incorporated by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended December 31, 1992) 10.9 Supplemental Executive Retirement Plan and Trust (incorporated by reference to Exhibit 10.9 to Registrant's Form 10-K for the year ended December 31, 1994) 10.10 Executive Severance Plan, as amended 21 Subsidiaries of Registrant 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Ernst & Young LLP 24 Powers of Attorney
------------------------------------------------------------------------------ Liberty Bancorp, Inc. will furnish to any shareholder a copy of any of the above exhibits upon the payment of $.25 per page. Any request should be sent to Corporate Secretary, Liberty Bancorp, Inc., P.O. Box 25848, Oklahoma City, Oklahoma 73125.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 29th day of March, 1995.
Liberty Bancorp, Inc. (Registrant)
/s/Mischa Gorkuscha -------------------------- By Mischa Gorkuscha, Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated, this 29th day of March, 1995.
/s/Charles E. Nelson -------------------------- Charles E. Nelson Chairman and Chief Executive Officer (Principal Executive Officer)
/s/Mischa Gorkuscha -------------------------- Mischa Gorkuscha Senior Vice President and Chief Financial Officer (Principal Financial Officer)
/s/Rodney L. Lee -------------------------- Rodney L. Lee Senior Vice President and Controller (Principal Accounting Officer) Donald L. Brawner, M.D.* Director Robert S. Ellis, M.D.* Director William J. Fisher, Jr.* Director C.W. Flint, Jr.* Director James L. Hall, Jr.* Director Raymond H. Hefner, Jr.* Director Walter H. Helmerich, III* Director Joseph S. Jankowsky* Director John E. Kirkpatrick* Director Judy Z. Kishner* Director David L. Kyle* Director Edward C. Lawson, Jr.* Director Herb Mee, Jr.* Director William G. Paul* Director V. Lee Powell* Director Jon R. Stuart* Director John S. Zink* Director
/s/Kenneth R. Brown -------------------------- *By Kenneth R. Brown, Attorney-in-fact
EXHIBITS TO FORM 10-K *********************
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements and Schedules 1. Financial Statements 2. Financial Statements Schedules. All schedules have been omitted because they are not applicable or not required.
(b) Reports on Form 8-K No reports 8-K were filed during the last quarter of the period covered by this report.
(c) Exhibits. The following Exhibits (unless incorporated by reference to another report) are filed with this report and are identified by the numbers indicated. References to Liberty are to Liberty National Corporation, File No. 0-4547.
Exhibit No. Description ------------------------------------------------------------------------------ 3.1 Certificate of Incorporation of Liberty Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Registrant's Form 8-B dated May 26, 1992) 3.2 By-laws of Liberty Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to Registrant's form 8-B dated May 26, 1992) 10.1 Copy of Lease Agreement between Liberty Bank and Trust Company of Oklahoma City, N.A. and Mid-America Plaza, Ltd. (incorporated by reference to Exhibit 9.75 to Liberty's Form 10-K for the year ended December 31, 1979) 10.2 Liberty Bancorp, Inc., 1990 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-B dated May 26, 1992) 10.3 Copy of documents relating to Liberty Bancorp, Inc. Executive Mortgage Assistance Plan (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to Liberty's Registration Statement on Form S-14, Registration No. 2-87751) 10.4 Copy of Memorandum of Lease entered into December 14, 1977, between First Place Corporation and Liberty Tulsa (incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended December 31, 1990) 10.7 Option to Purchase Common Stock between Registrant and Frank X. Henke, III (incorporated by reference to Exhibit 10.16 to Amend- ment No. 1 to Registrant's Registration Statement on Form S-1, Registration No. 33-17239) 10.8 Management Incentive Bonus Plan (incorporated by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended December 31, 1992) 10.9 Supplemental Executive Retirement Plan and Trust (incorporated by reference to Exhibit 10.9 to Registrant's Form 10-K for the year ended December 31, 1994) 10.10 Executive Severance Plan, as amended 21 Subsidiaries of Registrant 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Ernst & Young LLP 24 Powers of Attorney
------------------------------------------------------------------------------ Liberty Bancorp, Inc. will furnish to any shareholder a copy of any of the above exhibits upon the payment of $.25 per page. Any request should be sent to Corporate Secretary, Liberty Bancorp, Inc., P.O. Box 25848, Oklahoma City, Oklahoma 73125.
EXHIBIT 10.10
LIBERTY BANCORP, INC. SEVERANCE COMPENSATION PLAN
This Liberty Bancorp, Inc. Severance Compensation Plan (the "Plan") is made and entered into by Liberty Bancorp, Inc. (the "Company"), for the benefit of certain officers, key management and highly compensated employees. The purpose of the Plan is to protect and retain certain qualified employees in the event of a Change in Control and to reward those qualified employees for loyal service to the Company by providing for severance compensation to them upon their involuntary termination of employment after a Change in Control of the Company.
ARTICLE I
DEFINITIONS
The terms defined in this Article shall have the meaning given below:
1.1 Average Annual Earnings means the average of the Participant's total Earnings for the two (2) consecutive years ending on the last day of the month immediately preceding the Participant's Qualifying Termination of Service.
1.2 Board means the Board of Directors of the Company.
1.3 Change in Control means:
(i) the date any entity or person, including a group as defined in Section 13(d)(iii) of the Securities Exchange Act of 1934 shall become the beneficial owner of, or shall have obtained voting control over, 25 percent or more of the outstanding common shares of the Company;
(ii) the date the shareholders of the Company approve a definitive agreement (a) to merge or consolidate the Company with or into another corporation, in which the Company is not the continuing or surviving corporation or pursuant to which any common shares of the Company would be converted into cash, securities or other property of another corporation, other than a merger of the Company in which holders of common shares immediately prior to the merger have the same proportionate interest of common stock of the surviving corporation immediately after the merger as immediately before, or (b) to sell or otherwise dispose of substantially all of the assets of the Company; or
(iii) the date there shall have been change in a majority of the Board of the Company within a 12 month period unless the nomination of each new director was approved by the vote of two-thirds (2/3) of directors then still in office who were in office at the beginning of the 12 month period.
1.4 Code means the Internal Revenue Code of 1986, as amended.
1.5 Company means Liberty Bancorp, Inc., an Oklahoma corporation, and any successor corporation.
1.6 Compensation Committee means the Human Resources and Compensation Committee of the Board. Any function exercisable by such Committee may also be exercised by the Board or such other committee as the Board may designate.
1.7 Earnings means all of the compensation paid to the Participant by the Company or any subsidiary, including, but not limited to, salary and bonuses paid under the Management Incentive Bonus Plan and any other bonus plan (including any amounts thereunder paid in the form of restricted stock), but shall not include any other non-cash amounts (including amounts attributable to stock options) which are required to be included in compensation. Earnings shall not be reduced by amounts excluded from gross income under Sections 125, 402(a)(8) or 402(h) or limited as provided under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended ("Code").
1.8 Effective Date means January 20, 1993, the date of the approval of the Plan by the Board.
1.9 Good Reason shall mean (i) a reduction in Participant's base salary in effect immediately prior to a Change in Control or as increased thereafter; (ii) the assignment of Participant without Participant's consent, to a location other than Oklahoma City or Tulsa, Oklahoma; (iii) the failure by the Company or its successor to maintain Participant in a position of comparable authority and responsibility with the Company or its successor or affiliates; or (iv) a material reduction in the level of incentive compensation or benefits of a Participant from those in effect immediately prior to a Change in Control except such reductions as are applicable to all employees or key executives generally and which do not have a disproportionate effect on Participant.
1.10 Participant means the executive officer of the Company or its subsidiaries selected for participation in the Plan by the Board or Compensation Committee.
1.11 Plan means the Liberty Bancorp, Inc. Severance Compensation Plan and amendments thereto.
1.12 Qualifying Termination of Service means either (a) a Participant's involuntary termination of employment with the Company and its subsidiaries or their successors or (b) a Participant's voluntary termination of employment with the Company and its subsidiaries for Good Reason, in either case within two (2) years following the first Change in Control occurring after the Effective Date, provided such Change in Control occurs within six (6) years following the Effective Date. Qualifying Termination of Service does not include any change in the Participant's employment status due to disability or death or a Termination for Cause.
1.13 Supplemental Retirement Plan means the Liberty Bancorp, Inc. Supplemental Executive Retirement Plan.
1.14 Termination for Cause means a Participant's termination of employment with the Company and its subsidiaries or their successors because of:
(a) the continued failure by the Participant to devote reasonable time and effort to the performance of Participant's duties (other than a failure resulting from the Participant's incapacity due to physical or mental illness) after written demand for improved performance has been delivered to the employee by the Company which specifically identifies how the Participant has not devoted reasonable time and effort to the performance of Participant's duties; or
(b) the willful engaging by Participant in misconduct which is materially injurious to the Company, monetarily or otherwise; or
(c) the Participant's ineligibility for coverage under the Company's banker's blanket bond policy.
A Termination for Cause shall not include a termination attributable to any of the following unless such acts caused the Participant to be ineligible for coverage under the Company's banker's blanket bond policy:
(i) bad judgment or negligence on the part of the Participant other than habitual negligence; or
(ii) an act or omission believed by the Participant in good faith to have been in or not opposed to the best interests of the Company and reasonably believed by the Participant to be lawful; or
(iii) the good faith conduct of a Participant in connection with a Change in Control (including Participant's opposition to or support of the Change in Control).
ARTICLE II
BENEFITS
2.1 Designation of Participants. The Participants shall be those executive officers or key employees of the Company or its subsidiaries or affiliates listed on Exhibit A and others designated by the Board or the Compensation Committee from time to time as Participants in the Plan.
2.2 Severance Compensation. Upon the Qualifying Termination of Service of any Participant, the terminated Participant shall be entitled to severance compensation equal to (i) two (2) times Participant's Average Annual Earnings less (ii) the Participant's vested benefit under the Supplemental Retirement Plan, but in no event greater than the amount which would be deductible by the Company under Code Section 280(G), after taking into consideration all payments to such Participant covered by such section. The severance compensation shall be paid to the Participant by the Company in a single, lump sum payment promptly after Participant's Qualifying Termination of Service. All payments of severance benefits shall be reduced by the amount of applicable Federal, State and local withholding taxes, and FICA and FUTA taxes.
2.3 Funding of Payments. All compensation due a Participant under this Plan is unfunded and unsecured and is payable out of general funds of the Company.
2.4 Timing of Payments. If the severance compensation is not paid within thirty (30) days of the Qualifying Termination of Service, there shall be paid in addition to such amount, interest on the amount due at a rate of 5% in excess of the prime rate as published in the Wall Street Journal, Southwest Edition from time to time (or at the highest of such rates if a range is published) from the date which is thirty (30) days following the Qualifying Termination of Service to the date of payment.
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1 Plan Administration. The general administration of this Plan shall be the responsibility of the Compensation Committee which is hereby authorized, in its discretion, to delegate said responsibilities to an administrator or administrative committee. The good faith determination of the Compensation Committee with respect to the administration of this Plan shall be final and conclusive.
3.2 No Guarantee of Employment. Nothing contained herein shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of the Company or any subsidiary, or to interfere with the rights of any such employer to discharge any individual at any time, with or without cause. No severance compensation shall be payable hereunder as a result of any termination of employment occurring prior to a Change in Control.
3.3 Amendment and Termination. The Board may at any time, or from time to time, amend this Plan in any respect or terminate this Plan without restriction and without consent of any Participant or beneficiary, provided, that any such amendment or termination shall not impair the rights of any Participant hereunder without the consent of such Participant. Once a Participant has been selected by the Board, this Plan shall constitute a contract between the Participant and the Company.
3.4 Non-Alienation of Benefits. No benefit payable hereunder may be assigned, pledged, mortgaged or hypothecated and, except to the extent required by applicable law, no such benefit shall be subject to legal process or attachment for the payment of any claims or a creditor of a Participant.
3.5 Payment to Representatives. If any Participant dies after a Qualifying Termination of Service and before receipt of payment hereunder, the severance compensation otherwise due to such Participant shall be payable to Participant's estate. If any individual entitled to receive any benefits hereunder is determined by the Compensation Committee or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, they shall be paid to the duly appointed and acting guardian, if any, and if no such guardian is appointed and acting, to such persons as the Compensation Committee may designate. Such payment shall, to the extent made, be deemed a complete discharge for such payments under this Plan.
3.6 Governing Law. The provisions of this Plan shall be construed under Federal law except to the extent that the laws of the State of Oklahoma would be applicable.
3.7 Titles and Headings. The titles to articles and headings of sections of this Plan are for convenience of reference and in case of any conflict the text of the Plan, rather than such titles and headings, shall control.
3.8 Legality. The Company shall have no obligation to make any payments under this plan if such payments would be in violation of Section 18(k)(i) of the Federal Deposit Insurance Corporation Act or any other applicable law or regulation applicable to banks or bank holding companies.
3.9 Resolution of Disputes. Any dispute between a Participant and the Company, or any successor, shall be first submitted to mediation under the Commercial Mediation Rules of the American Arbitration Association, which may be initiated by a written request by Participant or Company. If such dispute is not resolved within sixty (60) days of the written request for mediation, it shall be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. In connection with such mediation and arbitration, the following rules shall apply:
(i) Any mediation or arbitration shall be held in the city in which the Participant resides at the time of submission to mediation;
(ii) Any mediation or arbitration shall be conducted by a single person who shall serve as both mediator and arbitrator;
(iii) The costs of any mediation and arbitration shall be borne by the Company.
EXHIBIT 21
Direct Subsidiaries of Liberty Bancorp, Inc. ------------------------------------------------------------------------------- Jurisdiction of Name Incorporation
Liberty Bank and Trust Company of Oklahoma City, N.A. National Bank Liberty Bank and Trust Company of Tulsa, N.A. National Bank Liberty Real Estate Company Oklahoma Mid-America Credit Life Assurance Company Oklahoma Mid-America Insurance Agency, Inc. Oklahoma Liberty Trust Company Oklahoma
Subsidiaries of Liberty Bank and Trust Company of Oklahoma City, N.A. -------------------------------------------------------------------------------
Liberty Property Management Company Oklahoma Liberty Mortgage Company Delaware
Subsidiaries of Liberty Mortgage Company -------------------------------------------------------------------------------
Liberty Mortgage Company of New Mexico New Mexico
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our report dated January 20, 1995, included in this Form 10-K for the year ended December 31, 1994, into Liberty Bancorp, Inc.'s previously filed registration statements No. 33-28760, Profit Sharing, Salary Deferral and Employee Stock Ownership Plan and Trust Agreement; No. 33-48170, 1990 Stock Option Plan of Liberty Bancorp, Inc. and No. 33-62814, Form S-3.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma, March 23, 1994
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form S-3, No. 33-62814) of Liberty Bancorp, Inc. and in the related Prospectus and the Registration Statements pertaining to the Liberty Bancorp, Inc. Profit Sharing, Salary Deferral and Employee Stock Ownership Plan and Trust Agreement (Form S-8 No. 33-28760) and to the 1990 Stock Option Plan of Liberty Bancorp, Inc. (Form S-8 No. 33-48170) of our report dated January 18, 1995 with respect to the consolidated financial statements of Liberty Mortgage Company (not presented separately herein) included in the Annual Report (Form 10-K) of Liberty Bancorp, Inc. for the year ended December 31, 1994.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma March 29, 1995
EXHIBIT 24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Donald L. Brawner, M.D. -------------------------------- Director Donald L. Brawner, M.D.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Robert S. Ellis, M.D. -------------------------------- Director Robert S. Ellis, M.D.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ William J. Fisher, Jr. -------------------------------- Director William J. Fisher, Jr.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ C. W. Flint, Jr. -------------------------------- Director C. W. Flint, Jr.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ James L. Hall, Jr. -------------------------------- Director James L. Hall, Jr.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Raymond H. Hefner, Jr. -------------------------------- Director Raymond H. Hefner, Jr.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Walter H. Helmerich, III -------------------------------- Director Walter H. Helmerich, III
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Joseph S. Jankowsky -------------------------------- Director Joseph S. Jankowsky
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ John E. Kirkpatrick -------------------------------- Director John E. Kirkpatrick
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Judy Z. Kishner -------------------------------- Director Judy Z. Kishner
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ David L. Kyle -------------------------------- Director David L. Kyle
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Edward C. Lawson, Jr. -------------------------------- Director Edward C. Lawson, Jr.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Herb Mee, Jr. -------------------------------- Director Herb Mee, Jr.
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ William G. Paul -------------------------------- Director William G. Paul
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ V. Lee Powell -------------------------------- Director V. Lee Powell
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ Jon R. Stuart -------------------------------- Director Jon R. Stuart
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Mischa Gorkuscha and Kenneth R. Brown, and both of them, with full power to act alone, as attorney-in-fact to execute and fill in the name of and on behalf of Liberty Bancorp, Inc. ("Corporation"), and the person whose signature appears below, both individually and in the capacities indicated, the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 required under Section 13 of the Securities Exchange Act of 1934, and any and all amendments thereto.
Dated this 15th day of March, 1995.
Signature Title
/S/ John S. Zink -------------------------------- Director John S. Zink