UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

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

For the transition period from _______________ to _______________

Commission File Number: 000-51992

LIBERTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Missouri			20-4447023
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

16 West Franklin Street, Liberty, Missouri			64068
(Address of principal executive offices)			(Zip Code)

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

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ___. No ___.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ___ Accelerated filer ____ Non-accelerated filer (Do not check if a smaller reporting company.) ___ Smaller reporting company _X_.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___. No X .

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding August 13, 2009
Common Stock, par value $0.01 per share		3,621,875

LIBERTY BANCORP, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2009

INDEX

		PAGE NO.

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets at June 30, 2009 and September 30, 2008 (unaudited)	1

	Consolidated Statements of Earnings for the three and nine months ended June 30, 2009 and 2008 (unaudited)	2

	Consolidated Statements of Comprehensive Earnings (Loss) for the three and nine months ended June 30, 2009 and 2008 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended June 30, 2009 and 2008 (unaudited)	4

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4 (T).	Controls and Procedures	33

PART II – OTHER INFORMATION		34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Submission of Matters to a Vote of Security Holders	35

Item 5.	Other Information	35

Item 6.	Exhibits	35

Signatures		36

LIBERTY BANCORP, INC.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

(Unaudited)

	June 30,			September 30,
Assets	2009			2008
Cash and due from banks	$	6,468,252			5,274,603
Federal funds sold		5,642,000			2,810,000
Total cash and cash equivalents		12,110,252			8,084,603
Securities available for sale- taxable, at market value (amortized cost
of $12,215,537 and $13,966,593, respectively)		12,761,765			14,374,559
Securities available for sale - non-taxable, at market value (amortized
cost of $10,889,329 and $11,714,464, respectively)		10,844,162			11,678,861
Mortgage-backed securities - available for sale, at market value
(amortized cost of $10,002,752 and $14,007,011, respectively)		10,219,049			13,989,151
Stock in Federal Home Loan Bank ("FHLB") of Des Moines		3,910,100			3,576,300
Loans receivable, net of allowance for loan losses
of $2,803,662 and $2,633,298, respectively		299,541,918			256,713,257
Loans held for sale		4,018,425			877,246
Premises and equipment, net		12,814,719			9,790,337
Bank-owned life insurance ("BOLI")		8,866,916			8,538,528
Foreclosed real estate, net		3,819,316			4,936,355
Accrued interest receivable		1,677,990			1,640,478
Goodwill		1,191,603			-
Core deposit intangible, net		917,333			-
Other assets		1,549,143			1,985,219
Total assets	$	384,242,691			336,184,894

Liabilities and Stockholders' Equity
Deposits	$	279,576,338			219,763,837
Accrued interest payable		300,641			297,656
Advances from FHLB of Des Moines		58,165,864			69,240,870
Securities sold under agreement to repurchase		855,407			812,500
Advances from borrowers for taxes and insurance		714,820			864,268
Other liabilities		1,369,806			1,196,659
Total liabilities		340,982,876			292,175,790
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; shares issued and outstanding - none		-			-
Common stock, $0.01 par value; 20,000,000 shares authorized;
4,761,712 shares issued		47,617			47,617
Treasury stock, at cost, 1,139,837 shares and 825,002 shares		(11,100,506	)		(8,632,753	)
Additional paid-in capital		32,529,726			32,320,258
Common stock acquired by ESOP		(320,262	)		(474,634	)
Accumulated other comprehensive earnings, net		473,552			292,484
Retained earnings - substantially restricted		21,629,688			20,456,132
Total stockholders' equity		43,259,815			44,009,104
Total liabilities and stockholders' equity	$	384,242,691			336,184,894


See accompanying notes to unaudited consolidated financial statements.

LIBERTY BANCORP, INC.

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2009			2008		2009			2008
Interest income:
Loans receivable	$	4,617,915			4,287,809		13,409,778			13,231,211
Mortgage-backed securities		110,923			166,731		401,633			550,423
Securities - taxable		160,454			339,555		517,693			1,169,574
Securities - non-taxable		125,231			132,275		396,468			403,763
Other interest-earning assets		(355	)		21,930		5,557			127,108
Total interest income		5,014,168			4,948,300		14,731,129			15,482,079
Interest expense:
Deposits		1,190,200			1,503,786		4,049,277			5,901,424
Securities sold under agreement to repurchase		4,729			12,778		20,514			48,147
Advances from FHLB		350,894			506,935		1,118,538			1,498,554
Total interest expense		1,545,823			2,023,499		5,188,329			7,448,125
Net interest income		3,468,345			2,924,801		9,542,800			8,033,954
Provision for loan losses		320,857			1,173,000		790,912			1,623,175
Net interest income after
provision for loan losses		3,147,488			1,751,801		8,751,888			6,410,779
Noninterest income:
Loan service charges		28,947			13,236		69,046			53,282
Gain on sale of loans		146,566			105,238		261,713			239,674
Gain (loss) on sale of securities available for sale		(1,709	)		-		54,293			45,597
Gain on sale of MBSs available for sale		-			-		51,620			-
Other-than-temporary impairment ("OTTI") loss on equity security		(113,126	)		-		(113,126	)		-
Change in cash surrender value of BOLI		110,585			109,533		328,387			327,211
Deposit account and other service charges		354,169			312,154		933,368			865,268
Total noninterest income		525,432			540,161		1,585,301			1,531,032
Noninterest expense:
Compensation and benefits		1,353,045			1,008,015		3,836,001			3,340,846
Occupancy expense		237,140			163,555		664,782			496,799
Equipment and data processing expense		297,875			227,965		918,962			701,647
Operations from foreclosed real estate, net		293,181			20,282		853,590			173,717
FDIC premium expense		300,000			37,240		416,000			91,795
Professional and regulatory services		101,950			97,685		398,474			295,526
Advertising		95,035			48,813		221,198			180,309
Correspondent banking charges		29,266			70,409		95,181			202,824
Supplies		42,546			30,126		142,372			96,292
Amortization of core deposit intangible		52,000			-		138,667			-
Other		218,753			182,083		648,396			593,834
Total noninterest expense		3,020,791			1,886,173		8,333,623			6,173,589
Earnings before income taxes		652,129			405,789		2,003,566			1,768,222
Income taxes		181,300			82,000		552,900			460,000
Net earnings	$	470,829			323,789		1,450,666			1,308,222
Basic and diluted earnings per share	$	0.13			0.09		0.40			0.32
Dividends per share	$	0.025			0.025		0.075			0.075

See accompanying notes to unaudited consolidated financial statements.

LIBERTY BANCORP, INC.

Consolidated Statements of Comprehensive Earnings (Loss)

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2009			2008			2009			2008

Net earnings	$	470,829			323,789			1,450,666			1,308,222
Other comprehensive earnings (loss):
Reclassification adjustment for gains (loss) in earnings, net of tax
of $0, $(62,423) and $(16,871), respectively		1,709			-			(43,490	)		(28,726	)
Reclassification adjustment of OTTI loss, net of tax of $0 and $0,
respectively		113,126			-			113,126			-
Unrealized gains (losses), net of tax of $(101,058), $(293,114),
$115,040 and $243,595, respectively		(200,017	)		(499,085	)		121,224			414,769
Amortization of unrecognized gain, net - SFAS No. 158		(3,264	)		(3,264	)		(9,792	)		(9,793	)
Comprehensive earnings (loss)	$	382,383			(178,560	)		1,631,734			1,684,472

See accompanying notes to unaudited consolidated financial statements.

LIBERTY BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	June 30,
	2009			2008
Cash flows from operating activities:
Net earnings	$	1,450,666			1,308,222
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation expense		506,641			430,331
Amortization of core deposit intangible		138,667			-
ESOP expense		141,074			229,637
Incentive Plan expense		222,766			246,060
Amortization of premiums (discounts) on investments, net		105,229			(20,531	)
Amortization of premium on loans		53,000			-
Amortization of deferred loan fees, net		(85,512	)		(241,240	)
Provision for loan losses		790,912			1,623,175
Loans held for sale - originated		(27,839,962	)		(19,205,729	)
Loans held for sale - proceeds from sale		24,960,496			18,338,718
Loss on foreclosed real estate, net		707,735			135,820
Gain on sale of securities available for sale		(54,293	)		(45,597	)
Gain on sale of MBSs available for sale		(51,620	)		-
OTTI loss on equity security		113,126			-
Gain on sale of loans		(261,713	)		(239,674	)
Increase in cash surrender value of BOLI		(328,387	)		(327,211	)
Decrease (increase) in:
Accrued interest receivable		173,351			246,824
Other assets		15,559			(565,489	)
Increase (decrease) in:
Accrued interest on deposits and other liabilities		(90,355	)		(718,093	)
Accrued income taxes		-			(88,308	)
Net cash provided by (used for) operating activities		667,380			1,106,915
Cash flows from investing activities:
Net change in loans receivable		(27,065,858	)		(24,281,084	)
Mortgage-backed available for sale:
Purchased		(254,698	)		-
Principal collections		4,343,632			4,530,450
Proceeds from sales		1,338,734			-
Securities available for sale:
Principal collections		59,679			41,180
Purchased		-			(448,061	)
Proceeds from sales		9,628,947			7,292,478
Proceeds from maturity or call		1,010,000			4,935,000
Proceeds from foreclosed real estate, net		4,631,274			2,649,880
Purchase of stock in FHLB of Des Moines		(678,000	)		(2,385,071	)
Redemption of stock in FHLB of Des Moines		412,500			382,971
Purchase of premises and equipment		(755,896	)		(1,500,869	)
Cash paid in acquistion of KLT Bancshares, Inc., net		(1,164,119	)		-
Net cash provided by (used for) investing activities	$	(8,493,805	)		(8,783,126	)

				(Continued)

LIBERTY BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Continued)
	Nine Months Ended
	June 30,
	2009			2008

Cash flows from financing activities:
Net increase (decrease) in deposits	$	25,848,380			(26,494,818	)
Increase (decrease) in advances from
borrowers for taxes and insurance		(219,344	)		(300,602	)
Proceeds from advances from the FHLB		574,766,000			824,350,000
Repayment of advances from the FHLB		(585,841,006	)		(780,514,522	)
Securities sold under agreement to repurchase:
Proceeds		7,559,306			7,274,400
Repayments		(7,516,399	)		(7,290,440	)
Proceeds from exercise of stock options		-			4,347
Repurchase of common stock		(2,467,753	)		(8,498,110	)
Other contributed capital		-			989
Cash dividends		(277,110	)		(306,671	)
Net cash provided by (used for)
financing activities		11,852,074			8,224,573
Net increase (decrease) in cash and cash equivalents		4,025,649			548,362
Cash and cash equivalents at beginning of period		8,084,603			9,042,289
Cash and cash equivalents at end of period	$	12,110,252			9,590,651


Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest on deposits	$	4,262,126			6,197,522
Interest on securities sold under agreement to repurchase		20,514			48,242
Interest on advances from FHLB of Des Moines		1,104,569			1,466,355
Income taxes		614,615			816,126
Real estate acquired in settlement of loans		5,708,845			3,778,527
Loans originated to finance the sale of foreclosed real estate		1,486,875			-

Net cash paid in acquisition of KLT Bancshares, Inc.:
Cash paid to Farley State Bank shareholders	$	(4,500,000	)		-
Acquisition costs paid		(251,256	)		-
Total cash payments		(4,751,256	)		-
Cash and cash equivalents acquired		3,587,137			-
Net cash paid in acquistion	$	(1,164,119	)		-

See accompanying notes to unaudited consolidated financial statements.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(1) Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments were of a normal recurring nature. The results of operations for the three-month period ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year or any other interim period. For additional information, refer to the consolidated financial statements and footnotes thereto of the Company for the year ended September 30, 2008 contained in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission on December 29, 2008. Subsequent events have been evaluated through August 13, 2009 which is the date the financial statements were issued.

In preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses and the fair values of financial instruments.

(2) Organization

Liberty Bancorp, Inc. (the “Company” or “Liberty Bancorp”) a Missouri corporation, was formed on February 14, 2006 and became the holding company for BankLiberty (formerly Liberty Savings Bank, F.S.B., and referred to herein as the “Bank”) upon completion of the Bank’s conversion (the “Conversion”) from a mutual holding company form to a stock holding company structure on July 21, 2006. A total of 2,807,383 shares of common stock were sold in the stock offering at the price of $10.00 per share. In addition, a total of 1,952,754 shares of common stock were issued to the minority shareholders of the former Liberty Savings Bank, F.S.B. representing an exchange ratio of 3.5004 shares of Company common stock for each share of Liberty Savings Bank, F.S.B. common stock. Fractional shares in the aggregate, or 36 shares, were redeemed for cash. Total shares outstanding after the stock offering and the exchange totaled 4,760,137 shares. Net proceeds of $25.6 million were raised in the stock offering, excluding $1.2 million which was loaned by the Company to a trust for the Bank’s Employee Stock Ownership Plan (the “ESOP”), enabling it to finance the purchase of 153,263 shares of common stock in the offering and exchange. Direct offering costs totaled approximately $1.3 million. In addition, as part of the second-step conversion and dissolution of Liberty Savings Mutual Holding Company, the Bank received $694,000 previously held by this entity.

(3) Business Combination

On November 7, 2008, the Company acquired KLT Bancshares, Inc., the parent company of Farley State Bank (“the acquisition”). Shareholders of KLT Bancshares, Inc. received total merger consideration of $4.5 million, consisting of entirely cash. The Company incurred acquisition costs of $251,000. The acquisition was accounted for using the purchase method under Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations.” Fair value adjustments on the assets acquired and liabilities assumed are depreciated or amortized as applicable, over the estimated useful lives of the related assets and liabilities. The core deposit intangible of $1.1 million is amortized over 10.2 years using the double declining balance method. The Company recorded fair value accounting adjustments of $422,000, net of income taxes of $247,000 and core deposit intangibles of $665,000, net of income taxes of $391,000. Based upon Farley State Bank’s stockholders’ equity of $2.5 million, goodwill amounted to approximately $1.2 million at November 7, 2008. The excess purchase price has been allocated to goodwill and identifiable intangible assets in accordance with current accounting literature. As a result of the acquisition, the Bank operates two additional full-service offices which expanded its market area.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

The following table summarizes the assets acquired and liabilities assumed at November 7, 2008, the date of acquisition:

Cash and due from banks	$	1,353,137
Federal funds sold		2,234,000
Securities available for sale		9,658,286
Federal Home Loan Bank stock		68,300
Loans, net		20,743,173
Property and equipment, net		2,775,127
Accrued interest receivable		210,863
Goodwill		1,191,603
Core deposit intangible		1,056,000
Other assets		389,946
Total assets acquired		39,680,435


Deposits		33,964,121
Accrued interest payable		215,834
Advances from borrowers for taxes and insurance		69,896
Other liabilities		40,860
Deferred tax liability		638,468
Total liabilities assumed		34,929,179

Purchase price, including acquisition costs	$	4,751,256

The consolidated statement of earnings for the nine months ended June 30, 2009 include the results of operations of the acquired entity from November 8, 2008 through June 30, 2009.

The following pro forma information, including the effects of the purchase accounting adjustments, summarizes the results of operations for the three and nine months ended June 30, 2009 and 2008 as though the acquisition had been completed as of the beginning of each period.

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2009		2008			2009		2008

Total interest income	$	5,014,168		5,495,300			14,938,101		17,175,079
Total interest expense		1,545,823		2,225,499			5,251,944		8,119,125
Net interest income		3,468,345		3,269,801			9,686,157		9,055,954

Provision for loan losses		320,857		1,887,000			1,214,840		2,465,175
Total noninterest income		525,432		610,161			1,599,690		1,761,032
Total noninterest expense		3,020,791		2,232,173			8,558,736		7,266,589

Income (loss) before income taxes		652,129		(239,211	)		1,512,271		1,085,222
Income taxes		181,300		(173,000	)		466,058		205,000
Net earnings (loss)	$	470,829		(66,211	)		1,046,213		880,222


Pro forma basic and diluted earnings (loss) per share	$	0.13		(0.02	)		0.29		0.21

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

The pro forma results of operations do not purport to be indicative of the results that would actually have been obtained had the acquisition occurred on the date indicated or which may be obtained in the future.

The gross carrying value and accumulated amortization of the core deposit intangible is presented below:

	June 30, 2009

Core deposit intangible	$	1,056,000
Accumulated amortization		(138,667	)
	$	917,333

Amortization expense on core deposit intangible for the three and nine months ended June 30, 2009 was $52,000 and $138,667, respectively. There was no amortization expense of core deposit intangible for the three and nine months ended June 30, 2008.

Estimated amortization expense on core deposit intangible for July 1, 2009 through September 30, 2009 and each of the five succeeding fiscal years is as follows:

July 1, 2009 through September 30, 2009	$	52,000
Year ended September 30, 2010		170,000
Year ended September 30, 2011		137,000
Year ended September 30, 2012		110,000
Year ended September 30, 2013		89,000
Year ended September 30, 2014		71,000

(4) Earnings Per Share

Following is a summary of basic and diluted earnings per common share for the Company for the three and nine months ended June 30, 2009 and 2008:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
Net earnings	$	470,829		323,789		1,450,666		1,308,222


Weighted-average shares - Basic EPS		3,507,840		3,777,356		3,598,764		4,072,269
Stock options - treasury stock method		3,242		34,040		34,631		39,179
Weighted-average shares - Diluted EPS		3,511,082		3,811,396		3,633,395		4,111,448
Basic earnings per common share	$	0.13		0.09		0.40		0.32
Diluted earnings per common share	$	0.13		0.09		0.40		0.32
Anti-dilutive shares		70,611		104,267		39,851		88,958

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(5) Retirement Benefits

The components of the net periodic cost for postretirement medical benefits are summarized as follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2009			2008			2009			2008

Service cost	$	1,671			1,670			5,014			5,011
Interest cost		3,678			3,678			11,034			11,033
Amortization of transition obligation		3,135			3,136			9,405			9,406
Amortization of prior service cost		(2,416	)		(2,415	)		(7,248	)		(7,246	)
Amortization of actuarial gain		(5,342	)		(5,343	)		(16,027	)		(16,027	)
Net periodic cost	$	726			726			2,178			2,177

Directors’ retirement plan expense was $16,047 and $16,048 for the nine months ended June 30, 2009 and 2008, respectively. The expense consisted primarily of interest cost.

(6) Stock Options

As authorized by the Company’s 2003 Incentive Equity and Deferred Compensation Plan (the “2003 Plan”), the Board of Directors granted 78,760 options to non-employee directors and 96,260 options to certain officers and employees during fiscal 2004. The Plan authorizes the award of up to 258,064 shares of common stock, subject to restrictions, to be issued to directors, officers and employees of the Bank. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock and unrestricted stock. Options expire ten years from the date of the grant. Stock options to directors were fully vested on the grant date of June 16, 2004. Options granted to the Bank’s CEO are vested over three years and three months and options granted to certain other officers and employees are vested over a five-year period. On January 27, 2005 the Board of Directors granted an additional 38,504 options to certain officers and employees. Options granted to the CEO are vested over a period of three years and eight months and options granted to certain officers and employees are vested over a five-year period. On November 23, 2005 the Board of Directors granted an additional 42,440 options to directors and officers. Options granted to the board, CEO, and certain officers, were vested over a ten-month period.

In connection with the completion of the Conversion in July 2006, the Company assumed the 2003 Plan and all outstanding options and shares were adjusted based upon the 3.5004 exchange ratio. The exercise prices were adjusted to reflect the proportional change in values that resulted from the exchange.

As authorized by the Liberty Bancorp, Inc. 2007 Equity Incentive Plan (the “2007 Plan”), the Board of Directors granted 25,150 options to non-employee directors and 65,500 options to certain officers and employees on February 27, 2007. In addition, the Board of Directors granted 5,000 options to one employee on April 1, 2009. The 2007 Plan authorizes the award of up to 100,691 options to purchase shares of common stock, subject to restrictions, to directors, officers and employees of the Bank. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock and unrestricted stock. Options expire ten years from the date of the grant. All 95,650 options granted are vested over a five-year period.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

On October 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” using the modified prospective method. Under this method compensation expense is recognized based on the fair value of unvested stock awards at October 1, 2006 or, for new awards granted thereafter, which includes restricted stock and stock options, at the grant date and is recognized on a straight-line basis over the requisite service period.

Stock option compensation expense is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2009		2008		2009		2008

Pretax	$	10,465		18,906	$	36,130		61,120

After tax		9,704		17,979		33,846		58,339

Basic and diluted earnings per share	$	0.00		0.00	$	0.01		0.01

At June 30, 2009, the total unrecognized compensation expense related to nonvested stock options was approximately $114,000 and is expected to be recognized over the weighted-average period of 3.11 years.

A summary of the Company’s stock option activity under the Plan for the nine months ended June 30, 2009 is as follows:

					Weighted-
					Average
			Weighted-		Remaining
			Average		Contractual		Aggregate
	Number		Exercise		Term in		Intrinsic
	of Shares		Price		Years		Value
Outstanding at October 1, 2008		321,488	$	8.40		6.72	$	396,443
Granted		5,000		6.78		9.76		2,600
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Outstanding at June 30, 2009		326,488		8.37		6.00		71,909
Exercisable at June 30, 2009		264,321		7.82		5.64		69,309
Vested and expected to vest at
June 30, 2009		264,321	$	7.82		5.64	$	69,309

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

A summary of the total value of options exercised, the amount of cash received from the exercise of stock options, and the total fair value of shares vested is as follows for the periods indicated:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2009		2008		2009		2008

Intrinsic value of options exercised	$	-		-		-		1,076

Cash received from the exercise of options		-		-		-		4,347

Fair value of shares vested		47,243		64,306		189,033		291,875

Restricted Stock Awards

On February 27, 2007, as authorized by the 2007 Plan, the Board of Directors granted 31,400 restricted stock awards to non-employee directors and 78,000 awards to certain officers and employees and on April 1, 2009 the Board of Directors granted 5,000 awards to one employee. The Plan authorized the award of up to 125,649 shares of common stock, which were repurchased by a trust to fund the restricted stock awards. All awards are vested over a five-year period. A summary of the Company’s restricted stock compensation expense is as follows:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2009		2008		2009		2008

Restricted Stock Compensation Expense	$	63,342		61,647		186,636		184,941

At June 30, 2009, the total unrecognized expense was $690,000 and is expected to be recognized over the weighted-average period of 2.75 years.

A summary of the Company’s nonvested restricted stock award activity for the nine months ended June 30, 2009 is as follows:

	Number			Weighted-
	of			Average
	Nonvested			Grant Date
	Shares			Fair Value
Nonvested at October 1, 2008		87,520		$	11.27
Granted		5,000			6.78
Vested		(21,880	)		11.27
Forfeited		-			-
Nonvested at June 30, 2009		70,640		$	11.03

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(7) Securities

Securities are summarized as follows:

	June 30, 2009
				Gross		Gross
	Amortized			Unrealized		Unrealized			Market
	Cost			Gains		Losses			Value

Available for sale - debt securities:
Federal agency obligations	$	11,943,547			648,224		-			12,591,771
State and municipal obligations		10,889,329			192,739		(237,906	)		10,844,162
		22,832,876			840,963		(237,906	)		23,435,933
Available for sale - equity securities		271,990			-		(101,996	)		169,994
	$	23,104,866			840,963		(339,902	)		23,605,927

Weighted-average rate		4.75	%


	September 30, 2008
				Gross		Gross
	Amortized			Unrealized		Unrealized			Market
	Cost			Gains		Losses			Value

Available for sale - debt securities:
Federal agency obligations	$	13,422,143			480,901		-			13,903,044
State and municipal obligations		11,714,464			46,438		(82,041	)		11,678,861
		25,136,607			527,339		(82,041	)		25,581,905
Available for sale - equity securities		544,450			-		(72,935	)		471,515
	$	25,681,057			527,339		(154,976	)		26,053,420

Weighted-average rate		4.69	%

During the three and nine months ended June 30, 2009, the Company sold a portion of one equity security, recognizing a loss of $1,780 and $72,440, respectively. In addition, the Company determined that an other-than-temporary impairment loss was required on the remaining investment in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company’s assessment considered the duration and severity of the unrealized losses, the financial condition and near term prospects of the issuer, the ability to recover its initial cost basis within a reasonable period of time and adverse changes to expected cash flows.

Based on these factors, the Company recorded an other-than-temporary impairment loss on the equity security of $113,126. At June 30, 2009, the carrying value of the equity security was $169,994.

In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP SFAS No. 115-2 and SFAS No. 124-2 applies to debt securities classified as available-for-sale and held-to-maturity and makes other-than-temporary impairment guidance more operational and improves related presentation and disclosure requirements. This FSP requires that impairment losses related to credit losses will be included in earnings. Impairments related to other factors will be included in other comprehensive income, when management asserts it does not have the intent to sell the security and it is not more likely than not that it will have to sell the security before its recovery. FSP SFAS No. 115-2 and SFAS No. 124-2 was adopted, effective June 30, 2009.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Securities having a continuous unrealized loss position at June 30, 2009 are summarized as follows:

	Less than 12 Months					12 Months or Longer					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Available for sale- debt securities:
State and municipal obligations	$	3,552,700		(197,447	)		2,037,066		(40,459	)		5,589,766		(237,906	)
Available for sale- equity securities		-		-			169,994		(101,996	)		169,994		(101,996	)
	$	3,552,700		(197,447	)		2,207,060		(142,455	)		5,759,760		(339,902	)

State and Municipal Obligations (11 issues). The unrealized losses on the Company’s state and municipal obligations were caused primarily by changes in interest rates and not credit quality. One state and municipal obligation had an unrealized loss of $195,000 and represented approximately 82% of the total unrealized loss on such securities. Management of the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, which may be upon maturity. Accordingly, the Company did not consider the unrealized losses on those securities to be other-than-temporarily impaired credit related losses at June 30, 2009.

Nine state and municipal obligations amounting to $2.8 million had a credit rating of Baa1 (investment grade) or better. Two state and municipal obligations of $2.8 million were not rated.

Equity Security (1 issue). As discussed above, the Company has recognized an OTTI loss on a portion of one equity security during the June 2009 quarter. The security had an unrealized loss of $101,996 at June 30, 2009. The unrealized loss was caused by general market conditions of the banking industry, which has been relatively out of favor and resulting lack of liquidity in the market. The Company has the ability and intent to hold this investment until a recovery of fair value. Accordingly, the Company does not consider the remaining investment in the equity security to be other-than-temporarily impaired at June 30, 2009.

Maturities of debt securities at June 30, 2009 are summarized as follows:

	Available for Sale
	Amortized		Market
	Cost		Value

Due within one year	$	4,345,175		4,398,741
Due after one through five years		10,335,507		11,008,542
Due after five through ten years		3,417,775		3,506,498
Due after ten years		4,734,419		4,522,152
	$	22,832,876		23,435,933

At June 30, 2009, securities with a carrying value of approximately $6,009,057 are callable at the discretion of the issuer prior to the maturity date. Securities in the amount of $15,264,072 were pledged to secure certain deposits at June 30, 2009.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Gross proceeds, gross realized gains and gross realized losses from sales of available for sale securities were $114,210, $71 and $1,780 for the three months ended June 30, 2009. Gross proceeds, gross realized gains and gross realized losses from sales of available for sale securities were $9,628,947, $202,074 and $147,781, respectively, for the nine months ended June 30, 2009. Gross proceeds, gross realized gains and gross realized losses from sales of available for sale securities were $7,292,478, $45,597 and $0, respectively, for the nine months ended June 30, 2008. There were no sales of securities for the three months ended June 30, 2008.

Mortgage-backed securities (“MBSs”) are summarized as follows:

	June 30, 2009
				Gross		Gross
	Amortized			Unrealized		Unrealized			Market
	Cost			Gains		Losses			Value
Available for sale:
FHLMC	$	5,933,699			148,815		-			6,082,514
FNMA		3,736,164			74,277		(5,939	)		3,804,502
GNMA		29,688			414		-			30,102
GNMA - CMO		303,201			82		(1,352	)		301,931
	$	10,002,752			223,588		(7,291	)		10,219,049


Weighted-average rate		4.24	%

	September 30, 2008
				Gross		Gross
	Amortized			Unrealized		Unrealized			Market
	Cost			Gains		Losses			Value
Available for sale:
FHLMC	$	8,910,347			25,750		(17,813	)		8,918,284
FNMA		4,737,407			8,921		(28,539	)		4,717,789
GNMA		32,785			439		-			33,224
GNMA - CMO		202,623			-		(1,032	)		201,591
FNMA - CMO		123,849			-		(5,586	)		118,263
	$	14,007,011			35,110		(52,970	)		13,989,151


Weighted-average rate		4.33	%

Mortgage-backed securities having a continuous unrealized loss position at June 30, 2009 are summarized as follows:

	Less than 12 Months					12 Months or Longer					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Available for sale:
FNMA	$	-		-			544,516		(5,939	)		544,516		(5,939	)
GNMA - CMO		245,473		(1,352	)		-		-			245,473		(1,352	)
	$	245,473		(1,352	)		544,516		(5,939	)		789,989		(7,291	)

Mortgage-backed Securities (2 issues) and Agency Collateralized Mortgage Obligation (1 issue). The unrealized losses on the Company’s mortgage-backed securities and agency collateralized mortgage obligation were caused primarily by changes in interest rates and not credit quality. Management of the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, which may be upon maturity. Accordingly, the Company did not consider the unrealized losses on those securities to be other-than-temporarily impaired credit related losses at June 30, 2009.

Gross proceeds, gross realized gains and gross realized losses from sales of mortgage-backed securities were $1,338,734, $55,174 and $3,554, respectively, for the nine months ended June 30, 2009. There were no sales of mortgage-backed securities for the nine months ended June 30, 2008 or three months ended June 30, 2009 or 2008.

(8) Fair Value Measurements and Financial Instruments

Fair Value Measurements

Effective October 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements,” for financial assets and liabilities. In accordance with Financial Accounting Standards Board Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” the Company will delay application of SFAS No. 157 for non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements, until October 1, 2009.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the assumptions that market participants would use in pricing the assets or liabilities (the “inputs”) into three broad levels.

The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs in which little, if any, market activity exists, requiring entities to develop their own assumptions and data.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in market areas that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Valuation Techniques

Available for sale securities are carried at fair value utilizing Level 1, Level 2 and Level 3 inputs. For equity securities, the Company obtains fair values for its common stock.

For Level 2 debt securities, the Company obtains fair value measurements from an independent pricing service. Level 2 debt securities include Federal agency obligations, state and municipal obligations, mortgage-backed securities and collateralized mortgage obligations. The fair value measurements consider observable data that may include dealer quotes, live trading levels, trade execution data, cash flows, market consensus prepayment speeds, market spreads, credit information and the U.S. Treasury yield curve.

The fair value of Level 3 debt securities are determined by the appraisal of the underlying collateral, discounted cash flow analysis, and other internally developed estimates that incorporate market-based assumptions.

LIBERTY BANCORP, INC.

Impaired loans are carried at fair value utilizing Level 3 inputs, consisting of appraisals of underlying collateral and discounted cash flow analysis. The Company considers a loan to be impaired under SFAS No. 114 when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement on a timely basis. Impairment losses are recognized through an increase in the allowance for loan losses and provision for loan losses, included in earnings for the period. The types of loans for which impairment under SFAS No. 114 is measured include nonaccrual income property loans (excluding those loans included in the homogenous portfolio which are collectively reviewed for impairment), large, nonaccrual single-family loans and troubled debt restructurings. Valuation allowances are established for impaired loans under SFAS No. 114 for the difference between the loan amount and the fair value of collateral and estimated selling costs.

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate, utilizing Level 2 inputs as determined based on expected proceeds from outstanding commitments from investors.

Assets Measured at Fair Value on a Recurring Basis

The following table summarizes financial assets measured at fair value on a recurring basis at June 30, 2009, segregated by the level of the inputs within the hierarchy used to measure fair value:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
Assets	(Level 1)		(Level 2)		(Level 3)		Value

Available for sale securities:
Debt securities:
Federal agency obligations	$	-		12,591,771		-		12,591,771
State and municipal obligations		-		7,847,942		2,996,220		10,844,162
Mortgage-backed securities		-		9,917,118		-		9,917,118
Collateralized mortgage obligations		-		301,931		-		301,931
Equity securities		169,994		-		-		169,994
	$	169,994		30,658,762		2,996,220		33,824,976

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Level 3 Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs:

	State and Municipal
	Obligations
Balance at October 1, 2008	$	3,205,908
Total unrealized losses included in other
comprehensive earnings		(211,818	)
Purchases		2,130

Balance at June 30, 2009	$	2,996,220

Assets Measured at Fair Value on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis at June 30, 2009 include nonperforming loans of $435,929 utilizing Level 3 inputs and loans held for sale of $4,018,425, utilizing Level 2 inputs. The nonperforming loans are collateral dependent and the allowance for losses on these nonperforming loans was $37,475 at June 30, 2009.

Following is a summary of activity in the allowance for loan losses on nonperforming loans:

	June 30, 2009
Balance at beginning of period	$	437,523
Charge-offs		(604,613	)
Recoveries		-
Provision charged to expense		204,565
Balance at end of period	$	37,475

Financial Instruments

In April 2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires public entities to disclose the fair values of financial instruments for interim reporting periods. FSP SFAS No. 107-1 and APB No. 28-1 is effective for interim reporting periods after June 15, 2009. The Company adopted this FSP as of June 30, 2009.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

The carrying amounts and estimated fair values of the Company’s financial instruments are summarized as follows:

	June 30, 2009				September 30, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Non-trading instruments
and nonderivatives:
Cash and cash equivalents	$	12,110,252		12,110,252		8,084,603		8,084,603
Securities available for sale		23,605,927		23,605,927		26,053,420		26,053,420
Stock in FHLB of Des Moines		3,910,100		3,910,100		3,576,300		3,576,300
Mortgage-backed securities -
available for sale		10,219,049		10,219,049		13,989,151		13,989,151
Loans receivable, net		299,541,918		311,033,844		256,713,257		262,427,542
Loans held for sale		4,018,425		4,018,425		877,246		877,246
Accrued interest receivable		1,677,990		1,677,990		1,640,478		1,640,478
Deposits		279,576,338		281,673,161		219,763,837		220,125,700
Accrued interest on deposits		300,641		300,641		297,656		297,656
Advances from FHLB		58,165,864		58,647,529		69,240,870		68,890,734
Securities sold under
agreement to repurchase	$	855,407		860,026		812,500		806,000

The following methods and assumptions were used in estimating the fair values of financial instruments, exclusive of securities which are discussed under “Valuation Techniques.”

Cash and cash equivalents are valued at their carrying amounts due to the relatively short period to maturity of the instruments.

The carrying amounts of accrued interest receivable and payable approximate fair value. Stock in FHLB of Des Moines is valued at cost, which represents redemption value and approximates fair value.

Fair values are computed for each loan category using market spreads to treasury securities for similar existing loans in the portfolio and management's estimates of prepayments.

Deposits with no defined maturities, such as NOW accounts, passbook accounts and money market deposit accounts, are valued at the amount payable on demand at the reporting date. The fair value of certificates of deposit, advances from FHLB of Des Moines and securities sold under agreement to repurchase is computed at fixed spreads to treasury securities with similar maturities.

Off-balance sheet assets include commitments to extend credit and unused lines of credit for which fair values were estimated based on interest rates and fees currently charged to enter into similar transactions and commitments to sell loans for which fair values were estimated based on current secondary market prices for commitments with similar terms. As a result of the short-term nature of the outstanding commitments, the fair values of fees on such commitments are considered immaterial to the Company’s financial condition.

LIBERTY BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

(9) Income Taxes

The Company follows the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”). No adjustment was recognized for uncertain tax positions. The Company is subject to U.S. Federal income taxes, as well as Missouri income taxes and special financial institution taxes. Tax years ending September 30, 2006 through September 30, 2008 remain open to examination by these jurisdictions. The Company recognizes interest and penalties related to tax positions in income tax expense. At June 30, 2009, there was no accrual for uncertain tax positions or related interest.

LIBERTY BANCORP, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the Company’s financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Financial Statements and footnotes appearing in Part I, Item 1 of this report.

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Liberty Bancorp and the Bank. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.

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

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

General

The Bank is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area. We attract deposits from the general public and use these funds to originate loans secured by real estate located in our market area. Our real estate loans include construction loans, commercial real estate loans and loans secured by single-family or multi-family properties. To a lesser extent, we originate consumer loans and commercial business loans. At June 30, 2009, we operated out of our main office in Liberty, Missouri and nine additional retail banking facilities in the Kansas City metropolitan area. The Federal Deposit Insurance Corporation insures the Bank’s savings accounts up to the applicable legal limits. The Bank is a member of the Federal Home Loan Bank System.

Critical Accounting Policies

The accounting and reporting policies were prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and general practices accepted within the financial services industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management has identified the accounting policies described below as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements and management’s discussion and analysis.

LIBERTY BANCORP, INC.

Income Recognition

We recognize interest income by methods conforming to US GAAP that include general accounting practices within the financial services industry. Interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding, including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities.

In the event management believes collection of all or a portion of contractual interest on a loan has become doubtful, which generally occurs after the loan is 90 days past due, the accrual of interest is discontinued. In addition, previously accrued interest deemed uncollectible that was recognized in income is reversed. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured. A nonaccrual loan is restored to accrual status when it is brought current or has performed in accordance with contractual terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer doubtful.

Allowance for Loan Losses

Valuation allowances are established for impaired loans for the difference between the loan amount and the fair value of collateral less estimated selling costs. We consider a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement on a timely basis. The types of loans for which impairment is measured include nonaccrual income property loans (excluding those loans included in the homogenous portfolio which are collectively reviewed for impairment), large nonaccrual single-family loans and troubled debt restructurings. Such loans are generally placed on nonaccrual status at the point deemed uncollectible. Impairment losses are recognized through an increase in the allowance for loan losses. See also “Asset Quality.”

Allowances for loan losses are available to absorb losses incurred on loans and represent additions charged to expense, less net charge-offs. The allowances are evaluated on a regular basis by management and are based on management’s periodic review of the collectibility of loans, in light of historical experience, fair value of the underlying collateral, changes in the types and mix of loans originated and prevailing economic conditions.

Securities Impairment

We periodically perform analyses to determine whether there has been an other- than-temporary decline in the value of one or more of our securities. Our available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If such decline is deemed other-than-temporary, we adjust the cost basis of the security by writing down the security to estimated fair market value through a charge to current period operations.

Qualitative Disclosures of Market Risk

Our principal financial objective is to achieve long-term profitability while reducing our exposure to fluctuating interest rates. We have an exposure to interest rate risk. We have employed various strategies intended to minimize the adverse effect of interest rate risk on future operations by providing a better match between the interest rate sensitivity of our assets and liabilities.

In particular, our strategies are intended to stabilize net interest income for the long-term by protecting our interest rate spread against increases in interest rates. Such strategies include originating for portfolio adjustable-rate and short-term loans with greater interest rate sensitivities than long-term, fixed-rate residential mortgage loans. We sell fixed-rate mortgage loans in the secondary market.

LIBERTY BANCORP, INC.

Liquidity and Capital Resources

Our principal sources of funds are cash receipts from deposits, loan repayments by borrowers, proceeds from maturing securities, advances from the Federal Home Loan Bank (“FHLB”) and net earnings. We have an agreement with the FHLB of Des Moines to provide cash advances, should we need additional funds for loan originations or other purposes. As of June 30, 2009 we have $19.6 million in additional borrowing capacity with the FHLB of Des Moines.

Commitments to originate loans are legally binding agreements to lend to our customers. Letters of credit are conditional commitments issued by us to guarantee the performance of the borrower to a third party. The following table sets forth information regarding off-balance sheet financial instruments as of June 30, 2009:

	Fixed-Rate		Adjustable-Rate
Off-balance sheet financial instruments:
Commitments to originate loans	$	2,460,644		7,690,151

Commitments for unused lines of credit	$	283,608		11,763,647

Commitments for undisbursed loans	$	2,154,903		5,081,941

Commitments for letters of credit	$	219,253		-

Financial Condition

Total assets increased from $336.2 million at September 30, 2008 to $384.2 million at June 30, 2009. Cash and cash equivalents increased by $4.0 million from September 30, 2008 to June 30, 2009.

Securities decreased from $26.1 million at September 30, 2008 to $23.6 million at June 30, 2009 due to sales, maturities and calls of securities, partially offset by the acquisition of securities from KLT Bancshares, Inc. Mortgage-backed securities available for sale decreased from $14.0 million at September 30, 2008 to $10.2 million at June 30, 2009 due to principal repayments, maturities and sales, partially offset by the acquisition of mortgage-backed securities and the purchase of one security. Stock in the Federal Home Loan Bank of Des Moines increased by $334,000 due to stock purchase requirements as a result of a higher level of advances for the three months ended December 31, 2008. From January through June, 2009 the Bank decreased total advances, but the FHLB of Des Moines suspended excess capital stock redemptions. This resulted in an increase in FHLB stock for the nine months ended June 30, 2009 even though advances decreased for this period. The FHLB of Des Moines continues to pay a quarterly dividend.

Loans receivable increased by $42.8 million to $299.5 million at June 30, 2009 due to loans received in the amount of $20.7 million in the KLT Bancshares, Inc. acquisition and increased activity in commercial real estate, one-to-four family, multifamily, construction non residential and consumer lending. Loans held for sale increased $3.1 million due to an increase in mortgage lending activity related to hiring three additional mortgage lending officers and increased marketing.

Premises and equipment, net increased $3.0 million to $12.8 million at June 30, 2009 due to the acquisition, the opening of a new branch and the expansion of one existing branch, partially offset by depreciation expense. The premises and equipment acquired consisted primarily of three bank branch facilities. The cash surrender value of bank-owned life insurance increased by $328,000 to $8.9 million as of June 30, 2009 as compared to $8.5 million as of September 30, 2008.

LIBERTY BANCORP, INC.

Foreclosed real estate, net at June 30, 2009 totaled $3.8 million, a decrease of $1.1 million from $4.9 million at September 30, 2008. Foreclosed real estate, net consists of five single-family lots, two spec construction properties, eleven single-family homes, one multi-family property and two residential development properties. 36 single-family homes, three residential lots, and one residential development property were acquired through foreclosure and 39 single-family homes, four lots and one multi-family property and one non residential property were sold for the nine months ended June 30, 2009. Charge-offs totaling $636,000 were taken on property foreclosed during this period.

Goodwill totaling $1.2 million and core deposit intangible totaling $917,000 resulted from the acquisition of Farley State Bank. Other assets decreased primarily due to lower deferred tax assets as a result of unrealized gains on securities and the elimination of acquisition costs due to the completion of the acquisition, partially offset by an accounts receivable due to the timing of the receipt of cash proceeds from the sale of foreclosed real estate.

Total liabilities increased $48.8 million to $341.0 million at June 30, 2009 compared to $292.2 million at September 30, 2008.

Deposits increased from $219.8 million at September 30, 2008 to $279.6 million at June 30, 2009 primarily due to the KLT Bancshares, Inc. acquisition and an increase in long-term certificate accounts, money market accounts, interest bearing and noninterest bearing checking and brokered certificates. Deposits assumed in the acquisition totaled $34.0 million. An increase in deposits (both from internally-generated customers and from deposits assumed in the acquisition) were offset by a lower average rate which resulted in accrued interest payable remaining virtually the same at June 30, 2009 as compared to September 30, 2008. Advances from the FHLB decreased by $11.1 million to $58.2 million at June 30, 2009. FHLB advances were replaced primarily with interest and noninterest checking, money market accounts and long-term certificate accounts. Advances from borrowers for taxes and insurance decreased by $149,000 due to calendar year-end payment of real estate taxes on behalf of borrowers.

Stockholders’ equity decreased $749,000 from $44.0 million at September 30, 2008 to $43.3 million at June 30, 2009 due to the repurchase of common stock totaling $2.5 million and the payment of cash dividends, partially offset by net earnings of $1.5 million for the nine months ended June 30, 2009, amortization of ESOP and stock-based incentive awards and higher unrealized gains, net of taxes, on investments. During the nine months ended June 30, 2009 and 2008, the Company paid cash dividends of $277,110 and $306,671, respectively.

The Bank is required to maintain certain minimum capital requirements under OTS regulations. Failure by a savings institution to meet minimum capital requirements can result in certain mandatory and possible discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Bank's financial statements. Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to judgments by the regulators about components, risk-weightings and other factors.

LIBERTY BANCORP, INC.

The Bank's actual and required capital amounts and ratios at June 30, 2009 were as follows:

Minimum Required

for Capital

to be "Well

Actual

Adequacy

Capitalized"

LIBERTY BANCORP INC 10-Q