<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-23064
SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oklahoma #73-1136584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
608 South Main Street 74074
Stillwater, Oklahoma (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (405) 372-2230
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 twelve 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 ninety days.
[x] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
3,763,530
---------
1 of 18
<PAGE>
SOUTHWEST BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at
September 30, 1996 and December 31, 1995 3
Unaudited Consolidated Statements of Operations for the
three and nine months ended September 30, 1996 and 1995 4
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Unaudited Consolidated Statements of Shareholders' Equity for the
nine months ended September 30, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Supplemental Financial Data, Average Balances/Yields and Rates 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
2
<PAGE>
SOUTHWEST BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share date)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 22,674 $ 20,789
Federal funds sold 16,400 -
------------- ------------
Cash and cash equivalents 39,074 20,789
Investment securities:
Held to maturity, approximate fair value of
$88,099 (1996) and $75,202 (1995) 88,410 74,644
Available for sale, approximate fair value 66,064 73,044
Loans receivable, net of allowance for loan
losses of $7,005 (1996) and $5,813 (1995) 607,178 526,175
Accrued interest receivable 7,311 7,117
Premises and equipment, net 8,743 6,224
Other real estate 137 195
Other assets 4,209 2,190
Intangibles, net 667 757
------------- ------------
Total assets $821,793 $711,135
============= ============
Liabilities & shareholders' equity
Deposits:
Noninterest-bearing demand $ 91,662 $ 78,308
Interest-bearing demand 35,463 33,762
Time, money market and savings 622,587 522,317
------------- ------------
Total deposits 749,712 634,387
Income taxes payable - 271
Accrued interest payable 4,606 4,266
Other liabilities 4,259 11,854
------------- ------------
Total liabilities 758,577 650,778
Commitments and contingencies
Shareholders' equity:
Serial preferred stock-
Series A, 9.20% Redeemable, Cumulative Preferred Stock;
$1 par value; 1,000,000 shares authorized; liquidation
value $17,250,000; 690,000 shares issued and outstanding 690 690
Series B, $1 par value; 1,000,000 shares authorized; none issued - -
Common stock-$1 par value; 10,000,000 shares
authorized; issued and outstanding 3,761,828 (1996)
and 3,755,228 (1995) 3,762 3,755
Capital surplus 24,287 24,171
Retained earnings 34,658 31,129
Unrealized gain/(loss) on investment securities
available for sale, net of tax (181) 612
------------- ------------
Total shareholders' equity 63,216 60,357
------------- ------------
Total liabilities & shareholders' equity $821,793 $711,135
============= ============
</TABLE>
3
<PAGE>
SOUTHWEST BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $14,240 $11,997 $40,343 $33,117
Investment securities:
U.S. Government and Agency obligations 1,735 1,764 5,026 4,952
State and political subdivisions 146 127 432 351
Mortgage-backed securities 376 388 1,157 1,145
Other securities 29 17 61 43
Federal funds sold 170 150 388 563
------------ ------------ ----------- ------------
Total interest income 16,696 14,443 47,407 40,171
Interest expense:
Interest-bearing demand 218 193 627 570
Time, money market and savings 8,327 7,261 23,202 20,294
Other borrowed money 16 30 87 237
------------ ------------ ----------- ------------
Total interest expense 8,561 7,484 23,916 21,101
------------ ------------ ----------- ------------
Net interest income 8,135 6,959 23,491 19,070
Provision for loan losses 775 875 2,425 1,625
------------ ------------ ----------- ------------
Net interest income after provision for loan losses 7,360 6,084 21,066 17,445
Other income:
Service charges and fees 685 631 2,113 1,885
Credit cards 215 233 655 647
Other noninterest income 107 107 325 299
Gain/(loss) on sales of loans receivable 584 493 1,407 826
Gain/(loss) on sale of investment securities 1 - 172 (8)
------------ ------------ ----------- ------------
Total other income 1,592 1,464 4,672 3,649
Other expenses:
Salaries and employee benefits 3,174 2,598 9,008 7,306
Occupancy 981 793 2,606 2,252
FDIC and other insurance 534 63 819 718
Credit cards 81 140 245 413
Other real estate owned, net 1 (15) 2 (31)
General and administrative 1,682 1,431 4,457 3,911
------------ ------------ ----------- ------------
Total other expenses 6,453 5,010 17,137 14,569
------------ ------------ ----------- ------------
Income before taxes 2,499 2,538 8,601 6,525
Taxes on income 898 909 3,092 2,297
------------ ------------ ----------- ------------
Net income $ 1,601 $ 1,629 $ 5,509 $ 4,228
============ ============ =========== ============
Net income available to common shareholders $ 1,205 $ 1,360 $ 4,319 $ 3,959
============ ============ =========== ============
Earnings per common share $0.32 $0.35 $1.15 $1.05
============ ============ =========== ============
Weighted average common shares outstanding 3,761,502 3,755,228 3,759,195 3,755,228
============ ============ ============ ============
</TABLE>
4
<PAGE>
SOUTHWEST BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
----------------- ----------------
<S> <C> <C>
Operating activities:
Net income $ 5,509 $ 4,228
Adjustments to reconcile net income to net cash provided
from/(used in) operating activities:
Provision for loan losses 2,425 1,625
Depreciation and amortization expense 931 749
Amortization of premiums and accretion of discount
on securities, net 190 202
Amortization of intangibles 90 130
(Gain)/loss on sales of securities (172) 8
(Gain)/loss on sales of loans receivable (1,407) (826)
(Gain)/loss on sales of premises and equipment (10) 3
(Gain)/loss on other real estate owned, net (2) (43)
Proceeds from sales of residential mortgage loans 31,772 21,811
Residential mortgage loans originated for resale (41,363) (33,831)
Changes in assets and liabilities:
Accrued interest receivable (194) (1,238)
Income taxes payable (271) (61)
Accrued interest payable 340 937
Other (9,124) (13,770)
----------------- ----------------
Net cash provided from/(used in) operating activities (11,286) (20,076)
----------------- ----------------
Investing activities:
Proceeds from sales of held to maturity securities - 5,993
Proceeds from sales of available for sale securities - -
Proceeds from principal repayments, redemptions and maturities of:
Held to maturity securities 19,132 10,188
Available for sale securities 22,637 4,533
Purchases of held to maturity securities (33,045) (23,363)
Purchases of available for sale securities (16,849) (7,520)
Loans originated and principal repayments, net (104,040) (100,863)
Proceeds from sales of guaranteed student loans 31,591 33,414
Purchases of premises and equipment (3,464) (1,668)
Proceeds from sales of premises and equipment 24 18
Proceeds from sales of other real estate 79 112
----------------- ----------------
Net cash provided from/(used in) investing activities (83,935) (79,156)
----------------- ----------------
Financing activities:
Net increase in deposits 115,325 86,230
Net proceeds from issuance of common stock 123 -
Net proceeds from issuance of preferred stock - 16,322
Common stock dividends paid (752) (864)
Preferred stock dividends paid (1,190) -
----------------- ----------------
Net cash provided from/(used in) financing activities 113,506 101,688
----------------- ----------------
Net increase/(decrease) in cash and cash equivalents 18,285 2,456
Cash and cash equivalents,
Beginning of period 20,789 16,394
----------------- ----------------
End of period $39,074 $18,850
================= ================
</TABLE>
5
<PAGE>
SOUTHWEST BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain/Loss on
Preferred Common Capital Retained Investment
Stock Stock Surplus Earnings Securities
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 - $3,755 $ 8,539 $26,471 $(877)
Cash dividends paid:
Common, $0.18 per share - - - (676) -
Issuance of preferred stock,
net of offering costs $690 - 15,632 - -
Change in unrealized
gain/(loss) on investment
securities available for sale,
net of tax - - - - 954
Net income - - - 4,228 -
-----------------------------------------------------------------------
Balance, September 30, 1995 $690 $3,755 $24,171 $30,023 $ 77
=======================================================================
Balance, January 1, 1996 $690 $3,755 $24,171 $31,129 $ 612
Cash dividends paid:
Common, $0.21 per share - - - (790) -
Preferred, $0.575 per share (1,190)
Change in unrealized
gain/(loss) on investment
securities available for sale,
net of tax - - - - (793)
Shares purchased by
employee stock purchase
plan - 3 45 - -
Shares purchased by dividend
reinvestment plan - 4 71 - -
Net income - - - 5,509 -
-----------------------------------------------------------------------
Balance, September 30, 1996 $690 $3,762 $24,287 $34,658 $(181)
=======================================================================
</TABLE>
6
<PAGE>
SOUTHWEST BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements
NOTE 1: GENERAL
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, and cash flows
in conformity with generally accepted accounting principles. However, the
financial statements include all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair presentation. The results of operations and cash flows for the nine months
ended September 30, 1996 and 1995 are not necessarily indicative of the results
to be expected for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Southwest Bancorp, Inc. Annual Report on Form 10-K for the year ended December
31, 1995.
NOTE 2: PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Southwest Bancorp, Inc. (the Company) and its wholly owned
subsidiary, The Stillwater National Bank and Trust Company (the Bank). All
significant intercompany transactions and balances have been eliminated in
consolidation.
NOTE 3: RECENTLY ADOPTED ACCOUNTING STANDARDS
The Company adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which establishes
accounting standards for such assets, on January 1, 1996. Also on that date, the
Company adopted SFAS No. 122, Accounting for Mortgage Servicing Rights, which
amends the accounting for the rights to service mortgage loans, however
acquired, and requires the Company to recognize as separate assets those rights
to service mortgage loans for others. SFAS No. 122 also requires the Company to
evaluate whether amounts capitalized as mortgage servicing rights are impaired.
Adoption of SFAS Nos. 121 and 122 did not have a material impact on the
Company's consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 establishes a fair value method and disclosure
standards for stock-based employee compensation arrangements, such as stock
purchase plans and stock options. SFAS No. 123 became effective January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages, but does not require, compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting Principles
Board Opinion (APB) No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB No. 25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share in
the 1996 year-end financial statements.
7
<PAGE>
NOTE 4: ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125
requires the Company to recognize the financial and servicing assets it controls
and liabilities it has incurred, derecognize financial assets when control has
been surrendered, and derecognize liabilities when extinguished. The Company
will adopt SFAS No. 125 for transfers and servicing of financial assets and
extinguishments of liabilities when required. Management believes that adoption
of SFAS No. 125 will not have a material impact on the Company's consolidated
financial position or results of operations.
NOTE 5: ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below for the indicated
periods.
<TABLE>
<CAPTION>
For the Nine For the
Months Ended Year Ended
September 30, 1996 December 31, 1995
--------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period $5,813 $4,959
Loans charged-off:
Real-estate mortgage 80 7
Real estate construction - 1
Commercial 789 1,101
Installment and consumer 816 694
--------------------- ---------------------
Total charge-offs 1,685 1,803
Recoveries:
Real-estate mortgage 22 152
Real estate construction - -
Commercial 252 334
Installment and consumer 178 171
--------------------- ---------------------
Total recoveries 452 657
Net loans charged-off 1,233 1,146
Provision for loan losses 2,425 2,000
--------------------- ---------------------
Balance at end of period $7,005 $5,813
===================== =====================
Loans outstanding:
Average $564,966 $473,080
End of period 614,183 531,988
Net charge-offs to total average loans 0.29% 0.24%
Allowance for loan losses to total loans 1.14% 1.09%
</TABLE>
8
<PAGE>
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
<TABLE>
<CAPTION>
As of As of
September 30, 1996 December 31, 1995
--------------------- ---------------------
<S> <C> <C>
Nonaccrual loans $4,513 $724
Past due 90 days or more 966 951
Restructured terms 2,702 3,604
--------------------- ---------------------
Total nonperforming loans 8,181 5,279
Other real estate owned 137 195
--------------------- ---------------------
Total nonperforming assets $8,318 $5,474
===================== =====================
Nonperforming loans to loans receivable 1.33% .99%
Allowance for loan losses to nonperforming loans 85.63% 110.12%
Nonperforming assets to loans receivable and
other real estate owned 1.35% 1.03%
</TABLE>
In general, the Company writes off accrued interest on loans after the loan is
past due as to interest or principal by 90 days or more. Subsequent interest is
recorded when cash receipts are received from the borrower. Loans which are
determined to be impaired are charged against the allowance for loan losses, in
whole or in part, based upon management's assessment of the amount of
impairment, and recoveries, if any, are added to the allowance. A loan is
considered to be impaired 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. During the first nine months of
1996, $30,000 in interest income was recorded on nonaccruing loans. Total
interest income of $273,000 would have been recorded during this period if
interest on such loans had been recorded on such loans in accordance with their
terms. The $3.8 million increase in nonaccrual loans from year-end 1995 was
mainly the result of the classification as impaired of a group of related loans
with a remaining net book value of $3.6 million at September 30, 1996.
Management believes that this book value is adequately secured.
Those performing loans considered potential problem loans, as defined and
identified by management, amounted to approximately $10.0 million at September
30, 1996, compared to $9.4 million at December 31, 1995. Although these are
loans where known information about the borrowers' possible credit problems
cause management to have doubts as to their ability to comply with the present
loan repayment terms, most are well collateralized and are not believed to
present significant risk of loss.
Loans to individuals and businesses in the healthcare industry totaled $80.2
million, or 13% of total loans. Other concentrations of credit within the loan
portfolio include $41.1 million in residential construction loans, $23.9 million
in hotel/motel loans, and $14.3 million in restaurant loans.
9
<PAGE>
SOUTHWEST BANCORP, INC. AND SUBSIDIARY
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months ending September 30,
1996 1995
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Loans receivable $564,966 9.54% $461,043 9.60%
Investment securities 145,781 6.12 139,762 6.21
Other interest-earning assets 9,702 5.34 12,645 5.95
-------------- -------------
Total interest-earning assets 720,449 8.79 613,450 8.76
Noninterest-earning assets 34,357 27,626
-------------- -------------
Total assets $754,806 $641,076
============== =============
Liabilities and Shareholders' Equity
NOW accounts $ 35,857 2.34% $ 32,002 2.38%
Time, money market and savings
deposits 569,601 5.44 488,472 5.55
------------- -------------
Total interest-bearing deposits 605,458 5.26 520,474 5.36
Other 2,139 5.43 5,153 6.15
------------- -------------
Total interest-bearing liabilities 607,597 5.26 525,627 5.37
Demand Deposits 79,436 67,089
Other noninterest-bearing liabilities 6,148 4,639
Shareholders' equity 61,625 43,721
------------- -------------
Total liabilities and
shareholders' equity $754,806 $641,076
============= =============
Interest rate spread 3.53% 3.39%
============ =============
Net interest margin 4.36% 4.16%
============ =============
Ratio of average interest-earning assets
to average interest-bearing liabilities 118.57% 116.71%
=============== ==============
</TABLE>
10
<PAGE>
SOUTHWEST BANCORP, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
FINANCIAL CONDITION
The Company's total assets increased by $110.7 million, or 16%, from $711.1
million at December 31, 1995 to $821.8 million at September 30, 1996.
Loans were $614.2 million at September 30, 1996, an increase of $82.2 million,
or 15%, compared to December 31, 1995. The Company experienced its most
significant increases in the categories of commercial loans, which increased by
$31.1 million, or 17%, real estate construction loans, which increased by $20.9
million, or 63%, commercial mortgages, which increased by $22.4 million, or 14%,
and residential mortgages, which increased by $14.8 million, or 34%. These
increases were offset by a $8.5 million, or 13% reduction in
government-guaranteed student loans. At September 30, 1996, the allowance for
loan losses was $7.0 million, or 1.14% of total loans, compared to $5.8 million,
or 1.09% of total loans, at December 31, 1995.
Investment securities were $154.5 at September 30, 1996, an increase of $6.8
million, or 5%, compared to December 31, 1995.
The Company's deposits increased by $115.3 million, or 18%, from $634.4 million
at December 31, 1995 to $749.7 million at September 30, 1996. This increase
occurred primarily in time deposits.
Shareholders' equity increased by $2.9 million, or 5%, due primarily to earnings
for the first nine months of 1996, net of dividends declared on common and
preferred stock.
RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
Net Income
Net income for the first nine months of 1996 was $5.5 million, a $1.3 million,
or 30%, increase from the $4.2 million earned during the same period in 1995.
Earnings per common share for the first nine months of 1996 were $1.15, after
the deduction of preferred stock dividends, compared to $1.05 for the first nine
months of 1995. Average common shares outstanding were 3,759,195 and 3,755,228,
respectively. Net interest income increased $4.4 million, or 23%, for the first
nine months of 1996 compared to the same period in 1995. This increase in net
interest income, as well as a $1.0 million, or 28%, increase in other income,
offset a $2.6 million, or 18%, increase in other expenses, an $800,000, or 49%,
increase in provision for loan loss and a $795,000, or 35%, increase in taxes.
For the first nine months of 1996, the return on average total equity was 11.94%
and the return on average common equity was 13.01% compared to the 12.93% return
on average total equity and the 12.98% return on average common equity for the
first nine months of 1995.
Net Interest Income
Net interest income increased to $23.5 million for the first nine months of 1996
from $19.1 million for the same period in 1995 as continued growth in the loan
portfolio enabled the Company to post a $7.2 million increase in interest income
that exceeded the $2.8 million increase in interest expense during the period.
Yields on the Company's interest-earning assets increased by 3 basis points, and
the rates paid on
11
<PAGE>
the Company's interest-bearing liabilities declined by 11 basis points,
resulting in an increase in the interest rate spread to 3.53% for the nine
months ended September 30, 1996 from 3.39% for the nine months ended September
30, 1995. The ratio of average interest-earning assets to average
interest-bearing liabilities increased to 118.57% for the first nine months of
1996 from 116.71% for the first nine months of 1995.
Total interest income for the first nine months of 1996 was $47.4 million, up
18% from $40.2 million during the same period in 1995. The principal factor
providing greater interest income was the $103.9 million, or 23%, increase in
the volume of average loans outstanding. The Company's loan yields declined to
9.54% for the first nine months of 1996 from 9.60% in 1995. During the same
period, the Company's yield on investment securities declined to 6.12% from
6.21% as a result of calls of relatively high-yielding Agency securities early
in 1996.
Total interest expense for the first nine months of 1996 was $23.9 million, an
increase of 13% from $21.1 million for the same period in 1995. The increase in
total interest expense can be attributed to an increase in average
interest-bearing liabilities of $82.0 million, or 16%. During the same period,
the rates paid on average interest-bearing liabilities declined to 5.26% from
5.37%.
Other Income
Other income increased by $1.0 million for the first nine months of 1996
compared to the first nine months of 1995 primarily due to increased gains on
sales of loans receivable and investment securities. The increase in gains on
sales of loans receivable reflected higher sales of mortgage loans and higher
premiums received on sales of student loans. Sales of student loans during the
first nine months of 1996 were $31.6 million compared to $33.4 million for the
same period in 1995. Sales of mortgage loans increased to $31.8 million for the
first nine months of 1996 compared to $21.8 million for the same period in 1995.
The gain on sales of investment securities during 1996 occurred when $4.6
million in Agency securities classified as "held to maturity" and $11.2 million
in Agency securities classified as "available for sale", originally purchased at
a discount, were called prior to their stated maturity date. During the first
nine months of 1995, a loss on sales of investment securities occurred when the
Bank sold securities classified as "held to maturity". Management determined to
sell these securities based upon their impending maturity, the provisions of
paragraph 11 of SFAS 115, which deems such sales the equivalent of maturities
for disclosure purposes, the Bank's need for funds, and Management's belief that
it would be less costly to take the minor losses on a sale of these securities
than to raise additional deposits for the period prior to their maturity. The
date of sale for each such security sold was within 61 days of its contractual
maturity date. The Company concluded that these sales of debt securities met the
requirements of paragraph 11 of SFAS 115 in that they were sold at a time near
enough to their maturity dates (and within the three month example provided
therein) that interest rate risk was substantially eliminated as a pricing
factor.
Other Expenses
The Company's other expenses increased $2.6 million for the first nine months of
1996 compared to the first nine months of 1995. This increase was primarily the
result of an increase in salaries and employee benefits, which increased $1.7
million as a result of a 21% increase in staffing. The increase in staffing is
related to the expansion of the Company's asset and deposit bases. In addition,
occupancy expense increased $354,000, due primarily to the leasing of additional
office space and the depreciation on furniture and equipment purchased to
furnish those new offices, and general and administrative expense increased
$546,000. Included in general and administrative expense was $87,000 in expenses
related to an unsuccessful effort to establish additional branches.
12
<PAGE>
FDIC and other insurance for the nine month period ended September 30, 1996 also
increased $101,000 compared to the same period in 1995. Regular deposit
insurance premium rates decreased beginning July 1, 1995 as the Bank Insurance
Fund (BIF), of which the Bank is a member, achieved its statutory reserve ratio.
However, legislation recently enacted by Congress required that the Bank pay a
one-time special assessment to the FDIC with respect to deposits it acquired
from a savings association in 1991. Although the actual payment date for this
special assessment is expected to be in late November, the special assessment
has been included in expenses and liabilities in the third quarter in accordance
with generally accepted accounting principles. The amount calculated and
recorded by the Bank during the third quarter was $436,000. This amount agrees
with the estimated assessment calculated by the FDIC.
* * * * * * *
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
Net Income
Net income for the third quarters of both 1996 and 1995 was $1.6 million.
Earnings per common share for the third quarter of 1996 were $0.32, after the
deduction of preferred stock dividends, compared to $0.35 for the third quarter
of 1995. Average common shares outstanding were 3,761,502 and 3,755,228,
respectively. Net interest income increased $1.2 million, or 17%, for the third
quarter of 1996 compared to the same period in 1995. This increase in net
interest income, as well as a $128,000, or 9%, increase in other income, a
$100,000 reduction in provision for loan loss, and an $11,000 reduction in
taxes, offset a $1.4 million, or 29%, increase in other expenses. For the third
quarter of 1996, the return on average total equity was 10.19% and the return on
average common equity was 10.60% compared to a 12.34% return on average total
equity and a 13.27% return on average common equity for the third quarter of
1995.
Net Interest Income
Net interest income increased to $8.1 million for the third quarter of 1996 from
$6.9 million for the same period in 1995 as continued growth in the loan
portfolio enabled the Company to post a $2.3 million increase in interest income
that exceeded the $1.1 million increase in interest expense during the period.
Yields on the Company's interest-earning assets declined by 15 basis points, and
the rates paid on the Company's interest-bearing liabilities declined by 17
basis points, resulting in an increase in the interest rate spread to 3.46% for
the third quarter of 1996 from 3.44% for the third quarter of 1995. The ratio of
average interest-earning assets to average interest-bearing liabilities declined
to 117.68% for the third quarter of 1996 from 118.31% for the third quarter of
1995.
Total interest income for the third quarter of 1996 was $16.7 million, up 16%
from $14.4 million during the same period in 1995. The principal factor
providing greater interest income was the $113.8 million, or 23%, increase in
the volume of average loans outstanding. The Company's loan yields declined to
9.44% for the third quarter of 1996 from 9.79% in 1995. During the same period,
the Company's yield on investment securities increased to 6.14% from 6.13%.
Total interest expense for the third quarter of 1996 was $8.6 million, an
increase of 14% from $7.5 million for the same period in 1995. The increase in
total interest expense can be attributed to an increase in average
interest-bearing liabilities of $101.2 million, or 19%. During the same period,
the rates paid on average interest-bearing liabilities declined to 5.27% from
5.44%.
13
<PAGE>
Other Income
Other income increased by $128,000 for the third quarter of 1996 compared to the
third quarter of 1995 primarily as a result of increased premiums on sales of
student loans. Sales of student loans during the third quarter of 1996 were
$14.4 million compared to $17.2 million for the same period in 1995.
Other Expenses
The Company's other expenses increased $1.4 million for the third quarter of
1996 compared to the third quarter of 1995. This increase was primarily the
result of an increase in salaries and employee benefits, which increased
$576,000 as a result of a 21% increase in staffing. The increase in staffing is
related to the expansion of the Company's asset and deposit bases. In addition,
FDIC and other insurance increased $471,000, occupancy expense increased
$188,000 and general and administrative expense increased $251,000 compared to
1995. The increase in occupancy expense was due primarily to the leasing of
additional office space and the depreciation on furniture and equipment
purchased to furnish those new offices. Included in general and administrative
expense was $87,000 in expenses related to an unsuccessful effort to establish
additional branches.
The increase in FDIC and other insurance for the third quarter of 1996 was due
to the $436,000 special assessment recently enacted by Congress as well as an
increase in the deposit base for which FDIC insurance is paid. FDIC insurance
expensed during the third quarter is based upon deposits at March 31st, at which
time total deposits were $654.7 million and 579.7 million for 1996 and 1995,
respectively.
* * * * * * *
Provision for Loan Losses
The Company makes provisions for loan losses in amounts deemed necessary to
maintain the allowance for loan losses at an appropriate level. The adequacy of
the allowance for loan losses is determined by management based upon a number of
factors including, among others, analytical reviews of loan loss experience in
relationship to outstanding loans and commitments; unfunded loan commitments;
problem and nonperforming loans and other loans presenting credit concerns;
trends in loan growth, portfolio composition and quality; use of appraisals to
estimate the value of collateral; and management's judgment with respect to
current and expected economic conditions and their impact on the existing loan
portfolio. Changes in the allowance may occur because of changing economic
conditions, and economic prospects or the financial position of borrowers. Based
upon this review, management established an allowance of $7.0 million, or 1.14%
of total loans, at September 30, 1996 compared to an allowance of $5.8 million,
or 1.09% of total loans at December 31, 1995. During the first nine months of
1996 and 1995, the provisions for loan losses were $2.4 million and $1.6
million, respectively.
In establishing the level of the allowance for September 30, 1996, management
considered a number of factors that tend to indicate a potential need for an
increased allowance level, including the increased risk inherent in the amount
and percentage to total loans attributable to commercial and commercial real
estate loans, which are viewed as entailing greater risk than certain other
categories of loans, and the increased levels of large loans and of identified
non-performing loans at September 30, 1996, versus December 31, 1995. Management
also considered other factors, such as the levels of types of credits, such as
residential mortgage loans, deemed to be of relatively low risk, that tended to
indicate the potential need for a lower allowance. The Company determined the
level of the allowance for loan losses at September 30, 1996 was appropriate, as
a result of its balancing these and other factors it deemed relevant to the
adequacy of the allowance. Management conducted a similar analysis in order to
determine the appropriate allowance as of September 30, and December 31, 1995.
14
<PAGE>
Taxes on Income
The Company's income tax expense for the first nine months of 1996 and 1995 was
$3.1 million and $2.3 million, respectively. The Company's income tax expense
for the third quarters of 1996 and 1995 was $898,000 and $909,000, respectively.
The Company's effective tax rates have been lower than the 34% Federal and 6%
State statutory rates primarily because of tax-exempt income on municipal
obligations and loans.
* * * * * * *
LIQUIDITY
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital, or the sale of highly marketable
assets such as residential mortgage loans. The Company's portfolio of
government-guaranteed student loans and SBA loans are also readily salable.
Additional sources of liquidity, including cash flow from the repayment of
loans, are also considered in determining whether liquidity is satisfactory.
Liquidity is also achieved through growth of core deposits and liquid assets,
and accessibility to the capital and money markets. These funds are used to meet
deposit withdrawals, maintain reserve requirements, fund loans and operate the
organization. Core deposits, defined as demand deposits, interest-bearing
transaction accounts, savings deposits and certificates of deposit less than
$100,000 were 84% and 87% of total deposits at September 30, 1996 and 1995,
respectively.
The Company uses various forms of short-term borrowings for cash management and
liquidity purposes on a limited basis. These forms of borrowings include federal
funds purchases and borrowings from the Federal Reserve Bank. The Bank has
approved federal funds purchase lines with three other banks. The Bank also
carries interest-bearing demand notes issued by the Bank to the U.S. Treasury as
a participant in the Treasury Tax and Loan note program. In addition, the Bank
has available a $20.0 million line of credit from the Student Loan Marketing
Association (SLMA). Borrowings under the SLMA line would be secured by student
loans. During the third quarters of 1996 and 1995, no category of borrowings
averaged more than 30% of ending shareholders' equity.
During the first nine months of 1996, cash and cash equivalents increased by
$18.3 million. The increase was the result of cash generated from financing
activities (primarily increased deposits) of $113.5 million offset by $11.3
million in cash used in operating activities and $83.9 million in cash used in
investing activities.
Cash and cash equivalents, during the first nine months of 1995, increased by
$2.5 million. The increase was the result of cash generated from financing
activities (primarily increased deposits and the proceeds from issuance of
preferred stock) of $101.7 million offset by $20.1 million in cash used in
operating activities and $79.1 million in cash used in investing activities.
CAPITAL RESOURCES
Bank holding companies are required to maintain capital ratios in accordance
with guidelines adopted by the Federal Reserve Board (FRB). The guidelines are
commonly known as Risk-Based Capital Guidelines.
On September 30, 1996, the Company exceeded all applicable capital requirements,
having a total risk-based capital ratio of 11.64%, a Tier I risk-based capital
ratio of 10.33%, and a leverage ratio of 7.77%. As of September 30, 1996, the
Bank also met the criteria for classification as a "well-capitalized"
institution under the prompt corrective action rules promulgated under the
Federal Deposit Insurance
15
<PAGE>
Corporation Improvement Act of 1991 (FDICIA). Designation as a well-capitalized
institution under these regulations does not constitute a recommendation or
endorsement of the Company or the Bank by Federal bank regulators.
The Company declared a dividend of $.07 per common share payable on October 1,
1996 to shareholders of record as of September 18, 1996. In July 1996, the
Company declared a dividend of $.575 per preferred share payable on September 3,
1996 to shareholders of record as of August 19, 1996. In July 1995, the Company
issued preferred stock; however, no dividends were declared or paid during the
nine months ended September 30, 1995.
EFFECTS OF INFLATION
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Not applicable
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST BANCORP, INC.
(Registrant)
By: /s/ Robert L. McCormick, Jr. October 31, 1996
-------------------------------------- --------------------------------
Robert L. McCormick, Jr. Date
President
(Principal Executive Officer)
By: /s/ Kerby E. Crowell October 31, 1996
-------------------------------------- --------------------------------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST
BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,674
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66,064
<INVESTMENTS-CARRYING> 88,410
<INVESTMENTS-MARKET> 88,099
<LOANS> 614,183
<ALLOWANCE> 7,005
<TOTAL-ASSETS> 821,793
<DEPOSITS> 749,712
<SHORT-TERM> 1,500
<LIABILITIES-OTHER> 7,365
<LONG-TERM> 0
0
690
<COMMON> 3,762
<OTHER-SE> 58,764
<TOTAL-LIABILITIES-AND-EQUITY> 821,793
<INTEREST-LOAN> 40,343
<INTEREST-INVEST> 6,676
<INTEREST-OTHER> 388
<INTEREST-TOTAL> 47,407
<INTEREST-DEPOSIT> 23,829
<INTEREST-EXPENSE> 23,916
<INTEREST-INCOME-NET> 23,491
<LOAN-LOSSES> 2,425
<SECURITIES-GAINS> 172
<EXPENSE-OTHER> 17,137
<INCOME-PRETAX> 8,601
<INCOME-PRE-EXTRAORDINARY> 8,601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,509
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 8.79
<LOANS-NON> 4,513
<LOANS-PAST> 966
<LOANS-TROUBLED> 2,702
<LOANS-PROBLEM> 10,028
<ALLOWANCE-OPEN> 5,813
<CHARGE-OFFS> 1,685
<RECOVERIES> 1,233
<ALLOWANCE-CLOSE> 7,005
<ALLOWANCE-DOMESTIC> 6,511
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 494
</TABLE>
