<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 March 31, 1997.
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.
3,768,365
---------
1 of 16
<PAGE>
SOUTHWEST BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at
March 31, 1997 and December 31, 1996 3
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Unaudited Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7
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 16
SIGNATURES 17
</TABLE>
2
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 28,212 $ 22,914
Federal funds sold 15,800 --
------------ ------------
Cash and cash equivalents 44,012 22,914
Investments securities:
Held to maturity, approximate fair value of
$84,598 (1997) and $83,963 (1996) 84,787 83,589
Available for sale, approximate amortized cost of
$65,060 (1997) and $63,419 (1996) 64,897 63,762
Loans receivable, net of allowance for loan losses
of $8,484 (1997) and $7,139 (1996) 668,015 637,507
Accrued interest receivable 8,007 7,400
Premises and equipment, net 12,696 9,649
Other assets 5,395 4,296
------------ ------------
Total assets $ 887,809 $ 829,117
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 85,943 $ 83,729
Interest-bearing demand 37,054 34,309
Money market accounts 93,467 86,910
Savings accounts 4,002 4,086
Time deposits 594,071 544,911
------------ ------------
Total deposits 814,537 753,945
------------ ------------
Income taxes payable 14 187
Accrued interest payable 5,120 5,061
Other Liabilities 3,599 4,892
------------ ------------
Total Liabilities 823,270 764,065
------------ ------------
Commitments and contigencies -- --
Shareholders' equity:
Serial preffered 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 3,766,515 (1997)
and 3,764,216 (1996) 3,767 3,764
Capital surplus 24,377 24,332
Retained earnings 35,803 36,041
Unrealized gain/(loss) on investment securities
available for sale, net of tax (98) 205
------------ ------------
Total shareholders' equity 64,539 65,032
------------ ------------
Total liabilities & shareholders' equity $ 887,809 $ 829,117
============ ============
</TABLE>
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 15,516 $ 12,832
Investment securities:
U.S. Government and agency obligations 1,776 1,640
State and political subdivisions 136 140
Mortgage-backed securities 327 390
Other securities 15 13
Federal funds sold 81 74
---------- ----------
Total interest income 17,851 15,089
Interest expense:
Interest-bearing demand 209 203
Money market accounts 919 673
Savings accounts 25 30
Time deposits 8,036 6,622
Other borrowed money 70 58
---------- ----------
Total interest expense 9,259 7,586
---------- ----------
Net interest income 8,592 7,503
Provision for loan losses 3,001 875
---------- ----------
Net interest income after provision for loan losses 5,591 6,628
Other income:
Service charges and fees 752 708
Credit cards 193 207
Other noninterest income 143 117
Gain on sales of loans receivable 326 448
Gain/(loss) on sales of investment securities - 122
---------- ----------
Total other income 1,414 1,602
Other expenses:
Salaries and employee benefits 3,487 2,828
Occupancy 1,043 759
FDIC and other insurance 63 132
Credit cards 76 104
General and administrative 1,690 1,396
---------- ----------
Total other expenses 6,359 5,219
---------- ----------
Income before taxes 646 3,011
Taxes on income 186 1,079
---------- ----------
Net income $ 460 $ 1,932
========== ==========
Net income available to common shareholders $ 63 $ 1,535
========== ==========
Earnings per common share $ 0.02 $ 0.41
========== ==========
Weighted average common shares outstanding 3,766,172 3,756,861
========== ==========
</TABLE>
4
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
<S> <C> <C>
1997 1996
------------ ----------
Operating activities:
Net income $ 460 $ 1,932
Adjustments to reconcile net income to net
cash provided from operating activities:
Provision for loan losses 3,001 875
Depreciation and amortization expense 381 288
Amortization of premiums and accretion of
discount on securities, net 43 42
Amortization of intangibles 45 26
(Gain) Loss on sales of securities - (122)
(Gain) Loss on sales of loans receivable (326) (448)
(Gain) Loss on sales of premises/equipment - (1)
(Gain) Loss on other real estate owned, net - -
Proceeds from sales of residential mortgage loans 14,839 8,477
Residential mortgage loans originated for resale (11,521) (11,364)
Changes in assets and liabilities:
Accrued interest receivable (607) (83)
Other assets (574) (3,713)
Income taxes payable (173) 1,046
Accrued interest payable 59 (325)
Other liabilities (1,331) (9,184)
------------ ----------
Net cash (used in) provided from operating activities 4,296 (12,554)
------------ ----------
Investing activities:
Proceeds from sales of held to maturity securities - -
Proceeds from sales of available for sale securities - -
Proceeds from principal repayments and maturities:
Held to maturity securities 2,006 11,656
Available for sale securities 4,001 10,049
Purchases of held to maturity securities (3,260) (13,620)
Purchases of available for sale securities (5,628) (3,882)
Loans originated and principal repayments, net (48,186) (14,674)
Proceeds from sales of guaranteed student loans 11,317 12,445
Purchases of premises and equipment (3,428) (619)
Proceeds from sales of premises and equipment - 3
Proceeds from sales of other real estate - 49
------------ ----------
Net cash (used in) provided from investing activities (43,178) 1,407
------------ ----------
Financing activities:
Net increase in deposits 60,592 20,280
Net proceeds from issuance of common stock 48 35
Net proceeds from issuance of preferred stock - -
Common stock dividends paid (263) (225)
Preferred stock dividends paid (397) (397)
------------ ----------
Net cash provided from financing activities 59,980 19,693
------------ ----------
Net increase (decrease) in cash and cash equivalents 21,098 8,546
Cash and cash equivalents,
Beginning of period 22,914 20,789
------------ ----------
End of period $ 44,012 $ 29,335
============ ==========
</TABLE>
5
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Total
on Available Share-
Preferred Stock Common Stock Capital Retained for Sale holders'
Shares Amount Shares Amount Surplus Earnings Securities Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 690,000 $690 3,755,228 $3,755 $24,171 $31,129 $612 $60,357
Cash dividends paid:
Preferred, $0.575 per share - - - - - (397) - (397)
Cash dividends declared:
Common, $0.07 per share - - - - - (263) - (263)
Common stock issued:
Employee Stock Purchase
Plan - - 760 1 13 - - 14
Dividend Reinvestment Plan - - 1,154 1 20 - - 21
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - (388) (388)
Net income - - - - - 1,932 - 1,932
-------------------------------------------------------------------------------------------
Balance, March 31, 1996 690,000 $690 3,757,142 $3,757 $24,204 $32,401 $224 $61,276
===========================================================================================
Balance, January 1, 1997 690,000 $690 3,764,216 $3,764 $24,332 $36,041 $205 $65,032
Cash dividends paid:
Preferred, $0.575 per share - - - - - (397) - (397)
Cash dividends declared:
Common, $0.08 per share - - - - - (301) - (301)
Common stock issued:
Employee Stock Purchase
Plan - - 956 1 19 - - 20
Dividend Reinvestment Plan - - 1,343 2 26 - - 28
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - (303) (303)
Net income - - - - - 460 - 460
-------------------------------------------------------------------------------------------
Balance, March 31, 1997 690,000 $690 3,766,515 $3,767 $24,377 $35,803 $(98) $64,539
===========================================================================================
</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 three
months ended March 31, 1997 and 1996 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, 1996.
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
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, Disclosure of
Information About Capital Structure. SFAS No. 129 establishes standards for
disclosure of information regarding an entity's capital structure. The adoption
of SFAS No. 129 did not affect the Company's consolidated financial position or
results of operations.
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
extinguishment of liabilities occurring after December 31, 1997 as 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.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
establishes standards for computing and presenting earnings per share. SFAS No.
128 is effective for periods ending after December 15, 1997. Management
believes that SFAS No. 128 will not have a significant effect on the Company's
calculation of earnings per share considering its current capital structure.
7
<PAGE>
NOTE 5: ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below for the indicated
periods.
<TABLE>
<CAPTION>
For the three For the
months ended year ended
March 31, 1997 December 31, 1996
-------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning or period $ 7,139 $ 5,813
Loans charged-off:
Real estate mortgage 104 148
Real estate construction - -
Commercial 1,350 1,064
Installment and consumer 318 1,089
-------- --------
Total charge-offs 1,772 2,301
Recoveries:
Real estate mortgage 36 25
Real estate construction - -
Commercial 50 288
Installment and consumer 30 214
-------- --------
Total recoveries 116 527
-------- --------
Net loans charged-off 1,656 1,774
Provision for loan losses 3,001 3,100
-------- --------
Balance at end of period $ 8,484 $ 7,139
======== ========
Loans outstanding:
Average $669,424 $580,590
End of period 676,499 644,646
Net charge-offs to total average loans
(annualized) 1.00% 0.31%
Allowance for loan losses to total loans 1.25% 1.11%
</TABLE>
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
<TABLE>
<CAPTION>
As of As of
March 31, 1997 December 31, 1996
-------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans (1) $4,745 $4,635
Past due 90 days or more (2) 1,748 1,437
Restructured terms 568 577
------- ------
Total nonperforming loans 7,061 6,649
Other real estate owned 432 64
------- ------
Total nonperforming assets $7,493 $6,713
======= ======
Nonperforming loans to loans receivable 1.04% 1.03%
Allowance for loan losses to nonperforming loans 120.15% 107.37%
Nonperforming assets to loans receivable and
other real estate owned 1.11% 1.04%
</TABLE>
(1) The government-guaranteed portion of loans included in these totals was $0
(1997) and $345 (1996).
(2) The government-guaranteed portion of loans included in these totals was $723
(1997) and $0 (1996).
8
<PAGE>
The allowance for loan losses is established through a provision for loan losses
charged to expense. Charge-offs of loan amounts determined by management to be
uncollectible or impaired decrease the allowance and recoveries of previous
charge-offs, 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. All of the Company's nonaccrual loans have been
defined as impaired loans. 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 financial position of borrowers. While there can be no assurance
that the allowance for loan losses will be adequate to cover all losses from all
loans, management believes that the allowance for loan losses is adequate.
While management uses all available information to estimate the adequacy of the
allowance for loan losses, the ultimate collectability of a substantial portion
of the loan portfolio and the need for future additions to the allowance will be
based upon changes in economic conditions and other relevant factors. Recovery
of the carrying value of such loans is dependent to a great extent on conditions
that may be beyond the Company's control. Actual future losses could differ
significantly from the amounts estimated by management adversely affecting net
income.
NOTE 6: LOANS RECEIVABLE
The Bank extends commercial and consumer credit primarily to customers in the
State of Oklahoma which subjects the loan portfolio to the general economic
conditions within this area. At March 31, 1997 and December 31, 1996,
substantially all of the Bank's loans, except for credit cards, are
collateralized with real estate, inventory, accounts receivable and/or other
assets or guaranteed by agencies of the United States Government.
At March 31, 1997, loans to individuals and businesses in the healthcare
industry totaled approximately $79.0 million, or 12% of total loans. Other
notable concentrations of credit within the loan portfolio include $23.8
million, or 4% of total loans, in hotel/motel loans, $23.4 million, or 3% of
total loans, in residential construction loans and $15.8 million, or 2% of total
loans, in restaurant loans. In the event of total nonperformance by the
borrowers, the Company's accounting loss would be limited to the recorded
investment in the loans receivable reduced by proceeds received from disposition
of the related collateral.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $4.7 million at March 31, 1997. During the
first three months of 1997, $103,000 in interest income was received on
nonaccruing loans. If interest on those loans had been accrued, total interest
income of $171,000 would have been recorded.
Those performing loans considered potential problem loans, as defined and
identified by management, amounted to approximately $20.7 million at March 31,
1997, compared to $23.0 million at December 31, 1996. The amount of performing
loans that were considered potential problem loans at December 31, 1996 was
previously incorrectly disclosed as $14.9 million, as a result of a
computational error made in the preparation of the disclosure. The total
amount of such loans recognized on the books of the Company at December 31, 1996
was $20.7 million. 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. The
Company's loan portfolio contains a significant number of commercial and
commercial real estate loans with relatively large balances. The deterioration
of one or a few of such loans may cause a significant increase in potential
problem loans or in nonperforming loans.
9
<PAGE>
SOUTHWEST BANCORP, INC.
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
For the three months ending March 31,
1997 1996
----------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
----------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Loans receivable $669,424 9.40% $540,627 9.55%
Investment securities 147,750 6.19 143,367 6.12
Other interest-earning assets 6,144 5.35 5,528 5.38
-------- --------
Total interest-earning assets 823,318 8.79 689,522 8.80
Noninterest-earning assets 40,566 31,953
-------- --------
Total assets $863,884 $721,475
======== ========
Liabilities and shareholders' equity:
NOW accounts $ 36,658 2.31% $ 34,912 2.34%
Money market accounts 89,994 4.14 77,229 3.50
Savings accounts 4,058 2.50 4,828 2.50
Time deposits 571,205 5.71 454,560 5.86
-------- --------
Total interest-bearing deposits 701,915 5.31 571,529 5.30
Other borrowed money 5,048 5.62 4,140 5.63
-------- --------
Total interest-bearing liabilities 706,963 5.31 575,669 5.30
Demand deposits 84,829 78,625
Other noninterest-bearing liabilities 6,877 6,351
Shareholders' equity 65,215 60,830
-------- --------
Total liabilities and shareholders' equity $863,884 $721,475
======== ========
Interest rate spread 3.48% 3.50%
====== ======
Net interest margin 4.23% 4.38%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 116.46% 119.78%
======== ========
</TABLE>
10
<PAGE>
SOUTHWEST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis contains forward-looking statements,
including statements of goals, intentions, and expectations, regarding or based
upon general economic conditions, interest rates, developments in national and
local markets, and other matters, and which, by their nature, are subject to
significant uncertainties. Because of these uncertainties and the assumptions on
which statements in this report are based, the actual future results may differ
materially from those indicated in this report.
FINANCIAL CONDITION
The Company's total assets increased by $58.7 million, or 7%, from $829.1
million at December 31, 1996 to $887.8 million at March 31, 1997.
Loans were $676.5 million at March 31, 1997, an increase of $31.9 million, or
5%, compared to December 31, 1996. The Company experienced increases in the
categories of commercial mortgages ($12.5 million, or 6%), commercial loans
($6.1 million, or 3%), real estate construction loans ($4.8 million, or 9%),
government-guaranteed student loans ($4.1 million, or 7%), other consumer loans
($3.5 million, or 11%), and residential mortgages ($2.6 million, or 4%). These
increases were offset by a $1.7 million, or 8% reduction in credit card loans.
The allowance for loan losses increased by $1.3 million, or 19%, from December
31, 1996 to March 31, 1997. At March 31, 1997, the allowance for loan losses
was $8.5 million, or 1.25% of total loans, compared to $7.1 million, or 1.11% of
total loans, at December 31, 1996.
Investment securities were $149.7 at March 31, 1997, an increase of $2.3
million, or 2%, compared to December 31, 1996.
Premises and equipment increased by $3.0 million primarily due to the
acquisition of land for a new Tulsa Banking Center at 15th and Utica to be
opened in late 1998.
The Company's deposits increased by $60.6 million, or 8%, from $753.9 million at
December 31, 1996 to $814.5 million at March 31, 1997. This increase occurred
primarily in time deposits, which increased by $49.2 million, or 9%. Interest-
bearing demand deposits and money market accounts increased by $2.7 million and
$6.6 million, respectively, or 8% each, from December 31, 1996 to March 31,
1997.
Shareholders' equity decreased by $493,000, or 1%, due to reduced earnings for
the first three months of 1997, which were less than dividends declared on
common and preferred stock, and a $303,000 decrease attributable to a change in
the unrealized gain/loss, net of taxes, on investment securities available for
sale.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
NET INCOME
For the first quarter of 1997, the Company recorded net income of $460,000, 76%
less than the $1.9 million recorded for the first quarter of 1996. Net income
available to common shareholders, after deduction of dividends on preferred
stock, was $63,000 ($0.02 per share), compared with $1.5 million ($0.41 per
share) for the first quarter of 1996. The substantial decrease in quarterly
earnings was primarily the result of a $2.1 million increase in the provision
for loan losses. Average common shares outstanding were 3,766,172 and 3,756,861,
respectively.
During the first quarter of 1997, the Company received information regarding
events that adversely affected a borrower's ability to fully repay its
commercial loan, which had a carrying amount of $1.9 million. As a result of
this event, and management's regular evaluation of the adequacy of the allowance
for loan losses relative to other loans in the portfolio, the Company recorded a
provision for loan losses of $3.0 million for the first quarter of 1997,
compared with a provision of $875,000 for the first quarter of 1996. (See
"Provision for loan losses" and "Recent Developments".)
11
<PAGE>
Net interest income increased $1.1 million, or 15%, for the first quarter of
1997 compared to the same period in 1996. This increase in net interest income,
as well as an $893,000, or 83%, reduction in taxes, offset the $2.1 million, or
243%, increase in provision for loan losses, a $1.1 million, or 22%, increase in
other expenses and a $188,000, or 12% reduction in other income. For the first
quarter of 1997, the return on average total equity was 2.86% and the return on
average common equity was 0.53% compared to a 12.77% return on average total
equity and a 14.18% return on average common equity for the first quarter of
1996.
NET INTEREST INCOME
Net interest income increased to $8.6 million for the first quarter of 1997 from
$7.5 million for the same period in 1996 as continued growth in the loan
portfolio enabled the Company to post a $2.8 million increase in interest income
that exceeded the $1.7 million increase in interest expense during the period.
Yields on the Company's interest-earning assets declined by 1 basis point, and
the rates paid on the Company's interest-bearing liabilities increased by 1
basis point, resulting in an reduction in the interest rate spread to 3.48% for
the first quarter of 1997 from 3.50% for the first quarter of 1996. The ratio
of average interest-earning assets to average interest-bearing liabilities
declined to 116.46% for the first quarter of 1997 from 119.78% for the first
quarter of 1996, as a substantial portion of the increase in loans was funded by
time deposits.
Total interest income for the first quarter of 1997 was $17.9 million, up 18%
from $15.1 million during the same period in 1996. The principal factor
providing greater interest income was the $128.8 million, or 24%, increase in
the volume of average loans outstanding. The Company's loan yields declined to
9.40% for the first quarter of 1997 from 9.55% in 1996. During the same period,
the Company's yield on investment securities increased to 6.19% from 6.12%.
Total interest expense for the first quarter of 1997 was $9.3 million, an
increase of 22% from $7.6 million for the same period in 1996. The increase in
total interest expense can be attributed to an increase in average interest-
bearing liabilities of $131.3 million, or 23%. During the same period, the
rates paid on average interest-bearing liabilities increased to 5.31% from
5.30%, as a 15 basis point decline in the average rate paid on time deposits (to
5.71%) was more than offset by a 64 basis point increase (to 4.14%) in the
average rate paid on money market accounts.
OTHER INCOME
Other income declined by $188,000 for the first quarter of 1997 compared to the
first quarter of 1996 primarily as a result of the $122,000 reduction in gains
on sales of investment securities A gain on sale of investment securities
occurred during the first quarter of 1996 when $4.6 million in Agency securities
classified as "held to maturity" and $7.7 million in Agency securities
classified as "available for sale", originally purchased at a discount, were
called prior to their stated maturity date. No securities were sold or called
during the first three months of 1997.
OTHER EXPENSES
The Company's other expenses increased $1.1 million for the first quarter of
1997 compared to the first quarter of 1996. This increase was primarily the
result of an increase in salaries and employee benefits, which increased
$659,000 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,
general and administrative expense increased $287,000 and occupancy expense
increased $284,000 compared to 1996. 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. These increases
were offset by reductions in both FDIC and other insurance and credit card
expenses.
* * * * * * *
12
<PAGE>
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 $8.5 million, or
1.25% of total loans, at March 31, 1997 compared to an allowance of $7.1
million, or 1.11% of total loans at December 31, 1996. During the first three
months of 1997 and 1996, the provisions for loan losses were $3.0 million and
$875,000, respectively.
In establishing the level of the allowance for March 31, 1997, 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
of commercial and commercial real estate loans, which are viewed as entailing
greater risk than certain other categories of loans, recent charge-off history,
and the amount of large loans and of identified nonperforming loans at March 31,
1997, versus December 31, 1996. At March 31, 1997, total nonperforming loans
were $7.1 million, or 1.04% of total loans, compared to $6.6 million, or 1.03%
of total loans, at December 31, 1996. Management also considered other factors,
including 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 March 31, 1997 was appropriate, as a result of 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 March 31, 1996 and December 31, 1996.
Management strives to carefully monitor credit quality and the adequacy of the
allowance for loan losses, and to identify loans that may become nonperforming.
At any time, however, there are loans included in the portfolio that will result
in losses to the Company, but that have not been identified as nonperforming or
potential problem loans. Because the loan portfolio contains a significant
number of commercial and commercial real estate loans with relatively large
balances, the unexpected deterioration of one or a few of such loans may cause a
significant increase in nonperforming assets, and lead to a material increase in
charge-offs and the provision for loan losses.
TAXES ON INCOME
The Company's income tax expense for the first three months of 1997 and 1996 was
$186,000 and $1.1 million, 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 83% and 84% of total deposits at March 31, 1997 and 1996,
respectively.
13
<PAGE>
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 first quarters of 1997 and 1996, no category of borrowings
averaged more than 30% of ending shareholders' equity.
During the first three months of 1997, cash and cash equivalents increased by
$21.1 million. The increase was the result of cash generated from financing
activities (primarily increased deposits) of $60.0 million and operating
activities of $4.3 million offset by $43.2 million in cash used in investing
activities.
Cash and cash equivalents, during the first three months of 1996, increased by
$8.5 million. The increase was the result of cash generated from financing
activities (primarily increased deposits) of $19.7 million and investing
activities of $1.4 million offset by $12.6 million in cash used in operating
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 March 31, 1997, the Company exceeded all applicable capital requirements,
having a total risk-based capital ratio of 10.78%, a Tier I risk-based capital
ratio of 9.47%, and a leverage ratio of 7.37%. As of March 31, 1997, 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 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 $.08 per common share payable on April 1,
1997 to shareholders of record as of March 18, 1997. In January 1997, the
Company declared a dividend of $.575 per preferred share payable on February
28, 1997 to shareholders of record as of February 14, 1997.
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.
ANNUAL MEETING
The 1997 Annual Meeting of shareholders of the Company was held on April 24,
1997. At the Annual Meeting, shareholders elected the five directors nominated
by the Board of Directors for 3-year terms.
RECENT DEVELOPMENT
As stated above, during the first quarter of 1997, the Company classified a $1.9
million commercial loan as impaired. The Company charged-off a portion of this
loan and carried the balance in nonaccrual loans and total nonperforming loans
at March 31, 1997. In April 1997, the Company settled the borrowers'
obligations for cash and recorded an additional immaterial charge to the
allowance for loan losses. As a result, this loan has been removed from the
loan portfolio and from nonaccrual and total nonperforming loans.
14
<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.
---------
Item 27. Financial Data Schedule
(b) Reports on Form 8-K. The Company filed the following Current
--------------------
Reports on Form 8-K.
Date Item Reported
---- -------------
March 14, 1997 Item 5. The Company reported an expected
decline in earnings for the first
quarter of 1997.
April 2, 1997 Item 5. The Company confirmed the expected
decline in earnings for the first
quarter of 1997.
15
<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. May 1, 1997
------------------------------ -----------
Robert L. McCormick, Jr. Date
President
(Principal Executive Officer)
By: /s/ Kerby E. Crowell May 1, 1997
---------------------- -----------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<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 MARCH 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 28,212
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,897
<INVESTMENTS-CARRYING> 84,787
<INVESTMENTS-MARKET> 84,598
<LOANS> 676,499
<ALLOWANCE> 8,484
<TOTAL-ASSETS> 887,809
<DEPOSITS> 814,537
<SHORT-TERM> 1,500
<LIABILITIES-OTHER> 7,233
<LONG-TERM> 0
0
690
<COMMON> 3,767
<OTHER-SE> 60,082
<TOTAL-LIABILITIES-AND-EQUITY> 887,809
<INTEREST-LOAN> 15,516
<INTEREST-INVEST> 2,254
<INTEREST-OTHER> 81
<INTEREST-TOTAL> 17,851
<INTEREST-DEPOSIT> 9,189
<INTEREST-EXPENSE> 9,259
<INTEREST-INCOME-NET> 8,592
<LOAN-LOSSES> 3,001
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,359
<INCOME-PRETAX> 646
<INCOME-PRE-EXTRAORDINARY> 646
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
<YIELD-ACTUAL> 8.79
<LOANS-NON> 4,745
<LOANS-PAST> 1,748
<LOANS-TROUBLED> 568
<LOANS-PROBLEM> 20,734
<ALLOWANCE-OPEN> 7,139
<CHARGE-OFFS> 1,772
<RECOVERIES> 116
<ALLOWANCE-CLOSE> 8,484
<ALLOWANCE-DOMESTIC> 8,484
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,131
</TABLE>
