<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________
Commission File No. 0-23064
SOUTHWEST BANCORP, INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1136584
------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
608 SOUTH MAIN STREET, STILLWATER, OKLAHOMA 74074
- ------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 372-2230
Securities registered pursuant to Section 12(b) of the Act:
NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
---------------------------------------
(Title of Class)
9.20% REDEEMABLE, CUMULATIVE PREFERRED STOCK, SERIES A
------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March __, 1997, the aggregate market value of the 1,989,150 shares of
Common Stock of the registrant issued and outstanding held by nonaffiliates on
such date was approximately [ ] million based on the closing sales price of [ ]
per share of the registrant's Common Stock on March [ ], 1997. Solely for
purposes of this calculation, it is assumed that directors, officers and 5%
stockholders of the registrant are affiliates.
Number of shares of Common Stock outstanding as of March 10, 1997: 3,766,515.
DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated:
1. Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996. ("The Annual Report)." (Parts I, II and IV)
2. Portions of Proxy Statement for 1996 Annual Meeting of Stockholders (the
"Proxy Statement"). (Part III)
<PAGE>
FORWARD-LOOKING STATEMENTS
Portions of Part I and Part II of this Annual Report on Form 10-K contain
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.
PART I
ITEM 1. BUSINESS
- -----------------
GENERAL
Southwest Bancorp, Inc. (the "Company") is a one-bank holding company
headquartered in Stillwater, Oklahoma engaged primarily in commercial and
consumer banking services through its sole subsidiary, Stillwater National Bank
& Trust Company (the "Bank"). The Company has six full-service banking offices,
two of which are located in each of Stillwater and Tulsa and one each in
Oklahoma City and Chickasha, Oklahoma, and two loan production offices, one each
in Oklahoma City and Tulsa. The Company pursues a decentralized community
banking strategy through three regional divisions -- the Stillwater Division,
the Central Oklahoma Division (which includes Oklahoma City and Chickasha) and
the Tulsa Division -- that offer commercial, consumer and real estate lending
services and retail and commercial deposit products in their market areas. The
Stillwater Division of the Bank serves the Stillwater market as a full-service
community bank emphasizing both commercial and consumer lending. The Central
Oklahoma Division and the Tulsa Division each have followed a more focused
marketing strategy, targeting managers and professionals and Oklahoma-based
businesses for lending and offering more specialized services. Each regional
division is managed by a senior officer with substantial flexibility over credit
and pricing decisions. In addition to the services offered through the regional
divisions, the Bank offers credit card, student and mortgage lending services
throughout the State of Oklahoma. Through its sales and service center in Tulsa,
the Bank is developing products for home banking and for delivery through its
website, WWW.BANKSNB.COM.
The Bank was founded in Stillwater and is currently in its 103rd year of
operation. The Company began offering loans in Oklahoma City in 1982 and in
Tulsa in 1985 by establishing loan production offices in these markets. In
1991, the Company acquired four branches of an insolvent savings and loan
association (the "Branch Acquisition") in order to allow the Bank (under
applicable regulations) to offer full banking services in these markets, which
are the largest in Oklahoma. On December 23, 1993, the Company completed an
initial public offering of 866,050 shares of its common stock, $1.00 par value
per share (the "Common Stock"), and on July 31, 1995 the Company completed a
public offering of 690,000 shares of 9.20% Redeemable, Cumulative Preferred
Stock, Series A (the "Preferred Stock").
The Company offers a wide variety of commercial and consumer lending and
deposit services. The commercial loans offered by the Company include (i)
commercial real estate loans, (ii) working capital and other commercial loans,
(iii) construction loans, and (iv) Small Business Administration ("SBA")-
guaranteed loans. Consumer lending services include (i) government-guaranteed
student loans, (ii) residential real estate loans and mortgage banking services,
(iii) credit card loans, and (iv) personal lines of credit and other installment
loans. The Company also offers deposit and personal banking services, including
(i) commercial deposit services such as lock-box services, commercial checking
and other deposit accounts and merchant credit card services, (ii) retail
deposit services such as certificates of deposit, money market accounts, savings
accounts and Automated Teller Machine ("ATM") access, and (iii) personal
brokerage and trust services.
The Company's banking strategy includes the offering of multiple commercial
and consumer services to local businesses and their primary employees as well as
to other managers and professionals living and working in the Company's market
areas. Working within the branching limitations imposed by Oklahoma law, the
Company has developed a marketing strategy that does not rely on an extensive
branch network to deliver financial services to its target markets. The
Company's high customer service philosophy includes offering an array of
financial services, loan officers who often meet at the customer's home or place
of business to close loans and the use of third-party courier services to
collect commercial deposits.
Pursuant to the Company's decentralized approach to banking, the Company's
regional Division Managers, each of whom has significant lending experience,
exercise substantial flexibility in credit and pricing decisions. The Company
has designed and developed management information systems and loan review
policies which senior management uses to review and monitor the origination and
maturation of the loan portfolio. The Company believes this decentralized
management approach, coupled with the continuity of service of its senior
officers and its management information systems, enables the Company to develop
long-term customer relationships, maintain high quality service and respond
quickly to customer needs.
The Company is regulated as a bank holding company by the Board of
Governors of the Federal Reserve System ("Federal Reserve") and the Bank is
regulated as a national bank by the Office of the Comptroller of the Currency of
the U.S. Department of Treasury ("OCC"). The deposit accounts of the Bank are
insured to applicable
2
<PAGE>
limits by the Federal Deposit Insurance Corporation ("FDIC"). The Company's
principal executive offices are located at 608 South Main Street, Stillwater,
Oklahoma 74074. The Company's telephone number is (405) 372-2230.
LENDING ACTIVITIES
Lending. Loans include commercial real estate, commercial, student,
residential real estate, construction and credit card and other consumer loans.
Interest earned on the Bank's loan portfolio is its primary source of income.
As of December 31, 1996, the Bank's loans, net of discount, represented
approximately 78% of its total assets. Although the Bank's legal lending limit
to any one borrower was $10.4 million as of December 31, 1996, the Bank's
lending policy generally limits loans to any one borrower to 90% of the Bank's
legal lending limit. The Bank's largest single borrower, net of participations,
as of December 31, 1996 had outstanding loans of $5.8 million.
For further information regarding the Bank's loan portfolio, including
information regarding concentrations of credit, see "Note 3. Loans Receivable,"
to the Consolidated Financial Statements on page 27 of the Annual Report.
3
<PAGE>
The following table presents the composition of the Bank's loan portfolio,
net of unearned interest, at each of the dates indicated:
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- ------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ------- --------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage --
Commercial................. $196,163 30.43% $160,126 30.10% $132,297 32.06% $ 88,953 27.87% $ 64,111 25.86%
One- to four-family
residential.............. 61,175 9.49 42,988 8.08 33,882 8.21 31,864 9.98 25,495 10.28
Real estate construction..... 54,369 8.43 33,159 6.23 20,725 5.02 9,844 3.08 9,650 3.89
Commercial................... 218,515 33.90 181,081 34.04 120,781 29.27 80,732 25.29 55,666 22.45
Installment and consumer --
Student loans.............. 61,959 9.61 67,388 12.67 61,752 14.97 69,739 21.84 60,171 24.27
Credit cards............... 20,839 3.23 21,869 4.11 20,958 5.08 19,189 6.01 16,943 6.83
Other consumer............. 31,626 4.91 25,377 4.77 22,219 5.39 18,939 5.93 15,931 6.42
-------- -------- -------- -------- -------- ------ -------- ------ -------- ------
644,646 100.00% 531,988 100.00% 412,614 100.00% 319,260 100.00% 247,967 100.00%
======== ======== ====== ====== ======
Less:
Allowance for loan losses.. (7,139) (5,813) (4,959) (3,960) (3,393)
-------- -------- -------- -------- --------
Total $637,507 $526,175 $407,655 $315,300 $244,574
======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
The following table sets forth the remaining maturities for certain loan
categories at December 31, 1996. Credit card and student loans that do not have
stated maturities are treated as due in one year or less.
LOAN PORTFOLIO MATURITY
<TABLE>
<CAPTION>
ONE YEAR ONE TO OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage --
Commercial....................... $ 11,245 $ 37,790 $147,128 $196,163
One- to four-family residential.. 11,216 22,174 27,785 61,175
Real estate construction.......... 28,862 19,285 6,222 54,369
Commercial........................ 67,833 114,704 35,978 218,515
Installment and consumer --
Student loans.................... 61,959 - - 61,959
Credit cards..................... 20,839 - - 20,839
Other consumer................... 7,235 23,695 696 31,626
-------- -------- -------- --------
Total........................... $209,189 $217,648 $217,809 $644,646
======== ======== ======== ========
</TABLE>
The following table sets forth at December 31, 1996 the dollar amount of
all loans due more than one year after December 31, 1996.
LOAN PORTFOLIO SENSITIVITY
<TABLE>
<CAPTION>
FIXED VARIABLE TOTAL
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate mortgage --
Commercial....................... $ 24,361 $160,557 $184,918
One- to four-family residential.. 12,870 37,089 49,959
Real estate construction.......... 8,451 17,056 25,507
Commercial........................ 33,798 116,884 150,682
Installment and consumer --
Student loans.................... - - -
Credit cards..................... - - -
Other consumer................... 21,908 2,483 24,391
-------- -------- --------
Total........................... $101,388 $334,069 $435,457
======== ======== ========
</TABLE>
NONPERFORMING LOANS. The Bank maintains a loan review department, which
reports directly to the Chief Financial Officer. The loan review department
does not have any lending authority. The Bank has retained, since late 1993, an
outside consultant to advise the loan review department and assist in the loan
review function. The loan review department recommends credits to the Executive
Loan Committee for inclusion on the watch list which is reviewed by the Loan
Quality Assurance Committee of the Board of Directors monthly. With the
concurrence of the Executive Loan Committee, credits also may be recommended to
the Loan Quality Assurance Committee for inclusion on the watch list by the
Chief Lending Officer, loan managers and individual loan officers. The
recognition of interest income on loans receivable is discontinued when, in
management's judgment, the interest will not be collectible in the normal course
of business. Generally, the Bank does not accrue interest on any asset (i)
which is maintained on a cash basis because of deterioration in the financial
condition of the borrower, (ii) for which payment in full of principal or
interest is not expected, or (iii) upon which principal or interest has been in
default for a period of 90 days or more unless the asset is both well secured
and in the process of collection. The Company does not have any material
amounts of interest-earning assets which would have been included in nonaccrual,
past due or restructured loans if such assets were loans.
Nonperforming loans consist of loans on a nonaccrual basis, loans which
are contractually past due 90 days or more, and loans, the original terms of
which have been restructured. The following table sets forth the amounts of
such loans at the end of the periods indicated:
5
<PAGE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
DECEMBER 31,
--------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate mortgage --
Commercial:
Nonaccrual............................. $ 191 $ 107 $ 179 $ 261 $ 731
Past due 90 days or more............... 614 88 -- -- 29
Restructured terms..................... 577 608 639 676 784
One- to four-family residential:
Nonaccrual............................. 265 18 58 95 346
Past due 90 days or more............... 363 251 72 37 57
Restructured loans..................... -- -- -- -- --
Real estate construction:
Nonaccrual............................. -- -- 86 101 123
Past due 90 days or more............... 119 -- -- -- --
Restructured terms..................... -- -- -- -- --
Commercial:
Nonaccrual............................. 4,149 567 805 1,473 2,293
Past due 90 days or more............... 71 435 241 32 687
Restructured terms..................... -- 2,996 -- 195 25
Installment and consumer:
Student loans:
Nonaccrual............................. -- -- -- -- 3
Past due 90 days....................... -- -- -- 17 46
Restructured........................... -- -- -- -- --
Credit cards:
Nonaccrual............................. -- -- -- -- --
Past due 90 days....................... 82 63 138 52 70
Restructured........................... -- -- -- -- 26
Other consumer:
Nonaccrual............................. 30 32 210 28 42
Past due 90 days or more............... 188 114 62 174 63
Restructured terms..................... -- -- -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans............. 6,649 5,279 2,490 3,141 5,325
Other real estate owned.................. 64 195 264 472 848
-------- -------- -------- -------- --------
Total nonperforming assets............ $ 6,713 $ 5,474 $ 2,754 $ 3,613 $ 6,173
======== ======== ======== ======== ========
Loans receivable......................... $644,646 $531,988 $412,614 $319,260 $247,967
Summary --
Total nonaccrual....................... $ 4,635 $ 724 $ 1,338 $ 1,958 $ 3,538
Total past due 90 days................. 1,437 951 513 312 952
Total restructured..................... 577 3,604 639 871 835
-------- -------- -------- -------- --------
Total nonperforming loans............ 6,649 5,279 2,490 3,141 5,325
Other real estate owned................ 64 195 264 472 848
-------- -------- -------- -------- --------
Total nonperforming assets........... $ 6,713 $ 5,474 $ 2,754 $ 3,613 $ 6,173
======== ======== ======== ======== ========
Allowance for loan losses to loans
receivable.............................. 1.11% 1.09% 1.20% 1.24% 1.37%
Nonperforming loans to loans receivable.. 1.03 0.99 0.60 0.98 2.15
Allowance for loan losses
to nonperforming loans.................. 107.37 110.12 199.16 126.07 63.72
Nonperforming assets to loans
receivable and other real estate owned.. 1.04 1.03 0.67 1.13 2.48
</TABLE>
6
<PAGE>
During the years ended December 31, 1996 and 1995, gross interest
income of $398,000 and $48,000, respectively, would have been recorded on loans
accounted for on a nonaccrual or restructured basis if such loans had been
current throughout the period. Interest on such loans included in income during
such periods amounted to approximately $37,000 and $367,000, respectively.
At December 31, 1996, the Company had $14.9 million of loans which
were not included in the past due, nonaccrual or restructured categories, but
for which known information about possible credit problems caused management to
be uncertain as to the ability of the borrowers to comply with the present loan
repayment terms over the next six months. Some loans have been monitored by
management and reported as potential nonperforming loans for an extended period
of time; however, currently, management continues to be uncertain as to the
ability of certain borrowers to comply with the present loan repayment terms.
These loans are subject to continuing management attention and are considered by
management in determining the level of the allowance for loan losses.
No interest-bearing assets disclosed above, other than loans, were
classified as nonperforming at December 31, 1996 or were recognized by
management as potential problem assets based upon known information about
possible credit problems of the borrower or issuer.
LOAN CONCENTRATIONS
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 December 31, 1996 and 1995,
substantially all of the Bank's loans, except for credit cards, were
collateralized with real estate, inventory, accounts receivable and/or other
assets or guaranteed by agencies of the United States Government.
Loans to individuals and businesses in the healthcare industry totaled
approximately $74.5 million, or 12% of total loans. Other notable
concentrations of credit within the loan portfolio include $25.2 million in
residential construction loans, $13.4 million in restaurant loans and $23.9
million in hotel/motel loans.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a
valuation reserve established by management in an amount it deems adequate to
provide for losses in the loan portfolio. Management assesses the adequacy of
the allowance for loan losses 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.
The allowance for loan losses is increased by provisions 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. Management believes that the
allowance for loan losses was adequate at December 31, 1996.
The amount of the allowance deemed appropriate by management, and the
levels of loan charge-offs and nonperforming loans, are affected by changing
economic conditions and economic prospects and the financial position of
borrowers. 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. Since
problems with commercial and commercial real estate loans do not necessarily
appear early in their lives, the Company may experience increased levels of
nonperforming loans and loan charge-offs as the relatively large volume of
recently originated loans mature. In addition, the OCC, as an integral part of
its examination process, periodically reviews the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based upon judgments of the OCC examiners about information available
to them at the time of their examination.
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosure on January
1, 1995. The allowance for loan losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. The amount of impairment
determined in accordance with SFAS No. 114 did not differ materially from
amounts previously provided. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.The allowance for loan losses is established through a
provision for loan losses charged to expense. 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. In addition, SFAS No. 114 does not affect the comparability of the credit
risk disclosures.
7
<PAGE>
Based upon its review, management established an allowance of $7.1
million, or 1.11% of total loans, at December 31, 1996 compared to an allowance
of $5.8 million, or 1.09% of total loans, at December 31, 1995. In establishing
this level of allowance for December 31, 1996, management considered a number of
factors that tend to indicate a potential need for an increased allowance level,
including the increased risk associated with the level of real estate
construction loans (8.4% of the loan portfolio at December 31, 1996 and 6.2% of
the portfolio at December 31, 1995), which are viewed as entailing greater risk
than certain other categories of loans, and the increased level of one-to four
family residential mortgage loans (9.5% of the loan portfolio at December 31,
1996 versus 8.1% at December 31, 1995), which are viewed as entailing less risk
than certain other categories of loans. Relatively lower risk student loans
decreased to 9.6% at year-end 1996 from 12.7% the previous year-end. The level
of commercial loans, which comprise the largest category in the portfolio,
remained unchanged at approximately 34% of the total portfolio at December 31,
1996 and 1995. The level of commercial mortgage loans, comprising approximately
30% of the year-end portfolio, was similarly unchanged. Overall, the loan
portfolio, before deduction of the allowance for loan losses, increased by
$112.7 million or 21% from year-end 1995 to year-end 1996, while the allowance
grew by $1.3 million, or 23%.
The Company's ratio of net charge-offs to average loans outstanding
increased to 0.31% for the year ended December 31, 1996 from 0.24% in 1995 and
0.22% in 1994. The 1996 increase in the net charge-off ratio reflected an
increase in commercial real estate mortgage and credit card loan charge-offs
relative to the balances of those loan categories and total loans.
At December 31, 1996, nonperforming loans were $6.6 million, or 1.03%
of the portfolio, compared with $5.3 million, or 0.99% of the portfolio at
December 31, 1995. The allowance for loan losses equalled 107% and 110% of
nonperforming loans at December 31, 1996 and 1995, respectively. Large changes
in the ratio of the allowance to nonperforming loans may occur from period to
period because of variations in the amounts of nonperforming loans, which depend
largely on the condition of a small number of individual loans and borrowers
relative to the total loan portfolio. The $3.9 million increase in nonaccrual
loans from year-end 1995 was mainly the result of the classification as
nonaccrual of a group of related loans with a remaining net book value of $3.4
million at December 31, 1996 that had been classified as restructured at
December 31, 1995.
At December 31, 1996 and 1995, impaired loans totaled $4.8 million and
$3.3 million, and had been allocated a related allowance for loan losses of $2.0
million and $1.3 million, respectively.
8
<PAGE>
RECENT DEVELOPMENT
In February 1997, the Company received information from a borrower
regarding recent events that may affect the borrower's ability to fully repay
its commercial loan, which had a carrying amount at December 31, 1996, of
approximately $1.9 million. This loan was classified by management as a
performing loan at December 31, 1996. As a result of this event, and
management's regular evaluation of the adequacy of the allowance relative to
other loans in the portfolio, the Company expects to record a provision for loan
losses of approximately $3 million in the first quarter of 1997. Quarterly
provisions for loan losses during 1996 ranged from $675,000 to $875,000.
Management expects that the allowance for loan losses at March 31, 1997 will be
approximately $8.4 million, compared with an allowance of $7.1 million at
December 31, 1996. The Company anticipates that it will record net income for
the first quater 1997 of approximately $400,000, and that net income available
to common shareholders will be negligible. Management continues to monitor the
quality of the loan portfolio and the adequacy of the allowance for loan losses.
9
<PAGE>
The following table sets forth an analysis of the Company's allowance
for loan losses for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period............ $ 5,813 $ 4,959 $ 3,960 $ 3,393 $ 2,901
Loans charged-off:
Real estate mortgage --
One- to four-family residential......... 80 7 16 58 76
Commercial.............................. 68 -- 156 14 317
Real estate construction................. -- 1 -- 13 26
Commercial............................... 1,064 1,101 461 675 364
Installment and consumer --
Student loans........................... -- -- 1 8 17
Credit cards............................ 803 528 370 519 564
Other consumer.......................... 286 166 199 129 267
-------- -------- -------- -------- --------
Total charge-offs......................... 2,301 1,803 1,203 1,416 1,631
-------- -------- -------- -------- --------
Recoveries:
Real estate mortgage --
One- to four-family residential......... 15 33 23 15 31
Commercial.............................. 10 119 34 251 117
Real estate construction................. -- -- -- -- --
Commercial............................... 288 334 94 76 143
Installment and consumer --
Student loans........................... -- 1 -- 3 6
Credit cards............................ 106 111 139 130 76
Other consumer.......................... 108 59 112 108 100
-------- -------- -------- -------- --------
Total recoveries.......................... 527 657 402 583 473
-------- -------- -------- -------- --------
Net loans charged-off..................... 1,774 1,146 801 833 1,158
Provision for loan losses................. 3,100 2,000 1,800 1,400 1,650
-------- -------- -------- -------- --------
Balance at end of period.................. $ 7,139 $ 5,813 $ 4,959 $ 3,960 $ 3,393
======== ======== ======== ======== ========
Loans outstanding:
Average.................................. $580,590 $473,080 $356,323 $277,099 $229,230
End of period............................ 644,646 531,988 412,614 319,260 247,967
Ratio of allowance for loan losses
to loans outstanding:
Average.................................. 1.23% 1.23% 1.39% 1.43% 1.48%
End of period............................ 1.11% 1.09% 1.20% 1.24% 1.37%
Ratio of net charge-offs to average
loans outstanding during the period 0.31% 0.24% 0.22% 0.30% 0.51%
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
The following table allocates the allowance for loan losses by loan
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage --
One- to four-family
residential............. $ 294 9.49% $ 176 8.08% $ 178 8.21% $ 103 9.98% $ 100 10.28%
Commercial............... 584 30.43 538 30.10 941 32.06 519 27.87 558 25.86
Real estate construction... 457 8.43 310 6.23 195 5.02 32 3.08 39 3.89
Commercial................. 4,597 33.90 3,688 34.04 2,616 29.27 1,302 25.29 1,329 22.45
Installment and consumer
Student loans............ -- 9.61 9 12.67 6 14.97 65 21.84 18 24.27
Credit cards............. 670 3.23 456 4.11 247 5.08 747 6.01 564 6.83
Other consumer........... 263 4.91 83 4.77 137 5.39 88 5.93 211 6.42
Unallocated................ 274 -- 553 -- 639 -- 1,104 -- 574 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses......... $7,139 100.00% $5,813 100.00% $4,959 100.00% $3,960 100.00% $3,393 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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.
11
<PAGE>
TRUST SERVICES
The Company offers trust services through its relationship with the
Trust Company of Oklahoma, (the "Trust Company") a trust services company with
over $1.0 billion in assets under management at December 31, 1996. In December
1996 the Company sold its investment in the capital stock in the parent
corporation of the Trust Company for a pre-tax gain of approximately $287,000,
but continues to offer trust services through the Trust Company. The strategic
importance of this relationship is that the Company is able to offer high-
quality trust services as part of its complement of financial services.
Management believes that offering trust services in this manner is more
attractive than offering services through a wholly owned trust department within
the Company because (i) a wholly owned trust company would probably be smaller
in size than the Trust Company and only marginally profitable, and (ii) the size
and reputation of the Trust Company aid the Company in competing for new
accounts.
INVESTMENT ACTIVITIES
The objectives of the investment portfolio are to provide the Company
with a source of liquidity (from scheduled maturities) as well as a source of
earnings. At December 31, 1996, $ 63.8 million of the Company's investment
securities were classified as available for sale. The balance of the portfolio
is classified as held to maturity. No significant gains or losses were realized
from sales of securities during the years ended December 31, 1996 or 1995.
The following table presents the composition of the investment portfolio
by major category at the dates indicated.
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government and agency securities.. $109,988 $110,785 $109,620
State and municipal obligations........ 13,153 11,579 10,217
Mortgage-backed securities............. 23,061 24,222 22,972
Other securities....................... 1,149 1,102 708
-------- -------- --------
Total investment securities....... $147,351 $147,688 $143,517
======== ======== ========
Available for sale (fair value)........ $ 63,762 $ 73,044 $ 37,214
Held to maturity (amortized cost)...... 83,589 74,644 106,303
-------- -------- --------
$147,351 $147,688 $143,517
======== ======== ========
</TABLE>
12
<PAGE>
The following table sets forth the maturities, carrying value
(amortized cost (in the case of investment securities being held to maturity) or
fair value (in the case of investment securities available for sale)), fair
market values and average yields for the Company's investment portfolio at
December 31, 1996. Yields are not presented on a tax-equivalent basis.
Maturities of mortgage-backed securities are based on expected maturities.
Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers on the underlying mortgages may have the right
to call or prepay obligations with or without prepayment penalties.
The securities of no single issuer (other than the United States or
its agencies), or in the case of securities issued by state and political
subdivisions, no source or group of sources of repayment, accounted for more
than 10% of stockholders' equity of the Company at December 31, 1996.
MATURITY OF INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS TOTAL INVESTMENT SECURITIES
------------------ ------------------ ----------------- ------------------- ----------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING FAIR AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE VALUE YIELD
-------- -------- -------- -------- -------- ------- -------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity
- ------------------------
U.S. government and
agency securities..... $ 16,076 5.79% $ 56,269 6.17% -- -- -- -- $ 72,345 $ 72,712 6.08%
State and municipal
obligations........... 2,625 6.17 8,619 6.57 -- -- -- -- 11,244 11,251 6.48
Mortgage-backed
securities............ -- -- -- -- -- -- -- -- -- -- --
Other securities....... -- -- -- -- -- -- -- -- -- -- --
------- -------- -------- --------
Total held to
maturity.......... 18,701 5.84 64,888 6.22 -- -- -- -- 83,589 83,963 6.13
------- -------- -------- --------
Available for Sale
- ---------------------------
U.S. government and agency
securities............ 3,951 6.24 20,708 6.57 12,984 7.03 -- -- 37,643 37,643 6.69
State and municipal
obligations........... 686 6.24 1,223 7.68 -- -- -- -- 1,909 1,909 7.16
Mortgage-backed
securities............ 7,319 6.32 15,069 6.56 666 7.38 7 7.30 23,061 23,061 6.51
Other securities....... 1,149 14.15 -- -- -- -- -- -- 1,149 1,149 14.15
------- -------- -------- -------- -------- --------
Total available for
sale............... 13,105 6.98 37,000 6.60 13,650 7.04 7 7.30 63,762 63,762 6.77
------- -------- -------- -------- -------- --------
Total investment
securities......... $31,806 6.31 $101,888 6.36 $13,650 7.04 $7 7.30 $147,351 $147,725 6.41
======= ======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
At December 31, 1996, the Company held mortgage-backed securities with
a book-value of $ 23.1 million, all of which were collateralized by single-
family mortgage loans. It is the Company's policy to purchase mortgage-backed
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal National Mortgage Association or Fannie Mae ("FNMA"), or the Government
National Mortgage Association or Ginnie Mae ("GNMA"), when such securities can
be acquired at attractive yields, and where the investment characteristics of
the securities complement the Bank's asset/liability management objectives,
primarily as to interest rate adjustments and terms to maturity. FHLMC, FNMA and
GNMA mortgage-backed securities have lower risk weightings, and therefore
require less capital, than residential mortgage loans. Mortgage-backed
securities also may be used as collateral for borrowings and through repayments,
as a source of liquidity. At December 31, 1996, 1995, and 1994, the Company had
no investments in privately issued mortgage-backed securities, and had no
mortgage-related securities that were rated "high risk" under regulatory
guidelines.
Because they are primarily adjustable rate and have relatively short
terms, the Company's mortgage-backed securities are helpful in limiting interest
rate risk. Prepayments in the Company's mortgage related securities portfolio
may be affected by declining and rising interest rate environments. In a low and
falling interest rate environment, prepayments would be expected to increase.
The Company's floating rate mortgage-backed securities would be expected to
generate lower yields as a result of the effect of falling interest rates on the
indexes for determining payment of interest. Additionally, the increased
principal payments received may be subject to reinvestment at lower rates.
Conversely, in a period of rising rates, prepayments would be expected to
decrease, which would make less principal available for reinvestment at higher
rates. In a rising rate environment, floating rate instruments would generate
higher yields to the extent that the indexes for determining payment of interest
did not exceed the life-time interest rate caps. Such prepayments may subject
the Company's mortgage backed securities to yield and price volatility.
DEPOSIT ACTIVITY. The principal sources of funds for the Bank are
core deposits (demand deposits, interest-bearing transaction accounts, money
market accounts, savings deposits and certificates of deposit of less than
$100,000) from the local market areas surrounding each of the Bank's offices.
The Bank's deposit base includes transaction accounts, time and savings accounts
and accounts which customers use for cash management and which provide the Bank
with a source of fee income and cross-marketing opportunities as well as a low-
cost source of funds. Time and savings accounts including money market deposit
accounts also provide a relatively stable and low-cost source of funding. The
largest source of funds for the Bank remains certificates of deposit.
The Bank offers a variety of cash management services to its
commercial deposit customers including the lock-box collections and deposit
reconciliation and verification. Commercial customers in Tulsa and Oklahoma
City frequently use third-party courier services to deliver deposits which has
allowed the Bank to effectively service these metropolitan areas from its
current branch locations
The Bank's deposits grew by $120.0 million, or 19%, during 1996.
Deposit growth during 1996 came mainly from time deposits. The Bank has not
solicited brokered deposits as a source of funds, although its capitalization
would permit such activity on an unrestricted basis under current federal
banking regulations. The Bank has $99,000 in a single deposit placed by a
broker but on which it did not pay a commission.
14
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposit.
DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
-------- ----------- ----- -------- ----------- ----- -------- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits.................... $ 83,729 11.11% --% 78,308 12.34% --% $ 66,661 12.69% --%
NOW accounts....................... 34,309 4.55 2.32 33,762 5.32 2.37 31,236 5.94 2.33
Money market deposits.............. 86,910 11.53 3.82 75,330 11.87 4.10 73,882 14.06 3.38
Savings deposits................... 4,086 0.54 2.49 4,788 0.76 2.44 6,669 1.27 2.53
Time deposits of $100,000 or more.. 123,068 16.33 5.66 86,258 13.60 5.77 64,661 12.30 4.19
Other time deposits................ 421,843 55.94 5.77 355,941 56.11 5.89 282,451 53.74 4.51
-------- ------ -------- ------ -------- ------
Total deposits.................... $753,945 100.00% $634,387 100.00% $525,560 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1996.
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
MATURITY PERIOD AMOUNT
- -------------------------------- --------
(IN THOUSANDS)
<S> <C>
Three months or less........... $ 49,856
Over three through six months.. 33,664
Over six through 12 months..... 26,894
Over 12 months................. 12,654
--------
Total...................... $123,068
========
</TABLE>
15
<PAGE>
BORROWINGS. 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 and Student Loan Marketing Association ("SLMA"). 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 option program. The Bank has
available a $20.0 million line of credit from SLMA, borrowings under which would
be secured by student loans. Borrowings under this line of credit may be used
for any permissible corporate purpose.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1996 1995 1994
------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amounts outstanding at end of period:
Treasury, tax and loan note option........ $ 1,185 $ 471 $ 1,500
Federal funds purchased and securities
sold under repurchase agreements........ 1,800 2,800 12,900
Other short-term borrowings............... -- 7,500 --
Weighted average rate paid on:
Treasury, tax and loan note option........ 4.99% 5.15% 5.20%
Federal funds purchased and securities
sold under repurchase agreements........ 6.70 5.75 5.84
Other short-term borrowings............... -- 5.55 --
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount of borrowings
outstanding at any month end:
Treasury, tax and loan note option........ $1,500 $ 1,710 $ 1,976
Federal funds purchased and securities
sold under repurchase agreements........ 2,300 11,200 12,900
Other short-term borrowings............... -- 12,500 --
Approximate average short-term borrowings
outstanding with respect to:
Treasury, tax and loan note option........ 1,135 1,152 1,117
Federal funds purchased and securities
sold under repurchase agreements........ 251 1,536 1,177
Other short-term borrowings............... 554 1,839 507
Approximate weighted average rate paid on:
Treasury, tax and loan note option........ 4.96% 5.79% 3.78%
Federal funds purchased and securities
sold under repurchase agreements........ 5.78 6.05 4.98
Other short-term borrowings............... 5.59 6.41 3.97
</TABLE>
16
<PAGE>
REGULATION OF BRANCH AND INTERSTATE BANKING.
Under the McFadden Act of 1927, national banks may only establish
branches to the extent specifically authorized by statute for banks chartered by
the state in which the national bank is located and subject to the restrictions
as to location imposed by state law on state banks. Oklahoma law provides that
Oklahoma banks may establish no more than two branches within the corporate city
limits where the main bank is located or within 25 miles of the main bank if it
is located in a city that has no other bank. Oklahoma banks, however, may
acquire other banks or savings associations or their branches and operate these
acquisitions as branches provided that the bank does not control more than 11%
of the insured deposits in the State of Oklahoma. Accordingly, the Bank can
open branches in markets other than Stillwater only through acquisitions of
existing banks or branches.
The Bank Holding Company Act of 1956, as amended (the "BHC Act"),
prohibits the acquisition by a bank holding company of any voting shares of, any
interest in, or all or substantially all of the assets of, a bank located
outside of the state in which the operations of the bank holding company's
banking subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by the laws of the state in which the bank to be
acquired is located. Oklahoma law authorizes nationwide interstate acquisitions
of Oklahoma banks and bank holding companies on a reciprocal basis. The
Oklahoma banking laws authorize an out-of-state bank holding company to acquire
Oklahoma banks and bank holding companies provided that the Oklahoma bank or all
the Oklahoma bank subsidiaries of the bank holding company have been in
existence and continuous operation for more than five years and the acquisition
is subjected to any conditions, restrictions or requirements applicable to an
acquisition of a bank by an Oklahoma bank or bank holding company in the foreign
bank holding company's home state. Oklahoma bank subsidiaries of foreign bank
holding companies may not establish additional branches or acquire additional
Oklahoma banks until the earlier of such time as the Federal Reserve determines
that the out-of-state bank holding company's home state allows Oklahoma banks
and bank holding companies to acquire banks on a reciprocal basis or the
expiration of four years from the original acquisition.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") eased restrictions on
interstate banking by allowing the Federal Reserve to approve an application of
an adequately capitalized and adequately managed bank holding company to acquire
control of, or acquire all or substantially all of the assets of, a bank located
in a state other than such holding company's home state, without regard to
whether the transaction is prohibited by the laws of any state. The Federal
Reserve may not approve the acquisition of a bank that has not been in existence
for the minimum time period (not exceeding five years), if any, specified by the
statutory law of the host state. The Riegle-Neal Act also prohibits the Federal
Reserve from approving an application if the applicant (and its depository
institution affiliates) controls or would control more than 10% of the insured
deposits in the United States or 30% or more of the deposits in the target
bank's home state or in any state in which the target bank maintains a branch.
The Riegle-Neal Act does not affect the authority of states to limit the
percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding company to the extent such limitation does
not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit
contained in the Riegle-Neal Act.
Additionally, beginning on June 1, 1997, the federal banking agencies
will be authorized to approve interstate bank (as opposed to bank holding
company) merger transactions without regard to whether such transaction is
prohibited by the law of any state, unless the home state of one of the banks
opts out of the interstate bank merger provisions of the Riegle-Neal Act by
adopting a law after the date of enactment of the Riegle-Neal Act and prior to
June 1, 1997 which applies equally to all out-of-state banks and expressly
prohibits merger transactions involving out-of-state banks. Interstate
acquisitions of branches (as opposed to whole banks or bank holding companies)
will be permitted only if the law of the state in which the branch is located
permits such acquisitions. Such interstate bank mergers and branch acquisitions
will also be subject to the nationwide and statewide insured deposit
concentration amounts described above.
17
<PAGE>
The Riegle-Neal Act authorizes the OCC and FDIC to approve interstate
branching de novo by national and state banks, respectively, only in states
which specifically allow for such branching. The Riegle-Neal Act also requires
the appropriate federal banking agencies to prescribe regulations by June 1,
1997 which prohibit any out-of-state bank from using the interstate branching
authority primarily for the purpose of deposit production. These regulations
must include guidelines to ensure that interstate branches operated by an out-
of-state bank in a host state are reasonably helping to meet the credit needs of
the communities which they serve.
COMPETITION
The Bank encounters competition primarily in seeking deposits and in
obtaining loan customers. The level of competition for deposits is high. The
Bank's principal competitors for deposits are other financial institutions
within a few miles of its offices, including other banks, savings institutions,
and credit unions. Competition among these institutions is based primarily on
interest rates and other terms offered, service charges imposed on deposit
accounts, the quality of services rendered, and the convenience of banking
facilities. Additional competition for depositors' funds comes from U.S.
Government securities, private issuers of debt obligations and suppliers of
other investment alternatives for depositors, such as securities firms.
The Bank also competes in its lending activities with other financial
institutions such as savings institutions, credit unions, securities firms,
insurance companies, small loan companies, finance companies, mortgage companies
and other sources of funds. Many of the Bank's non-bank competitors are not
subject to the same extensive Federal regulations that govern bank holding
companies and Federally insured banks and state regulations governing state
chartered banks. As a result, such non-bank competitors have advantages over the
Bank in providing certain services. A number of the financial institutions with
which the Bank competes in both lending and deposit activities are larger than
the Bank. In recent periods, competition has increased in the Bank's market
area as new entrants and existing competitors have sought to more aggressively
expand their loan and deposit market share and as a result of the Bank's efforts
to solicit larger loan customers, for whom there is greater competition. The
Company anticipates that competition may intensify as a result of further
acquisition of Oklahoma banks by out-of-state bank holding companies. See " --
Regulation of Branch and Interstate Banking."
The business of mortgage banking is highly competitive. The Company
competes for loan origination with other financial institutions, such as
mortgage bankers, state and national commercial banks, savings and loan
associations, credit unions and insurance companies. Many of the Company's
competitors have financial resources that are substantially greater than those
available to the Company. The Company competes principally by providing
competitive pricing, by motivating its sales force through the payment of
commissions on loans originated, and by providing high-quality service to
builders, borrowers, and realtors.
EMPLOYEES
As of December 31, 1996, the Company and the Bank had 357 full-time
equivalent employees. None of the employees of the Company or the Bank is
subject to a collective bargaining agreement. The Company considers its
relationships with its employees and those of the Bank to be good.
SUPERVISION AND REGULATION
GENERAL
The Company and the Bank are extensively regulated under federal and
state law. These laws and regulations are generally intended to protect
depositors and the federal deposit insurance funds, not shareholders. As an
originator of guaranteed student loans, the Bank is also subject to examination
by the U.S. Department of Education to determine its compliance with the
requirements of the FFELP. In addition, the Bank is considered to be a federal
contractor required to comply with the requirements of the Office of Federal
Contract Compliance Programs for affirmative action programs, among other
things.
18
<PAGE>
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Company and the Bank. The operations of the Company and the Bank may be
affected by legislative changes and by the policies of various regulatory
authorities. The Company is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
control or new Federal or state legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company within the meaning of the BHC
Act, and as such, it is subject to regulation, supervision and examination by
the Federal Reserve. The Company is required to file annual and quarterly
reports with the Federal Reserve and to provide to the Federal Reserve such
additional information as the Federal Reserve may require.
With certain limited exceptions, the BHC Act requires every bank
holding company to obtain the prior approval of the Federal Reserve before: (1)
acquiring direct or indirect ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (2) acquiring all or substantially all of the assets
of another bank or bank holding company; or (3) merging or consolidating with
another bank holding company. The Federal Reserve will not approve any
acquisition, merger or consolidation that would have a substantially anti-
competitive result, unless the anti-competitive effects of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The Federal Reserve also
considers capital adequacy and other financial and managerial factors, including
CRA compliance, in reviewing acquisitions or mergers.
In addition, and subject to certain exceptions, the Change in Bank
Control Act (the "Control Act") and regulations promulgated thereunder by the
Federal Reserve require any person acting directly or indirectly, or through or
in concert with one or more persons, to give the Federal Reserve 60 days'
written notice before acquiring control of a bank holding company. Transactions
which are presumed to constitute the acquisition of control include the
acquisition of any voting securities of a bank holding company having securities
registered under section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), if, after the transaction, the acquiring person (or
persons acting in concert) owns, controls or holds with power to vote 25% or
more of any class of voting securities of the institution. The acquisition may
not be consummated subsequent to such notice if the Federal Reserve issues a
notice within 60 days, or within certain extensions of such period, disapproving
the same.
With certain exceptions, the BHC Act also prohibits a bank holding
company from acquiring or retaining direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank or bank
holding company, or from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or providing services for
its subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking or
of managing or controlling banks. In making this determination, the Federal
Reserve considers whether the performance of such activities by a bank holding
company can be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency in resources, which
can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices. The Federal Reserve also considers capital adequacy and other
financial and management factors, including CRA and "fair lending" compliance,
in reviewing acquisitions and mergers.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its subsidiaries, on investments in their securities and
on the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for payment of dividends,
19
<PAGE>
interest and operating expenses. Further, under the BHC Act and certain
regulations of the Federal Reserve, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
For example, the Bank may not generally require a customer to obtain other
services from the Bank or the Company, and may not require that customer to
promise not to obtain other services from a competitor, as a condition to an
extension of credit to the customer.
The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses the Federal Reserve's
view that a bank holding company should pay cash dividends only to the extent
that the company's net income for the past year is sufficient to cover both the
cash dividends and a rate of earning retention that is consistent with the
company's capital needs, asset quality, and overall financial condition.
Bank holding companies are required to give the Federal Reserve notice
of any purchase or redemption of their outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the bank holding company's consolidated net
worth. The Federal Reserve may disapprove such a purchase or redemption if it
determines that the proposal would violate any law, regulation, Federal Reserve
order, directive, or any condition imposed by, or written agreement with, the
Federal Reserve. Bank holding companies whose capital ratios exceed the
thresholds for "well-capitalized" banks on a consolidated basis are exempt from
the foregoing requirement if they were rated composite 1 or 2 in their most
recent inspection and are not the subject of any unresolved supervisory issues.
STATE BANK HOLDING COMPANY REGULATION
Under Oklahoma law, any bank holding company or other company which
submits an application to the Federal Reserve for approval of the acquisition of
a state or national bank located in Oklahoma must submit a copy of such
application to the Oklahoma Bank Board. Subject to certain exceptions for
supervisory acquisitions and certain other limited exceptions, Oklahoma law
further provides that it shall be unlawful for a multi-bank holding company to
acquire direct or indirect ownership or control of any financial institution
with deposits insured by the FDIC or the National Credit Union Administration
("NCUA") and located in Oklahoma if such acquisition results in such multi-bank
holding company having direct or indirect ownership or control of banks located
in Oklahoma, the total deposits of which at the time of such acquisition exceed
11% of aggregate deposits of all financial institutions with deposits insured by
the FDIC and the NCUA. Under the McFadden Act, the Bank's branching authority
is also determined with reference to Oklahoma law. See "Business -- Regulation
of Branch and Interstate Banking."
FEDERAL BANK REGULATION
As a national bank, the Bank is subject to the primary supervision of
the OCC under the National Bank Act. The prior approval of the OCC is required
for a national bank to establish or relocate an additional branch office or to
engage in any merger, consolidation, or significant purchase or sale of assets.
The OCC regularly examines the operations and condition of the Bank,
including but not limited to its capital adequacy, reserves, loans, investments,
and management practices. These examinations are for the protection of the
Bank's depositors and the Bank Insurance Fund. In addition, the Bank is
required to furnish quarterly and annual reports to the OCC. The OCC's
enforcement authority includes the power to remove officers and directors and
the authority to issue cease-and-desist orders to prevent a bank from engaging
in unsafe or unsound practices or violating laws or regulations governing its
business.
The OCC has adopted regulations regarding the capital adequacy of
national banks, which require national banks to maintain specified minimum
ratios of capital to total assets and capital to risk-weighted assets. See
"Regulatory Capital Requirements."
20
<PAGE>
The ability of banks and bank holding companies to operate in multiple
locations or in more than one state is regulated by both federal and state law.
Oklahoma currently does not permit interstate branch banking, and only permits
interstate bank holding company activities with other states on a reciprocal
basis. See "Business --Regulation of Branch and Interstate Banking."
The CRA requires that, in connection with examinations of financial
institutions within their jurisdiction, the Federal Reserve or the OCC evaluate
the record of the financial institutions in meeting the credit needs of their
local communities, including low and moderate income neighborhoods, consistent
with the safe and sound operation of those banks. These factors are also
considered by the Federal Reserve and OCC in evaluating mergers, acquisitions
and applications to open a branch or facility.
The Bank participates in various community development programs in an
effort to meet its responsibilities under the Community Reinvestment Act
("CRA"). The Bank's participation in the Guaranteed Student Loan program, the
SBA loan programs, and the Central Oklahoma Clearing House Association Home Loan
program also helped meet CRA responsibilities. In addition, the Bank has
developed and operates its own Sheltered Home Loan program to specifically
address the need for a home loan program for low-to-moderate income borrowers.
The Bank is also subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions of
credit (i) must be made on substantially the same terms, including interest
rates and collateral as, and following credit underwriting procedures that are
not less stringent than, those prevailing at the time for comparable
transactions with persons not covered above and who are not employees, and (ii)
must not involve more than the normal risk of repayment or present other
unfavorable features. The Bank is also subject to certain lending limits and
restrictions on overdrafts to such persons. A violation of these restrictions
may result in the assessment of substantial civil monetary penalties on the Bank
or any officer, director, employee, agent or other person participating in the
conduct of the affairs of the Bank, the imposition of a cease and desist order,
and other regulatory sanctions.
The Bank is a member of the Federal Reserve System and its deposits
are insured by the FDIC to the legal maximum of $100,000 for each insured
depositor. Some of the aspects of the lending and deposit business of the Bank
that are subject to regulation by the Federal Reserve and the FDIC include
reserve requirements and disclosure requirements in connection with personal and
mortgage loans and deposit accounts. In addition, the Bank is subject to
numerous federal and state laws and regulations that include specific
restrictions and procedural requirements with respect to the establishment of
branches, investments, interest rates on loans, credit practices, the disclosure
of credit terms, and discrimination in credit transactions.
The Bank is subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Company and
other affiliates, and on investments in their stock or other securities. These
restrictions prevent the Company from borrowing from the Bank unless the loans
are secured by specified collateral, and require those transactions to have
terms comparable to terms of arms-length transactions with third persons. In
addition, secured loans and other transactions and investments by the Bank are
generally limited in amount as to the Company and as to any other affiliate to
10% of the Bank's capital and surplus and as to the Company and all other
affiliates together to an aggregate of 20% of the Bank's capital and surplus.
These regulations and restrictions may limit the Company's ability to obtain
funds from the Bank for its cash needs, including funds for acquisitions and for
payment of dividends, interest, and operating expenses.
Under OCC regulations, national banks must adopt and maintain written
policies that establish appropriate limits and standards for extensions of
credit secured by liens or interests in real estate or are made for the purpose
of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards; prudent underwriting
standards, including loan-to-value limits, that are clear and measurable; loan
administration procedures; and documentation, approval, and reporting
requirements. A bank's real estate lending policy must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies (the "Interagency
Guidelines") adopted by the federal bank regulators. The Interagency
Guidelines, among other things, call for
21
<PAGE>
internal loan-to-value limits for real estate loans that are not in excess of
the limits specified in the Guidelines. The Interagency Guidelines state,
however, that it may be appropriate in individual cases to originate or purchase
loans with loan-to-value ratios in excess of the supervisory loan-to-value
limits.
New Law. The operations of the Company and the Bank are affected by
-------
new federal and state laws. The federal Economic Growth and Regulatory
Paperwork Reduction Act of 1996 (the "New Act"), enacted in September 1996,
includes provisions that affect banks, bank holding companies, and savings
institutions. The New Act had, and is expected to have in the future, its most
significant effect upon bank and savings institutions that hold deposits
assessed at Savings Deposit Insurance Fund ("SAIF") rates. Among other things,
the New Act recapitalized the SAIF through a special assessment on savings
association deposits and bank deposits that had been acquired from savings
associations. The Bank is assessed at "SAIF" rates on certain deposits, as
described below. The New Act may increase competition from savings associations
by equalizing, over time, the amount of federal insurance premiums paid on
savings association and bank deposits. The New Act also provides that,
beginning in 1997, institutions with deposits insured by the Bank Insurance
Fund, as well as those with SAIF insured deposits, will be responsible for
payment of certain bonds issued in connection with the resolution of failed
savings associations. The result of these provisions will be somewhat higher
federal deposit insurance premiums for the Bank. These higher insurance
premiums are not expected to have a material adverse effect on the Bank or the
Company.
The New Act also simplifies the regulatory approval process for new
activities of banks and bank holding companies, and reduces a number of other
regulatory burdens. None of these changes is expected to have a significant
effect on the Company or the Bank.
DEPOSIT INSURANCE
As an FDIC member institution, the deposits of the Bank are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), administered by the FDIC, and the Bank is required to pay semi-annual
deposit insurance premium assessments to the FDIC.
The FDIC is permitted by Federal Law to make special assessments on
insured depository institutions, in amounts determined by the FDIC to be
necessary to give it adequate assessment income to repay amounts borrowed from
the U.S. Treasury and other sources or for any other purpose the FDIC deems
necessary. Generally, under the risk-based assessment system used by the FDIC,
banks are assessed insurance premiums according to how much risk they are deemed
to present the BIF. Banks with higher levels of capital and involving a low
degree of supervisory concern are assessed lower premiums than banks with lower
levels of capital or involving a higher degree of supervisory concern. For the
semi-annual period beginning June 30, 1995, the BIF assessment rate was lowered
to between 0.04% and 0.31% of insured deposits from 0.23% to 0.31% of insured
deposits and was subsequently reduced to the statutory minimum of $1,000 for the
most highly-rated banks for the semi-annual period beginning January 1, 1996. As
a result of the acquisition of savings association deposits in 1991, the Bank is
required to pay semi-annual deposit insurance premiums on a portion of its
deposits at the rates assessed on SAIF insured deposits. The New Act authorized
the FDIC to assess a one-time fee on institutions with deposits insured by the
SAIF and other deposits assessed at SAIF rates in order to increase the SAIF's
reserves to the 1.25% of insured deposits required by the Federal Deposit
Insurance Act. The amount of this one-time special assessment on the Bank's SAIF
assessable deposit was $436,000. After the payment of this special assessment
in 1996, the insurance premiums related to the Bank's SAIF assessable deposit
were reduced. The Bank has been informed that it is in the lowest assessment
category for BIF and SAIF for the first assessment period of 1997.
DIVIDENDS
The principal source of the Company's cash revenues is dividends
received from the Bank. Pursuant to the National Bank Act, no national bank may
pay dividends from its paid-in capital. All dividends must be paid out of
current or retained net profits, after deducting reserves for losses and bad
debts. The National Bank Act further restricts the payment of dividends out of
net profits by prohibiting a national bank from declaring a dividend on its
22
<PAGE>
shares of common stock until the surplus fund equals the amount of capital stock
or, if the surplus fund does not equal the amount of capital stock, until one-
tenth of a bank's net profits for the preceding half-year in the case of
quarterly or semi-annual dividends, or the preceding two half-year periods in
the case of an annual dividends, are transferred to the surplus fund. The
approval of the OCC is required prior to the payment of a dividend if the total
of all dividends declared by a national bank in any calendar year would exceed
the total of its net profits for that year combined with its retained net
profits for the two preceding years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. The Bank may not pay a dividend
if, after paying the dividend, the Bank would be undercapitalized.
At December 31, 1996 the Bank had a maximum of approximately $12.8
million available for dividend payments to the Company under the foregoing
statutes. Accordingly, the Company does not anticipate that these limitations
will affect the Company's ability to pay dividends to its shareholders
consistent with its past practice and as proposed.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe and unsound banking practice. The Bank and the Company are
not currently subject to any such regulatory restrictions on their dividends.
Regulatory Capital Requirements. The Federal Reserve and the OCC have
-------------------------------
established guidelines for maintenance of appropriate levels of capital by bank
holding companies and national banks, respectively. The regulations impose two
sets of capital adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the
maintenance of specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve and the OCC require bank
holding companies and national banks, respectively, to maintain a minimum
leverage ratio of "Tier 1 capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3.0%. The
capital regulations state, however, that only the strongest bank holding
companies and banks, with composite examination ratings of 1 under the rating
system used by the federal bank regulators, would be permitted to operate at or
near this minimum level of capital. All other bank holding companies and banks
are expected to maintain a leverage ratio of at least 1% to 2% above the minimum
ratio, depending on the assessment of an individual organization's capital
adequacy by its primary regulator. A bank or bank holding company experiencing
or anticipating significant growth is expected to maintain capital well above
the minimum levels. In addition, the Federal Reserve has indicated that it also
may consider the level of an organization's ratio of tangible Tier 1 capital
(after deducting all intangibles) to total assets in making an overall
assessment of capital.
The risk-based capital rules of the Federal Reserve and the OCC
require bank holding companies and national banks to maintain minimum regulatory
capital levels based upon a weighting of their assets and off-balance sheet
obligations according to risk. The risk-based capital rules have two basic
components: a core capital (Tier 1) requirement and a supplementary capital
(Tier 2) requirement. Core capital consists primarily of common stockholders'
equity, certain perpetual preferred stock (noncumulative perpetual preferred
stock with respect to banks), and minority interests in the equity accounts of
consolidated subsidiaries; less all intangible assets, except for certain
mortgage servicing rights and purchased credit card relationships.
Supplementary capital elements include, subject to certain limitations, the
allowance for losses on loans and leases; perpetual preferred stock that does
not qualify as Tier 1 capital; long-term preferred stock with an original
maturity of at least 20 years from issuance; hybrid capital instruments,
including perpetual debt and mandatory convertible securities; and subordinated
debt and intermediate-term preferred stock.
The risk-based capital regulations assign balance sheet assets and
credit equivalent amounts of off-balance sheet obligations to one of four broad
risk categories based principally on the degree of credit risk associated with
the obligor. The assets and off-balance sheet items in the four risk categories
are weighted at 0%, 20%, 50% and 100%. These computations result in total risk-
weighted assets.
23
<PAGE>
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital is limited to no more than 100% of core
capital; and (ii) the aggregate amount of certain types of supplementary capital
will be limited. In addition, the risk-based capital regulations limit the
allowance for loan losses that may be included in includable capital to 1.25% of
total risk-weighted assets.
In July 1996, the federal bank regulatory agencies, including the OCC,
issued a joint policy statement regarding the evaluation of commercial banks'
capital adequacy for interest rate risk. Under the policy, the OCC's assessment
of a bank's capital adequacy includes an assessment of the bank's exposure to
adverse changes in interest rates. The OCC has determined to rely on its
examination process for such evaluations rather than on standardized measurement
systems or formulas. The OCC may require banks that are found to have a high
level of interest rate risk exposure or weak interest rate risk management
systems to take corrective actions. Management believes its interest rate risk
management systems and its capital relative to its interest rate risk are
adequate.
The OCC has established regulations that classify national banks by
capital levels and provide for the OCC to take various "prompt corrective
actions" to resolve the problems of any bank that fails to satisfy the capital
standards. Under these regulations, a well-capitalized bank is one that is not
subject to any regulatory order or directive to meet any specific capital level
and that has a total risk-based capital ratio of 10% or more, a Tier 1 risk-
based capital ratio of 6% or more, and a leverage ratio of 5% or more. An
adequately capitalized bank is one that does not qualify as well-capitalized but
meets or exceeds the following capital requirements: a total risk-based capital
ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of
either (i) 4% or (ii) 3% if the bank has the highest composite examination
rating. A bank that does not meet these standards is categorized as
undercapitalized, significantly undercapitalized, or critically
undercapitalized, depending on its capital levels. A national bank that falls
within any of the three undercapitalized categories established by the prompt
corrective action regulation is subject to severe regulatory sanctions. As of
December 31, 1996, the Bank was well-capitalized as defined in the OCC's
regulations.
24
<PAGE>
As of December 31, 1996, the Company and the Bank were in compliance
with applicable capital requirements. See "Note 7. Capital Requirements" to the
Notes to Consolidated Financial Statements on pages 30 and 31 of the Annual
Report.
SUPERVISION AND REGULATION OF MORTGAGE BANKING OPERATIONS
The Bank's mortgage banking business is subject to the rules and
regulations of the U.S. Department of Housing and Urban Development ("HUD"), the
Federal Housing Administration ("FHA"), the Veterans' Administration ("VA"),
FmHA and FNMA with respect to originating, processing, selling and servicing
mortgage loans. Those rules and regulations, among other things, prohibit
discrimination and establish underwriting guidelines which include provisions
for inspections and appraisals, require credit reports on prospective borrowers,
and fix maximum loan amounts. Moreover, lenders such as the Company are
required annually to submit to FNMA, FHA and VA audited financial statements,
and each regulatory entity has its own financial requirements. The Company's
affairs are also subject to examination by the Federal Reserve, FNMA, FHA and VA
at all times to assure compliance with the applicable regulations, policies and
procedures. Mortgage origination activities are subject to, among others, the
Equal Credit Opportunity Act, Federal Truth-in-Lending Act, Fair Housing Act,
Fair Credit Reporting Act, the National Flood Insurance Act and the Real Estate
Settlement Procedures Act and the regulations promulgated thereunder which
prohibit discrimination and require the disclosure of certain basic information
to mortgagors concerning credit terms and settlement costs. Additionally, there
are various state and local laws and regulations affecting the Company's
operations as well as requirements promulgated by various private investors such
as life insurance companies and others to whom loans have been sold.
MONETARY POLICY
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the Federal Reserve, in connection with the
Federal Reserve's regulation of the money supply. Various methods employed by
the Federal Reserve are open market operations in United States Government
securities, changes in the discount rate on member bank borrowings and changes
in reserve requirements against member bank deposits. These methods are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may also affect interest rates charged
on loans or paid on deposits. The monetary policies of the Federal Reserve have
had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Robert L. McCormick, Jr................................ 62 President and Director of the Company; Vice
Chairman and Chief Executive Officer and Director of
the Bank
Paul C. Wise........................................... 91 Executive Vice President and Director of the
Company; Executive Vice President, Cashier and
Director of the Bank
Thomas E. Bennett, Jr.................................. 46 President, Tulsa Division of the Bank
Rick J. Green.......................................... 49 President, Central Oklahoma Division of the Bank
Stanley R. White....................................... 50 Chief Lending Officer
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Kerby E. Crowell...................................... 47 Executive Vice President, Treasurer and Chief
Financial Officer of the Company and the Bank
Kimberly G. Sinclair................................... 41 Executive Vice President and Chief Administrative
Officer of the Bank
Danny W. Williams...................................... 46 Executive Vice President, Credit Administration of
the Bank
Patrick E. Zimmerman................................... 35 President, Stillwater Division of the Bank
James W. Barnes........................................ 42 Executive Vice President of the Bank
</TABLE>
Set forth below is certain information regarding the principal
occupations and business experience of each executive officer of the Company.
Unless otherwise indicated, each person has held the indicated positions for at
least the last five years.
Robert L. McCormick, Jr. has been a director and Chief Executive
Officer of the Company since its inception in 1981. He has been President,
Chief Executive Officer and a director of the Bank since 1970. He is presently
a Regent, Oklahoma State Regents for Higher Education, and Vice Chairman of Task
Force 2000, a task force organized by the Governor of Oklahoma to reform the
common education system. He has served as President of the Independent Bankers
Association of America; President, Independent Bankers Association of Oklahoma;
President of the Board of Directors Stillwater Chamber of Commerce; Chairman of
the State Chamber, Oklahoma's Association of Business and Industry; Chairman and
President of the Board of Directors for the Oklahoma Academy for State Goals;
Chairman of the Board of Trustees of the Oklahoma State University Foundation;
1991 Drive Chairman for the Stillwater United Way; and was 1990 Citizen of the
Year of the Stillwater Chamber of Commerce.
Paul C. Wise has been a director and Executive Vice President of the
Company since its inception in 1981 and served as Corporate Secretary of the
Company from 1981 until January 1996. He also serves as Executive Vice
President and Cashier of the Bank, which he joined in 1927 and served as the
Bank's Corporate Secretary through January 1996. Mr. Wise has been a director
of the Bank since 1936. He has been a director and Corporate Secretary of
Stillwater Milling Co., Stillwater, Oklahoma during the last five years. Mr.
Wise is a Past President of the Chamber of Commerce and of the Stillwater Lions
Club. James B. Wise is his son.
Thomas Edwin Bennett, Jr. has been President of the Tulsa Division of
the Bank since 1991 and associated with the Bank since 1973; with the exception
of 1985-86 when he was a White House Fellow and Special Assistant to the
Comptroller of the Currency, U.S. Department of the Treasury in Washington,
D.C.; and from 1986-87 while he obtained a Masters in Public Administration with
Honors from Harvard University in Cambridge, Massachusetts; and from 1987-88
when he was Senior Advisor and Coordinator of Strategic Planning for the
Oklahoma Department of Commerce putting together a comprehensive Five Year
Economic Development Plan for the State of Oklahoma. Mr. Bennett is a former
Trustee for the University Center at Tulsa, is a Trustee for the Tulsa Airport
Authority, a past National President of the Oklahoma State University Alumni
Association, a Director of the Higher Education Alumni Council of Oklahoma, and
a member of Oklahoma's Post Secondary Oversight Counsel. Mr. Bennett is a past
member of the Regional Advisory Board of the Resolution Trust Corporation, a
past Chairman of the Oklahoma Group of the Robert Morris Associates, and a past
Chairman of the lending committee of the Oklahoma Bankers Association. He is
also a past Director of the Tulsa Philharmonic, past President and Drive
Chairman of the Stillwater United Way, past President and Co-founder of the
Stillwater Public Education Foundation, and a past Trustee of the Oklahoma State
University Development Foundation.
Rick J. Green is President of the Central Oklahoma Division of the
Bank, and formerly Executive Vice President of the Bank. He is a member of the
Oklahoma City and Edmond Chambers of Commerce and has served as Chair/Ambassador
of the Stillwater Chamber of Commerce, on the Oklahoma State University Alumni
Association Homecoming and Honor Students Committees, as Chairman of the Payne
County Youth Services, Co-Chairman of
26
<PAGE>
the United Way of Stillwater Fund Drive and a member of the Advisory Board of
the Oklahoma State University Technical Institute. He is a member of the
Commercial Real Estate Association of Oklahoma City, the Oklahoma and Oklahoma
City Homebuilders Associations, and past member of the Stillwater Medical Center
Committee on Physician Recruitment.
Stanley R. White was appointed Chief Lending Officer in December 1995.
Prior to this appointment he had been President of the Stillwater Division of
the Bank since 1991. He is a member and past Chairman of the Board of Trustees
of the Stillwater Medical Center, past Director of the Stillwater Public
Education Foundation, the Judith Karman Hospice, United Way, March of Dimes, and
the Stillwater Rotary, and past President of the Stillwater Chamber of Commerce
and the Stillwater Industrial Foundation. Mr. White has also served as past
Director of the Oklahoma State University Alumni Association and the Oklahoma
State Chamber of Commerce, past Board Member of the Oklahoma Law Enforcement
Retirement Board, and currently serves as Director of the Oklahoma Medical
Research Foundation, Director of Leadership Oklahoma, Vice President of
Leadership Oklahoma Alumni, Chairman and Trustee of the Board of Governors of
the Oklahoma State University Foundation, and is a Director of Oklahoma Academy
for State Goals. Mr. White is also Chairman of the Oklahoma Bankers
Association, past Chairman of the Oklahoma Bankers Association Government
Relations Council and past Chairman of the Education Committee of this
organization, and a member of the American Bankers Association Government
Relations Council. Mr. White is also Director of the Texas Chapter and Senior
Member of Robert Morris Association.
Kerby E. Crowell has served as Executive Vice President, Treasurer and
Chief Financial Officer of the Company and the Bank for the last eleven years.
Mr. Crowell joined the Bank in 1969. He is past President and Director of the
Oklahoma 4-H Foundation, Inc., Director and Vice President of the Oklahoma City
Chapter of the Financial Executives Institute, past Director of the Payne County
Affiliate of the American Diabetes Association, and past Vice Chairman of the
Bank Services Committee, and a member of the Bank Operations Committee of the
Independent Bankers Association of America. He is past President of the
Stillwater Breakfast Kiwanis Club, the Bank Administration Institute's Northern
Oklahoma Chapter, and the North Central Chapter of Certified Public Accountants.
Kimberly G. Sinclair was appointed Chief Administrative Officer in
1995 and has been Executive Vice President of the Bank since 1991. Prior to
1991, she had been Senior Vice President and Chief Operations Officer of the
Bank since 1985. Ms. Sinclair joined the Bank in 1975. She is an Ambassador of
the Stillwater Chamber of Commerce, a member of the Stillwater Junior Service
League, on the Board of Trustees of the Stillwater Public Education Foundation,
and a graduate of the Leadership Stillwater Class IX.
Danny W. Williams has been an Executive Vice President in the Tulsa
Division Credit Administration Department since December 1995. Prior to that he
served as Vice President and Commercial Lender in the Tulsa Division of the Bank
from December 1989 through November of 1993 when promoted to Senior Vice
President as the Tulsa Division's Manager of Credit Administration from November
1993 to December 1995. Mr. Williams is serving as the Financial Secretary of
the Memorial Park Christian Church in Tulsa and the Secretary-Treasurer of the
Optimist Club of Tulsa after previously serving as the organization's President.
He is a member of the Financial Management Advisor Committee for Tulsa Community
College, a member of the Robert Morris Association, and has been active in the
Tulsa area United Way.
Patrick E. Zimmerman has been President of the Stillwater Division
since July 1996. Prior to becoming President, Mr. Zimmerman served as Executive
Vice President and Stillwater Division Manager from December 1995 to July 1996,
as Senior Vice President of Commercial Lending of the Bank from January 1995 to
December 1995, as Vice President of Commercial Lending of the Bank from January
1992 to January 1995, and as the Administrative Vice President and Branch
Manager of Farm Credit Services in Stillwater, an agricultural lending
institution, from February 1987 to January 1992. Mr. Zimmerman is a member of
the Stillwater Chamber of Commerce and a 1995 Graduate of Leadership Oklahoma.
He currently serves as a board member of the Oklahoma State University Alumni
Association, Stillwater Chamber of Commerce, Stillwater Area United Way, and as
a Director of the Stillwater Industrial Foundation. He was the Campaign Chairman
for the 1996 Stillwater Area United Way Campaign and is the immediate past
Chairman of the Board of the Stillwater Chamber of Commerce. Mr. Zimmerman is
past president
27
<PAGE>
of the Stillwater Frontier Rotary Club and is past Chairman of the Banking
Leadership Oklahoma Committee for the Oklahoma Bankers Association. Mr.
Zimmerman is a member of the Executive Committee of the Stillwater Chamber of
Commerce and a member of the Robert Morris Association.
James W. Barnes has been Executive Vice President of the Bank since
joining the Bank in May 1996. Prior to joining the Bank, he served as an officer
of the Bank of Oklahoma and certain of its affiliates beginning in 1986,
including service as President of the Alliance Trust Company, N.A. and Senior
Vice President and Senior Trust Officer/Manager of Trust Services of
BancOklahoma Trust Company. Mr. Barnes also has served as a manager of
commercial lending, financial analyst and economist. He was associated with the
Williams Companies in Tulsa from March 1980 until May 1986. He is currently
Chairman of an Office of Juvenile Affairs state commission, Director of
Leadership Tulsa, Mentor and Director of the Advisory Board of the Lloyd Rader
Juvenile Detention Center and an active volunteer in the American Lung
Association, Boy Scouts of America (of which he served as Tulsa Metro Chair for
1996), Cystic Fibrosis Association, and Tulsa United Way (for which he was
Section Chair in 1995), among other civic activities, and is a member of the
American Management Association, American Society of Business Economists, and
the Mortgage Bankers Association.
ITEM 2. PROPERTIES
- -------------------
The Bank's principal office occupies 14,000 square feet of ground on
the corner of Sixth and Main streets in Stillwater, Oklahoma. The building
consists of 29,300 square feet of office space which was constructed in 1967 and
remodeled in 1981, 1994 and 1996. The principal office houses the Bank's
commercial and consumer lending operations as well as its executive offices and
human resources and training departments.
The Bank's other banking office in Stillwater occupies approximately
90,000 square feet of ground on the corner of Third and Main Streets. The
building consists of 11,500 square feet of office space which was constructed in
1981. The facility houses the Bank's mortgage lending operations, a six-lane
drive-through facility including commercial teller facilities, two ATMs, plus
parking for both customers and employees of the facility.
In order to provide room for the back office operations needed to
support its asset growth, the Bank has leased approximately 24,000 square feet
of additional space in which it houses student and credit card lending
operations along with its accounting, marketing, finance, loan review and check-
clearing operations. The lease on this space expires on March 31, 2001 with
options to renew through February 28, 2010.
The Bank's Oklahoma City office occupies 18,419 square feet in the
Waterford office complex near 63rd Street and Pennsylvania Avenues and includes
one ATM. The space is leased pursuant to Leases which expire on December 31,
1997, with options to renew for up to six years.
The Bank owns an additional parcel of land in Oklahoma City where one
of the branches acquired in the Branch Acquisition was formerly located and is
now used only to house an ATM. The parcel occupies 15,000 square feet at the
intersection of Broadway and Robert S. Kerr Avenue. The building occupies 1,400
square feet. The Company has leased out this building through August 1997 while
retaining the right to maintain its ATM on the premises.
During 1996, a loan production office ("LPO") was opened in South
Oklahoma City. The LPO leases 2,250 square feet in the Shadowlake Office Park
located at 2228 Shadowlake Drive, Oklahoma City, OK. The space is leased for one
year with an option to extend the lease for four additional one-year periods.
The Bank's Tulsa banking offices consist of 19,250 square feet of
leased space in the Silvey office building near 61st and Lewis Streets and an
owned full-service branch located at 21st and Birmingham Streets. The leased
facility provides space for commercial and mortgage lending operations, teller
services, deposit-gathering services, and an ATM. The space is leased for five
years with options to renew for up to ten years. The owned facility consists of
16,000 square feet of land with a 2,000 square foot facility housing a three-
lane drive-in and lending and deposit gathering operations. During 1994, an LPO
was opened in downtown Tulsa. This LPO leases 2,900 square
28
<PAGE>
feet in the Mid-Continent office building at 4th and Boston. The space is
leased for three years with an option to renew for two years.
The Company intends to construct a new facility for its Tulsa
operations. Groundbreaking on this 42,000 square foot building is expected to
occur in the third quarter of 1997, with occupancy anticipated in the third
quarter of 1998. When opened, the building will include space for rental to
third parties. The total cost of the building is expected to be $8.0 million.
A substantial portion of these costs will be capitalized and, except for the
cost of the land, will be expensed over the useful life of the property.
During 1996, the Bank purchased a new building at 500 W. Grand Avenue,
Chickasha, Oklahoma. the building consists of approximately 3,600 square feet of
office space and has one drive-through lane. The Bank also continues to own the
office building at its former location in Chickasha and to house an ATM on that
site.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Bank is from time to time a party to various legal actions arising
in the normal course of business. Management believes that there is no
proceeding threatened or pending against the Company or Bank, which, if
determined adversely, would have a material effect on the business or financial
position or results of operations of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------
MATTERS
-------
The information contained under the section captioned "Stock
Information" in the Annual Report (See Exhibit 13, page 41) is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information contained in the table captioned "Selected
Consolidated Financial Data" in the Annual Report (See Exhibit 13, pages 4 and
5) is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report (See Exhibit 13, pages 6 through 16) is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements contained in the Annual Report
(see Item 14(a)(1)) and the information under the caption "Selected Quarterly
Financial Data (Unaudited)" in the Annual Report (See Exhibit 13, pages 5 and 6)
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information concerning the Board of Directors of the Company and
the filing of Beneficial Ownership Reports contained under the section captioned
"Proposal I -- Election of Directors" on pages 3 through 6 of the Proxy
Statement and the information with respect to initial statements of beneficial
ownership and changes in beneficial ownership under the section captioned
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 12 of the
Proxy Statement are incorporated herein by reference. For information as to
executive officers of the Company, see "Executive Officers of the Registrant" in
Part I of this Annual Report on Form 10-K.
ITEM 11. MANAGEMENT REMUNERATION
- ---------------------------------
The information contained under the sections captioned "Compensation
Committee Report on Executive Compensation," "Stock Performance Comparisons" and
Executive Compensation and Other Benefits" on pages 7 through 11 of the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Principal Holders
Thereof" on pages 1 through 3 of the Proxy Statement.
(B) SECURITY OWNERSHIP OF MANAGEMENT
--------------------------------
Information required by this item is incorporated herein by reference
to the section captioned "Security Ownership of Management" on pages
11 and 12 of the Proxy Statement.
(C) CHANGES IN CONTROL
------------------
Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Certain Transactions" on page 11 of the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(A) DOCUMENTS FILED AS PART OF THIS REPORT
--------------------------------------
(1) FINANCIAL STATEMENTS. The following financial statements are
--------------------
incorporated by reference in Item 8 hereof from the Annual Report (see Exhibit
13, pages 17 through 37):
Independent Auditors' Report
Consolidated Statements of Financial Condition as of December 31, 1996 and
1995
30
<PAGE>
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES. All schedules for which provision is
-----------------------------
made in the applicable accounting regulations of the SEC are omitted because of
the absence of conditions under which they are required or because the required
information is included in the consolidated financial statements and related
notes thereto.
(3) EXHIBITS. The following is a list of exhibits filed as part of this
--------
Annual Report on Form 10-K with an index to their location in the sequentially
numbered copy of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
NO. EXHIBITS
----- --------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Southwest Bancorp,
Inc. (incorporated by reference to Exhibit 3.1 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996)
3.2 Bylaws of Southwest Bancorp, Inc. (incorporated by reference as Exhibit
3.2 to Registration Statement on Form S-1 (File No. 33-71168))
4 Certificate of Designations for 9.20% Redeemable, Cumulative, Preferred
Stock, Series A (incorporated by reference to Exhibit 4 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995)
*10.1 1992 Performance Unit Plan (incorporated by reference as Exhibit 10.1
to Registration Statement on Form S-1 (File No. 33-71168))
*10.2 Severance Compensation Plan (incorporated by reference as Exhibit 10.2
to Registration Statement on Form S-1 (File No. 33-71168))
*10.3 Southwest Bancorp, Inc. 1994 Stock Option Plan (incorporated by
reference from Exhibit 10.3 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993)
*10.4 Southwest Bancorp, Inc. Employee Stock Purchase Plan (incorporated by
reference from Exhibit 4.1 to Registration Statement on Form S-8 (File
No. 33-97850))
13 1996 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the last
-------------------
quarter of the period covered by this Annual Report on Form 10-K. However, a
Report on Form 8-K was filed with respect to the anticipated effects on the
Company of the impairment of a commercial loan in the first quarter of 1997 was
filed on March 14, 1997.
(C) EXHIBITS. See (a)(3) above for all exhibits filed herewith and the
--------
Exhibit Index.
(D) FINANCIAL STATEMENTS EXCLUDED FROM ANNUAL REPORT. There are no other
------------------------------------------------
financial statements which were excluded from the Annual Report to Stockholders
by Rule 14a-3(b) which are required to be included herein.
- --------------------
* Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHWEST BANCORP, INC.
March 24, 1997 By: /s/ Robert L. McCormick
-------------------------------------
Robert L. McCormick
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert L. McCormick March 24, 1997
- -------------------------------------
Robert L. McCormick
Director and President
(Principal Executive Officer)
/s/ Kerby E. Crowell March 24, 1997
- -------------------------------------
Kerby E. Crowell
Executive Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
A majority of the directors of the Company executed a power of attorney
appointing Robert L. McCormick as their attorney-in-fact, empowering him to sign
this report on their behalf. This power of attorney has been filed with the
Securities and Exchange Commission under Part IV, Exhibit 24 of this Form 10-K
for the year ended December 31, 1996. This report has been signed below by such
attorney -in-fact as of March 24, 1997.
By: /s/ Robert L. McCormick
-------------------------------------
Robert L. McCormick
Attorney-in-Fact for Majority of the
Directors of the Company
<PAGE>
LETTER TO SHAREHOLDERS
March 11, 1997
Shareholders, Customers and Friends:
Oklahoma's natural resources are sometimes summarized as consisting of
"land, wood and water". It is true that our native state has an abundance of
these and other natural resources. However, I believe our greatest asset is our
people. As Oklahoma builds upon its business base, we must remember that it is
our people who make the real difference. We see how true this is as we review
the year 1996.
The performance of Stillwater National Bank and Trust Company and
Southwest Bancorp, Inc. in the past year is the result of setting and striving
to meet annual performance goals. It is also the product of targeting those
market areas in which our unique Oklahoma-based operations and local ownership
represent a significant competitive advantage.
It is my pleasure to report to you that 1996 was another profitable
year for your Company. Net income for 1996 was $7.6 million, representing a 24%
increase from 1995 net earnings of $6.1 million. Earnings per common share for
1996 were $1.59, after the deduction of preferred stock dividends, compared to
$1.44 in 1995. Year-end assets stood at well over $800 million, total
shareholders' equity amounted to over $65 million, and the Company and the Bank
continued to exceed all regulatory capital requirements.
The increase in net income for 1996 compared to 1995 was the result of
a $5.4 million increase in net interest income and a $1.5 million increase in
other income, which offset a $3.3 million increase in other expenses, a $1.1
million increase in the provision for loan losses, and a $970,000 increase in
income taxes. During 1996, the Company incurred a one-time special federal
deposit insurance assessment required by federal law of $436,000. The increase
in the Company's other expenses reflects the Company's growth in asset size and
the special deposit insurance assessment. As a percentage of average assets,
however, other expenses declined to 3.01% for 1996, compared to 3.04% for 1995.
Strong marketing efforts throughout the state helped increase our
profits and expand our asset base. Total assets increased by $118 million, or
17%, from $711.1 million at year-end 1995 to $829.1 million at December 31,
1996.
Our loan growth of $112.7 million represented a 21% increase from
year-end 1995. As we grow, however, the inherent risk in our loan portfolio is
increasing. We anticipate that we will record higher provisions for loan losses
in 1997 than we have in the recent past in order to provide for this risk. We
are continuing to monitor our loan portfolio, our lending processes, and our
allowance for loan losses to accommodate our growth.
Our loan growth continues to be funded by commercial demand deposits
and certificates of deposit. The Company's deposits increased 19%, or $119.5
million, from $634.4 million in 1995 to $753.9 million at year-end 1996. The
Company's book value per common share increased $1.22 per share in 1996 to
$12.66 at December 31, 1996.
The Company's success is primarily due to the emphasis we place on the
relationships we enjoy with our customers. With a history stretching back over
one hundred years, SNB is in touch with the needs and desires of Oklahomans.
They like doing business with people they know and trust. As more banks have
come under out-of-state ownership, our stable management and local ownership
have provided roots instead of branches to serve people in every part of our
state.
The Bank's commitment to the communities it serves is also a vital
part of its mission. In the past year, we have invested in the future by
reinvesting in ourselves in order to improve our facilities and provide even
better service for our customers. Our commitment to Oklahoma's Green Country
includes plans for a new Tulsa Banking Center at 15th & Utica to be opened in
late 1998. In Chickasha, SNB has moved into a new facility and in Stillwater,
we have remodeled and reorganized our headquarters.
In 1996, we started converting to a more efficient data processing
system. In the future, we will be further enhancing our delivery of electronic
services with homebanking and a new array of other electronic services offered
<PAGE>
to retail customers and commercial accounts. With this continuing commitment to
technology, there is a new Sales and Service Center in the works to ensure that
we remain as "high touch" as we are "high tech".
We are pleased with the Company's efforts in the past year. The
support and participation of our many shareholders, customers and friends in the
continuing process of achievement is greatly appreciated.
Sincerely,
/s/ Robert L. McCormick
Robert L. McCormick
President
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents the Company's selected consolidated
financial information for each of the five years in the period ended December
31, 1996. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company, including
the accompanying Notes, presented elsewhere herein.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C> <C> <C>
Operations Data
Interest income $ 64,668 $ 55,000 $ 37,654 $ 29,639 $ 28,049
Interest expense 32,833 28,544 16,637 12,417 13,043
---------------------------------------------------------------
Net interest income 31,835 26,456 21,017 17,222 15,006
Provision for loan losses 3,100 2,000 1,800 1,400 1,650
---------------------------------------------------------------
Net interest income after
provision for loan losses 28,735 24,456 19,217 15,822 13,356
Gain on sales of securities and loans 2,137 1,026 1,450 931 709
Other income 4,212 3,848 3,671 3,284 3,023
Other expenses 23,226 19,902 16,440 13,733 11,906
---------------------------------------------------------------
Income before taxes 11,858 9,428 7,898 6,304 5,182
Taxes on income 4,306 3,336 2,754 2,108 1,637
---------------------------------------------------------------
Net income $ 7,552 $ 6,092 $ 5,144 $ 4,196 $ 3,545
===============================================================
Net income available to
common shareholders $ 5,965 $ 5,426 $ 5,144 $ 4,196 $ 3,545
===============================================================
Dividends Declared
Preferred stock $ 1,587 $ 533 $ - $ - $ -
Common stock 1,053 901 $ 751 $ 444 $ 371
Ratio of total dividends declared
to net income 34.96% 23.55% 14.60% 10.58% 10.47%
Per Share Data (1)
Earnings per common share $ 1.59 $ 1.44 $ 1.37 $ 1.44 $ 1.23
Common stock cash dividends 0.28 0.24 0.20 0.14 0.13
Book value per common share (2) 12.66 11.44 10.09 9.21 7.47
Weighted average common
shares outstanding 3,760,370 3,755,228 3,755,228 2,910,535 2,886,996
Financial Condition Data (2)
Investment securities $ 147,351 $ 147,688 $ 143,517 $ 83,442 $ 88,823
Loans (3) 644,646 531,988 412,614 319,260 247,967
Total assets 829,117 711,135 582,170 434,119 353,938
Total deposits 753,945 634,387 525,560 394,521 329,162
Total shareholders' equity 65,032 60,357 37,888 34,570 21,589
Mortgage servicing portfolio 118,953 130,188 143,899 129,648 95,127
Selected Ratios
Return on average assets 0.98% 0.93% 1.01% 1.07% 1.05%
Return on average total
shareholders' equity 12.15 12.81 14.17 17.76 17.94
Return on average common equity 13.30 13.48 14.17 17.76 17.94
Net interest margin 4.32 4.23 4.34 4.61 4.69
Efficiency ratio (4) 60.83 63.52 62.90 64.06 63.54
Average assets per employee $ 2,162 $ 2,204 $ 2,089 $ 1,917 $ 1,850
</TABLE>
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------
1996 1995 1995 1993 1992
-------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C> <C> <C>
Asset Quality Ratios
Allowance for loan losses to loans (2) 1.11% 1.09% 1.20% 1.24% 1.37%
Nonperforming loans to loans (2)(5) 1.03 0.99 0.60 0.98 2.15
Allowance for loan losses to
nonperforming loans (2)(5) 107.37 110.12% 199.16 126.07 63.72%
Nonperforming assets to loans and
other real estate owned (2)(6) 1.04 1.03 0.67 1.13 2.48
Net loan charge-offs to average loans 0.31 0.24 0.22 0.30 0.51
Capital Ratios
Average total shareholders' equity
to average assets 8.05 7.27 7.12 6.01 5.84
Tier I risk-based capital ratio (2)(7) 10.21 10.02 9.64 12.39 10.45
Tier risk-based capital ratio (2)(7) 11.40 11.41 10.89 13.64 11.71
Leverage ratio (2)(7) 7.77 8.19 6.76 8.04 5.77
</TABLE>
- ----------------
(1) All share and per share information has been restated to reflect the
fourteen-to-one stock split effected in the form of a
stock dividend paid November 15, 1993.
(2) At period end.
(3) Net of unearned discounts but before deduction of allowance for loan
losses.
(4) The efficiency ratio = other expenses/(net interest income + gain on sales
of securities and loan + other income).
(5) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more plus loans with restructured terms.
(6) Nonperforming assets consist of nonperforming loans plus foreclosed assets.
(7) Computed in accordance with regulatory guidelines as in effect currently.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
12-31-96 09-30-96 06-30-96 03-31-96
---------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C> <C>
Operations Data
Interest income $ 17,261 $ 16,696 $ 15,622 $15,089
Interest expense 8,917 8,561 7,769 7,586
---------------------------------------------------------
Net interest income 8,344 8,135 7,853 7,503
Provision for loan losses 675 775 775 875
---------------------------------------------------------
Net interest income after provision
fir loan losses 7,669 7,360 7,078 6,628
Gain on sales of securities and loans 558 585 424 570
Other income 1,119 1,007 1,054 1,032
Other expenses 6,089 6,453 5,465 5,219
---------------------------------------------------------
Income before taxes 3,257 2,499 3,091 3,011
Taxes on income 1,214 898 1,115 1,079
---------------------------------------------------------
Net income $ 2,043 $ 1,601 $ 1,976 $ 1,932
=========================================================
Per Share Data
Earnings per common share $ 0.44 $ 0.32 $ 0.42 $ 0.41
Weighted average common shares outstanding $3,763,870 $3,761,502 $3,759,198 $3,756,861
</TABLE>
4
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
12-31-95 09-30-95 06-30-95 03-31-95
---------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C> <C>
Operations Data
Interest income $ 14,829 $14,443 $ 13,548 $ 12,180
Interest expense 7,443 7,484 7,374 6,243
----------------------------------------------------------
Net interest income 7,386 6,959 6,174 5,937
Provision for loan losses 375 875 375 375
----------------------------------------------------------
Net interest income after
provision for loan losses 7,011 6,084 5,799 5,562
Gain on sales of securities
and loans 208 493 144 181
Other Income 1,017 971 935 925
Other expenses 5,333 5,010 4,927 4,632
----------------------------------------------------------
Income before taxes 2,903 2,538 1,951 2,036
Taxes on income 1,039 909 687 701
----------------------------------------------------------
Net income $ 1,864 $ 1,629 $ 1,264 $ $ 1,335
==========================================================
Per Share Data
Earnings per common share $ 0.39 $0.35 $0.34 $0.36
Weighted average common
shares outstanding 3,755,228 3,755,228 3,755,228 3,755,228
</TABLE>
FORWARD-LOOKING STATEMENTS
Portions of this Annual Report contain 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Southwest Bancorp, Inc. (the "Company") is a one-bank holding company
headquartered in Stillwater, Oklahoma engaged primarily in commercial and
consumer banking services through its subsidiary, the Stillwater National Bank
and Trust Company (the "Bank"). The Company has six full-service banking
offices, two of which are located in each of Stillwater and Tulsa and one each
in Oklahoma City and Chickasha, Oklahoma. The Company also has two loan
production offices, one each in Oklahoma City and Tulsa. The Company pursues a
decentralized community banking strategy through three regional divisions.
These divisions -- the Stillwater Division, the Central Oklahoma Division (which
includes Oklahoma City and Chickasha) and the Tulsa Division -- offer
commercial, consumer and real estate lending services and retail and commercial
deposit products in their market areas. Each regional division is managed by a
senior officer with substantial flexibility over credit and pricing decisions.
Credit card, student and mortgage lending services are offered throughout the
State of Oklahoma. Through its sales and service center in Tulsa, the Bank is
5
<PAGE>
developing products for home banking and for delivery through its website,
WWW.BANKSNB.COM.
The Company offers a wide variety of commercial and consumer lending
and deposit services. The commercial loans offered by the Company include (i)
commercial real estate loans, (ii) working capital and other commercial loans,
(iii) construction loans, and (iv) Small Business Administration ("SBA")
guaranteed loans. Consumer lending services include (i) government-guaranteed
student loans, (ii) residential real estate loans and mortgage banking services,
(iii) credit card loans, and (iv) personal lines of credit and other installment
loans. The Company also offers deposit and personal banking services, including
(i) commercial deposit services such as lock-box services, commercial checking
and other deposit accounts and merchant credit card services, (ii) retail
accounts and Automatic Teller Machine ("ATM") access, and (iii) personal
brokerage and trust services.
FINANCIAL CONDITION
The Company's total assets increased by $118.0 million, or 17%, from
$711.1 million at December 31, 1995 to $829.1 million at December 31, 1996 after
increasing by $129.0 million, or 22%, between December 31, 1994 and 1995. The
increase in assets in each period was primarily attributable to a significant
increase in outstanding loans.
Loans were $644.6 million at December 31, 1996, an increase of $112.7
million, or 21%, compared to December 31, 1995. The Company experienced its most
significant increases in the categories of commercial loans, which increased
$37.4 million, or 21%, commercial real estate loans, which increased by $36.0
million, or 23%, real estate construction loans, which increased by $21.2
million, or 64%, and residential mortgages, which increased by $18.2 million, or
42%. All major categories of loans increased other than student loans, which
declined $5.4 million, or 8%, as a result of greater sales of loans during 1996,
and credit card loans, which declined $1.0 million, or 5%.
Loans increased by $119.4 million, or 29%, from December 31, 1994 to
December 31, 1995. The increase was primarily due to a $60.3 million, or 50%,
increase in commercial loans, a $27.8 million, or 21%, increase in commercial
real estate loans and a $12.4 million, or 60%, increase in real estate
construction loans.
The Company's deposits increased by $119.5 million, or 19%, from
$634.4 million at December 31, 1995 to $753.9 million at December 31, 1996 after
increasing by $108.8 million, or 21%, between December 31, 1994 and 1995.
Deposit growth during both years came mainly from time deposits. Total time
deposits increased by $102.7 million, or 23% from December 31, 1995 to December
31, 1996 and $95.1 million, or 27%, from December 31, 1994 to December 31, 1995.
SUMMARY OF EARNINGS
NET INCOME
Net income for 1996 was $7.6 million, a 24% increase over the $6.1
million earned in 1995. The increase in net income during 1996 was due
principally to a $5.4 million, or 20%, increase in net interest income. Net
income for 1996 also benefited from a $1.5 million, or 30% increase in other
income. These increases in income offset a $3.3 million, or 17%, increase in
other expenses, a $1.1 million, or 55%, increase in the provision for loan
losses, and a $970,000, or 29%, increase in taxes on income. Net income, after
dividends on the preferred stock issued in July 1995, was $6.0 million, an
increase of $539,000, or 10%, over 1995. Net income per common share also
increased by 10% to $1.59 per share for 1996 from $1.44 per share for 1995.
Average common shares outstanding were 3,760,370 and 3,755,228 for 1996 and
1995, respectively.
Net income for 1995 was $6.1 million, an 18% increase over the $5.1
million earned in 1994. The principal contributor to the Company's increase in
net income during 1995 was a $5.4 million, or 26%, increase in net interest
income. This increase in income was offset by a $3.5 million, or 21%, increase
in other
6
<PAGE>
expenses, a $582,000, or 21%, increase in taxes on income, a $247,000, or 5%,
decrease in other income, and a $200,000, or 11%, increase in the provision for
loan losses. Net income per common share increased by 5% in 1995 to $1.44 from
$1.37 per share for 1994. Average common shares outstanding were the same for
both periods.
NET INTEREST INCOME
Years ended December 31, 1996 and 1995
Net interest income for 1996 increased to $31.8 million from $26.5
million in 1995, primarily as a result of the increase in the Company's loan
portfolio. Yields on the Company's interest-earning assets declined by only 2
basis points during 1996, and the rates paid on the Company's interest-bearing
liabilities declined by 10 basis points resulting in an increase in the interest
rate spread to 3.51% for 1996 from 3.43% for 1995. Net interest income benefited
from an increase in the ratio of average interest-earning assets to average
interest-bearing liabilities to 118.30% for 1996 from 117.55% for 1995. The
improvement in this ratio reflects an increase in noninterest-bearing demand
deposits as well as an increase in the Company's average shareholders' equity
from the sale of Preferred Stock in July 1995 and through retention of earnings.
Interest income for 1996 was $64.7 million, up from $55.0 million in
1995 primarily as a result of growth in interest-earning assets, which offset
the slight decline in yields. Yields on total interest-earning assets were 8.78%
in 1996 and 8.80% in 1995. Loan interest and fee income increased $9.6 million
because the greater volume of loans outstanding more than offset the effect of
the 14 basis point decline in loan yields. The Company generated growth of
$107.5 million in average loans to $580.6 million in 1996 from $473.1 million in
1995, a 23% increase. Interest income on investment securities increased by
$186,000 despite lower yields earned, due to an increase in the size of the
investment portfolio. The yield on the investment portfolio declined 8 basis
points. A decrease in interest income on federal funds sold and other short-term
investments was caused by slightly lower volumes in those areas. The increase in
interest-earning assets was funded by growth in deposits at the Company's
existing branches, the proceeds from the July 1995 offering and retention of
earnings.
Total interest expense for 1996 was $32.8 million, a $4.3 million
increase from $28.5 million in 1995. The increase in interest expense was
primarily due to a $93.5 million, or 18%, increase in average interest-bearing
deposits from $527.4 million for the year ended December 31, 1995 to $620.9
million for the year ended December 31, 1996. Growth in average time deposits of
$85.7 million, or 21%, accounted for most of the increase in average interest-
bearing deposits, although average NOW and money market accounts also increased.
Use of federal funds declined significantly for the year. Rates paid on
interest-bearing liabilities declined to 5.27% in 1996 from 5.37% in 1995.
Years ended December 31, 1995 and 1994
Net interest income increased to $26.5 million for 1995 from $21.0
million in 1994 as continued growth in the loan portfolio enabled the Company to
post a $17.3 million increase in interest income that significantly exceeded the
$11.9 million increase in interest expense during the year. Competitive factors
and the Bank's use of time deposits to fund loan growth, however, continued to
put pressure on the Company's net interest margin, which declined to 4.23% for
fiscal 1995 compared to 4.34% for 1994. Yields on the Company's interest-earning
assets increased by 102 basis points during 1995, and the rates paid on the
Company's interest-bearing liabilities increased by 131 basis points resulting
in a reduction in the interest rate spread to 3.43% for fiscal 1995 from 3.72%
for 1994. The Company attributed the narrowing of the spread to the significant
increases in time deposits during recent periods. The Bank funded its growth in
interest-earning assets with a higher percentage of time deposits, on which it
paid higher interest rates than transaction accounts and for which it
encountered greater competition. The Company's net interest margin was also
adversely affected by a decline in the excess of earning assets over interest-
bearing liabilities as the Company's asset growth continued to outstrip the
growth in funding from noninterest-bearing sources, notwithstanding the
substantial increase in shareholders' equity from the sale of Preferred Stock
completed in July 1995. The ratio of average interest-earning assets to average
interest-bearing liabilities declined to 117.55% for 1995 from 118.05% for 1994.
7
<PAGE>
Total interest income for 1995 was $55.0 million, up 46% from $37.7
million during the same period in 1994. The principal factors providing greater
interest income were the $116.8 million, or 33%, increase in the volume of
average loans outstanding and the increase in yields earned on loans and
investment securities. The Company's loan yields increased to 9.64% for 1995
from 8.44% in 1994. At the same time, the Company's yield on investment
securities increased to 6.20% from 6.01%.
Total interest expense for 1995 was $28.5 million, an increase of 72%
from $16.6 million for 1994, due to an increase in average interest-bearing
liabilities of $122.0 million, or 30%, and an increase in rates paid on average
interest-bearing liabilities to 5.37% from 4.06%. The increase in rates on
interest-bearing liabilities resulted from the increasing rate environment and
the Company's increased use of time deposits. As a percentage of average total
deposits, average time deposits increased to 70% for 1995 compared to 66% for
1994. The increase in the Bank's time deposits has generally involved deposits
with maturities of six months to one year.
CHANGES IN INTEREST INCOME AND EXPENSE/VOLUME AND RATE VARIANCES
The following table indicates the changes in interest income and
interest expense that are attributable to changes in average volume and average
rates, in comparison with the same period in the preceding year. The change in
interest due to the combined rate-volume variance has been allocated to rate and
volume changes in proportion to the absolute dollar amounts of the changes in
each.
<TABLE>
<CAPTION>
-------------------------------------- --------------------------------------
Year ended Year ended
December 31, 1996 December 31, 1995
Compared to Compared to
December 31, 1995 December 31, 1994
-------------------------------------- --------------------------------------
Increase (decrease) attributable to change in:
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
-------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable(1) $10,201 $(615) $9,586 $10,851 $4,650 $15,501
Investment securities 243 (57) 186 1,178 264 1,442
Federal funds sold (46) (58) (104) 266 137 403
-------------------------------------- ---------------------------------------
Total interest income 10,398 (730) 9,668 12,295 5,051 17,346
Interest paid on:
NOW accounts 90 (16) 74 (52) 14 (38)
Money market accounts 332 (364) (32) 399 521 920
Savings accounts (22) 3 (19) (47) (7) (54)
Time deposits 4,916 (477) 4,439 5,950 4,972 10,922
Federal funds purchased and
other short-term borrowings (143) (30) (173) 92 65 157
-------------------------------------- ----------------------------------------------
Total interest expense 5,173 (884) 4,289 6,342 5,565 11,907
-------------------------------------- ----------------------------------------------
Net interest income $ 5,225 $ 154 $5,379 $ 5,953 $ (514) $ 5,439
====================================== ==============================================
</TABLE>
(1) Average balance includes nonaccrual loans. Fees included in interest
income on loans receivable are not considered material to any period
presented. Interest on tax-exempt loans and securities is not presented on
a tax-equivalent basis because such amounts are not considered material.
8
<PAGE>
THREE YEAR COMPARISON OF CONSOLIDATED AVERAGE BALANCE SHEETS,
INTEREST, YIELDS AND RATES
The following table provides certain information relating to the
Company's average consolidated statements of financial condition and reflects
the interest income on interest-earning assets and interest expense of interest-
bearing liabilities for the periods indicated and the average yields earned and
rates paid for the periods indicated. These yields and costs are derived by
dividing income or expense by the average daily balance of the related assets or
liabilities, respectively, for the periods presented. Non-accrual loans have
been included in the average balances of loans receivable.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ----------------------------- ----------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------------------------- ----------------------------- ----------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans receivable $580,590 $55,177 9.50% $473,080 $45,591 9.64% $356,323 $30,090 8.44%
Investment securities 146,993 8,999 6.12% 142,202 8,813 6.20% 122,649 7,371 6.01%
Federal funds sold 9,200 492 5.35% 10,007 596 5.96% 4,945 193 3.90%
---------------------------- ----------------------------- ----------------------------
Total interest-earning assets 736,783 64,668 8.78% 625,289 55,000 8.80% 483,917 37,654 7.78%
---------------------------- ----------------------------- ----------------------------
Noninterest-earning assets:
Other assets 34,999 29,197 25,819
-------- -------- --------
Total assets $771,782 $654,486 $509,736
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $ 36,088 $ 838 2.32% $ 32,261 $ 764 2.37% $ 34,385 $ 802 2.33%
Money market accounts 81,939 3,129 3.82% 77,147 3,161 4.10% 66,245 2,241 3.38%
Savings accounts 4,580 114 2.49% 5,441 133 2.44% 7,378 187 2.53%
Time Deposits 498,283 28,647 5.75% 412,570 24,208 5.87% 299,095 13,286 4.44%
---------------------------- ----------------------------- ----------------------------
Total interest-bearing deposits 620,890 32,728 5.27% 527,419 28,266 5.36% 407,103 16,516 4.06%
Federal funds purchased and
other short-term borrowings 1,940 105 5.41% 4,527 278 6.14% 2,823 121 4.29%
---------------------------- ----------------------------- ----------------------------
Total interest-bearing liabilities 622,830 32,833 5.27% 531,946 28,544 5.37% 409,926 16,637 4.06%
---------------------------- ----------------------------- ----------------------------
Noninterest-bearing liabilities:
Demand deposits 79,739 68,540 56,175
Other liabilities 7,066 6,437 7,338
Shareholders' equity 62,147 47,563 36,297
-------- -------- --------
Total liabilities and
shareholders' equity $771,782 $654,486 $509,736
======== ======== ========
Net interest income $31,835 $26,456 $21,017
======= ======= =======
Interest rate spread 3.51% 3.43% 3.72%
===== ===== =====
Net interest margin 4.32% 4.23% 4.34%
===== ===== =====
Ratio of average interest-earning
assets to average
interest-bearing liabilities 118.30% 117.55% 118.05%
======= ======= =======
</TABLE>
9
<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 $7.1
million, or 1.11% of total loans, at December 31, 1996 compared to an allowance
of $5.8 million, or 1.09% of total loans, at December 31, 1995. During fiscal
years 1996, 1995 and 1994, the provisions for loan losses were $3.1 million,
$2.0 million and $1.8 million, respectively.
In establishing the level of the allowance for December 31, 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 real estate construction
loans, which are viewed as entailing greater risk than certain other categories
of loans, and the increased levels of identified nonperforming loans at December
31, 1996, versus December 31, 1995. At December 31, 1996, total nonperforming
loans were $6.6 million, or 1.03% of total loans, compared to $5.3 million, or
0.99% of total loans, at December 31, 1995. Management also considered other
factors, such as the levels of types of credits, such as the increased level of
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 December 31, 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 December 31, 1995 and 1994.
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.
Other Income
The following table sets forth the Company's other income for the
periods indicated
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Service charges and fees $2,985 $2,574 $2,440
Credit cards 869 901 903
Other noninterest income 358 373 328
Gain on sales of loans receivable 1,678 1,034 1,453
Gain/(loss) on sales of investment
securities 459 (8) (3)
------ ------ ------
Total other income $6,349 $4,874 $5,121
====== ====== ======
</TABLE>
10
<PAGE>
The Company has sought to develop sources of noninterest income
through credit card lending, student lending and mortgage banking, in addition
to traditional deposit and loan service charges and fees.
Total other income increased by $1.5 million for fiscal year 1996
compared to 1995 primarily due to increased gains on sales of student loans and
residential mortgage loans, increased gains on sales of investment securities
and increased service charges attributable to its higher deposit base. During
1996, the Company sold $46.7 million in student loans compared to $40.2 million
in such sales during 1995. The Company also was able to increase its gain on
sales of student loans by packaging its loans in a manner than allowed it to
obtain a higher premium from the Student Loan Marketing Association ("SLMA").
The principal balance of residential mortgage loans sold was $45.1 million
during 1996 compared to $33.6 million during 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, and
$150,000 in Corporate Stock classified as "available for sale" was sold.
Total other income declined by $247,000 for fiscal 1995 compared to
1994 primarily due to decreased gains on sales of student loans into the
secondary market. This decrease was partially offset by increased gains on sales
of residential mortgage loans and increased service charges attributable to its
higher deposit base. During 1995, the Company sold $40.7 million in student
loans compared to $59.6 million in such sales during 1994. Sales of residential
mortgage loans declined in 1995 to $34.0 million from $47.5 million in 1994,
reflecting the decline in refinancing activity during the comparatively higher
interest rate environment which generally prevailed during 1995. Residential
mortgage loans were generally sold with servicing released during fiscal 1995
which increased the gain on such sales but may reduce future servicing income
which is included in other noninterest income.
During 1995, a loss on sales of investment securities occurred when
the Bank sold securities classified as "held to maturity". The Company concluded
that these securities were sold at a time near enough to their maturity dates
that interest rate risk was substantially eliminated as a pricing factor.
OTHER EXPENSES
The following table sets forth the Company's other expenses for the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Salaries and employee benefits $12,164 $10,057 $ 8,038
Occupancy 3,671 3,080 2,509
FDIC and other insurance expense 859 856 1,056
Credit cards 411 547 504
General and administrative 6,121 5,362 4,333
------- ------- -------
Total other expenses $23,226 $19,902 $16,440
======= ======= =======
</TABLE>
The Company's other expenses increased $3.3 million, or 17%, for
fiscal year 1996 compared to fiscal year 1995. This increase was primarily the
result of an increase in salaries and employee benefits, which increased $2.1
million, or 21%, as a result of a 20% 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 $591,000, 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 $759,000. Included in general and administrative expense was $139,000
in expenses related to an unsuccessful effort to establish additional branches.
Despite the increase in the Company's deposit base, FDIC and other
insurance for 1996 increased only $3,000 compared to 1995. Regular deposit
insurance premium rates decreased beginning July 1, 1995 as the Bank Insurance
Fund ("BIF"), of
11
<PAGE>
which the Bank is a member, achieved its statutory reserve ratio. However,
legislation enacted by Congress required that the Bank pay a one-time special
assessment of $436,000 to the FDIC with respect to deposits it acquired from a
savings association in 1991. After the payment of this special assessment, the
insurance premiums related to these acquired deposits were also reduced.
The Company's other expenses increased by $3.5 million, or 21%, during
1995 compared to 1994. This increase was primarily the result of an increase in
salaries and employee benefits, which increased by $2.0 million, or 25%, as a
result of a 22% 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 by $1.0 million and occupancy expense increased
by $571,000 compared to 1994. These increases were offset by a $200,000
reduction in FDIC and other insurance expense. The increase in occupancy expense
was due primarily to the leasing of additional office space in Tulsa and
Oklahoma City and the depreciation on furniture and equipment purchased to
furnish those new offices. The reduction in FDIC and other insurance was due to
a reduction in premiums as the BIF achieved its statutory reserve ratio.
The increase in the Company's other expenses during the past several
years reflects the Company's growth in asset size during this period. The
Company continues to experience increases in both salaries and employee benefits
and occupancy expense as it develops its market bases.
The Company intends to construct a new facility for its Tulsa
operations. Groundbreaking on this 42,000 square foot building is expected to
occur in the third quarter of 1997, with occupancy anticipated in the third
quarter of 1998. When opened, the building will include space for rental to
third parties. The total cost of the building is expected to be $8.0 million. A
substantial portion of these costs will be capitalized and, except for the cost
of the land, will be expensed over the useful life of the property.
TAXES ON INCOME
The Company's income tax expense for fiscal years 1996, 1995 and 1994
was $4.3 million, $3.3 million and $2.8 million, respectively. The increases in
taxes on income during 1996 and 1995 reflect the Company's higher earnings. The
Company's effective tax rates have been lower than the 34% to 35% federal and 6%
state statutory rates primarily because of tax-exempt income on municipal
obligations and loans.
CAPITAL RESOURCES
Shareholders' equity increased to $65.0 million at December 31, 1996
from $60.4 million a year earlier. The increase was primarily attributed to the
earnings retained after common and preferred stock dividend payments. Net
unrealized gains on investment securities available for sale (net of tax)
declined to $205,000 at December 31, 1996 compared to $612,000 at December 31,
1995. The Corporation also increased common stock and related surplus by
$170,000 through the issuance of common stock by the dividend reinvestment and
employee stock purchase plans.
The Company and the Bank meet the requirements for a well-capitalized
institution. See accompanying Notes to Consolidated Financial Statements for
additional information.
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
12
<PAGE>
transaction accounts, savings deposits and certificates of deposit less than
$100,000, were 84%, 86% and 88% of total deposits at December 31, 1996, 1995 and
1994, 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 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 SLMA. Borrowings under the SLMA
line would be secured by student loans. During 1996 and 1995, no category of
borrowings averaged more than 30% of ending shareholders' equity.
During 1996, cash and cash equivalents increased by $2.1 million as
compared to the year ended December 31, 1995. The increase was the result of
cash generated from financing activities (primarily increased deposits) of
$117.1 million offset by $114.5 million in cash used in investing activities and
$535,000 in cash used in operating activities.
During 1995, cash and cash equivalents increased by $4.4 million as
compared to the year ended December 31, 1994. The increase was the result of
cash generated from operating activities of $2.9 million and financing
activities (primarily increased deposits) of $123.8 million offset by $122.3
million in cash used in investing activities.
ASSET/LIABILITY MANAGEMENT
Net interest income, the primary component of the Company's net
income, arises from the difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities and the relative amounts of such
assets and liabilities.
The Company manages its assets and liabilities by coordinating the
levels of or gap between interest rate sensitive assets and liabilities to
minimize changes in net interest income despite changes in market interest
rates. It is the Company's goal to maintain a percentage of rate-sensitive
assets to rate-sensitive liabilities of between 75% and 125 %. This percentage
of rate-sensitive assets to rate-sensitive liabilities presents a static
position as of a single day and is not necessarily indicative of the Company's
position at any other point in time and does not take into account the
sensitivity of yields and costs of specific assets and liabilities to changes in
market rates. While the Company's goal is to match the maturities of assets and
liabilities on a dollar for dollar basis, market forces such as the needs of
depositors and borrowers, and competition may cause it to operate close to the
policy limits. The asset/liability policy is intended to stabilize the long-run
earning power of the Company along an acceptable growth path. The Bank's
Asset/Liability Management Committee meets on a monthly basis to monitor
compliance with its objectives. Among other tools used by the Asset/Liability
Management Committee are the Company's gap position. Generally, during a period
of rising interest rates, a negative gap position would adversely affect net
interest income, while a positive gap would result in an increase in net
interest income, while, conversely, during a period of falling interest rates, a
negative gap would result in an increase in net interest income and a positive
gap would adversely affect net interest income. Because of the Company's current
gap position and the repricing and repayment characteristics of its loan
portfolio, which consists primarily of short-term and floating-rate loans,
management believes the Company's net interest income will not be materially
adversely affected by increases or decreases in market interest rates. Increases
in general interest rates, however, may affect other sources of income such as
gains on sales of mortgages.
13
<PAGE>
The following table sets forth the Company's interest rate sensitivity
at December 31, 1996.
<TABLE>
<CAPTION>
0 to 3 4 to 12 Over 1 to Over
Months Months 5 Years 5 Years Total
---------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $328,111 $207,069 $ 83,859 $ 25,607 $644,646
Investment securities 6,626 25,180 101,888 13,657 147,351
---------------------------------------------------------
334,737 232,249 185,747 39,264
Interest-bearing liabilities:
Money market deposit accounts 86,910 0 0 0 86,910
Time deposits 192,737 293,941 58,145 88 544,911
Savings accounts 4,086 0 0 0 4,086
NOW accounts 34,309 0 0 0 34,309
Other 2,985 0 0 0 2,985
---------------------------------------------------------
Total 321,027 293,941 58,145 88 673,201
---------------------------------------------------------
Interest sensitivity gap $ 13,710 $(61,692) $127,602 $39,176 $118,796
=========================================================
Cumulative interest sensitivity gap $ 13,710 $(47,982) $ 79,620 $118,796 $118,796
=========================================================
Percentage of interest-earning assets
to interest-bearing liabilities 104.27% 79.01% 319.45% 44,618.18% 117.65%
=========================================================
Percentage of cumulative gap to total assets 1.65% (5.79)% 9.60% 14.33% 14.33%
=========================================================
</TABLE>
The foregoing analysis assumes that the Company's mortgage-backed
securities mature during the period in which they are estimated to prepay. No
other prepayment or repricing assumptions have been applied to the Company's
interest-earning assets.
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.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB")
issued 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. In May 1995, the
FASB also issued 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. Moreover, SFAS No. 122 requires the
Company to evaluate whether amounts capitalized as mortgage servicing rights are
impaired.
14
<PAGE>
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 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. As permitted by SFAS No. 123, the Company will
continue to follow the provisions of Accounting Principles Board Opinion ("APB")
No. 25 for such stock-based compensation arrangements and has disclosed the
proforma effects of applying SFAS No. 123 for 1995 and 1996 in these financial
statements.
The adoption of SFAS Nos. 121, 122 and 123 in the 1996 financial
statement did not have a material impact on the Company's consolidated financial
position or results of operations.
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. In
December 1996, the FASB adopted an amendment to SFAS No. 125 that will delay for
one year certain provisions of the Statement. As amended, SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1997. 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.
RECENT DEVELOPMENT
In February 1997, the Company received information from a borrower
regarding recent events that may affect the borrower's ability to fully repay
its commercial loan, which had a carrying amount at December 31, 1996 of
approximately $1.9 million. This loan was classified by management as a
performing loan at December 31, 1996. The amount of the impairment of this loan,
and the resulting charge-off, may cause the Company to increase the provision
and allowance for loan losses The adverse effect on net income of the Company
has not yet been determined. Management expects, however, that this event may
have a significant adverse effect on first quarter 1997 earnings. Management is
continuing to monitor the quality of the loan portfolio and the adequacy of the
allowance for loan losses, and expects that provisions for loan losses for the
first quarter and for the full year 1997 will be greater than in recent periods
as a result of this recent development.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Southwest Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Southwest Bancorp, Inc. and subsidiary (the "Company") as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Southwest Bancorp, Inc. and
subsidiary at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Oklahoma City, Oklahoma
January 27, 1997
16
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 22,914 $ 20,789
Federal funds sold - -
--------- ---------
Cash and cash equivalents 22,914 20,789
Investment securities:
Held to maturity, approximate fair value of
$83,963 (1996) and $75,202 (1995) 83,589 74,644
Available for sale, approximate amortized cost of
$63,419 (1996) and $72,023 (1995) 63,762 73,044
Loans receivable, net of allowance for loan losses
of $7,139 (1996) and $5,813 (1995) 637,507 526,175
Accrued interest receivable 7,400 7,117
Premises and equipment, net 9,649 6,224
Other assets 4,296 3,142
--------- ---------
Total assets $ 829,117 $ 711,135
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 83,729 $ 78,308
Interest-bearing demand 34,309 33,762
Money market accounts 86,910 75,330
Savings accounts 4,086 4,788
Time deposits 544,911 442,199
--------- ---------
Total deposits 753,945 634,387
--------- ---------
Income taxes payable 187 271
Accrued interest payable 5,061 4,266
Other liabilities 4,892 11,854
--------- ---------
Total liabilities 764,085 650,778
--------- ---------
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 3,764,216 (1996)
and 3,755,228 (1995) 3,764 3,755
Capital surplus 24,332 24,171
Retained earnings 36,041 31,129
Unrealized gain/(loss) on investment securities
available for sale, net of tax 205 612
--------- ---------
Total sharesholders' equity 65,032 60,357
--------- ---------
Total liabilities & shareholders' equity $ 829,117 $ 711,135
========= =========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 55,177 $ 45,591 $ 30,090
Investment securities:
U.S. Government and agency obligations 6,815 6,737 5,781
State and political subdivisions 577 477 336
Mortgage-backed securities 1,531 1,535 1,203
Other securities 76 64 51
Federal funds sold 492 596 193
-------- -------- --------
Total interest income 64,668 55,000 37,654
Interest expense:
Interest-bearing demand 838 764 802
Money market accounts 3,129 3,161 2,241
Savings accounts 114 133 187
Time deposits 28,647 24,208 13,286
Other borrowed money 105 278 121
-------- -------- --------
Total interest expense 32,833 28,544 16,637
-------- -------- --------
Net interest income 31,835 26,456 21,017
Provision for loan losses 3,100 2,000 1,800
-------- -------- --------
Net interest income after provision for loan losses 28,735 24,456 19,217
Other income:
Service charges and fees 2,985 2,574 2,440
Credit cards 869 901 903
Other noninterest income 358 373 328
Gain on sales of loans receivable 1,678 1,034 1,453
Gain/(loss) on sales of investment securities 459 (8) (3)
-------- -------- --------
Total other income 6,349 4,874 5,121
Other expenses:
Salaries and employee benefits 12,164 10,057 8,038
Occupancy 3,671 3,080 2,509
FDIC and other insurance 859 856 1,056
Credit cards 411 547 504
General and administrative 6,121 5,362 4,333
-------- -------- --------
Total other expenses 23,226 19,902 16,440
-------- -------- --------
Income before taxes 11,858 9,428 7,898
Taxes on income 4,306 3,336 2,754
-------- -------- --------
Net income $ 7,552 $ 6,092 $ 5,144
======== ======== ========
Net income available to common shareholders $ 5,965 $ 5,426 $ 5,144
======== ======== ========
Earnings per common share $ 1.59 $ 1.44 $ 1.37
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Unrealized '
Gain (Loss) Total
on Available Share-
Preferred Stock Common Stock Capital Retained for Sale holders'
Share Amount Share Amount Surplus Earnings Securities Equity
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1994 - - 3,755,228 $3,755 $ 8,539 $22,077 $ 199 $34,570
Cash dividends paid:
Common, $0.15 per share - - - - - (563) - (563)
Cash dividends declared:
Common, $0.05 per share - - - - - (187) - (187)
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - (1,076) (1,076)
Net income - - - - - 5,144 - 5,144
---------------------------------------------------------------------------------------------
Balance,
December 31, 1994 - - 3,755,228 3,755 8,539 26,471 (877) 37,888
Cash dividends paid:
Common, $0.18 per share - - - - - (676) - (676)
Preferred, $0.7731 per share - - - - - (533) - (533)
Cash dividends declared:
Common, $0.06 per share - - - - - (225) - (225)
Issuance of preferred stock,
net of offering costs 690,000 $690 - - 15,632 - - 16,322
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - 1,489 1,489
Net income - - - - - 6,092 - 6,092
---------------------------------------------------------------------------------------------
Balance,
December 31, 1995 690,000 690 3,755,228 3,755 24,171 31,129 612 60,357
Cash dividends paid:
Common, $0.21 per share - - - - - (790) - (790)
Preferred, $2.30 per share - - - - - (1,587) - (1,587)
Cash dividends declared:
Common, $0.07 per share - - - - - (263) - (263)
Common stock issued:
Employees Stock Purchase
Plan - - 3,552 4 64 - - 68
Dividend Reinvestment Plan - - 5,436 5 97 - - 102
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - (407) (407)
Net Income - - - - - 7,552 - 7,552
---------------------------------------------------------------------------------------------
Balance,
December 31, 1996 690,000 $690 3,764,216 $3,764 $24,332 $36,041 $205 $65,032
============================================================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income $ 7,552 $ 6,092 $ 5,144
Adjustments to reconcile net income to net
cash provided from operating activities:
Provision for loan losses 3,100 2,000 1,800
Depreciation and amortization expense 1,254 1,026 767
Amortization of premiums and accretion of
discount on securities, net 244 248 740
Amortization of intangibles 174 174 187
(Gain) Loss on sales of securities (459) 8 3
(Gain) Loss on sales of loans receivable (1,678) (1,034) (1,453)
(Gain) Loss on sales of premises/equipment (10) 3 (10)
(Gain) Loss on other real estate owned, net (2) (52) 3
Proceeds from sales of residential mortgage
loans 45,519 34,002 47,497
Residential mortgage loans originated for
resale (48,469) (34,947) (46,371)
Changes in assets and liabilities:
Accrued interest receivable (283) (1,240) (1,034)
Other assets (1,188) (986) 447
Income taxes payable (84) 78 (24)
Accrued interest payable 795 1,632 1,212
Other liabilities (7,000) (4,078) 12,453
--------- --------- ---------
Net cash (used in) provided from operating activities (535) 2,926 21,361
--------- --------- ---------
Investing activities:
Proceeds from sales of held to maturity securities - 5,993 -
Proceeds from sales of available for sale securities 438 - 102
Proceeds from principal repayments and maturities:
Held to maturity securities 25,388 17,193 27,537
Available for sale securities 28,969 6,286 6,339)
Purchases of held to maturity securities (34,538) (23,363) (71,183)
Purchase of available for sale securities (20,383) (8,054) (25,406)
Loans originated and principal repayments, net (157,591) (159,226) (153,424)
Proceeds from sales of guaranteed student loans 47,768 40,738 59,617
Purchases of premises and equipment (4,693) (1,936) (1,870)
Proceeds from sales of premises and equipment 24 18 38
Proceeds from sales of other real estate 152 68 184
--------- --------- ---------
Net cash used in investing activities (144,466) (122,283) (158,066)
--------- --------- ---------
Financing activities:
Net increase in deposits 119,558 108,827 131,039
Net proceeds from issuance of common stock 170 - -
Net proceeds from issuance of preferred stock - 16,322 -
Common stock dividends paid (1,015) (864) (697)
Preferred stock dividends paid (1,587) (533) -
--------- --------- ---------
Net cash provided from financing activities 117,126 123,752 130,342
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 2,125 4,395 (6,363)
Cash and cash equivalents,
Beginning of year 20,789 16,394 22,757
--------- --------- ---------
End of year $ 22,914 $ 20,789 $ 16,394
========= ========= =========
</TABLE>
See note to consolidated financial statements.
20
<PAGE>
SOUTHWEST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS - Southwest Bancorp, Inc. ("the
Company") was incorporated in 1981 as a bank holding company headquartered in
Stillwater, Oklahoma engaged primarily in commercial and consumer banking
services in the State of Oklahoma. The accompanying consolidated financial
statements include the accounts of Stillwater National Bank and Trust Company
(the "Bank"), a wholly owned subsidiary, established in 1894. The Company has
six full-service banking offices, two of which are located in each of Stillwater
and Tulsa, Oklahoma, with one each in Oklahoma City and Chickasha, Oklahoma, and
two loan production offices, one in Oklahoma City and one in Tulsa. The Company
pursues a decentralized community banking strategy and operates through three
regional divisions. All significant intercompany balances and transactions have
been eliminated.
BASIS OF PRESENTATION - In preparing its financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of the dates shown on the consolidated statements of
financial position and revenues and expenses during the periods reported. Actual
results could differ significantly from those estimates. Changes in economic
conditions could impact the determination of material estimates such as the
allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
INVESTMENT SECURITIES - Investments in debt and equity securities are
identified as held to maturity, trading, and available for sale based on
management considerations of asset/liability strategy, changes in interest rates
and prepayment risk, the need to increase capital and other factors. Under
certain circumstances (including the deterioration of the issuer's
creditworthiness, a change in tax law, or statutory or regulatory requirements),
the Company may change the investment security classification. The
classifications the Company utilizes determines the related accounting treatment
for each category of investments. Investments classified as trading are
accounted for at fair value, available for sale are accounted for at fair value
with unrealized gains or losses, net of taxes, excluded from earnings and
reported as a separate component of shareholders' equity, and held to maturity
are accounted for at amortized cost.
All held to maturity investment securities are adjusted for
amortization of premiums and accretion of discounts. Amortization of premiums
and accretion of discounts are recorded to income over the contractual maturity
or estimated life of the individual investment on the level yield method. The
Company has the ability and intent to hold to maturity its investment securities
classified as held to maturity; accordingly, no adjustment has been made for the
excess, if any, of amortized cost over market. Gain or loss on sale of
investments is based upon the specific identification method. Income earned on
the Company's investments in state and political subdivisions is not taxable.
LOANS RECEIVABLE - Interest on loans is accrued and credited to income
based upon the principal amount outstanding. In general, interest income on
impaired loans is written off after the loan is 90 days past due; subsequent
interest income is recorded when cash receipts are received from the borrower.
The Bank originates real estate mortgage loans and guaranteed student loans for
portfolio investment or sale in the secondary market. During the period of
origination, real estate mortgage loans are designated as held either for
investment purposes or sale. Mortgage loans held for sale are generally sold
within a one-month period from loan closing at amounts approximating par value
of the loans. Guaranteed student loans are generally sold after the Company has
been notified of the borrower's change from deferment status, which can range
from one to five years, or longer. Real estate mortgage loans held for sale and
guaranteed student loans are carried at cost, which does not exceed market.
Gains or losses recognized upon the sales of loans are determined on a specific
identification basis.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
established through a provision for loan losses charged to expense. Loans which
are determined to be impaired are charged against this allowance and recoveries,
if any, are added
21
<PAGE>
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.
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosure on January
1, 1995. The allowance for loan losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Smaller balance, homogeneous
loans, including mortgage student and consumer, are collectively evaluated for
impairment. The amount of impairment determined in accordance with SFAS No. 114
did not differ materially from amounts previously provided. In addition, SFAS
No. 114 does not affect the comparability of the credit risk disclosures. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
LOAN SERVICING INCOME - The Company earns fees for servicing real
estate mortgages owned by others. These fees are generally calculated on the
outstanding principal balance of the loans serviced and are recorded as income
when received.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost
less accumulated depreciation and amortization. Major additions or improvements
are charged to the asset account while normal maintenance and repairs are
expensed as incurred. Depreciation and amortization are computed using the
straight-line and declining-balance methods based on asset lives which vary from
three to forty years.
OTHER REAL ESTATE OWNED - Other real estate owned is initially
recorded at fair value less the estimated costs to sell the asset. Write-downs
of carrying value required at the time of foreclosure are recorded as a charge
to the allowance for loan losses. Costs related to the development of such real
estate are capitalized whereas those related to holding the property are
expensed. Foreclosed property is subject to periodic reevaluation based upon
estimates of fair value. In determining the valuation of other real estate
owned, management obtains independent appraisals for significant properties.
Valuation adjustments are provided, as necessary, by charges to operations. The
net cost of operating other real estate owned, including provision for losses,
rental income, and gains and losses on sales of real estate, is not significant.
Profit from sales of foreclosed property by the Company is recognized
in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real
Estate. Losses are recognized as incurred.
INTANGIBLES - Intangibles consist of a core deposit intangible,
goodwill and mortgage servicing rights. The core deposit intangible is amortized
over the estimated life of the assumed deposits, ranging from four to seven
years using the level yield method. Goodwill is amortized using the straight-
line method over 15 years. Mortgage servicing rights are capitalized based upon
the observable market price at the point of origination. The servicing rights
are amortized on an individual loan by loan basis in proportion to, and over the
22
<PAGE>
period of, estimated net servicing income. The capitalized amounts,
amortization and impairment of the mortgage servicing rights is not material At
December 31, 1996 and 1995, the Bank has recorded cumulative amortization of
$1.0 million and $829,000, respectively.
TAXES ON INCOME - The Company and its subsidiary file consolidated
income tax returns. Deferred income taxes arise from temporary differences
between financial and tax bases of certain assets and liabilities. A valuation
allowance will be established if it is more likely than not that some portion of
the deferred tax asset will not be realized.
EARNINGS PER COMMON SHARE - Earnings per common share is computed
based upon net income, after deducting the dividend requirements of preferred
stock, divided by the weighted average number of common shares outstanding
during each period. The impact of stock options on earnings per common share is
not materially dilutive. The weighted average of outstanding common shares for
the years ended December 31, 1996, 1995 and 1994 was 3,760,370, 3,755,228 and
3,755,228, respectively.
TRUST - The Company offers trust services to customers through its
relationship with the Trust Company of Oklahoma, a trust services company.
Property (other than cash on deposit) held by the Bank in a fiduciary or agency
capacity for its customers is not included in the consolidated statements of
financial condition as it is not an asset or liability of the Bank.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from depository
institutions, and federal funds sold. Federal funds sold are sold for one day
periods.
LIQUIDITY - The Bank is required by the Federal Reserve Bank to
maintain average reserve balances. Cash and due from banks in the consolidated
statements of financial condition include restricted amounts of $5.1 and $6.2
million at December 31, 1996 and 1995, respectively.
At December 31, 1996, the Bank had available unsecured lines of credit
from correspondent banks and the Student Loan Marketing Association ("SLMA")
totaling $15.0 million and $20.0 million, respectively. Short-term borrowings
outstanding on these lines of credit totaled $1.8 million and $10.3 million,
with weighted average rates of 6.70% and 5.60% at December 31, 1996 and 1995,
respectively. The average balances outstanding on these lines of credit were not
material for either year.
RECLASSIFICATIONS - Certain reclassifications have been made to the
prior year amounts to conform to the current year presentation.
23
<PAGE>
2. INVESTMENT SECURITIES
A summary of the amortized cost and fair values of investment securities
follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Amortized Gross Unrealized Approximate
Cost Gains Losses Fair Value
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and
agency obligations $ 72,345 $ 467 $ 100 $ 72,712
Obligations of state and
political subdivisions 11,244 52 45 11,251
-------- ------- ------- --------
Total $ 83,589 $ 519 $ 145 $ 83,963
======== ======= ======= ========
Available for Sale:
U.S. Government and
agency obligations $ 37,440 $ 253 $ 50 $ 37,643
Obligations of state and
political subdivisions 1,892 17 0 1,909
Mortgage-backed securities 23,108 56 103 23,061
Other securities 979 170 0 1,149
-------- ------- ------- --------
Total $ 63,419 $ 496 $ 153 $ 63,762
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Amortized Gross Unrealized Approximate
Cost Gains Losses Fair Value
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and
agency obligations $ 65,573 $ 641 $ 114 $ 66,100
Obligations of state and
political subdivisions 9,071 58 27 9,102
-------- ------- ------- --------
Total $ 74,644 $ 699 $ 141 $ 75,202
======== ======= ======= ========
Available for Sale:
U.S. Government and
agency obligations $ 44,473 $ 763 $ 24 $ 45,212
Obligations of state and
political subdivisions 2,481 27 - 2,508
Mortgage-backed securities 24,092 210 80 24,222
Other securities 977 135 10 1,102
-------- ------- ------- --------
Total $ 72,023 $ 1,135 $ 114 $ 73,044
======== ======= ======= ========
</TABLE>
24
<PAGE>
As required by law, investment securities are pledged to secure public
and trust deposits. Securities with an amortized cost of $134.9 million and
$78.8 million were pledged to meet such requirements of $15.4 million and $15.8
million at December 31, 1996 and 1995, respectively. Any amount overpledged can
be released at any time.
A comparison of the amortized cost and approximate fair value of the
Company's investment securities by maturity date at December 31, 1996 follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
----------------------- ----------------------
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
--------- ----------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
One year or less $11,957 $11,956 $18,701 $18,740
Two years through five years 36,901 37,000 64,888 65,223
Five years through ten years 13,575 13,650 - -
More than ten years 7 7 - -
Other securities not due
at a single maturity date 979 1,149 - -
------- ------- ------- -------
Total $63,419 $63,762 $83,589 $83,963
======= ======= ======= =======
</TABLE>
Realized gross gains/(losses) on sales of investment securities were
$459,000, $(8,000) and $(3,000) during 1996, 1995 and 1994, respectively. The
gross proceeds from such sales of investment securities totaled approximately
$438,000, $6.0 million and $102,000 during 1996, 1995 and 1994, respectively. A
portion of 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.
In November 1995, the FASB issued a special report on A Guide to
Implementation of SFAS No. 115 on Accounting for Certain Investments in Debt and
Equity Securities - Questions and Answers (the "Guide"). The Guide provided the
Company a one-time opportunity to transfer securities from the held to maturity
category during the period November 15 through December 31, 1995. After
reconsideration of its original classifications, the Company reclassified $32.7
million of investment securities from held to maturity to available for sale.
The fair value of such securities at the date of transfer was $33.3 million and
the net unrealized gain was $675,000.
25
<PAGE>
3. LOANS RECEIVABLE
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
-------- --------
(dollars in thousands)
<S> <C> <C>
Real estate mortgage:
Commercial $196,163 $160,126
One-to-four family residential 61,175 42,988
Real estate construction 54,369 33,159
Commercial 218,515 181,081
Installment and consumer:
Guaranteed student loans 61,959 67,388
Credit Cards 20,839 21,869
Other 31,626 25,377
-------- --------
644,646 531,988
Allowance for loan losses (7,139) (5,813)
-------- --------
Loans receivable, net $637,507 $526,175
======== ========
</TABLE>
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 December 31, 1996 and 1995,
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.
Loans to individuals and businesses in the healthcare industry totaled
approximately $74.5 million, or 12% of total loans. Other notable
concentrations of credit within the loan portfolio include $25.2 million in
residential construction loans, $23.9 million in hotel/motel loans and $13.4
million 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 Company had loans which were held for sale of $12.3 million and
$4.6 million at December 31, 1996 and 1995, respectively. These loans are
carried at cost, which does not exceed market. Guaranteed student loans are
generally sold to a single servicer. A substantial portion of the one-to-four
family residential loans and loan servicing rights are sold to two servicers.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $4.6 million and $724,000 at December 31,
1996 and 1995, respectively. If interest on those loans had been accrued, the
interest income as reported in the accompanying consolidated statements of
operations would have increased by approximately $398,000, $48,000 and $443,000
for 1996, 1995 and 1994, respectively. The $3.9 million increase in nonaccrual
loans from year-end 1995 was mainly the result of the classification as
nonaccrual of a group of related loans with a remaining net book value of $3.4
million at December 31, 1996. Management believes these loans are either
adequately secured or have specific reserves allocated to them.
Floating rate loans with original repricing terms within two years
were approximately $468.8 million and $401.8 million at December 31, 1996 and
1995, respectively.
The unpaid principal balance of real estate mortgage loans serviced
for others totaled $119.0 million and $130.2 million at December 31, 1996 and
1995, respectively. The Bank maintained escrow accounts totaling $366,000 and
$697,000 for real estate mortgage loans serviced for others at December 31, 1996
and 1995, respectively.
26
<PAGE>
The allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Beginning balance $5,813 $4,959 $3,960
Provision for loan losses 3,100 2,000 1,800
Loans charged off (2,301) (1,803) (1,203)
Recoveries 527 657 402
------ ------ ------
Total $7,139 $5,813 $4,959
====== ====== ======
</TABLE>
As of December 31, 1996 and 1995, impaired loans totaled $4.8 million
and $3.3 million and had been allocated a related allowance for loan loss of
$2.0 million and $1.3 million, respectively. The average balance of impaired
loans totaled $3.8 million and $3.9 million and interest income recognized on
impaired loans totaled $37,000 and $367,000, respectively, for the years ended
December 31, 1996 and 1995.
Directors and officers of the Company and the Bank were customers of,
and had transactions with, the Bank in the ordinary course of business, and
similar transactions are expected in the future. All loans included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of loss or present other
unfavorable features. Certain officers, directors, employees, and companies in
which they have partial ownership had indebtedness to the Bank totaling $1.0
million and $2.2 million at December 31, 1996 and 1995, respectively. During
1996, $1.8 million of new loans were made to these persons and repayments
totaled $3.0 million.
4. PREMISES AND EQUIPMENT
These consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
------- -------
(dollars in thousands)
<S> <C> <C>
Land $ 1,214 $ 883
Buildings and improvements 3,869 3,540
Furniture, fixtures, and equipment 12,024 8,052
------- -------
17,107 12,475
Accumulated depreciation and amortization (7,458) (6,251)
------- -------
Premises and equipment, net $ 9,649 $ 6,224
======= =======
</TABLE>
27
<PAGE>
5. INCOME TAXES
The components of taxes on income follow:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1995 1994
---------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $ 4,275 $ 3,366 $ 2,786
State 667 508 380
Deferred tax benefit:
Federal (543) (458) (350)
State (93) (80) (62)
------- ------- -------
$ 4,306 $ 3,336 $ 2,754
======= ======= =======
</TABLE>
The taxes on income reflected in the accompanying statements of operations
differs from the expected U.S. Federal income tax rates for the following
reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1995 1994
---------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Computed tax expense at 34% $ 4,032 $ 3,206 $ 2,685
Increase (decrease) in income
tax resulting from:
Benefit of income not subject to
U.S. Federal income tax (210) (202) (129)
State income taxes, net of
Federal income tax benefit 379 281 212
Other 105 51 (14)
------- ------- -------
Taxes on income $ 4,306 $ 3,336 $ 2,754
======= ======= =======
</TABLE>
Deferred tax expense (benefit) relating to temporary differences includes
the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1995 1994
---------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Provision for loan losses $ (754) $ (494) $ (462)
Accelerated depreciation 135 56 59
Intagibles (26) (25) (31)
Sales of other real estate owned 225 - 91
Other (216) (75) (69)
------- ------- -------
Total $ (636) $ (538) $ (412)
======= ======= =======
</TABLE>
Deferred tax assets of $2.2 million and $1.3 million at December 31, 1996
and 1995, respectively, are reflected in the accompanying consolidated
statements of financial condition in other
28
<PAGE>
assets. There were no valuation allowances at December 31, 1996 or 1995.
Temporary differences that give rise to the deferred tax assets and
(liabilities) include the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1995
------------------------------------
(dollars in thousands)
<S> <C> <C>
Allowance for loan losses $2,353 $1,599
Accumulated depreciation (676) (541)
Write-down on other real
estate owned 35 260
Deferred compensation accrual 88 127
Intangibles 162 136
Other 401 146
------ ------
2,363 1,727
Deferred taxes (payable) receivable on
investment securities available for sale (137) (408)
------ ------
Total $2,226 $1,319
====== ======
</TABLE>
6. SHAREHOLDERS' EQUITY
At the 1996 annual shareholders' meeting, the shareholders of the
Company approved an amendment to the Company's Certificate of Incorporation to
increase the authorized shares of capital stock from 7,000,000 to 12,000,000,
consisting of 10,000,000 shares of common stock, par value $1.00 per share
("Common Stock"), and an aggregate of 2,000,000 shares of serial preferred
stock, par value $1.00 per share. The Company's Board of Directors can determine
the voting powers, dividend rights, liquidation preferences and other
limitations on the preferred stock prior to issuance. On July 31, 1995, the
Company issued 690,000 shares of 9.20% Redeemable, Cumulative Preferred Stock,
Series A (the "Shares"), and received net proceeds of $16.3 million. The
liquidation preference of the Shares is $25 per share plus an amount equal to
accrued and unpaid dividends. The Shares may not be redeemed by the Company
prior to September 1, 1998. Subject to prior regulatory approval, the Shares may
be redeemed at the option of the Company, in whole or in part, on or after
September 1, 1998, at a price equal to $25 per share plus accumulated unpaid
dividends to the redemption date. Such dividends are cumulative from the date of
issuance and payable quarterly at the rate of 9.20% of the original liquidation
preference, or $2.30 per annum per share. For the year ended December 31, 1996,
the cumulative dividend requirement was $1.6 million, $1.5 million of which was
declared and paid.
The Company has reserved for issuance 200,000 shares of common stock
pursuant to the terms of Dividend Reinvestment and Employee Stock Purchase
Plans. The Dividend Reinvestment Plan allows shareholders of record a convenient
and economical method of increasing their equity ownership of the Company. The
Employee Stock Purchase Plan allows Company employees to acquire additional
common shares through payroll deductions. At December 31, 1996, 8,988 shares had
been issued by these plans.
7. CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators, that if undertaken, could have a
direct material effect on the Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and the Bank's
assets,
29
<PAGE>
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting principles. The Company's and the Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
The most recent notification from regulatory agencies categorized the Bank
as well-capitalized under the regulatory framework for prompt corrective action.
To be categorized as well-capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table below. Since the notification, there are no conditions or events that have
changed the Bank's category.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets and Tier I capital to average assets (all
as defined). The Company and the Bank meet all capital adequacy requirements to
be classified as well-capitalized as of December 31, 1996.
The Company's and Bank's actual capital amounts and ratios are presented
below.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective For Capital
Actual Action Provisions Adequacy Purposes
-------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to risk-weighted assets)
Company $ 71,376 11.40% N/A N/A $ 50,077 8.00%
Bank 69,139 11.06% $ 62,490 10.00% 49,992 8.00%
Tier I Capital (to risk-weighted assets)
Company 63,886 10.21% N/A N/A 25,039 4.00%
Bank 62,000 9.92% 37,494 6.00% 24,996 4.00%
Leverage (Tier I capital to average assets)
Company 63,886 7.77% N/A N/A 32,889 4.00%
Bank 62,000 7.56% 41,026 5.00% 32,804 4.00%
As of December 31, 1995:
Total Capital (to risk-weighted assets)
Company $ 64,801 11.41% N/A N/A $ 45,435 8.00%
Bank 61,324 10.81% $ 56,729 10.00% 45,383 8.00%
Tier I Capital (to risk-weighted assets)
Company 56,888 10.02% N/A N/A 22,710 4.00%
Bank 55,511 9.79% 34,021 6.00% 22,681 4.00%
Leverage (Tier I capital to average assets)
Company 56,888 8.19% N/A N/A 27,784 4.00%
Bank 55,511 8.05% 34,479 5.00% 27,583 4.00%
</TABLE>
The approval of the Comptroller of the Currency is required if the total of
all dividends declared by the Bank in any calendar year exceeds the total of its
net profits of that year combined with its retained net profits of the preceding
two years. In addition, the Bank may not pay a dividend if, after paying the
dividend, the Bank would be under-capitalized. The Bank's maximum amount of
dividends available for payment totaled approximately $12.8 million at December
31, 1996. Dividends declared by the Bank for the years ended December 31, 1996,
1995 and 1994 did not exceed the threshold requiring regulatory approval.
8. STOCK OPTION PLAN
The Southwest Bancorp, Inc. 1994 Stock Option Plan (the "Stock Plan")
provides selected key employees with the opportunity to acquire common stock. At
December 31, 1996, the Company has reserved 375,522 shares under the Stock Plan,
of which 247,000 shares are under option at a weighted average exercise price of
30
<PAGE>
$15.95 per share; none of the options have been exercised. During 1996 and
1995, the Company granted 35,000 and 30,000 shares, respectively. The exercise
price of each option equals the market price of the Company's common stock on
the date of the grant. An option's maximum term is ten years. At December 31,
1996, there were four stock option arrangements outstanding:
<TABLE>
<CAPTION>
Option
Number of Price, Range
Shares Per Share
-----------------------------
<S> <C> <C>
Outstanding at January 1, 1994 - -
Granted 182,000 $12.75
Exercised - -
Canceled/expired - -
------------ ------------
Outstanding at December 31, 1994 182,000 12.75
Granted 30,000 13.38
Exercised - -
Canceled/expired - -
------------ ------------
Outstanding at December 31, 1995 212,000 12.84
Granted 35,000 18.50-19.25
Exercised - -
Canceled/expired - -
------------ ------------
Outstanding at December 31, 1996 247,000 $15.95
============ ============
Total exercisable at December 31, 1995 72,000 $12.75-13.38
============ ============
Total exercisable at December 31, 1996 116,500 $12.75-19.25
============ ============
</TABLE>
The Company has estimated the fair value of the options granted using
the minimum value method prescribed by SFAS No. 123, Accounting for Stock-Based
Compensation. Had compensation cost been determined based on the fair value at
the grant date for the Company's stock options in accordance with SFAS No. 123,
the proforma net income and earnings per common share would have been $7.458
million and $1.56 for 1996 and $5.911 million and $1.40 for 1995, respectively.
The Company has elected to continue to account for its stock options
using the intrinsic value method prescribed by APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for its
stock option plans.
9. EMPLOYEE BENEFITS
The Company, at the discretion of its Board of Directors, may, under its
profit-sharing plan, contribute annually an amount not exceeding 15% of the
total annual compensation of all participants. The Company made contributions of
$671,000, $680,000 and $589,000 in 1996, 1995 and 1994, respectively.
The Company has a deferred compensation plan for key management
employees. The Board of Directors of the Company administered the plan and
awarded performance units ("Units") at its discretion. Employees awarded Units
were entitled to receive compensation from the Bank based on the earnings of the
Company. The ultimate amount payable to employees is based on cumulative
earnings of the Company over certain five year periods. The 1996, 1995 and 1994
amounts charged to compensation expense under these plans were $45,000, $86,000
and $132,000, respectively. The final payout under this plan will be made in
1997, after which, no further Units will be outstanding.
31
<PAGE>
10. OPERATING LEASES
The Company leases certain equipment and facilities for its
operations. Future minimum annual rental payments required under operating
leases that have initial or remaining lease terms in excess of one year as of
December 31, 1996 follow:
<TABLE>
<CAPTION>
<S> <C>
1997 $957,000
1998 619,000
1999 362,000
2000 223,000
2001 141,000
</TABLE>
The total rental expense was $1.0 million, $803,000 and $616,000 in
1996, 1995 and 1994, respectively.
11. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the
carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - The fair value of U.S. Government and agency
obligations, other securities and mortgage-backed securities is estimated based
on quoted market prices or dealer quotes. The fair value for other investments
such as obligations of state and political subdivisions is estimated based on
quoted market prices for similar investment instruments.
LOANS RECEIVABLE - Fair values are estimated for certain homogeneous
categories of loans adjusted for differences in loan characteristics. The Bank's
loans have been aggregated by categories consisting of commercial, real estate,
student, credit card and other consumer. The fair value estimate for student
loans is the current historical cost carrying value as such loans are typically
sold in the secondary market at par value. The fair value of all other loans is
estimated by discounting the cash flows using credit and interest rate risks
inherent in the loan category and interest rates currently offered for loans
with similar terms and credit risks.
ACCRUED INTEREST RECEIVABLE - The carrying amount is a reasonable
estimate of fair value for accrued interest receivable.
DEPOSITS - The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the statement
of financial condition date. The fair value of fixed-maturity certificates of
deposits is estimated using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS - The fair values of short-term borrowings and
federal funds purchased are the amounts payable at the statement of financial
condition date, as the carrying amount is a reasonable estimate of fair value.
OTHER LIABILITIES AND ACCRUED INTEREST PAYABLE - The estimated fair
value of other liabilities, which primarily include trade accounts payable, and
accrued interest payable approximates their carrying value.
COMMITMENTS - Commitments to extend credit, standby letters of credit
and financial guarantees written or other items have short maturities and
therefore have no significant fair values.
32
<PAGE>
The carrying values and estimated fair values of the Company's
financial instruments follow:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------- ------------------------
Carrying Fair Carrying Fair
Values Values Values Values
----------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $22,914 $22,914 $20,789 $20,789
Investment securities:
Held to maturity 83,589 83,963 74,644 75,202
Available for sale 63,762 63,762 73,044 73,044
Loans receivable 637,507 643,927 526,175 536,064
Accrued interest receivable 7,400 7,400 7,117 7,117
Deposits 753,945 756,093 634,387 637,840
Accrued interest payable 5,061 5,061 4,266 4,266
Other liabilities 4,892 4,892 11,854 11,854
Commitments - - - -
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company makes use of a number of
different financial instruments to help meet the financial needs of its
customers. In accordance with generally accepted accounting principles, these
transactions are not presented in the accompanying consolidated financial
statements and are referred to as off-balance sheet instruments. These
transactions and activities include commitments to extend lines of commercial
and real estate mortgage credit, standby and commercial letters of credit and
available credit card lines of credit. The following table provides a summary of
the Company's off-balance sheet financial instruments:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
--------------------------
(dollars in thousands)
<S> <C> <C>
Commitments to extend commercial and
real estate mortgage credit $154,041 $86,563
Standby and commercial letters of credit 4,214 3,578
Credit card lines of credit 348,144 347,455
--------- ---------
Total $506,399 $437,596
========= =========
</TABLE>
A loan commitment is a binding contract to lend up to a maximum amount
for a specified period of time provided there is no violation of any financial,
economic or other terms of the contract. A standby letter of credit obligates
the Company to honor a financial commitment by issuing a guarantee to a third
party should the Company's customer fail to perform. Many loan commitments and
most standby letters of credit expire unfunded, and, therefore, total
commitments do not represent future funding obligations of the Company. Loan
commitments and letters of credit are made under normal credit terms, including
interest rates and collateral prevailing at the time, and usually require the
payment of a fee by the customer. Commercial letters of credit are commitments
generally issued to finance the movement of goods between buyers and sellers.
The Bank's exposure to credit loss, assuming commitments are funded, in the
event of nonperformance by the other party to the financial instrument is
represented by the contractual amount of those instruments. The Bank has an
agreement with another financial institution to purchase $285.0 million and
$284.9 million of unadvanced credit card lines of credit at December 31, 1996
and 1995, respectively, if such credit card lines of credit are funded. Such
33
<PAGE>
commitments are made with the same terms as similarly funded extensions of
credit including collateral, rates and maturities. The Bank does not anticipate
any material losses as a result of the commitments.
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal actions normally associated with
financial institutions, the aggregate of which, in management's and legal
counsel's opinion, would not be material to the consolidated financial condition
or results of operations of the Company.
At periodic intervals, the Office of the Comptroller of the Currency and
the Federal Reserve Bank routinely examine the Company's and the Bank's
financial statements as part of their legally prescribed oversight of the
banking industry. Based on these examinations, the regulators can direct that
the Company's and the Bank's financial statements be adjusted in accordance with
their findings.
The Bank has adopted a Severance Compensation Plan (the "Plan") for the
benefit of certain officers and key members of management. The Plan's purpose is
to protect and retain certain qualified employees in the event of a change in
control (as defined) and to reward those qualified employees for loyal service
to the Bank by providing severance compensation to them upon their involuntary
termination of employment after a change in control of the Bank. At December 31,
1996, the Bank has not recorded any amounts in the consolidated financial
statements relating to the Plan. If a change of control were to occur, the
maximum amount payable to certain officers and key members of management would
approximate $934,000.
14. SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Cash paid for interest $32,038 $26,913 $15,425
Cash paid for taxes on income 4,390 3,600 2,817
Loans originated to finance the sale of
other real estate owned - 68 -
Loans transferred to other real estate owned 21 15 -
Reclassification of investment securities
from held to maturity to available for sale - 32,672 -
Unrealized gain/(loss) on investment
securities available for sale, net of tax (407) 1,489 (1,076)
</TABLE>
15. ACCOUNTING STANDARD 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. In December
1996, the FASB adopted an amendment to SFAS No. 125 that will delay for one year
certain provisions of the Statement. As amended, SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1997. 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.
34
<PAGE>
16. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Following are the condensed financial statements of Southwest Bancorp,
Inc. ("Parent Company only") for the periods indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-----------------------
(dollars in thousands)
<S> <C> <C>
Statements of Financial Condition
Assets:
Cash and due from banks $754 $297
Investment in subsidiary bank 62,808 56,878
Investment securities, available for sale 1,446 2,984
Other assets 423 435
------- -------
Total $65,431 $60,594
======= =======
Liabilities $ 399 $ 237
Shareholders' Equity
Preferred 17,382 17,382
Common 47,650 42,975
------- -------
Total $65,431 $60,594
======= =======
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
--------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Statements of Operations
Income:
Cash dividends from subsidiary bank $1,053 $901 $781
Dividend income 22 28 25
Investment income 116 98 46
------ ------ ------
Total income 1,191 1,027 852
Security gains/(losses) 288 - (3)
General and administrative expenses 150 95 88
------ ------ ------
Total income before tax expense
and equity in undistributed income
of subisidary bank 1,329 932 761
Taxes on income 99 4 (14)
------ ------ ------
Income before equity in undistributed 1,230 928 775
income of subsidiary bank
Equity in undistributed income of
subsidiary bank 6,322 5,164 4,369
------ ------ ------
Net income $7,552 $6,092 $5,144
====== ====== ======
Net income available to common
shareholders $5,965 $5,426 $5,144
====== ====== ======
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1996 1995 1994
----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Statement of Cash Flows
Operating activities:
Net income $ 7,552 $ 6,092 $ 5,144
Equity in undistributed income of
subsidiary bank (6,322) (5,164) (4,369)
Other, net 140 (421) (125)
------- ------- -------
Net Cash provided by operating activities 1,370 507 650
------- ------- -------
Investing activities:
Available for sale securities:
Purchases (1,806) (3,146) -
Sales - - 102
Maturities 3,325 1,245 -
------- ------- -------
Net cash provided by (used in)
investing activities 1,519 (1,901) 102
------- ------- -------
Financing activities:
Proceeds from issuance of
Preferred stock - 16,322 -
Common stock 170 - -
Capital contribution to Bank - (13,500) -
Cash dividends paid:
Preferred stock (1,587) (533) -
Common stock (1,015) (864) (697)
------- ------- -------
Net cash provided by (used in)
financing activities (2,432) 1,425 (697)
------- ------- -------
Net increase in cash and cash equivalents 457 31 55
Cash and cash equivalents,
Beginning of year 297 266 211
------- ------- -------
End of year $ 754 $ 297 $ 266
======= ======= =======
</TABLE>
**********
36
<PAGE>
MANAGEMENT'S REPORT
January 27, 1997
To the Shareholders of Southwest Bancorp, Inc.:
Financial Statements
The management of Southwest Bancorp, Inc. and subsidiary (the
"Company") is responsible for the preparation, integrity, and fair presentation
of its published financial statements and all other information presented in
this annual report. The financial statements have been prepared in accordance
with generally accepted accounting principles and, as such, include amounts
based upon informed judgments and estimates made by management.
Internal Control
Management is responsible for establishing and maintaining an
effective internal control structure over financial reporting, including
safeguarding of assets, presented in conformity with both generally accepted
accounting principles and the Federal Financial Institutions Examination Council
instructions for Consolidated Reports of Condition and Income ("Call Report
instructions"). The structure contains monitoring mechanisms, and actions are
taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any structure
of internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an effective internal
control structure can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed the Company's internal control structure over
financial reporting, including safeguarding of assets, presented in conformity
with both generally accepted accounting principles and Call Report instructions
as of December 31, 1996. This assessment was based on criteria for effective
internal control over financial reporting, including safeguarding of assets,
described in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that the Company maintained an effective internal control
structure over financial reporting, including safeguarding of assets, presented
in conformity with both generally accepted accounting principles and Call Report
instructions as of December 31, 1996.
The Audit Committee of the Board of Directors is comprised entirely of
outside directors who are independent of Company management. It meets
periodically with management, the independent auditors and the internal auditors
to ensure that they are carrying out their responsibilities. The Audit Committee
is also responsible for performing an oversight role by reviewing and monitoring
the financial, accounting and auditing procedures of the Company in addition to
reviewing the Company's financial reports. The independent auditors and the
internal auditors have full and free access to the Audit Committee, with or
without the presence of management, to discuss the adequacy of the internal
control structure for financial reporting and any other matters which they
believe should be brought to the attention of the Audit Committee.
Compliance with Laws and Regulations
Management is also responsible for ensuring compliance with the
Federal laws and regulations concerning loans to insiders and the federal and
state laws and regulations concerning dividend restrictions, both of which are
designated by the Federal Deposit Insurance Corporation (the "FDIC") as safety
and soundness laws and regulations.
Management assessed its compliance with the designated safety and
soundness laws and regulations and has maintained records of its determinations
and assessments as required by the FDIC. Based on this assessment, management
believes that the Company has complied, in all material respects, with the
designated safety and soundness laws and regulations for the year ended December
31, 1996.
/s/ Robert L. McCormick, Jr. /s/ Kerby E. Crowell
- --------------------------- ----------------------------------
Robert L. McCormick, Jr. Kerby E. Crowell
Vice Chairman and President Executive Vice President and Chief
Financial Officer
37
<PAGE>
BOARD OF DIRECTORS
George M. Berry
Chairman of the Board
Investments
Joyce Berry
Investments
Tom D. Berry
Investments
Joe Berry Cannon
Investments
Haskell Cudd
President, Stillwater Milling
Company
J. Berry Harrison
Rancher
Erd M. Johnson
Petroleum Engineer &
Operating Partner, Johnson
Oil Partnership
David P. Lambert
President, Lambert
Construction Company
Robert L. McCormick, Jr.
Vice Chairman & Chief
Executive Officer, Stillwater
National Bank & Trust Co.
Linford R. Pitts
President, Stillwater Transfer & Storage Co.
Robert B. Rodgers
President, Perry & Rodgers
Motor Co.
James B. Wise, M.D.
Ophthalmologist and Eye
Surgeon
Lee Wise
Attorney
Paul C. Wise
Executive Vice President &
Cashier, Stillwater National
Bank & Trust Co.
SOUTHWEST BANCORP, INC.
Robert L. McCormick, Jr.
President
Kerby E. Crowell, CPA
Executive Vice President
Deborah T. Bradley
Secretary
Kay W. Smith
Vice President and
Comptroller
Paul C. Wise
Executive Vice President
STILLWATER NATIONAL
BANK & TRUST COMPANY
SENIOR MANAGEMENT
Robert L. McCormick, Jr.
Vice Chairman and Chief
Executive Officer
Stanley R. White
Chief Lending Officer
Thomas E. Bennett, Jr.
President, Tulsa Division
Rick J. Green
President, Central Oklahoma Division
Patrick E. Zimmerman
President, Stillwater Division
James W. Barnes
Executive Vice President
Kerby E. Crowell, CPA
Executive Vice President and Chief Financial Officer
Kimberly G. Sinclair
Executive Vice President and Chief Administrative Officer
Danny W. Williams
Executive Vice President
Paul C. Wise
Executive Vice President and Cashier
EXECUTIVE OFFICE/ELECTRONIC BANKING
Robert L. McCormick, Jr.
Vice Chairman and Chief
Executive Officer
Paul C. Wise
Executive Vice President and Cashier
Terry M. Almon
Senior Vice President,
Electronic Banking
LENDING DIVISION
Stanley R. White
Chief Lending Officer
Mita A. Bates
Vice President, Mortgage Loans
Wayne C. Bland
Vice President, Mortgage
Loans
Cleo L. Fowler
Vice President, Special Assets
Jo J. McCollom
Vice President, Mortgage
Loans
Lydia Owens
Vice President, Mortgage
Loans
Gary Teel
Vice President, Credit Cards
STILLWATER DIVISION
Patrick E. Zimmerman
President, Stillwater Division
Dian S. Hardin
Senior Vice President
Jim D. Marshall
Senior Vice President
David W. Pitts
Senior Vice President
W. Ron Rakes
Senior Vice President
Ruth E. Walker
Senior Vice President
Bill T. Burnett
Vice President
Larry Collins
Vice President
Barbara P. Franks
Vice President
Katrina Jarvis
Vice President
TULSA DIVISION
Thomas E. Bennett, Jr.
President, Tulsa Division
James W. Barnes
Executive Vice President
Danny W. Williams
Executive Vice President
Paul D. Anderson
Senior Vice President
Louis W. Ciucci
Senior Vice President
Lew E. Erikson
Senior Vice President
Roger D. Freeman
Senior Vice President
Evans C. Rector
Senior Vice President
38
<PAGE>
Joe E. Staires
Senior Vice President
Stephen V. Bradshaw
Vice President
Merle J. Budd
Vice President
Jim L. Burns
Vice President
W. Craig Caldwell
Vice President
Sandra K. Crooch
Vice President
Elaine M. Dishman
Vice President
Mike W. Feuerborn
Vice President
Jim L. Fischer
Vice President
Janet W. Gotwals
Vice President
Garry P. Groom
Vice President
Perry N. Littlepage
Vice President
Jay Morey
Vice President
CENTRAL OKLAHOMA DIVISION
Rick J. Green
President, Central Oklahoma Division
Cecil R. Caid
Senior Vice President
G. Johnson Hightower
Senior Vice President
Joseph P. Root
Senior Vice President
R. Charlie Smith
Senior Vice President
Shannan K. Cowden
Vice President
Sean C. Fuller
Vice President
Derek B. Gill
Vice President
B. Lynn Kelly
Vice President
Teresa E. Kerby
Vice President
Keith T. Kersten
Vice President
Lynn C. Lax
Vice President
Ron D. Martin
Vice President
Tom L. Messick
Vice President
Cindy J. Nunley
Vice President
W. Chris Palmer
Vice President
Mell L. Trissell
Vice President
Cathy S. Westmoreland
Vice President
FINANCE & AUDITING
Kerby E. Crowell, CPA
Executive Vice President
and Chief Financial Officer
Charles E. Finsel
Vice President and
Division Controller
Phillip V. McCoy
Vice President and
Division Controller
Kay W. Smith
Vice President and
Comptroller
OPERATIONS/STUDENT LOANS/
HUMAN RESOURCES/SUPPORT/MARKETING
Kimberly G. Sinclair
Executive Vice President
and Chief Administrative
Officer
Philip J. Hawkins
Vice President,
Information Systems
Scott B. Jones
Vice President, Marketing
Vicki S. Keen
Vice President, Human
Resources
Sharon L. Knight
Vice President, Loan Services
Daryl E. Ross
Vice President,
Facilities Management
Elaine E. Skillman
Vice President, Student Loans & Operations
Bruce F. Webber
Vice President, Student Loan Sales
CORPORATE INFORMATION
INDEPENDENT AUDITORS
Deloitte & Touche LLP
20 N. Broadway, Suite 900
Oklahoma City, OK 73102-8203
SPECIAL COUNSEL
Kennedy & Baris, LLP
4719 Hampden Lane
Suite 300
Bethesda, MD 20814
GENERAL COUNSEL
Hert & Baker
222 E. 7th Avenue
Stillwater, OK 74074
TRANSFER AGENT AND REGISTRAR
Harris Trust & Savings Bank
111 W. Monroe St.
Chicago, IL 60690
Annual Meeting
The 1997 Annual Meeting of
Shareholders will be held on
April 24, 1997 at 11:00 a.m.
in the Auditorium (Room 215)
at the Stillwater Public
Library, 1107 S. Duck,
Stillwater, Oklahoma.
ANNUAL REPORT ON FORM
10-K
COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR
ENDED dECEMBER 31, 1996,
AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, MAY
BE OBTAINED BY SHAREHOLDERS AS
OF THE RECORD DATE
AT NO CHARGE BY WRITING TO
KERBY E. CROWELL,
CHIEF FINANCIAL OFFICER,
SOUTHWEST BANCORP, INC.,
608 S. MAIN STREET,
STILLWATER, OKLAHOMA 74074.
39
<PAGE>
<TABLE>
<CAPTION>
STILLWATER NATIONAL BANK & TRUST COMPANY LOCATIONS
<S> <C> <C>
Corporate Headquarters Drive-in & Mortgage Lending 6305 Waterford Blvd.,
608 S. Main Street 3rd & Main Suite 205
Stillwater, Oklahoma 74074 Stillwater, Oklahoma 74074 Oklahoma City,
405-372-2230 405-372-2230 Oklahoma 73118
405-427-4000
500 W. Grand Avenue 2547 E. 21st 2431 E. 61st, Suite 170
Chickasha, Oklahoma 73018 Tulsa, Oklahoma 74114 Tulsa, Oklahoma 74136
405-222-1272 918-523-3900 918-523-3600
Mid-Continent Tower Shadowlake Office Park Website Address
(Loan Production Office) (Loan Production Office) WWW.BANKSNB.COM
401 S. Boston, Suite 2150 2228 Shadowlake Drive
Tulsa, Oklahoma 74103 Oklahoma City, Oklahoma 73159
918-523-3950 405-692-0066
</TABLE>
STOCK INFORMATION
NASDAQ National Market Symbols:
Common Stock - OKSB
Preferred Stock - OKSBP
The following table sets forth the common stock dividends paid for each quarter
during 1996 and 1995 and the range of high and low closing trade prices for the
common stock for those periods.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------
Dividend Dividend
High Low Declared High Low Declared
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ending:
March 31 $19.25 $17.75 $0.07 $13.75 $12.75 $0.06
June 30 19.75 18.25 0.07 16.00 13.00 0.06
September 30 20.00 18.00 0.07 17.00 15.00 0.06
December 31 20.75 19.00 0.07 18.50 16.25 0.06
</TABLE>
40
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries of the Registrant.
JURISDICTION OF
NAME INCORPORATION
- ---------------------------------------- ---------------
Stillwater National Bank & Trust Company United States
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in:
(i) Registration Statements No. 33-81276 (Southwest Bancorp, Inc. 1994
Stock Option Plan) on Form S-8;
(ii) Registration Statement No. 33-97850 (Southwest Bancorp, Inc.
Employee Stock Purchase Plan), on Form S-8; and
(iii) Registration Statement No. 33-94378 (Southwest Bancorp, Inc.
Dividend Reinvestment Plan) on Form S-3
of our report dated January 27, 1997, appearing in this Annual Report on
Form 10-K of Southwest Bancorp, Inc. for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
OKLAHOMA CITY, OKLAHOMA
MARCH 26, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors of the Registrant, hereby severally
constitute and appoint Robert L. McCormick our true and lawful attorney and
agent, to do any and all things in our names in the capacities indicated below
which said person may deem necessary or advisable to enable the Registrant to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the annual report on Form 10-K for the year ended December 31,
1996, including specifically, but not limited to, power and authority to sign
for us in our names in the capacities indicated below the annual report and any
amendments thereto; and we hereby approve, ratify and confirm all that said
person shall do or cause to be done by virtue thereof.
/s/ George M. Berry February 27, 1997
- ----------------------------------------------
George M. Berry
Director
/s/ Joyce P. Berry February 27, 1997
- ----------------------------------------------
Joyce P. Berry
Director
/s/ Thomas D. Berry February 27, 1997
- ----------------------------------------------
Thomas D. Berry
Director
/s/ Joe Berry Cannon February 27, 1997
- ----------------------------------------------
Joe Berry Cannon
Director
/s/ W. Haskell Cudd February 27, 1997
- ----------------------------------------------
W. Haskell Cudd
Director
/s/ J. Berry Harrison February 27, 1997
- ----------------------------------------------
J. Berry Harrison
Director
/s/ Erd M. Johnson February 27, 1997
- ----------------------------------------------
Erd M. Johnson
Director
/s/ David P. Lambert February 27, 1997
- ----------------------------------------------
David P. Lambert
Director
/s/ Linford R. Pitts February 27, 1997
- ----------------------------------------------
Linford R. Pitts
<PAGE>
Director
/s/ Robert B. Rodgers, February 27, 1997
- ----------------------------------------------
Robert B. Rodgers
Director
- ----------------------------------------------
James B. Wise, M.D.
Director
/s/ Paul C. Wise February 27, 1997
- ----------------------------------------------
Paul C. Wise
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST
BANCORP'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,914
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,762
<INVESTMENTS-CARRYING> 83,589
<INVESTMENTS-MARKET> 83,963
<LOANS> 644,646
<ALLOWANCE> 7,139
<TOTAL-ASSETS> 829,117
<DEPOSITS> 753,945
<SHORT-TERM> 2,985
<LIABILITIES-OTHER> 7,155
<LONG-TERM> 0
0
690
<COMMON> 3,764
<OTHER-SE> 60,578
<TOTAL-LIABILITIES-AND-EQUITY> 829,117
<INTEREST-LOAN> 55,177
<INTEREST-INVEST> 8,999
<INTEREST-OTHER> 492
<INTEREST-TOTAL> 64,668
<INTEREST-DEPOSIT> 32,728
<INTEREST-EXPENSE> 32,833
<INTEREST-INCOME-NET> 31,835
<LOAN-LOSSES> 3,100
<SECURITIES-GAINS> 459
<EXPENSE-OTHER> 23,226
<INCOME-PRETAX> 11,858
<INCOME-PRE-EXTRAORDINARY> 11,858
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,552
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 8.78
<LOANS-NON> 4,635
<LOANS-PAST> 1,437
<LOANS-TROUBLED> 577
<LOANS-PROBLEM> 13,114
<ALLOWANCE-OPEN> 5,813
<CHARGE-OFFS> 2,301
<RECOVERIES> 527
<ALLOWANCE-CLOSE> 7,139
<ALLOWANCE-DOMESTIC> 7,139
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 274
</TABLE>
