<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-23064
SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oklahoma #73-1136584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
608 South Main Street 74074
Stillwater, Oklahoma (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (405) 372-2230
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
[x] YES [_] NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
3,796,682
---------
1 of 22
SOUTHWEST BANCORP, INC.
<PAGE>
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at
June 30, 1998 and December 31, 1997 3
Unaudited Consolidated Statements of Operations for the
three and six months ended June 30, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 5
Unaudited Consolidated Statements of Shareholders' Equity for the
six months ended June 30, 1998 and 1997 6
Unaudited Consolidated Statements of Comprehensive Income for the
three and six months ended June 30, 1998 and 1997 7
Notes to Unaudited Consolidated Financial Statements 8
Average Balances, Yields and Rates 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 20
PART II. OTHER INFORMATION 21
SIGNATURES 22
</TABLE>
2
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Assets
Cash and due from banks $ 22,266 $ 26,259
Federal funds sold -- 10,000
----------- -----------
Cash and cash equivalents 22,266 36,259
Investment securities:
Held to maturity, fair value $88,763 (1998) and $87,592 (1997) 88,223 86,994
Available for sale, amortized cost $98,346 (1998) and $99,778 (1997) 99,400 100,746
Loans receivable, net of allowance for loan losses
of $9,043 (1998) and $8,282 (1997) 748,325 710,831
Accrued interest receivable 9,680 8,883
Premises and equipment, net 16,652 13,571
Other assets 9,641 6,002
----------- -----------
Total assets $994,187 $963,286
=========== ===========
Liabilities & shareholders' equity
Deposits:
Noninterest-bearing demand $ 45,204 $ 96,560
Interest-bearing demand 2,983 37,447
Money market accounts 187,790 94,496
Savings accounts 3,462 3,655
Time deposits 585,941 609,267
----------- -----------
Total deposits 825,380 841,425
----------- -----------
Income taxes payable -- 521
Accrued interest payable 5,985 6,504
Other liabilities 2,184 1,227
Short-term borrowings 64,492 20,548
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
----------- -----------
Total liabilities 923,054 895,238
----------- -----------
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 3,795,479 (1998) and 3,787,839 (1997) 3,795 3,788
Capital surplus 24,919 24,764
Retained earnings 41,097 38,226
Accumulated other comprehensive income:
Unrealized gain (loss) on investment securities available for sale,
net of tax 632 580
----------- -----------
Total shareholders' equity 71,133 68,048
----------- -----------
Total liabilities & shareholders' equity $994,187 $963,286
=========== ===========
</TABLE>
3
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 17,391 $ 16,291 $ 34,387 $ 31,807
Investment securities:
U.S. Government and agency obligations 2,381 2,061 4,806 3,803
State and political subdivisions 139 135 267 271
Mortgage-backed securities 257 312 511 673
Other securities 113 15 224 30
Federal funds sold 1 189 34 270
---------- ---------- ---------- ----------
Total interest income 20,282 19,003 40,229 36,854
Interest expense:
Interest-bearing demand 25 219 120 428
Money market accounts 1,051 938 2,059 1,857
Savings accounts 19 25 38 50
Time deposits 8,167 8,843 16,696 16,879
Short-term borrowings 791 21 1,196 91
Long-term debt 581 174 1,163 174
---------- ---------- ---------- ----------
Total interest expense 10,634 10,220 21,272 19,479
---------- ---------- ---------- ----------
Net interest income 9,648 8,783 18,957 17,375
Provision for loan losses 950 801 1,775 3,802
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 8,698 7,982 17,182 13,573
Other income:
Service charges and fees 912 788 1,736 1,540
Credit cards 4 180 57 373
Other noninterest income 98 105 247 163
Gain (loss) on sales of loans receivable 477 489 1,046 900
Gain (loss) on sales of investment securities 3 -- 20 --
---------- ---------- ---------- ----------
Total other income 1,494 1,562 3,106 2,976
Other expenses:
Salaries and employee benefits 3,430 3,561 6,772 7,048
Occupancy 1,214 1,180 2,400 2,223
FDIC and other insurance 64 66 128 129
Credit cards (5) 82 (9) 158
General and administrative 1,737 1,695 3,601 3,385
---------- ---------- ---------- ----------
Total other expenses 6,440 6,584 12,892 12,943
---------- ---------- ---------- ----------
Income before taxes 3,752 2,960 7,396 3,606
Taxes on income 1,342 1,057 2,653 1,243
---------- ---------- ---------- ----------
Net income $ 2,410 $ 1,903 $ 4,743 $ 2,363
========== ========== ========== ==========
Net income available to common shareholders $ 2,013 $ 1,506 $ 3,949 $ 1,569
========== ========== ========== ==========
Basic earnings per common share $ 0.53 $ 0.40 $ 1.04 $ 0.42
========== ========== ========== ==========
Diluted earnings per common share $ 0.51 $ 0.39 $ 1.01 $ 0.41
========== ========== ========== ==========
</TABLE>
4
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 4,743 $ 2,363
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 1,775 3,802
Depreciation and amortization expense 875 768
Amortization of premiums and accretion of
discount on securities, net 71 85
Amortization of intangibles 134 97
(Gain) Loss on sales of securities (20) --
(Gain) Loss on sales of loans receivable (1,046) (900)
(Gain) Loss on sales of premises/equipment 14 (22)
(Gain) Loss on other real estate owned, net (9) 2
Proceeds from sales of residential mortgage loans 57,339 32,734
Residential mortgage loans originated for resale (61,488) (30,513)
Changes in assets and liabilities:
Accrued interest receivable (797) (1,652)
Other assets (330) (4,063)
Income taxes payable (521) (187)
Accrued interest payable (519) 1,050
Other liabilities 522 (294)
----------- -----------
Net cash (used in) provided from operating activities 743 3,270
----------- -----------
Investing activities:
Proceeds from sales of held to maturity securities -- --
Proceeds from sales of available for sale securities -- --
Proceeds from principal repayments and maturities:
Held to maturity securities 14,366 7,860
Available for sale securities 15,629 7,382
Purchases of held to maturity securities (15,650) (11,150)
Purchases of available for sale securities (14,193) (35,339)
Loans originated and principal repayments, net (49,006) (92,731)
Proceeds from sales of guaranteed student loans 11,197 21,522
Purchases of premises and equipment (4,028) (4,180)
Proceeds from sales of premises and equipment 58 90
Proceeds from sales of other real estate 267 17
----------- -----------
Net cash (used in) provided from investing activities (41,360) (106,529)
----------- -----------
Financing activities:
Net increase (decrease) in deposits (16,045) 93,347
Net increase (decrease) in short-term borrowings 43,944 (1,485)
Net proceeds from issuance of common stock 162 99
Proceeds from issuance of subordinated debentures -- 25,013
Common stock dividends paid (643) (564)
Preferred stock dividends paid (794) (794)
----------- -----------
Net cash (used in) provided from financing activities 26,624 115,616
----------- -----------
Net increase (decrease) in cash and cash equivalents (13,993) 12,357
Cash and cash equivalents,
Beginning of period 36,259 22,914
----------- -----------
End of period $ 22,266 $ 35,271
=========== ===========
</TABLE>
5
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Accumulated Total
Other Share-
Preferred Stock Common Stock Capital Retained Comprehensive holders'
Shares Amount Shares Amount Surplus Earnings Income Equity
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 690,000 $690 3,764,216 $3,764 $24,332 $36,041 $205 $65,032
Cash dividends paid:
Preferred, $1.15 per share -- -- -- -- -- (794) -- (794)
Common, $0.08 per share -- -- -- -- -- (301) -- (301)
Cash dividends declared:
Common, $0.08 per share -- -- -- -- -- (302) -- (302)
Common stock issued:
Employee Stock Option Plan -- -- -- -- -- -- -- --
Employee Stock Purchase Plan -- -- 1,877 2 38 -- -- 40
Dividend Reinvestment Plan -- -- 2,876 3 56 -- -- 59
Change in unrealized gain
(loss) on available for sale
securities, net of tax -- -- -- -- -- -- 102 102
Net income -- -- -- -- -- 2,363 -- 2,363
---------------------------------------------------------------------------------------------------
Balance, June 30, 1997 690,000 $690 3,768,969 $3,769 $24,426 $37,007 $307 $66,199
===================================================================================================
Balance, January 1, 1998 690,000 $690 3,787,839 $3,788 $24,764 $38,226 $580 $68,048
Cash dividends paid:
Preferred, $1.15 per share -- -- -- -- -- (794) -- (794)
Common, $0.09 per share -- -- -- -- -- (341) -- (341)
Cash dividends declared:
Preferred, $0.575 per share -- -- -- -- -- (396) -- (396)
Common, $0.09 per share -- -- -- -- -- (341) -- (341)
Common stock issued:
Employee Stock Option Plan -- -- 4,000 4 55 -- -- 59
Employee Stock Purchase Plan -- -- 1,287 1 36 -- -- 37
Dividend Reinvestment Plan -- -- 2,353 2 64 -- -- 66
Change in unrealized gain
(loss) on available for sale
securities, net of tax -- -- -- -- -- -- 52 52
Net income -- -- -- -- -- 4,743 -- 4,743
---------------------------------------------------------------------------------------------------
Balance, June 30, 1998 690,000 $690 3,795,479 $3,795 $24,919 $41,097 $632 $71,133
===================================================================================================
</TABLE>
6
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 2,410 $ 1,903 $ 4,743 $ 2,363
Other comprehensive income, net of tax:
Unrealized gain (loss) on investment
securities available for sale (37) 676 86 170
Less: Tax (expense) benefit 15 (271) (34) (68)
-------- -------- -------- --------
Comprehensive income $ 2,388 $ 2,308 $ 4,795 $ 2,465
======== ======== ======== ========
</TABLE>
SOUTHWEST BANCORP, INC.
7
<PAGE>
Notes to Unaudited Consolidated Financial Statements
NOTE 1: GENERAL
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10- Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, and cash flows
in conformity with generally accepted accounting principles. However, the
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation. The results of operations and cash flows for the six
months ended June 30, 1998 and 1997 should not be considered indicative of the
results to be expected for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Southwest Bancorp, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 2: PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Southwest Bancorp, Inc. (the Company) and its wholly owned
subsidiaries, The Stillwater National Bank and Trust Company (the Bank) and SBI
Capital Trust (SBI Capital). All significant intercompany transactions and
balances have been eliminated in consolidation.
NOTE 3: RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS No. 125 requires the Company to recognize the financial and servicing
assets it controls and liabilities it has incurred, derecognize financial assets
when control has been surrendered, and derecognize liabilities when
extinguished. The adoption of SFAS No. 125 did not affect the Company's
consolidated financial position or results of operations. In December of 1996,
the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125. The Company adopted SFAS No. 127 on
January 1, 1998 as required; the adoption did not affect the Company's
consolidated position or results of operations.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and displaying comprehensive income
and its components (revenues, expenses, gains and losses) in financial
statements. In addition, SFAS No. 130 requires the Company to classify items of
other comprehensive income by their nature in a separate financial statement or
as a component of the statement of operations or the statement of shareholders'
equity and display the accumulated balance of other comprehensive income
separately in the shareholders' equity section of the statement of financial
condition. The Company adopted SFAS No. 130 on January 1, 1998 as required.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes reporting
standards for public companies concerning annual and interim financial
statements of their operating segments and related information. Operating
segments are components of a company about which separate financial information
is available that is regularly evaluated by the chief operating decision
maker(s) in deciding how to allocate resources and assess performance. SFAS No.
131 sets criteria for reporting disclosures about a company's products and
services, geographic areas and major customers. The Company adopted SFAS No. 131
on January 1, 1998 as required; the Company has only one segment, as that term
is defined in SFAS No. 131.
NOTE 4: ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
8
<PAGE>
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits -- an amendment of FASB Statements
No. 87, 88, and 106. SFAS No. 132 revises employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement of
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer considered useful. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1998. The adoption is not expected to
have a material impact on the Company's consolidated financial position or
results of operations. The Company does not offer defined benefit plans or other
postretirement benefit plans to its employees; therefore, the adoption of SFAS
No. 132 will not affect the Company's financial statement disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that the Company recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting designation. The Company
will adopt SFAS No. 133 on July 1, 1999, as required. Management of the Company
believes that adoption of SFAS No. 133 will not have a material impact on the
Company's consolidated financial condition or results of operations.
NOTE 5: ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below for the indicated
periods.
<TABLE>
<CAPTION>
For the six For the
months ended year ended
June 30, 1998 December 31, 1997
------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 8,282 $ 7,139
Loans charged-off:
Real estate mortgage 393 1,305
Real estate construction - -
Commercial 898 8,691
Installment and consumer 195 1,532
------------- -----------------
Total charge-offs 1,486 11,528
Recoveries:
Real estate mortgage 8 85
Real estate construction - -
Commercial 239 300
Installment and consumer 225 182
------------- -----------------
Total recoveries 472 567
------------- -----------------
Net loans charged-off 1,014 10,961
Provision for loan losses 1,775 12,104
------------- -----------------
Balance at end of period $ 9,043 $ 8,282
============= =================
Loans outstanding:
Average $750,882 $700,129
End of period 757,368 719,113
Net charge-offs to total average loans (annualized) 0.27% 1.57%
Allowance for loan losses to total loans 1.19% 1.15%
</TABLE>
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates:
9
<PAGE>
<TABLE>
<CAPTION>
At At
June 30, 1998 December 31, 1997
------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans (1) $1,485 $5,458
Past due 90 days or more (2) 604 1,677
Restructured terms 14 --
------------- -----------------
Total nonperforming loans 2,103 7,135
Other real estate owned 3,839 362
------------- -----------------
Total nonperforming assets $5,942 $7,497
============= =================
Nonperforming loans to loans receivable 0.28% 0.99%
Allowance for loan losses to nonperforming loans 430.00% 116.08%
Nonperforming assets to loans receivable and
other real estate owned 0.78% 1.04%
</TABLE>
(1) The government-guaranteed portion of loans included in these totals was $166
(1998) and $541 (1997).
(2) The government-guaranteed portion of loans included in these totals was $390
(1998) and $223 (1997).
In the first quarter of 1997, and for the year 1997, the Company recorded
significant increases in loan charge-offs and provisions for loan losses
compared with corresponding periods in earlier years. The large charge-offs
during the first quarter of 1997 were primarily the result of deterioration in
the financial position of a single commercial borrower. As a result of the
unusually large charge-offs recorded in 1997, management revised the Bank's
credit and loan review policies and standards, revised individual and committee
loan authorities, and committed additional resources to the credit
administration and loan review function. Net charge-offs and the provision for
loan losses declined during the first six months of 1998 to $1.0 million and
$1.8 million, respectively.
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
relation 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 also occur because of changing economic
conditions and their impact on economic prospects and the financial position of
borrowers. Based upon this review, management established an allowance of $9.0
million, or 1.19% of total loans, at June 30, 1998 compared to an allowance of
$8.3 million, or 1.15% of total loans, at December 31, 1997.
In establishing the level of the allowance for June 30, 1998, management
considered a number of factors, including the increased risk inherent in
commercial and commercial real estate loans, which are viewed as entailing
greater risk than certain other categories of loans, charge-off history, and the
rapid expansion of the loan portfolio over the last several years. Management
also considered other factors, including the levels of types of credits, such as
residential mortgage loans, deemed to be of relatively low risk. At June 30,
1998, total nonperforming loans were $2.1 million, or 0.28% of total loans,
compared to $7.1 million, or 0.99% of total loans, at December 31, 1997. The
Company determined the level of the allowance for loan losses at June 30, 1998
was appropriate, after assessing these and other factors it deemed relevant.
Management conducted a similar analysis in order to determine the appropriate
allowance as of December 31, 1997.
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, as occurred in 1997, may lead
to a material increase in charge-offs and the provision for loan losses.
NOTE 6: LOANS RECEIVABLE
10
<PAGE>
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 the state. At June 30, 1998 and December 31, 1997,
substantially all of the Bank's loans are collateralized with real estate,
inventory, accounts receivable and/or other assets, or are guaranteed by
agencies of the United States Government.
At June 30, 1998, loans to individuals and businesses in the healthcare industry
totaled approximately $81.0 million, or 11% of total loans. Other notable
concentrations of credit within the loan portfolio include $23.8 million, or 3%
of total loans, in residential construction loans, $16.7 million, or 2% of total
loans, in hotel/motel loans, and $15.7 million, or 2% of total loans, in
restaurant loans. In the event of total nonperformance by the borrowers, the
Company's accounting loss would be limited to the recorded investment in the
loans receivable reduced by proceeds received from disposition of the related
collateral.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $1.5 million at June 30, 1998. During the
first six months of 1998, $49,000 in interest income was received on nonaccruing
loans. If interest on those loans had been accrued, total interest income of
$379,000 would have been recorded.
Those performing loans considered potential nonperforming loans, loans which are
not included in the past due, nonaccrual or restructured categories, but for
which known information about possible credit problems cause management to be
uncertain as to the ability of the borrowers to comply with the present loan
repayment terms over the next six months, amounted to approximately $29.4
million at June 30, 1998, compared to $27.0 million at December 31, 1997. Loans
may be monitored by management and reported as potential nonperforming loans for
an extended period of time during which 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.
NOTE 7: LONG-TERM DEBT
On June 4, 1997, SBI Capital Trust, a newly-formed subsidiary of the Company,
issued 1,000,500 of its 9.30% Cumulative Trust Preferred Securities (the
"Preferred Securities") in an underwritten public offering for an aggregate
price of $25,012,500. Proceeds of the Preferred Securities were invested in the
9.30% Subordinated Debentures (the "Subordinated Debentures") of the Company.
After deducting underwriter's compensation and other expenses of the offering,
the net proceeds were available to the Company to increase capital and for
general corporate purposes, including use in the Bank's lending and investment
activities, and, on or after September 1, 1998, redemption, in whole, of the
Company's 9.20% Redeemable Cumulative Preferred Stock, Series A (the "Series A
Preferred Stock"). See "Capital Resources" at Management's Discussion and
Analysis of Financial Condition and Results of Operations. Unlike interest
payments on the Subordinated Debentures, dividends paid on the Series A
Preferred Stock are not deductible for federal income tax purposes.
The Preferred Securities and the Subordinated Debentures each mature on July 31,
2027. If certain conditions are met, the maturity dates of the Preferred
Securities and the Subordinated Debentures may be shortened to a date not
earlier than July 31, 2002, or extended to a date not later than July 31, 2036.
The Preferred Securities and the Subordinated Debentures also may be redeemed
prior to maturity if certain events occur. The Preferred Securities are subject
to mandatory redemption, in whole or in part, upon repayment of the Subordinated
Debentures at maturity or their earlier redemption. The Company also has the
right, if certain conditions are met, to defer payment of interest on the
Subordinated Debentures, which would result in a deferral of dividend payments
on the Preferred Securities, at any time or from time to time for a period not
to exceed 20 consecutive quarters in a deferral period.
The Company and SBI Capital believe that, taken together, the obligations of the
Company under the Preferred Securities Guarantee Agreement, the Amended and
Restated Trust Agreement, the Subordinated Debentures, the Indenture and the
Agreement As To Expenses and Liabilities, entered into in connection with the
offering of the Preferred Securities and the Subordinated Debentures, in the
aggregate constitute a full and unconditional guarantee by the Company of the
obligations of SBI Capital under the Preferred Securities.
SBI Capital is a Delaware business trust created for the purpose of issuing the
Preferred Securities and purchasing the Subordinated Debentures, which are its
sole assets. The Company owns all of the 30,960 outstanding common securities,
liquidation value $25, (the "Common Securities") of SBI Capital.
11
<PAGE>
The Preferred Securities meet the regulatory criteria for Tier I capital,
subject to Federal Reserve guidelines that limit the amount of the Preferred
Securities and cumulative perpetual preferred stock to an aggregate of 25% of
Tier I capital.
For accounting purposes, the Preferred Securities and the Common Securities are
presented on the Consolidated Statements of Financial Condition as a separate
category of long-term debt entitled "Guaranteed Preferred Beneficial Interests
in the Company's Subordinated Debentures".
NOTE 8: EARNINGS PER SHARE
Basic 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. Diluted 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 adjusted for the effect of dilutive
potential common shares calculated using the treasury stock method. At June 30,
1998 and 1997, there were no antidilutive options to purchase common shares. The
following is a reconciliation of the common shares used in the calculations of
basic and diluted earnings per common share:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding:
Basic earnings per share 3,794,839 3,768,662 3,792,598 3,767,423
Effect of dilutive securities:
Stock options 132,361 99,994 125,553 92,951
---------- ---------- ---------- ----------
Weighted average common shares outstanding:
Diluted earnings per share 3,927,200 3,868,656 3,918,151 3,860,374
========== ========== ========== ==========
</TABLE>
12
<PAGE>
SOUTHWEST BANCORP, INC.
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
For the six months ended June 30,
1998 1997
-----------------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Loans receivable $750,882 9.23% $682,539 9.40%
Investment securities 187,839 6.22 155,734 6.19
Other interest-earning assets 1,624 5.46 9,974 5.46
------------ ------------
Total interest-earning assets 940,345 8.63 848,247 8.76
Noninterest-earning assets 41,986 44,933
------------ ------------
Total assets $982,331 $893,180
============ ============
Liabilities and shareholders' equity:
Interest-bearing demand $ 10,408 2.33% $ 37,177 2.32%
Money market accounts 179,641 2.31 90,297 4.15
Savings accounts 3,463 2.21 4,017 2.51
Time deposits 604,883 5.57 594,309 5.73
------------ ------------
Total interest-bearing deposits 798,395 4.78 725,800 5.34
Short-term borrowings 45,816 5.26 3,166 5.80
Long-term debt 25,013 9.30 3,731 9.30
------------ ------------
Total interest-bearing liabilities 869,224 4.94 732,697 5.36
Noninterest-bearing demand 34,734 84,581
Other noninterest-bearing liabilities 9,041 10,843
Shareholders' equity 69,332 65,059
------------ ------------
Total liabilities and shareholders' equity $982,331 $893,180
============ ============
Interest rate spread 3.69% 3.40%
=========== ===========
Net interest margin 4.07% 4.13%
=========== ===========
Ratio of average interest-earning assets
to average interest-bearing liabilities 108.18% 115.77%
============ ============
</TABLE>
13
<PAGE>
SOUTHWEST BANCORP, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Forward Looking Statements. Portions of this Management's Discussion and
Analysis 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, 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. Past results also are not necessarily indicative of
future performance.
The following presents Management's discussion and analysis of the Company's
consolidated financial condition and results of operation at the dates and for
the periods indicated. This discussion should be read in conjunction with the
Company's consolidated financial statements and the accompanying notes.
GENERAL
Southwest Bancorp, Inc. (the "Company") is a registered bank holding company
headquartered in Stillwater, Oklahoma. The Company and its subsidiary, the
Stillwater National Bank and Trust Company, are independent, Oklahoma
institutions, and are not controlled by out of state organizations or
individuals.
The Company offers a broad range of commercial and consumer banking and other
financial services through full service offices in Stillwater, Oklahoma City,
Tulsa and Chickasha, Oklahoma. The Company devotes substantial efforts to
marketing and providing services to local businesses, their primary employees,
and to other managers and professionals living and working in the Company's
Oklahoma market areas. The Company has adapted to state branching limitations by
developing a marketing and delivery system that does not rely on an extensive
branch network.
The Company has established and pursued a strategy of independent operation for
the benefit of all of its shareholders, and has capitalized on its position as
an Oklahoma owned and operated banking organization to increase its banking
business. The Company has grown from $434 million in assets at year-end 1993, to
$994 million at June 30, 1998, without acquiring other financial institutions.
The Company considers acquisitions of other financial institutions, however,
from time to time, although it does not have any specific agreements or
understandings for any such acquisition at present.
FINANCIAL CONDITION
The Company's total assets increased by $30.9 million, or 3%, from $963.3
million at December 31, 1997 to $994.2 million at June 30, 1998.
Loans were $757.4 million at June 30, 1998, an increase of $38.3 million, or 5%,
compared to December 31, 1997. The Company experienced increases in the
categories of commercial mortgages ($28.0 million, or 13%), commercial loans
($2.7 million, or 1%), other consumer loans ($1.2 million, or 3%), and
residential mortgages ($7.1 million, or 9%). These increases were offset by a
slight reduction in government-guaranteed student loans ($102,000, or less than
1%), and a $591,000, or less than 1% reduction in real estate construction
loans. The allowance for loan losses increased by $761,000, or 9%, from December
31, 1997 to June 30, 1998. At June 30, 1998, the allowance for loan losses was
$9.0 million, or 1.19% of total loans, compared to $8.3 million, or 1.15% of
total loans, at December 31, 1997.
Investment securities were $187.6 at June 30, 1998, a reduction of $117,000, or
less than 1%, compared to December 31, 1997.
Premises and equipment increased by $3.1 million primarily due to the
construction costs for the new Tulsa Banking Center at 15th and Utica. The new
Tulsa Banking Center is expected to open in late 1998 or early 1999.
The Company's deposits declined by $16.0 million, or 2%, from $841.4 million at
December 31, 1997 to $825.4 million at June 30, 1998. In February 1998, the Bank
began using a new product which sweeps excess funds in transaction accounts
14
<PAGE>
into money market accounts. At June 30, 1998, $59.5 million and $42.5 million
had been swept out of demand and NOW accounts, respectively, and $102.0 million
had been swept into money market accounts. Without these reclassifications,
increases occurred in demand deposits ($8.2 million, or 8%) and NOW accounts
($8.0 million, or 21%) and decreases occurred in money market accounts ($8.7
million, or 9%), time deposits ($23.3 million, or 4%) and savings deposits
($193,000, or 5%) as compared to December 31, 1997.
Shareholders' equity increased by $3.1 million, or 5%, due to: earnings for the
first six months of 1998, net of dividends declared on common and preferred
stock; a $162,000 increase due to proceeds of common stock issued through the
employee stock purchase plan, the employee stock option plan and the dividend
reinvestment plan; and a $52,000 increase attributable to a change in the
unrealized gain/loss, net of taxes, on investment securities available for sale.
RESULTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
Net Income
For the first six months of 1998, the Company recorded net income of $4.7
million, 101% more than the $2.4 million recorded for the first six months of
1997. Net income available to common shareholders, after deduction of dividends
on preferred stock, was $3.9 million, compared with $1.6 million for the first
six months of 1997. The substantial increase in earnings was primarily the
result of the after-tax effect of a $2.0 million reduction in the provision for
loan losses. Average common shares outstanding were 3,792,598 and 3,767,423,
respectively. Basic and diluted earnings per common share increased to $1.04 and
$1.01 per share for the first six months of 1998 from $0.42 and $0.41 per share
for the same period in 1997, respectively.
During the first quarter of 1997, the Company received information regarding
events that adversely affected a borrower's ability to fully repay its
commercial loan, which had a carrying amount of $1.9 million. As a result of
this event, and management's regular evaluation of the adequacy of the allowance
for loan losses relative to other loans in the portfolio, the Company recorded a
provision for loan losses of $3.0 million for the first quarter of 1997,
compared with a provision of $825,000 for the first quarter of 1998. See
"Provision for loan losses". For the second quarter of 1998, the provision for
loan losses was $950,000, compared to $801,000 for the second quarter of 1997,
an increase of 19%.
Net interest income increased $1.6 million, or 9%, for the first six months of
1998 compared to the same period in 1997. This increase in net interest income,
as well as the $2.0 million, or 53%, reduction in the provision for loan losses,
a $130,000, or 4%, increase in other income, and a $51,000 reduction in other
expenses were offset by a $1.4 million, or 113%, increase in tax expense. For
the first six months of 1998, the return on average total equity was 13.80% and
the return on average common equity was 15.30% compared to a 7.32% return on
average total equity and a 6.62% return on average common equity for the first
six months of 1997.
Net Interest Income
Net interest income increased to $19.0 million for the first six months of 1998
from $17.4 million for the same period in 1997 as continued growth in the loan
portfolio enabled the Company to post a $3.4 million increase in interest income
that exceeded the $1.8 million increase in interest expense during the period.
Yields on the Company's interest-earning assets declined by 13 basis points, and
the rates paid on the Company's interest-bearing liabilities declined by 42
basis points, resulting in an increase in the interest rate spread to 3.69% for
the first six months of 1998 from 3.40% for the first six months of 1997. The
ratio of average interest-earning assets to average interest-bearing liabilities
declined to 108.18% for the first six months of 1998 from 115.77% for the first
six months of 1997, primarily due to the issuance in June 1997 of the
Subordinated Debentures and the increase in short-term borrowings.
Total interest income for the first six months of 1998 was $40.2 million, up 9%
from $36.9 million during the same period in 1997. The principal factor
providing greater interest income was the $68.3 million, or 10%, increase in the
volume of average loans outstanding. The Company's loan yields declined to 9.23%
for the first six months of 1998 from 9.40% in 1997. During the same period, the
Company's average investment securities increased $32.1 million, or 21%, and the
related yield increased to 6.22% from 6.19%.
15
<PAGE>
Total interest expense for the first six months of 1998 was $21.3 million, an
increase of 9% from $19.5 million for the same period in 1997. The increase in
total interest expense can be attributed to an increase in average interest-
bearing liabilities of $136.5 million, or 19%. During the same period, the rates
paid on average interest-bearing liabilities declined to 4.94% from 5.36%. Rates
paid on deposits decreased or remained substantially the same for all
categories; the largest reduction was a 184 basis point reduction in the average
rate paid on money market accounts due to the reclassification of excess funds
in demand and NOW accounts.
Other Income
Other income increased by $130,000 for the first six months of 1998 compared to
the first six months of 1997 primarily as a result of the $196,000 increase in
service charges and fees. Other increases were $146,000 in gains on sales of
loans, $20,000 in gains on sales of securities and $83,000 in other noninterest
income. These increases were offset by a $316,000 reduction in credit card
income. During the fourth quarter of 1997, the Bank completed the sale of
substantially all of its credit card portfolio. The Bank continues to issue
credit cards throughout the state of Oklahoma, but credit card loans and
accounts are owned and serviced by unrelated parties under agreements with the
Company. The gains on sales of securities in 1998 occurred when "available for
sale" securities were called prior to their stated maturity date.
Other Expenses
The Company's other expenses were reduced by $51,000 for the first six months of
1998 compared to the first six months of 1997. This reduction was primarily the
result of a reduction in salaries and employee benefits, which declined $276,000
as a result of a 12% reduction in staffing. In addition, credit card expenses
declined $167,000. These reductions were offset by increases in occupancy
expense ($177,000) and general and administrative expense ($216,000). The
increase in occupancy expense was due primarily to increased data processing,
depreciation and equipment costs, as systems, facilities and equipment continue
to be upgraded.
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
Net Income
For the second quarter of 1998, the Company recorded net income of $2.4 million,
27% more than the $1.9 million recorded for the second quarter of 1997. Net
income available to common shareholders, after deduction of dividends on
preferred stock, was $2.0 million, compared with $1.5 million for the second
quarter of 1997. Average common shares outstanding were 3,794,839 and 3,768,662,
respectively. Basic earnings per common share increased to $0.53 per share for
the second quarter of 1998 from $0.40 per share for the same period in 1997.
Diluted earnings per common share increased to $0.51 per share for the second
quarter of 1998 from $0.39 per share for the same period in 1997.
Net interest income increased $865,000, or 10%, for the second quarter of 1998
compared to the same period in 1997. This increase in net interest income, as
well as a $144,000, or 2%, reduction in other expenses were offset by the
$149,000, or 19%, increase in provision for loan losses, a $68,000, or 4%,
reduction in other income and a $285,000, or 27%, increase in tax expense. For
the second quarter of 1998, the return on average total equity was 13.79% and
the return on average common equity was 15.28% compared to an 11.76% return on
average total equity and a 12.69% return on average common equity for the second
quarter of 1997.
Net Interest Income
Net interest income increased to $9.6 million for the second quarter of 1998
from $8.8 million for the same period in 1997 as continued growth in the loan
portfolio enabled the Company to post a $1.3 million increase in interest income
that exceeded the $414,000 increase in interest expense during the period.
Yields on the Company's interest-earning assets declined by 13 basis points, and
the rates paid on the Company's interest-bearing liabilities declined by 60
basis points, resulting in an increase in the interest rate spread to 3.79% for
the second quarter of 1998 from 3.32% for the second quarter of 1997. The ratio
of average interest-earning assets to average interest-bearing liabilities
declined to 106.65% for the second quarter of 1998 from 115.14% for the second
quarter of 1997, primarily due to the issuance in June 1997 of the Subordinated
Debentures and the increase in short-term borrowings.
Total interest income for the second quarter of 1998 was $20.3 million, up 7%
from $19.0 million during the same period in 1997. The principal factor
providing greater interest income was the $62.1 million, or 9%, increase in the
volume of average
16
<PAGE>
loans outstanding. The Company's loan yields declined to 9.21% for the second
quarter of 1998 from 9.39% in 1997. During the same period, the Company's
average investment securities increased $23.6 million, or 14%, and the related
yield remained unchanged at 6.18%.
Total interest expense for the second quarter of 1998 was $10.6 million, an
increase of 4% from $10.2 million for the same period in 1997. The increase in
total interest expense can be attributed to an increase in average
interest-bearing liabilities of $128.3 million, or 17%. During the same period,
the rates paid on average interest-bearing liabilities declined to 4.81% from
5.41%. Rates paid on deposits decreased for all categories except NOW accounts,
which increased 31 basis points; the largest reduction was a 203 basis point
reduction in the average rate paid on money market accounts due to the
reclassification of excess funds in demand and NOW accounts.
Other Income
Other income declined by $68,000 for the second quarter of 1998 compared to the
second quarter of 1997 primarily as a result of a $176,000 reduction in credit
card income. This reduction was partially offset by a $124,000 increase in
service charges and fees.
Other Expenses
The Company's other expenses declined $144,000 for the second quarter of 1998
compared to the second quarter of 1997. This reduction was primarily the result
of a reduction in salaries and employee benefits, which declined $131,000 as a
result of a 12% decrease in staffing. In addition, credit card expense declined
$87,000. These expense reductions were offset by a $42,000 increase in general
and administrative expense and a $34,000 increase in occupancy expense compared
to 1997. The increase in occupancy expense was due primarily to increased data
processing, depreciation and equipment costs, as systems, facilities and
equipment have continued to be upgraded.
* * * * * * *
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
relation 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 and the financial position of borrowers.
Based upon this review, management established an allowance of $9.0 million, or
1.19% of total loans, at June 30, 1998 compared to an allowance of $8.3 million,
or 1.15% of total loans at December 31, 1997.
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 nonperforming 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, as occurred in 1997, may lead
to a material increase in charge-offs and the provision for loan losses.
Taxes on Income
The Company's income tax expense for the first six months of 1998 and 1997 was
$2.7 million and $1.2 million, respectively. The Company's income tax expense
for the second quarters of 1998 and 1997 was $1.3 million and $1.1 million,
respectively. The Company's effective tax rates have been lower than the 34%
Federal and 6% State statutory rates primarily because of tax-exempt income on
municipal obligations and loans.
17
<PAGE>
* * * * * * *
LIQUIDITY
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital, or the sale of highly marketable
assets such as residential mortgage loans. The Company's portfolio of
government-guaranteed student loans and SBA loans are also readily salable.
Additional sources of liquidity, including cash flow from the repayment of
loans, are also considered in determining whether liquidity is satisfactory.
Liquidity is also achieved through growth of core deposits and liquid assets,
and accessibility to the capital and money markets. These funds are used to meet
deposit withdrawals, maintain reserve requirements, fund loans and operate the
organization. Core deposits, defined as demand deposits, interest-bearing
transaction accounts, savings deposits and certificates of deposit less than
$100,000 were 81% and 83% of total deposits at June 30, 1998 and 1997,
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, securities sold under agreements to repurchase, and borrowings
from the Federal Reserve Bank. The Bank has approved federal funds purchase
lines with three other banks. The Bank also carries interest-bearing demand
notes issued by the Bank to the U.S. Treasury as a participant in the Treasury
Tax and Loan note program. In addition, the Bank has available a $35.0 million
line of credit from the Student Loan Marketing Association ("SLMA") and a $177.0
million line of credit from the Federal Home Loan Bank of Topeka ("FHLB").
Borrowings under the SLMA line would be secured by student loans. Borrowings
under the FHLB line would be secured by all unpledged securities and other
loans. The Bank also has available unsecured brokered certificate of deposit
lines of credit from Merrill Lynch & Co., Morgan Stanley Dean Witter and Salomon
Smith Barney totaling $75.0 million, $85.0 million, and $100.0 million,
respectively. During the first six months and second quarter of 1998, the only
categories of short-term borrowings whose averages exceeded 30% of ending
shareholders' equity were repurchase agreements and funds borrowed from the
FHLB. During the first six months and second quarters of 1997, there were no
borrowings in these two categories of short-term borrowings and no other
category of short-term borrowings averaged 30% or more of ending shareholders'
equity.
June 30, 1998
-----------------------------
Repurchase Funds Borrowed
Agreements from the FHLB
-----------------------------
(Dollars in thousands)
Amount outstanding at end of period $25,292 $30,000
Weighted average rate paid at end of period 4.95% 5.49%
Average Balance:
For the three months ended $23,426 $26,945
For the six months ended $22,128 $16,088
Average Balance:
For the three months ended 4.95% 5.54%
For the six months ended 4.94% 5.51%
Maximum amount outstanding at any month end $26,540 $37,000
During the first six months of 1998, cash and cash equivalents decreased by
$14.0 million. This decline was the result of cash used in investing activities
of $41.3 million which was not entirely offset by cash generated from financing
activities (primarily increased deposits) of $26.6 million and $743,000 in cash
provided from operating activities.
Cash and cash equivalents, during the first six months of 1997, increased by
$12.4 million. The increase was the result of cash generated from financing
activities (primarily increased deposits and the issuance of Subordinated
Debentures) of $115.6 million and operating activities of $3.3 million offset by
$106.5 million in cash used in investing activities.
As described below, the Company intends to redeem all of the outstanding shares
of its 9.20% Redeemable, Cumulative Preferred Stock, Series A (the "Preferred
Stock"), effective September 1, 1998, for an aggregate cash redemption price of
18
<PAGE>
$17.25 million. Substantially all of the funds for this redemption will be
obtained from maturities or sales of investment securities owned by the Company.
Management believes sources of liquidity will continue to be adequate following
this redemption.
CAPITAL RESOURCES
Shareholders' equity increased to $71.1 million at June 30, 1998 from $68.0
million at December 31, 1997. The increase was primarily attributable to
earnings retained after common and preferred stock dividend payments. Net
unrealized gains on investment securities available for sale (net of tax)
increased to $632,000 at June 30, 1998 compared to $580,000 at December 31,
1997. The Company also increased common stock and related surplus by $162,000
through the issuance of common stock through the dividend reinvestment plan, the
employee stock purchase plan, and the employee stock option plan.
During the second quarter of 1997, SBI Capital Trust ("SBI Capital"), a
statutory business trust and subsidiary of the Company sold 1,000,500 Preferred
Securities, having a liquidation amount of $25 per security, for a total price
of $25,012,500. The distributions payable on the preferred securities are based
on a 9.30% fixed annual rate. The Preferred Securities meet the regulatory
criteria for Tier I Capital, subject to Federal Reserve guidelines that limit
the amount of the Preferred Securities and cumulative perpetual preferred stock
to an aggregate of 25% of Tier I Capital. Proceeds from the Preferred Securities
were invested in 9.30% Subordinated Debentures of the Company. The net proceeds
to the Company from the sale of the Subordinated Debentures were used for
general corporate purposes, including use in investment activities and the
Bank's lending activities.
Bank holding companies are required to maintain capital ratios in accordance
with guidelines adopted by the Federal Reserve Board ("FRB"). The guidelines are
commonly known as Risk-Based Capital Guidelines.
On June 30, 1998, the Company exceeded all applicable capital requirements,
having a total risk-based capital ratio of 13.36%, a Tier I risk-based capital
ratio of 9.20%, and a leverage ratio of 7.26%. As of June 30, 1998, the Bank
also met the criteria for classification as a "well-capitalized" institution
under the prompt corrective action rules promulgated under the Federal Deposit
Insurance Act. Designation as a well-capitalized institution under these
regulations does not constitute a recommendation or endorsement of the Company
or the Bank by Federal bank regulators.
In the first quarter of 1998, the Company adopted a policy which prohibits the
declaration of dividends on common stock while the Company is operating at a
loss.
The Company declared a dividend of $.09 per common share payable on July 1, 1998
to shareholders of record as of June 17, 1998.
On July 21, 1998, notices of redemption were mailed to record holders of the
Company's 690,000 outstanding shares of Preferred Stock. The redemption will be
paid in cash at the price of $25.00 per share (total, $17.25 million) at any
time after the redemption date of September 1, 1998, following surrender of
certificates to the redemption agent in accordance with procedures specified in
the notice. The Company intends to deposit funds for the redemption with the
redemption agent on or before the redemption date. In June 1998, the Company
declared a dividend of $.575 per preferred share payable on September 1, 1998 to
holders of record as of August 18, 1998. This dividend is to be paid separately
from the redemption. No additional dividends will be declared or paid on the
Preferred Stock.
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.
* * * * * * *
19
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management has determined that no additional disclosures are necessary to assess
changes in information about market risk that have occurred since December 31,
1997.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
At the Company's annual shareholders' meeting, held on April 23,
1998, the shareholders of the Company elected three Directors with
terms expiring at the 2001 annual shareholders' meeting. The
Directors elected and the shareholder vote in the election of each
director was as follows:
For Withheld
--- --------
Thomas D. Berry 2,924,125 4,321
David P. Lambert 2,924,195 4,321
Linford R. Pitts 2,162,977 4,321
Other Directors continuing in office following the annual
shareholders' meeting were George M. Berry, Joyce P. Berry, Joe
Berry Cannon, J. Berry Harrison, Erd M. Johnson, Alfred L.
Litchenburg, Robert L. McCormick, Jr., Robert R. Rodgers, James B.
Wise, MD., and Lee A. Wise. (Director George M. Berry retired from
the board of directors following its May 1998 meeting.)
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
Date Item Reported
---- -------------
June 8, 1998 Item 5. The Company announced its
intention to redeem its 9.20% Redeemable,
Cumulative Preferred Stock, Series A on or
about September 1, 1998.
Item 7. Exhibit 99.1 - Press Release dated
June 5, 1998
SIGNATURES
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST BANCORP, INC.
(Registrant)
By: /s/ Robert L. McCormick July 29, 1998
----------------------------- ---------------------------
Robert L. McCormick Date
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ Kerby E. Crowell July 29, 1998
----------------------------- ---------------------------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST
BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 21,622
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0
690
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</TABLE>
