<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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.
3,795,100
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1 of 20
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
March 31, 1998 and December 31, 1997 3
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 5
Unaudited Consolidated Statements of Shareholders' Equity
for the three months ended March 31, 1998 and 1997 6
Unaudited Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1998 and 1997 7
Notes to Unaudited Consolidated Financial Statements 8
Average Balances, Yields and Rates 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
PART II. OTHER INFORMATION 19
SIGNATURES 20
</TABLE>
2
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and due from banks $ 21,827 $ 26,259
Federal funds sold - 10,000
-------------- --------------
Cash and cash equivalents 21,827 36,259
Investment securities:
Held to maturity, fair value $87,041 (1998) and $87,592 (1997) 86,395 86,994
Available for sale, amortized cost $100,729 (1998) and $99,778 (1997) 101,820 100,746
Loans receivable, net of allowance for loan losses
of $8,897 (1998) and $8,282 (1997) 745,068 710,831
Accrued interest receivable 10,317 8,883
Premises and equipment, net 14,675 13,571
Other assets 5,798 6,002
-------------- --------------
Total assets $985,900 $963,286
============== ==============
Liabilities & shareholders' equity
Deposits:
Noninterest-bearing demand $ 44,867 $ 96,560
Interest-bearing demand 5,230 37,447
Money market accounts 175,969 94,496
Savings accounts 3,452 3,655
Time deposits 609,709 609,267
-------------- --------------
Total deposits 839,227 841,425
-------------- --------------
Income taxes payable 1,196 521
Accrued interest payable 6,108 6,504
Other liabilities 1,743 1,227
Short-term borrowings 42,825 20,548
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
-------------- --------------
Total liabilities 916,112 895,238
-------------- --------------
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 3,791,147 (1998) and 3,787,839 (1997) 3,791 3,788
Capital surplus 24,832 24,764
Retained earnings 39,821 38,226
Accumulated other comprehensive income:
Unrealized gain (loss) on investment securities available for sale,
net of tax 654 580
-------------- --------------
Total shareholders' equity 69,788 68,048
-------------- --------------
Total liabilities & shareholders' equity $985,900 $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
ended March 31,
1998 1997
------------ ------------
<S> <C> <C>
Interest income:
Interest and fees on loans $16,996 $15,516
Investment securities:
U.S. Government and agency obligations 2,425 1,742
State and political subdivisions 128 136
Mortgage-backed securities 254 361
Other securities 111 15
Federal funds sold 33 81
------------ ------------
Total interest income 19,947 17,851
Interest expense:
Interest-bearing demand 95 209
Money market accounts 1,008 919
Savings accounts 19 25
Time deposits 8,529 8,036
Short-term borrowings 405 70
Long-term debt 582 -
------------ ------------
Total interest expense 10,638 9,259
------------ ------------
Net interest income 9,309 8,592
Provision for loan losses 825 3,001
------------ ------------
Net interest income after provision for loan losses 8,484 5,591
Other income:
Service charges and fees 824 752
Credit cards 53 193
Other noninterest income 149 58
Gain (loss) on sales of loans receivable 569 411
Gain (loss) on sales of investment securities 17 -
------------ ------------
Total other income 1,612 1,414
Other expenses:
Salaries and employee benefits 3,342 3,487
Occupancy 1,186 1,043
FDIC and other insurance 64 63
Credit cards (4) 76
General and administrative 1,864 1,690
------------ ------------
Total other expenses 6,452 6,359
------------ ------------
Income before taxes 3,644 646
Taxes on income 1,311 186
------------ ------------
Net income $ 2,333 $ 460
============ ============
Net income available to common shareholders $ 1,936 $ 63
============ ============
Basic earnings per common share $ 0.51 $ 0.02
============ ============
Diluted earnings per common share $ 0.50 $ 0.02
============ ============
</TABLE>
4
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 2,333 $ 460
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 825 3,001
Depreciation and amortization expense 412 381
Amortization of premiums and accretion of
discount on securities, net 30 43
Amortization of intangibles 55 45
(Gain) Loss on sales of securities (17) -
(Gain) Loss on sales of loans receivable (569) (411)
(Gain) Loss on sales of premises/equipment - -
(Gain) Loss on other real estate owned, net - -
Proceeds from sales of residential mortgage loans 24,563 14,839
Residential mortgage loans originated for resale (26,548) (11,521)
Changes in assets and liabilities:
Accrued interest receivable (1,434) (607)
Other assets 11 (574)
Income taxes payable 675 (173)
Accrued interest payable (396) 59
Other liabilities 478 (1,331)
------------ ------------
Net cash (used in) provided from operating activities 418 4,211
------------ ------------
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 7,008 2,006
Available for sale securities 5,610 4,001
Purchases of held to maturity securities (6,432) (3,260)
Purchases of available for sale securities (6,551) (5,628)
Loans originated and principal repayments, net (39,204) (48,101)
Proceeds from sales of guaranteed student loans 6,611 11,317
Purchases of premises and equipment (1,568) (3,428)
Proceeds from sales of premises and equipment 52 -
Proceeds from sales of other real estate 174 -
------------ ------------
Net cash (used in) provided from investing activities (34,300) (43,093)
------------ ------------
Financing activities:
Net increase (decrease) in deposits (2,198) 60,592
Net increase (decrease) in short-term borrowings 22,277 -
Net proceeds from issuance of common stock 71 48
Common stock dividends paid (303) (263)
Preferred stock dividends paid (397) (397)
------------ ------------
Net cash (used in) provided from financing activities 19,450 59,980
------------ ------------
Net increase (decrease) in cash and cash equivalents (14,432) 21,098
Cash and cash equivalents,
Beginning of period 36,259 22,914
------------ ------------
End of period $21,827 $44,012
============ ============
</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, $0.575 per share - - - - - (397) - (397)
Cash dividends declared:
Common, $0.08 per share - - - - - (301) - (301)
Common stock issued:
Employee Stock Option Plan - - - - - - - -
Employee Stock Purchase Plan - - 956 1 19 - - 20
Dividend Reinvestment Plan - - 1,343 2 26 - - 28
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - (303) (303)
Net income - - - - - 460 - 460
--------------------------------------------------------------------------------------------
Balance, March 31, 1997 690,000 $690 3,766,515 $3,767 $24,377 $35,803 $(98) $64,539
============================================================================================
Balance, January 1, 1998 690,000 $690 3,787,839 $3,788 $24,764 $38,226 $580 $68,048
Cash dividends paid:
Preferred, $0.575 per share - - - - - (397) - (397)
Cash dividends declared:
Common, $0.09 per share - - - - - (341) - (341)
Common stock issued:
Employee Stock Option Plan - - 1,500 1 19 - - 20
Employee Stock Purchase Plan - - 685 1 18 - - 19
Dividend Reinvestment Plan - - 1,123 1 31 - - 32
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - 74 74
Net income - - - - - 2,333 - 2,333
--------------------------------------------------------------------------------------------
Balance, March 31, 1998 690,000 $690 3,791,147 $3,791 $24,832 $39,821 $654 $69,788
============================================================================================
</TABLE>
6
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net income $2,333 $ 460
Other comprehensive income, net of tax:
Unrealized gain (loss) on investment securities available
for sale, net of tax expense (benefit) totaling $49 for 1998
and $(203) for 1997 74 (303)
----------- -----------
Comprehensive income $2,407 $ 157
=========== ===========
</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
financial statements include all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair presentation. The results of operations and cash flows for the three
months ended March 31, 1998 and 1997 are not necessarily indicative of the
results to be expected for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Southwest Bancorp, Inc. Annual Report on Form 10-K for the year ended
December 31, 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. The
Standard 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.
NOTE 5: ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below for the indicated
periods.
For the three For the
months ended year ended
March 31, 1998 December 31, 1997
---------------- -------------------
(Dollars in thousands)
Balance at beginning or period $ 8,282 $ 7,139
Loans charged-off:
Real estate mortgage 125 1,305
Real estate construction -- --
Commercial 291 8,691
Installment and consumer 82 1,532
-------- --------
Total charge-offs 498 11,528
Recoveries:
Real estate mortgage 4 85
Real estate construction -- --
Commercial 156 300
Installment and consumer 128 182
-------- --------
Total recoveries 288 567
-------- --------
Net loans charged-off 210 10,961
Provision for loan losses 825 12,104
-------- --------
Balance at end of period $ 8,897 $ 8,282
======== ========
Loans outstanding:
Average $744,108 $700,129
End of period 753,965 719,113
Net charge-offs to total average
loans (annualized) 0.11% 1.57%
Allowance for loan losses to
total loans 1.18% 1.15%
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
9
<PAGE>
<TABLE>
<CAPTION>
At At
March 31, 1998 December 31, 1997
---------------- -------------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans (1) $5,266 $5,458
Past due 90 days or more (2) 1,645 1,677
Restructured terms -- --
------ ------
Total nonperforming loans 6,911 7,135
Other real estate owned 273 362
====== ======
Total nonperforming assets $7,184 $7,497
====== ======
Nonperforming loans to loans receivable 0.92% 0.99%
Allowance for loan losses to nonperforming loans 128.74% 116.08%
Nonperforming assets to loans receivable and
other real estate owned 0.95% 1.04%
</TABLE>
(1) The government-guaranteed portion of loans included in these totals was $0
(1998) and $541 (1997).
(2) The government-guaranteed portion of loans included in these totals was $489
(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. For the first quarter
of 1997, net charge-offs were approximately $1.7 million and the provision for
loan losses was $3.0 million. 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 quarter
of 1998 to $210,000 and $825,000, 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 $8.9
million, or 1.18% of total loans, at March 31, 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 March 31, 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 March 31,
1998, total nonperforming loans were $6.9 million, or 0.92% 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 loans losses at March 31, 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.
10
<PAGE>
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
The Bank extends commercial and consumer credit primarily to customers in the
State of Oklahoma which subjects the loan portfolio to the general economic
conditions within this area. At March 31, 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 March 31, 1998, loans to individuals and businesses in the healthcare
industry totaled approximately $80.1 million, or 11% of total loans. Other
notable concentrations of credit within the loan portfolio include $18.0
million, or 2% of total loans, in hotel/motel loans, $26.4 million, or 3% of
total loans, in residential construction loans and $15.8 million, or 2% of total
loans, in restaurant loans. In the event of total nonperformance by the
borrowers, the Company's accounting loss would be limited to the recorded
investment in the loans receivable reduced by proceeds received from disposition
of the related collateral.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $5.3 million at March 31, 1998. During the
first three months of 1998, $7,000 in interest income was received on
nonaccruing loans. If interest on those loans had been accrued using the
contractual rate, total interest income of $148,000 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 $27.9
million at March 31, 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 are available to the Company to increase capital and for
general corporate purposes, including use in the Bank's lending and investment
activities, and, after September 1, 1998, possible redemption, in whole or in
part, of the Company's 9.20% Redeemable Cumulative Preferred Stock, Series A
(the "Series A Preferred Stock"). 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.
11
<PAGE>
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 per share, (the "Common Securities") of SBI Capital.
The Company believes that 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
March 31, 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:
For the three months
ended March 31,
1998 1997
----------- ------------
Weighted average common shares outstanding:
Basic earnings per share 3,790,332 3,766,172
Effect of dilutive securities:
Stock options 117,684 85,108
----------- ------------
Weighted average common shares outstanding:
Diluted earnings per share 3,908,016 3,851,280
=========== ============
12
<PAGE>
SOUTHWEST BANCORP, INC.
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
For the three months ended March 31,
1998 1997
-------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Loans receivable $744,108 9.26% $669,424 9.40%
Investment securities 188,442 6.28 147,750 6.19
Other interest-earning assets 2,688 5.58 6,144 5.35
---------- ----------
Total interest-earning assets 935,238 8.65 823,318 8.79
Noninterest-earning assets 41,776 40,566
---------- ----------
Total assets $977,014 $863,884
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand $ 17,085 2.26% $ 36,658 2.31%
Money market accounts 160,533 2.55 89,994 4.14
Savings accounts 3,503 2.20 4,058 2.50
Time deposits 614,036 5.63 571,205 5.71
---------- ----------
Total interest-bearing deposits 795,157 4.92 701,915 5.31
Short-term borrowings 31,649 5.19 5,048 5.62
Long-term debt 25,013 9.30 - -
---------- ----------
Total interest-bearing liabilities 851,819 5.06 706,963 5.31
Demand deposits 47,459 84,829
Other noninterest-bearing liabilities 9,193 6,877
Shareholders' equity 68,543 65,215
---------- ----------
Total liabilities and shareholders' equity $977,014 $863,884
========== ==========
Interest rate spread 3.59% 3.48%
========== ==========
Net interest margin 4.04% 4.23%
========== ==========
Ratio of average interest-earning assets
to average interest-bearing liabilities 109.79% 116.46%
========== ==========
</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.
FINANCIAL CONDITION
The Company's total assets increased by $22.6 million, or 2%, from $963.3
million at December 31, 1997 to $985.9 million at March 31, 1998.
Loans were $754.0 million at March 31, 1998, an increase of $34.9 million, or
5%, compared to December 31, 1997. The Company experienced increases in the
categories of commercial mortgages ($23.6 million, or 11%), commercial loans
($3.4 million, or 1%), real estate construction loans ($1.8 million, or 3%),
government-guaranteed student loans ($506,000, or 1%), other consumer loans
($544,000 million, or 1%), and residential mortgages ($5.1 million, or 6%). The
allowance for loan losses increased by $615,000, or 7%, from December 31, 1997
to March 31, 1998. At March 31, 1998, the allowance for loan losses was $8.9
million, or 1.18% of total loans, compared to $8.3 million, or 1.15% of total
loans, at December 31, 1997.
Investment securities were $188.2 at March 31, 1998, an increase of $475,000
million, or less than 1%, compared to December 31, 1997.
Premises and equipment increased by $1.1 million primarily due to the
construction costs for the new Tulsa Banking Center at 15th and Utica to be
opened in late 1998.
The Company's total deposits declined by $2.2 million, or less than 1%, from
$841.4 million at December 31, 1997 to $839.2 million at March 31, 1998. In
February 1998, the Bank began using a new product which sweeps excess funds in
transaction accounts into money market accounts. At March 31, 1998, $51.9
million and $34.5 million had been swept out of demand and NOW accounts,
respectively, and $86.4 million had been swept into money market accounts.
Without these reclassifications, increases occurred in demand deposits
($240,000,) NOW accounts ($2.3 million) and time deposits ($442,000) and
decreases occurred in money market accounts ($5.0 million) and savings deposits
($203,000) as compared to December 31, 1997.
Shareholders' equity increased by $1.8 million, or 3%, due to earnings for the
first three months of 1998, net of dividends declared on common and preferred
stock, a $71,000 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 $74,000 increase attributable to a change in the
unrealized gain/loss, net of taxes, on investment securities available for sale.
RESULTS OF OPERATIONS
14
<PAGE>
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
Net Income
For the first quarter of 1998, the Company recorded net income of $2.3 million,
significantly more than the $460,000 recorded for the first quarter of 1997. Net
income available to common shareholders, after deduction of dividends on
preferred stock, was $1.9 million, compared with $63,000 for the first quarter
of 1997. The substantial increase in earnings was primarily the result of the
after-tax effect of a $2.2 million reduction in the provision for loan losses
and a $717,000 increase in net interest income. Average common shares
outstanding were 3,790,332 and 3,766,172, respectively. Basic earnings per
common share increased to $0.51 per share for the first quarter of 1998 from
$0.02 per share for the same period in 1997. Diluted earnings per common share
increased to $0.50 per share for the first three months of 1998 from $0.02 per
share for the same period in 1997.
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.")
Net interest income increased $717,000, or 8%, for the first quarter of 1998
compared to the same period in 1997. This increase in net interest income, as
well as a $2.2 million, or 73%, reduction in the provision for loan losses, and
a $198,000, or 14%, increase in other income, offset the $93,000, or 1%,
increase in other expenses and a $1.1 million, or 605%, increase in taxes on
income. For the first quarter of 1998, the return on average total equity was
13.80% and the return on average common equity was 15.32% compared to a 2.86%
return on average total equity and a 0.53% return on average common equity for
the first quarter of 1997.
Net Interest Income
Net interest income increased to $9.3 million for the first quarter of 1998 from
$8.6 million for the same period in 1997 as continued growth in the loan
portfolio enabled the Company to post a $2.0 million increase in interest income
that exceeded the $1.3 million increase in interest expense during the period.
Yields on the Company's interest-earning assets declined by 14 basis points, and
the rates paid on the Company's interest-bearing liabilities declined by 25
basis points, resulting in a increase in the interest rate spread to 3.59% for
the first quarter of 1998 from 3.48% for the first quarter of 1997. The ratio of
average interest-earning assets to average interest-bearing liabilities declined
to 109.79% for the first quarter of 1998 from 116.46% for the first 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 first quarter of 1998 was $19.9 million, up 12%
from $17.9 million during the same period in 1997. The principal factor
providing greater interest income was the $74.7 million, or 11%, increase in the
volume of average loans outstanding. The Company's loan yields declined to 9.26%
for the first quarter of 1998 from 9.40% in 1997. During the same period, the
Company's yield on investment securities increased to 6.28% from 6.19%.
Total interest expense for the first quarter of 1998 was $10.6 million, an
increase of 15% from $9.3 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 $144.9 million, or 20%. During the same period, the rates
paid on average interest-bearing liabilities declined to 5.06% from 5.31%. Rates
paid on deposits decreased for all categories; the largest reduction was a 159
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
15
<PAGE>
Other income increased by $198,000 for the first quarter of 1998 compared to the
first quarter of 1997 primarily as a result of a $158,000 increase in gains on
sale of loans. Other increases were $72,000 in service charges and fees and
$91,000 in other noninterest income. These increases were offset by a $140,000
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.
Other Expenses
The Company's other expenses increased $93,000 for the first quarter of 1998
compared to the first quarter of 1997. This increase was the result of increases
in occupancy expense, which increased $143,000 due primarily to increased data
processing, depreciation and equipment costs, as systems, facilities and
equipment were upgraded beginning in November 1996 and continuing through the
first quarter of 1998, and general and administrative expense, which increased
$174,000. These increases were offset by a $145,000 reduction in salaries and
employee benefits and an $80,000 reduction in credit card expense.
* * * * * * *
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 their impact on economic prospects and the financial position of
borrowers. Based upon this review, management established an allowance of $8.9
million, or 1.18% of total loans, at March 31, 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 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.
Taxes on Income
The Company's income tax expense for the first three months of 1998 and 1997 was
$1.3 million and $186,000, respectively. The Company's effective tax rates have
been lower than the 34% Federal and 6% State statutory rates primarily because
of tax-exempt income on municipal obligations and loans.
* * * * * * *
LIQUIDITY
16
<PAGE>
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.
Additionalsources of liquidity, including cash flow from the repayment of loans
,are alsoconsidered in determining whether liquidity is satisfactory.
Liquidity is also achieved through growth of core deposits and liquid assets,
and accessibility to the capital and money markets. These funds are used to meet
deposit withdrawals, maintain reserve requirements, fund loans and operate the
organization. Core deposits, defined as demand deposits, interest-bearing
transaction accounts, savings deposits and certificates of deposit less than
$100,000 were 83% of total deposits at both March 31, 1998 and 1997.
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 totaling $20.0 million 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. and Morgan
Stanley Dean Witter totaling $75.0 million and $85.0 million, respectively.
During the first quarters of 1998 and 1997, no category of short-term borrowings
averaged 30% or more of ending shareholders' equity.
During 1997, the Company began selling securities under agreements to repurchase
with the Company retaining custody of the collateral. Collateral consists of
direct obligations of the U.S. Government or U.S. Government Agency issues and
the Company retains custody of the security which is designated as pledged with
the Company's safekeeping agent. The type of collateral required, and the
retention of the collateral and the security sold minimize the Company's risk of
exposure to loss. These transactions are for one-to-three day periods and do not
materially affect the Company's liquidity or operations.
Cash and cash equivalents, during the first three months of 1998, decreased by
$14.4 million. The decrease was the result of cash generated from financing
activities (primarily increased short-term borrowings) of $19.5 million and
operating activities of $418,000 offset by $34.3 million in cash used in
investing activities.
During the first three months of 1997, cash and cash equivalents increased by
$21.1 million. The increase was the result of cash generated from financing
activities (primarily increased deposits) of $60.0 million and operating
activities of $4.2 million offset by $43.1 million in cash used in investing
activities.
CAPITAL RESOURCES
Shareholder's equity increased to $69.8 million at March 31, 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 $654,000 at March 31, 1998 compared to $580,000 at December 31,
1997. The Company also increased common stock and related surplus by $71,000
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, a statutory business trust
and consolidated 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.
17
<PAGE>
Bank holding companies are required to maintain capital ratios in accordance
with guidelines adopted by the Federal Reserve Board ("FRB"). The guidelines are
commonly known as Risk-Based Capital Guidelines.
On March 31, 1998, the Company exceeded all applicable capital requirements,
having a total risk-based capital ratio of 13.18%, a Tier I risk-based capital
ratio of 8.97%, and a Tier I leverage ratio of 7.15%. As of March 31, 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 Corporation Improvement Act of 1991 (FDICIA).
Designation as a well-capitalized institution under these regulations does not
constitute a recommendation or endorsement of the Company or the Bank by Federal
bank regulators.
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 April 1,
1998 to shareholders of record as of March 18, 1998. In January 1998, the
Company declared a dividend of $.575 per preferred share payable on March 2,
1998 to shareholders of record as of February 13, 1998.
EFFECTS OF INFLATION
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
ANNUAL MEETING
The 1998 Annual Meeting of shareholders of the Company was held on April 23,
1998. At the Annual Meeting, shareholders elected the three directors nominated
by the Board of Directors for 3-year terms.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
--------
Item 27. Financial Data Schedule
SIGNATURES
19
<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/ Rick J. Green May 4, 1998
------------------------ ------------------
Rick J. Green Date
Chief Operating Officer
(Principal Executive Officer)
By: /s/ Kerby E. Crowell May 4, 1998
----------------------- ------------------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST
BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,805
<INT-BEARING-DEPOSITS> 1,022
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,820
<INVESTMENTS-CARRYING> 86,395
<INVESTMENTS-MARKET> 87,041
<LOANS> 753,965
<ALLOWANCE> 8,897
<TOTAL-ASSETS> 985,900
<DEPOSITS> 839,227
<SHORT-TERM> 42,825
<LIABILITIES-OTHER> 9,047
<LONG-TERM> 25,013
0
690
<COMMON> 3,791
<OTHER-SE> 65,307
<TOTAL-LIABILITIES-AND-EQUITY> 985,900
<INTEREST-LOAN> 16,996
<INTEREST-INVEST> 2,918
<INTEREST-OTHER> 33
<INTEREST-TOTAL> 19,947
<INTEREST-DEPOSIT> 9,651
<INTEREST-EXPENSE> 10,638
<INTEREST-INCOME-NET> 9,309
<LOAN-LOSSES> 825
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 6,452
<INCOME-PRETAX> 3,644
<INCOME-PRE-EXTRAORDINARY> 3,644
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,333
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 8.65
<LOANS-NON> 5,266
<LOANS-PAST> 1,645
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 27,916
<ALLOWANCE-OPEN> 8,282
<CHARGE-OFFS> 498
<RECOVERIES> 288
<ALLOWANCE-CLOSE> 8,897
<ALLOWANCE-DOMESTIC> 8,897
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,417
</TABLE>
