<PAGE>
As filed with the Securities and Exchange Commission on February 9, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1136584
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
608 South Main Street
Stillwater, Oklahoma 74074
(405) 372-2230
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Robert L. McCormick
Chairman of the Board of Directors
Southwest Bancorp, Inc.
608 South Main Street
Stillwater, Oklahoma 74074
(405) 372-2230
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
James I. Lundy III, Esquire Frederick W. Scherrer, Esquire
Noel M. Gruber, Esquire Harold R. Burroughs, Esquire
Kennedy, Baris & Lundy, L.L.P. Bryan Cave LLP
Suite 300 One Metropolitan Square
4719 Hampden Lane 211 N. Broadway
Bethesda, MD 20814 St. Louis, Missouri 63102
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the registrant elects to deliver a copy of its latest annual report to
securityholders or a complete and legible facsimile thereof, pursuant to item
11(a)(1) of this form, check the following box. [_]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [-] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [-] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Title of Shares to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
Common stock(1) 1,220,416(1) $24.625 $30,052,744(1) $8,354.66(2)
======================================================================================================================
<S> <C> <C> <C> <C>
</TABLE>
(1) Includes 159,149 shares that may be sold pursuant to the over-
allotment option granted to the Underwriter.
(2) Registration fee calculated in accordance with Rules 457(c), based
upon the average of the high and low prices of the common stock as
reported by the Nasdaq National Market on February 5, 1999.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY , 1999
PROSPECTUS
1,060,997 SHARES
SOUTHWEST BANCORP, INC.
PARENT COMPANY OF
[LOGO]STILLWATER NATIONAL BANK & TRUST COMPANY
COMMON STOCK
Southwest Bancorp, Inc. common stock is traded on the Nasdaq National
Market under the symbol "OKSB." On February , 1999, the last sale price reported
on the Nasdaq National Market was $ .
This offering includes 250,000 shares to be sold by Southwest Bancorp and
810,997 shares to be sold by Selling Shareholders. See "Selling Shareholders"
(page ). Southwest Bancorp has granted the underwriters, Stifel, Nicolaus &
Company, Incorporated and Dain Rauscher Wessels, a division of Dain Rauscher,
Incorporated, a 30-day option to purchase up to 159,149 additional shares to
cover any over-allotments.
-----------------
SHARES OF THE COMPANY'S COMMON STOCK ARE NOT DEPOSITS, SAVINGS ACCOUNTS, OR
OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTING IN COMMON STOCK INVOLVES INVESTMENT RISKS.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON STOCK OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS.
Price to Public:
Per Share: $
Total: $
<TABLE>
<CAPTION>
The Company Selling Shareholders
-------------------------------- ---------------------------------
Per Share Total Per Share Total
-------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions:
Shares sold by the Company $ $ - -
Shares sold by the Selling Shareholders $ $ $ $
Net proceeds of the offering $ $ $ $
</TABLE>
The shares are offered by the underwriters subject to receipt and
acceptance by them, to prior sale and to the underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the certificates for the shares will be
made in St. Louis, Missouri on or about , 1999.
STIFEL, NICOLAUS & COMPANY DAIN RAUSCHER WESSELS
INCORPORATED A DIVISION OF DAIN RAUSCHER INCORPORATED
The Date of this Prospectus is , 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[MAP GOES HERE]
The Company serves businesses and individuals throughout the state of
Oklahoma from its six offices located in Stillwater, Tulsa, Oklahoma City and
Chickasha, from its telephone banking center, and through DirectBanker, its
24-hours realtime, internet banking service.
CAUTION ABOUT FORWARD LOOKING STATEMENTS
The Company makes forward looking statements in this Prospectus that are
subject to risks and uncertainties. These forward looking statements include:
. Statements of goals, intentions, and expectations;
. Estimates of risks and of future costs and benefits;
. Statements of the ability to achieve "Y2K" compliance; and
. Statements of the ability to achieve financial and other goals.
These forward looking statements are subject to significant uncertainties
because they are based upon or are affected by:
. Management's estimates and projections of future interest rates and
other economic conditions;
. Statements by suppliers of data processing equipment and services,
government agencies, and other third parties as to "Y2K" compliance
and costs;
. Future laws and regulations; and
. A variety of other matters.
Because of these uncertainties, the actual future results may be materially
different from the results indicated by these forward looking statements. In
addition, the Company's past results of operations do not necessarily indicate
its future results.
2
<PAGE>
SUMMARY
This summary presents selected information from this Prospectus. It does
not include all of the information that is included in the Prospectus. You
should carefully read this entire document and the documents to which the
Prospectus refers in order to understand this offering. See "Additional
Information" (page ). Items in this summary include page references that direct
you to more complete descriptions in this document of the topics discussed.
Southwest Bancorp, Inc. (the "Company") and two holders of the Company's
common stock (the "Selling Shareholders") are selling up to 1,060,997 shares of
the Company's common stock in this offering. The Company has granted the
Underwriters a thirty-day option to purchase up to 159,149 additional shares
from the Company to cover over-allotments.
SOUTHWEST BANCORP, INC. (PAGE )
608 S. Main Street
Stillwater, Oklahoma 74074
(405) 372-2230
The Company is a one-bank holding company headquartered in Stillwater,
Oklahoma. It provides commercial and consumer banking services through its sole
banking subsidiary, Stillwater National Bank & Trust Company (the "Bank"). The
Company was organized in 1981 as the holding company for the Bank, which was
chartered in 1894. At September 30, 1998, the Company had total assets of $978
million, deposits of $831 million, and shareholders' equity of $56 million. See
Recent Developments, below (page ).
The Company conducts its business through three regional divisions and its
home office.
The Company's three regional divisions operate six full-service banking
offices, two of which are located in Stillwater, two in Tulsa, one in Oklahoma
City, and one in Chickasha, Oklahoma. The Company pursues a broad-based,
community banking strategy in Stillwater, where it has over 50% of the deposit
market. In contrast, the Company has less than a 5% deposit share in each of
Tulsa and Oklahoma City, the two largest banking markets in the state. In those
markets, the Company pursues a more targeted growth strategy that focuses on the
banking needs of managers, professionals, and Oklahoma-based businesses.
The Company offers traditional banking products to consumers and businesses
in all three markets, and also serves customers throughout Oklahoma through the
internet and by telephone. Technology driven products and other products for
which centralized product delivery is more efficient are offered by the home
office. See Products, below (page ) and "The Company" (page ).
The Company's strategy is based upon delivery of high levels of customer
service with the goal of developing long-term, multiple product customer
relationships. To support this strategy, the Company uses written performance
standards for the timeliness and quality of responses to customers, and strives
to enable its sales representatives to meet those standards by providing them
with information and prompt access to senior decision makers. Whenever it is
practical, the Company enables the customer to choose how to receive information
and products: by internet, by telephone, or face-to-face with assigned sales
representatives. See "The Company" (page ).
The Chairman of the Company's Board of Directors, the Chief Executive
Officer, the three regional Presidents, the Chief Lending Officer, the Chief
Administrative Officer, and the Chief Financial Officer each has between 11 and
35 years of banking experience. See "Management" (page ).
ASSET GROWTH
The Company completed its initial public offering of common stock in
December 1993. It has grown from $434 million in assets at year-end 1993, to
$978 million at September 30, 1998, which represents a compound annual growth
rate of 18.6%. The Company achieved this asset growth without acquiring other
financial institutions. Because of its increased asset size, future percentage
growth rates may be more moderate. The Company's asset growth has been a product
of:
. increased lending penetration in the Tulsa and Oklahoma City markets;
. continued addition of experienced, sales-oriented personnel;
. the Company's introduction of new banking products;
3
<PAGE>
. the Company's ability to capitalize on the disruption of customer
relationships caused by consolidation in the Oklahoma banking
industry; and
. continued growth in the Oklahoma economy.
See "Management's Discussion and Analysis" (page ).
INCOME
Since 1993, the Company's net income and its net income available to common
shareholders increased in each year except 1997. For 1997, net income available
to common shareholders declined significantly, mainly as a result of unusually
large loan loss provisions. See Asset Quality, below (page ). For the first nine
months of 1998, return on average assets was 0.97% and return on average common
equity was 13.07%. Net income available to common shareholders for the first
nine months of 1998 was reduced by a one-time accounting adjustment of $928,000
related to the Company's redemption of its Preferred Stock. See Recent
Developments, (page ) and Capital, below (page ), and "Management's Discussion
and Analysis" (page ).
PRODUCTS
The Company offers a wide variety of commercial and consumer lending and
deposit services. The Company offers its traditional banking products and
services through its offices and sales representatives, by phone, and through
its web site on the internet. In the past two years, the Company has developed
products designed to complement its traditional banking products, including
internet banking services for consumer and commercial customers
("DirectBanker"); a highly automated lockbox, imaging and information service
for commercial customers ("Business Mail Processing"); and a product that
automatically sweeps excess funds from commercial demand deposit accounts and
invests them in short-term borrowings ("Sweep Repurchase Agreements").
Loans. Loans have been the Company's primary source of asset and revenue
growth. The Company is a commercial, real estate, and consumer lender. It also
is the largest originator of government-guaranteed student loans in Oklahoma.
Commercial loans and commercial loans secured by real estate are the Company's
two largest loan categories. Together these loans accounted for over 60% of the
loan portfolio at September 30, 1998.
The majority of the Company's loan growth since year-end 1993 has
originated in the Oklahoma City and Tulsa metropolitan areas. The outstanding
balance of loans originated by the Company in those markets increased at a
compound annual growth rate of 34.3% from year-end 1993 to September 30, 1998.
At September 30, 1998, outstanding loans originated by the Tulsa and Oklahoma
City offices totaled $486.3 million, and represented 64% percent of the total
loan portfolio.
Deposits. The Company's principal sources of funds are core deposits
(demand deposits, NOW accounts, money market accounts, savings accounts, and
certificates of deposit of less than $100,000) from the local market areas
surrounding each of its offices. The largest source of funds for the Company is
certificates of deposit. The Company's deposits grew at a compound annual growth
rate of 17.0% from year-end 1993 through September 30, 1998. In 1997, the
Company developed a funding strategy that uses alternative sources of funds in
order to reduce overall funding costs. As a result of this strategy, time
deposits of $590 million at September 30, 1998 were 3% less than at year-end
1997, and total deposits of $831 million were 1% less than at year-end 1997.
See "The Company" (page ), "Management's Discussion and Analysis" (page ),
and "Consolidated Financial Statements" (page F-1).
ASSET QUALITY
In 1997, the Company recorded significant increases in loan charge-offs and
the provision for loan losses. The 1997 provisions were well in excess of the
provisions recorded in 1996 and earlier years. These provisions led to a
substantial decline in net income for 1997 from 1996. The charge-offs were
primarily the result of deterioration in the financial condition of borrowers in
a small number of large commercial or commercial real estate lending
relationships.
In 1997, management reviewed and revised the Company'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.
The Company's asset quality ratios for the first nine
months of 1998 are substantially improved over 1997. For the first nine months
of 1998, the ratio of net charge-offs to average loans was 0.23% on an
annualized basis compared to 1.57% for 1997. At September 30, 1998,
nonperforming loans were $1.4 million ( 0.19% of loans) compared to $7.1 million
(0.99% of loans) at year-end 1997, and total
4
<PAGE>
nonperforming assets were $5.2 million (0.69% of loans and other real estate
owned) compared to $7.5 million (1.04% of loans and other real estate owned) at
year-end 1997. At September 30, 1998, the allowance for loan losses was 1.29% of
total loans, compared to 1.15% at year-end 1997. See "Management's Discussion
and Analysis" (page ).
CAPITAL
In 1995, the Company sold $17.25 million of Redeemable, Cumulative
Preferred Stock Series A ("Series A Preferred Stock"). In 1997, the Company
issued $25.0 million of trust preferred securities ("Trust Preferred"), through
a subsidiary formed for that purpose. The Trust Preferred meets the regulatory
criteria for Tier I Capital, subject to guidelines that limit the amount of the
preferred securities and cumulative perpetual preferred stock to 25% of Tier I
Capital for calculation of the Tier I capital ratio. The proceeds of the Trust
Preferred were invested in subordinated debentures ("Subordinated Debentures")
issued by the Company.
The Trust Preferred is less expensive to the Company than the Series A
Preferred Stock, since Trust Preferred dividends are, in effect, deductible for
federal income tax purposes. Because the Trust Preferred is less expensive, the
Company used proceeds from the Trust Preferred to redeem all of the Series A
Preferred Stock when it first became redeemable on September 1, 1998. The
redemption of the Preferred Stock caused a decrease in total shareholders'
equity, but did not reduce regulatory Tier I capital and leverage ratios or
common shareholders' equity. The redemption caused the Company to record a one-
time accounting adjustment of $928,000 that relates to the calculation of
earnings per share and the components of shareholders' equity. This adjustment
reduced basic and fully diluted earnings per common share by $0.24 for the first
nine months of 1998. See "Management's Discussion and Analysis" (page ).
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
At and for the nine months
ended
September 30, At and for the years ended December 31,
-------------------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- ---------- --------- ----------- ---------- ---------- ----------
(dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $ 755,056 $ 723,971 $ 719,113 $ 644,646 $ 531,988 $ 412,614 $ 319,260
Total assets 977,787 971,176 963,286 829,117 711,135 582,170 434,119
Common shareholders' equity 56,476 48,046 50,666 47,650 42,975 37,888 34,570
Net income available to common
shareholders 5,177 (1) 733 3,393 5,965 5,426 5,144 4,196
Basic earnings per common share 1.36 (1) 0.20 0.90 1.59 1.44 1.37 1.44
Diluted earnings per common share 1.32 (1) 0.19 0.88 1.56 1.43 1.37 1.44
Allowance for loan losses to loans 1.29 % 1.12 % 1.15 % 1.11 % 1.09 % 1.20 % 1.24 %
Nonperforming loans to loans 0.19 0.55 0.99 1.03 0.99 0.60 0.98
Nonperforming assets to loans and other
real estate owned 0.69 0.62 1.04 1.04 1.03 0.67 1.13
Net loan charge-offs to average loans 0.23 1.53 1.57 0.31 0.24 0.22 0.30
Return on average assets 0.97 0.28 0.54 0.98 0.93 1.01 1.07
Return on average common equity 13.07 (1) 2.03 6.95 13.30 13.48 14.17 17.76
Average shareholders' equity to
average
assets:
Total 6.95 7.18 7.12 8.05 7.27 7.12 6.01
Common 5.39 5.29 5.26 5.81 6.15 7.12 6.01
Tier I risk-based capital ratio 9.37 8.61 8.96 10.21 10.02 9.64 12.39
Total risk-based capital ratio 11.47 13.12 13.30 11.40 11.41 10.89 13.64
Leverage ratio 7.46 6.72 6.95 7.77 8.19 6.76 8.04
</TABLE>
(1) After reduction for the effects of a one-time accounting adjustment
relating to the redemption of the Company's Preferred Stock. The
adjustment caused a $928,000 decrease in net income available to
common shareholders and a reduction in basic and diluted earnings per
common share of $0.24.
5
<PAGE>
RECENT DEVELOPMENTS
Financial Condition and Performance. For the year ended December 31, 1998,
the Company recorded net income of $9.4 million and net income available to
common shareholders of $7.4 million. At December 31, 1998, total assets were
$1.028 billion, total loans were $793.3 million, and total shareholders' equity
was $57.8 million. For the year 1998, return on average common equity was
13.70%, basic earnings per common share were $1.95 and diluted earnings per
common share were $1.89. Net income per common share, return on common equity
and earnings per share for 1998 were reduced by the effects of the $928,000 one-
time accounting adjustment that related to the redemption of the Company's
Series A Preferred Stock. Without this adjustment, return on average common
equity was 15.42%, basic earnings per common share were $2.19 and diluted
earnings per common share were $2.13. At December 31, 1998, the ratio of
nonperforming loans to loans was 0.17% and the ratio of nonperforming assets to
loans and other real estate was 0.62%. The ratio of net charge offs to average
loans for the full year 1998 was 0.17%. Results for the year 1998 have not yet
been audited.
Management. Effective December 31, 1998, Robert L. McCormick, the President
and Chief Executive Officer of the Company and the Bank since 1970, retired from
those positions. Mr. McCormick continues to serve as Chairman of the Board of
Directors of the Company. Succeeding Mr. McCormick as President and Chief
Executive Officer is Rick J. Green, who had been Chief Operating Officer of the
Company since 1997, and previously was President of the Central Oklahoma
Division. Mr. Green has been with the Company and the Bank since 1972. Mr. Green
was elected to the Board of Directors in November 1998.
Stanley R. White, Chief Lending Officer of the Company, formerly President
of the Stillwater Division, was also elected to the Board of Directors in
November 1998. Mr. White has been with the Company and the Bank since 1974.
Mark A. Poole, formerly with BancOne and BankIV, joined the Company as
President of the Tulsa Division in December 1998. (See "Management" (page ).
Stock Options. In December 1998, the Company granted options to purchase
140,000 shares of common stock to senior and other officers of the Company. The
exercise price of these options was $26.00 per share, the market price per share
on the date of grant. The Company plans to submit a new option plan for
shareholder approval at the 1999 annual meeting. If approved, it will replace
the current plan with respect to future option grants.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock offered by:
Selling Shareholders............................................................ 810,997
The Company..................................................................... 250,000
---------
Total....................................................................... 1,060,997
The Company, if over-allotment option is exercised in full...................... 159,149
---------
Total....................................................................... 1,220,146
=========
Shares of Common Stock outstanding after the offering:
If the over allotment option is not exercised................................... 4,047,107
If the over allotment option is exercised in full............................... 4,206,256
Offering Price........................................................................ $[ ] per share
Gross Proceeds to the Company:
If the over allotment option is not exercised.................................. $ 6,250,000/(1)/
If the over allotment option is exercised in full.............................. $10,228,725/(1)/
Net Proceeds to the Company (after deduction of estimated expenses and
Underwriting discounts):
If the over allotment option is not exercised................................... $ 5,022,835/(1)/
If the over allotment option is exercised in full............................... $ 8,762,837/(1)/
Use of Proceeds....................................................................... The Company intends to use the net
proceeds to the Company from the
offering for general corporate
purposes, which may include lending and
investment activities. Pending such
investment, the net proceeds may be
invested in a variety of short-term,
interest-bearing assets including
federal funds transactions,
interest-bearing deposits in other
banks, and similar investments.
Nasdaq National Market Symbol......................................................... "OKSB"
Dividend Policy....................................................................... The Company has paid regular cash
dividends on the Common Stock since
December 31, 1981. See "Market for
Common Stock and Dividends" (page ).
</TABLE>
(1) Assuming an offering price of $25.00 per share for illustrative purposes
only, based on a recent market price of $24.625. The actual offering price
may be different, depending on market conditions at the time the offering is
priced.
7
<PAGE>
REASONS FOR THE OFFERING.
THE SELLING SHAREHOLDERS.
The Selling Shareholders are the Estate of Paul C. Wise and James B. Wise,
M.D. Paul C. Wise, who passed away in February 1998, had been an executive and a
member of the boards of directors of the Company and the Bank for many years.
Dr. James B. Wise, who is the son of Paul C. Wise, serves on the boards of
directors of the Company and the Bank. He and his brother, Allen H. Wise, are
co-executors of their father's estate. The Selling Shareholders are selling all
of their shares in order to fund estate taxes and to realign their investment
portfolios.
The Selling Shareholders together own 810,997 shares of common stock, or
approximately 21.4% of the Company's outstanding shares. They have entered into
an Offering Agreement and a Letter Agreement (referred to together as the
"Selling Agreements") with the Company and Stifel, Nicolaus & Company,
Incorporated that relate to the sale of their shares in this offering. The
Selling Agreements limit the Selling Shareholders' costs to the approximate
amount they would incur if they sold their shares to one or several large
investors rather than in this offering.
THE COMPANY
The Company believes this offering will benefit it and its shareholders by
encouraging broader public ownership of the Company's common stock and improving
the trading liquidity of the stock. The Company has agreed to pay a portion of
the Underwriters' compensation that applies to the shares sold by the Selling
Shareholders.
The Selling Shareholders together are the largest holders of the Company's
common stock. The offering is expected to decrease the concentration of
ownership significantly, and to increase the number of shares held by the
public, that is, persons who are not officers, directors, or holders of 5% or
more of the Company's common stock. After the offering, the percentage of the
Company's common stock owned by directors and executive officers is expected to
decrease from 35.4% to 13.8%, and the percentage of the Company's common stock
beneficially owned by its officers, directors, and holders of more than 5% of
its shares is expected to decrease from 51.4% to 28.9%. These percentages do not
reflect shares that may be issued on exercise of the over-allotment option. See
"Selling Shareholders; Ownership of Common Stock" (page ).
8
<PAGE>
RISK FACTORS
You should carefully consider the risk factors listed below. These risk
factors may cause the Company's future earnings to be less or its financial
condition to be less favorable than the Company expects. This list includes only
the risk factors that the Company believes are most important, and is not a
complete list of risks. Other risks may be significant, and the risks listed
below may affect the Company to a greater extent than indicated. You should read
this section together with the other information in this Prospectus and the
documents that are incorporated into the Prospectus by reference.
Forward Looking Statements. This Prospectus and documents incorporated in
it contain forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Act of 1934. The
forward looking statements include statements of goals, intentions, and
expectations, regarding or based upon general economic conditions, interest
rates, developments in national and local markets, and other matters, and which,
by their nature, are subject to significant uncertainties. See "Caution About
Forward Looking Statements" (page ).
CREDIT RISK
LOAN CHARGE-OFFS OR PROBLEM LOANS COULD BE HIGHER THAN THE COMPANY EXPECTS,
WHICH WOULD ADVERSELY AFFECT ITS INCOME AND FINANCIAL CONDITION.
The Company's loan portfolio contains a high percentage of commercial and
commercial real estate loans in relation to its total loans and total assets.
Commercial and commercial real estate loans are generally viewed as having more
risk of default than residential real estate loans or other loans or
investments. These types of loans are also typically larger than residential
real estate loans and other consumer loans. Because the loan portfolio contains
a significant number of commercial and commercial real estate loans with
relatively large balances, the deterioration of one or a few of these loans may
cause a significant increase in nonperforming assets. An increase in
nonperforming loans could result in: a loss of earnings from these loans; an
increase in the provision for loan losses, which would reduce operating income;
and an increase in loan charge-offs.
At any time, there are loans included in the Company's loan portfolio that
will result in losses to the Company, but that have not been identified as
nonperforming or potential problem loans. The Company has procedures that it
uses to help it identify potential problem loans at a time when they can be
worked out with minimal loss to the Company. However, the Company cannot be sure
that it will be able to identify deteriorating loans before they become
nonperforming assets, or that it will be able to limit losses on those loans
that are identified.
LOCAL ECONOMIC CONDITIONS
CHANGES IN LOCAL ECONOMIC CONDITIONS COULD REDUCE THE COMPANY'S INCOME AND
GROWTH, AND COULD LEAD TO HIGHER LEVELS OF PROBLEM LOANS AND CHARGE-OFFS.
The Company makes loans throughout the State of Oklahoma, but its
commercial lending operations are concentrated in the Stillwater, Tulsa, and
Oklahoma City areas. Adverse changes in economic conditions in those areas could
hurt the Company's ability to collect loans, could reduce the demand for loans,
and otherwise could negatively affect the Company's performance and financial
condition.
The Company's loan portfolios in its Tulsa and Central Oklahoma (Oklahoma
City and Chickasha) divisions, account for approximately two-thirds of the total
loan portfolio. The loan portfolios in these divisions are more heavily
concentrated in commercial and commercial real estate loans than is the
Stillwater division. Adverse developments affecting business conditions in Tulsa
and Oklahoma City could significantly hurt the Company's performance and
financial condition. In addition, although Oklahoma's economy has diversified
from its traditional dependencies on the energy industries and agriculture, and
although the Company has low direct lending to the energy and agriculture
industries, a substantial decline in the price of oil or in agricultural
commodity prices may hurt economic conditions generally in the Company's
markets.
LOAN PORTFOLIO CONCENTRATION
ADVERSE CHANGES IN HEALTHCARE-RELATED BUSINESSES COULD LEAD TO HIGHER
LEVELS OF PROBLEM LOANS AND CHARGE-OFFS.
The Company has a substantial amount of
9
<PAGE>
loans to individuals and businesses involved in the healthcare industry,
including business and personal loans to physicians, dentists and other
healthcare professionals, and loans to hospitals, nursing homes, suppliers and
other healthcare-related businesses. At September 30, 1998, $81.3 million of the
Company's loans, or 11% of the total loan portfolio, involved loans to
individuals and businesses in the healthcare industry. This concentration
exposes the Company to the risk that adverse developments in the healthcare
industry could increase the levels of nonperforming loans and charge-offs, and
reduce loan demand and deposit growth. The Company does not have any other
concentrations of loans to individuals or businesses involved in a single
industry of more than 5% of total loans. See "Management's Discussion and
Analysis - Lending" (page ).
INTEREST RATE RISK
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT THE COMPANY'S EARNINGS AND
FINANCIAL CONDITION.
The Company's net income depends to a great extent upon the level of its
net interest income. Changes in interest rates can increase or reduce net
interest income and net income. Net interest income is the difference between
the interest income the Company earns on its loans, investments and other
interest-earning assets, and the interest it pays on its interest-bearing
liabilities, such as deposits and borrowings. Because different types of assets
and liabilities owned by the Company may react differently, and at different
times, to changes in market interest rates, net interest income is affected by
changes in market interest rates. When interest-bearing liabilities mature or
reprice more quickly than interest-earning assets in a period, an increase in
market rates of interest could reduce net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could reduce net interest income.
Changes in market interest rates are affected by many factors beyond the
Company's control, including inflation, unemployment, money supply,
international events, and events in world financial markets. The Company
attempts to manage its risk from changes in market interest rates by adjusting
the rates, maturity, repricing, and balances of the different types of interest-
earning assets and interest-bearing liabilities, but interest rate risk
management techniques are not exact. As a result, a rapid increase or decrease
in interest rates could have an adverse effect on the Company's net interest
margin and results of operations. See "Management's Discussion and Analysis -
Asset/Liability Management and Quantitative and Qualitative Disclosures About
Market Risk" (page ).
PROVISIONS THAT COULD DISCOURAGE ACQUISITIONS OF THE COMPANY
RESTRICTIONS ON UNFRIENDLY ACQUISITIONS COULD PREVENT A TAKEOVER.
The Company's Certificate of Incorporation and Bylaws contain provisions
that could discourage takeover attempts that are not approved by the Board of
Directors. The Oklahoma General Corporation Act includes provisions that make an
acquisition of the Company more difficult. These provisions may prevent a future
takeover attempt in which shareholders of the Company otherwise might receive a
substantial premium for their shares over then-current market prices.
These provisions include supermajority provisions for the approval of
certain business combinations and certain provisions relating to meetings of
shareholders. The Certificate of Incorporation also authorizes the issuance of
additional shares without shareholder approval on terms or in circumstances that
could deter a future takeover attempt. See "Description of the Capital Stock"
(page ).
RESTRICTIONS ON BRANCHING
OKLAHOMA'S RESTRICTIONS ON BRANCHING COULD ADVERSELY AFFECT THE COMPANY.
Oklahoma law significantly restricts the ability of the Bank to establish
branches without the acquisition of an existing branch or financial institution.
The Company has developed a business strategy that does not rely on an extensive
branch network. The Company cannot be certain, however, that it will not lose
customers to other institutions that have more branches or branches in better
locations.
In January 1999, the Company received approval to establish four additional
branches under a provision of Oklahoma law that recently has been interpreted to
permit more extensive branching. The interpretation of this law is being
challenged in the courts. If the interpretation is rejected in the courts, the
10
<PAGE>
Company may not be able to operate these branches. Even if the Bank is permitted
to establish and retain these additional branches, it cannot be certain of its
ability to compete successfully. If wider branching authority becomes available
to all banks in Oklahoma, either under the provision under which the Bank has
applied, or as a result of changes in state or federal law, the Bank may need to
open more branches in order to compete effectively, which may adversely affect
returns on the common stock. See "The Company - Banking Offices" (page ).
DIVIDEND RESTRICTIONS
THE COMPANY'S ABILITY TO PAY DIVIDENDS IS LIMITED BY LAW AND CONTRACT.
The ability of the Company to pay dividends on the common stock largely
depends on its receipt of dividends from the Bank. The amount of dividends that
the Bank may pay to the Company is limited by federal laws and regulations. The
Company or the Bank may decide to limit the payment of dividends even where it
has the legal ability to pay them, in order to retain earnings for use in the
Company's business. The Company also is prohibited from paying dividends on the
common stock if the required payments on the Subordinated Debentures and the
Trust Preferred have not been made. See "Market for Common Stock and Dividends"
(page ).
COMPETITION
THE COMPANY COMPETES WITH OTHERS FOR ITS BUSINESS.
The Company and the Bank compete for loans, deposits, and investment
dollars with other banks and other kinds of financial institutions and
enterprises, such as securities firms, insurance companies, savings and loan
associations, credit unions, mortgage brokers, and private lenders, many of
which have substantially greater resources than those available to the Company.
In addition, non-depository institution competitors are generally not subject to
the extensive regulation applicable to the Company and the Bank. The differences
in resources and regulation may make it harder for the Company to compete
profitably, reduce the rates that the Company can earn on loans and investments,
increase the rates the Company must offer on deposits and other funds, and
adversely affect the Company's financial condition and earnings.
YEAR 2000 RISK
THE YEAR 2000 PROBLEM MAY HAVE SIGNIFICANT ADVERSE EFFECTS ON THE COMPANY
AND ITS CUSTOMERS.
Many computer programs now in use have not been designed to properly
recognize years after 1999. If not corrected, these programs could fail or
create erroneous results after December 31, 1999. This year 2000 ("Y2K") issue
affects the entire banking industry because of the industry's reliance on
computers and other equipment that use computer chips, and may have significant
effects on banking customers, bank regulators, and the general economy. The
Company is implementing a Y2K plan to prevent or limit adverse effects of the
Y2K issue on the Company and its customers. The Company's Y2K compliance is not
yet complete, however, and the Company cannot be certain that it can take all
necessary steps in sufficient time. Although the Company believes that total
expenditures will be less than $500,000, Y2K compliance may cost more than the
Company estimates, and may cause a decrease in the Company's net income.
The Company believes it will be able to successfully implement its Y2K
plan. The Company's belief that it, and its principal suppliers of software and
data processing services, will achieve Y2K compliance, is based on assumptions
that may not prove accurate, and on statements made by its data processing
suppliers and other third parties, and is therefore subject to uncertainty.
Although the Company has undertaken a customer awareness program, customer
concerns about the Y2K issue may adversely impact the Company. The actual
effects on individual customers of the Company, on governmental authorities that
regulate the Company, the financial markets and economy in general, and any
resulting consequences to the Company, cannot be estimated with any assurance.
Because of these uncertainties, the Company cannot be certain that Y2K
compliance will be achieved.
The Company, its principal software and data processing suppliers, and its
customers may not achieve Y2K compliance in spite of the Company's efforts.
Failure to achieve Y2K compliance by the Company, its principal software
suppliers, the payments system of banks and the Federal Reserve System, and the
telecommunications and power suppliers upon which they rely, could cause
disruptions in services to the Company's customers.
11
<PAGE>
Failure by the Bank's borrowers to achieve Y2K compliance could have adverse
financial effects on them, and make it more difficult for them to pay their
loans, which in turn may result in reduced income or additional loan losses for
the Company. See "Management's Discussion and Analysis - Year 2000" (page ).
REGULATORY RISK
GOVERNMENT REGULATION SIGNIFICANTLY AFFECTS THE COMPANY'S BUSINESS.
The banking industry is heavily regulated. Banking regulations are
primarily intended to protect the federal deposit insurance funds and
depositors, not shareholders. The Bank is subject to regulation and supervision
by the Office of the Comptroller of the Currency. The Company is subject to
regulation and supervision by the Board of Governors of the Federal Reserve
System. The burden imposed by federal and state regulations puts banks at a
competitive disadvantage compared to less regulated competitors such as finance
companies, mortgage banking companies and leasing companies. Changes in the
laws, regulations and regulatory practices affecting the banking industry could
impose additional costs on the Company, or could hurt the Company's ability to
compete profitably with other financial institutions.
LITIGATION RISK
LEGAL CLAIMS COULD HAVE MATERIAL ADVERSE EFFECTS ON THE COMPANY.
The Company is at all times subject to various pending and threatened legal
actions. The damages or other relief sought in some of these actions may be
substantial. After reviewing pending and threatened actions with counsel,
management believes that the outcome of currently pending or threatened actions
will not have a material adverse effect on the Company's overall financial
position. However, the outcome of legal actions is rarely certain, and the
Company's assessment of the effects of pending or threatened legal actions could
be wrong. In addition, even if a legal action does not have a material adverse
effect on the Company's financial position, it may have material adverse effects
on its results of operations in a given future period.
12
<PAGE>
USE OF PROCEEDS
At the offering price of $[ ] per share, the Company will receive net
proceeds of approximately $[ ] million ($[ ] million if the Underwriters' over-
allotment option is exercised in full), after deduction of all estimated
expenses of the offering and the underwriting discount payable by the Company.
The Company will not receive any of the proceeds from sales of shares by the
Selling Shareholders. The Company has agreed to pay a portion of the
underwriting discount on the shares to be sold by the Selling Shareholders. See
"Capitalization" (page ).
The proceeds of the offering will strengthen the Company's capital base and
position the Company to continue to exceed minimum regulatory capital ratios,
which will allow for future growth through expansion of its existing businesses
and possible acquisitions of other financial services institutions. The Company,
however, does not now have any specific plans, arrangements, agreements or
understandings with any other person for any acquisitions. The Company proposes
to use the net proceeds for general corporate purposes, which may include
investment in the Bank where such proceeds will be available for general
corporate purposes and for use in the Bank's lending and investment activities.
Pending such investment, the net proceeds may be invested in a variety of short-
term, interest-bearing assets including federal funds transactions, interest-
bearing deposits in other banks and similar investments.
13
<PAGE>
CAPITALIZATION
The following table shows (i) the consolidated capitalization of the
Company at September 30, 1998, and (ii) the consolidated capitalization of the
Company on a pro forma basis giving effect to the issuance of 250,000 shares by
the Company and the receipt by the Company of the net proceeds from the offering
of such shares, after deduction of all estimated expenses of the offering and
the Underwriting discount payable by the Company (including the portion of the
Selling Shareholders' Underwriting discount which the Company has agreed to
pay), as if the sale of the shares had been consummated on September 30, 1998,
and assuming the Underwriters' over-allotment option is not exercised:
<TABLE>
<CAPTION>
At September 30, 1998
------------------------------------------
Pro Forma
Actual (1)(2)(4)
------------- --------------
(dollars in thousands)
<S> <C> <C>
Long-Term Debt:
Guaranteed preferred beneficial interests in the
Company's subordinated debentures(3) $ 25,013 $ 25,013
========== ==========
Shareholders' Equity:
Serial preferred stock, par value $1.00 per
share; 1,000,000 authorized, none issued - -
Class B serial preferred stock, par value $1.00 per
share; 1,000,000 authorized, none issued - -
Common stock, par value $1.00 per share;
10,000,000 shares authorized; 3,797,107 shares
issued and outstanding actual, and 4,047,107 shares
issued and outstanding pro forma 3,797 4,047
Capital surplus 9,332 14,790
Retained earnings 42,247 42,044
Accumulated other comprehensive income 1,100 1,100
---------- ----------
Total shareholders' equity $ 56,476 $ 61,981
========== ==========
Capital Ratios:
Leverage ratio(5) 7.46 % 8.21 %
Tier 1 capital (to risk - weighted assets) 9.37 % 10.31 %
Total capital (to risk - weighted assets) 11.47 % 12.17 %
</TABLE>
(1) Reflects Company-paid expenses of the offering of $250,000 and
Underwriting discount of $977,165 (including $602,165 of underwriting
discount relating to shares sold by the Selling Shareholders which the
Company has agreed to pay). Underwriting discount paid by the Company
for the Selling Shareholders, net of certain reimbursements, will be
expensed in the quarter in which it is incurred.
(2) If the over-allotment option is exercised in full, pro forma total
shareholder's equity would be $65.96 million, and the pro forma capital
ratios would be as follows: leverage ratio 8.74%; Tier 1 capital to
risk-weighted assets 10.99%; and total capital to risk-weighted assets
12.68%.
(3) The Company's Subordinated Debentures were issued in connection with the
public offering of the trust preferred securities issued by SBI Capital
Trust, the Company's subsidiary. For purposes of regulatory capital
requirements, the Federal Reserve allows preferred securities which meet
certain requirements and which are issued by subsidiaries of bank
holding companies to be included as Tier 1 capital, up to a maximum of
25% of Tier 1 capital. The Company believes that the Trust Preferred
meets the requirements for inclusion in Tier 1 capital. As of September
30, 1998, the Company included $18,459,000 of the Trust Preferred in
Tier 1 Capital. If the offering had been completed as of September 30,
1998, $20,294,000 of the Trust Preferred would have been included in
Tier 1 capital.
(4) Assuming an offering price of $25.00 per share for illustrative purposes
only. The actual offering price may be different, depending on market
conditions at the time the offering is priced.
(5) The Leverage ratio is Tier 1 capital divided by quarterly average total
assets less intangibles.
14
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDENDS
Market for Common Stock. The common stock is listed for quotation on the
Nasdaq National Market under the symbol "OKSB." As of __________________, 1999,
the common stock was held by ________ shareholders of record.
Dividends. Holders of the common stock are entitled to receive dividends as
and when declared by the Board of Directors. The Company has paid quarterly cash
dividends since 1981. It is the policy of the Board of Directors to consider the
payment of dividends each quarter, in light of the Bank's and the Company's
earnings, capital position, anticipated capital requirements, and other factors
that the Board of Directors deems relevant. Funds for the payment of dividends
are obtained primarily from dividends paid to the Company by the Bank.
The Company and the Bank are subject to regulatory capital requirements
that may limit dividends. The Company's or the Bank's capital ratios may be a
factor in the determination of the Board of Directors, or the ability of the
Bank, to pay dividends. Although management believes that sufficient funds for
the payment of dividends will be available, there can be no assurance that funds
for the payment of dividends will continue to be available in sufficient amounts
to pay dividends in accordance with the Company's past practice. Even if
sufficient funds for the payment of dividends are available, there can be no
assurance that the Board of Directors will elect to pay dividends, as opposed to
retaining earnings to fund growth or expansion, or for other corporate purposes.
Additionally, the Company is prohibited from paying dividends on the common
stock if the required payments on the Subordinated Debentures and the Trust
Preferred have not been made.
Set forth below are the high and low prices for the common stock for each
quarter of 1997 and 1998, and for 1999 through the date of this Prospectus, as
well as the amount of cash dividends declared in each quarter.
<TABLE>
<CAPTION>
1999(1) 1998 1997
For the Quarter Ended High Low Dividend High Low Dividend High Low Dividend
----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 $29.000 $26.063 $0.09 $23.000 $19.500 $0.08
June 30 32.750 27.000 0.09 25.875 21.250 0.08
September 30 30.000 26.000 0.09 26.750 20.500 0.08
December 31 28.625 19.750 0.09 28.500 21.375 0.08
</TABLE>
(1) Through February , 1999.
15
<PAGE>
THE COMPANY
Southwest Bancorp, Inc. (the "Company") is a one-bank holding company
headquartered in Stillwater, Oklahoma. The Company provides commercial and
consumer banking services through its sole banking subsidiary, Stillwater
National Bank & Trust Company (the "Bank"). The Company was organized in 1981 as
the holding company for the Bank, which was chartered in 1894.
STRATEGIC FOCUS
The Company's banking philosophy is to provide a high level of customer
service, a wide range of financial services, and products responsive to customer
needs. This philosophy has led to the development of a line of deposit and
lending products that responds to customer needs for speed, efficiency and
information. These include the Company's Sweep Repurchase Agreements, Business
Mail Processing, and the Company's DirectBanker and other internet banking
products, which complement the Company's more traditional banking products.
The Company also emphasizes marketing to highly educated, professional and
business persons in its markets. The Company seeks to build close relationships
with businesses, professionals and their principals and to service their banking
needs throughout their business development and professional lives .
PRODUCTS AND SERVICES
The Company offers a wide variety of commercial and consumer lending and
deposit services. The commercial loans offered by the Company include (i)
commercial real estate loans, (ii) working capital and other commercial loans,
(iii) construction loans, and (iv) Small Business Administration ("SBA")
guaranteed loans. Consumer lending services include (i) government-guaranteed
student loans, (ii) residential real estate loans and mortgage banking services,
and (iii) personal lines of credit and other installment loans. The Company also
offers deposit and personal banking services, including (i) commercial deposit
services such as lockbox services, commercial checking and other deposit
accounts, (ii) retail deposit services such as certificates of deposit, money
market accounts, checking accounts, NOW accounts, savings accounts and Automatic
Teller Machine ("ATM") access. Trust services, personal brokerage and credit
cards are offered through independent institutions. The Company has developed
internet banking services, called "DirectBanker", for consumer and commercial
customers, a highly automated lockbox, imaging and information service for
commercial customers called "Business Mail Processing," and a deposit product
that automatically sweeps excess funds from commercial demand deposit accounts
and invests them in short-term borrowings ("Sweep Repurchase Agreements").
ORGANIZATION
The Company's business operations are conducted through three regional
divisions that offer commercial, consumer, and real estate lending services and
retail and commercial deposit products in their market areas, and a home office
that provides technology driven products, residential mortgages, and government-
guaranteed student loans. The Company's support and control functions are
centralized, although each region includes support and control staff. The
organizational structure is designed to facilitate high customer service, prompt
response, efficiency, and appropriate, uniform credit standards and other
controls.
Regional Divisions. The three regional divisions are the Stillwater
division, the Central Oklahoma division (which includes Oklahoma City and
Chickasha) and the Tulsa division. The Stillwater division serves the Stillwater
market as a full-service community bank emphasizing both commercial and consumer
lending. The Central Oklahoma division and the Tulsa division each have followed
a more focused marketing strategy, targeting managers and professionals and
Oklahoma-based businesses for lending, and offering more specialized services.
All of the regional divisions focus on consumer and commercial financial
services to local businesses and their senior employees and to other managers
and professionals living and working in the Company's market areas. The Company
has a high-service philosophy. Loan officers often meet at the customer's home
or place of business to close loans. Third-party courier services often are used
to collect commercial deposits.
16
<PAGE>
Management believes that the bank consolidation in the Tulsa and Central
Oklahoma markets has created opportunities for growth by the Company. At
September 30, 1998, the Company had only a small share of each of these markets
(less than 5% of deposits in each market). The disruption of service that often
accompanies consolidation enables the Company to market its customer oriented,
responsive banking philosophy to acquire new relationships. The Company believes
that its banking philosophy will assist the Company in maintaining its position
in the Stillwater market where it has in excess of a 50% share of deposits.
Stillwater is the home of Oklahoma State University and is a regional medical
center.
Home Office Business Operations. The Company manages and offers products
that are technology based, or that otherwise are more efficiently offered
centrally, through its home office. These include products that are marketed
through the regional offices, such as the Company's internet banking products
for commercial and retail customers (DirectBanker), commercial information and
item processing services (Business Mail Processing), and residential mortgage
loans, and products marketed and managed directly by central staff, such as
student lending and cash dispensing machines.
The Company's technology products are marketed both to existing customers
and to help develop new customer relationships. Use of these products by
customers enables the Company to serve its customers more effectively, use its
resources more efficiently, and increase fee income.
The Company also manages its mortgage and student lending operations
through its home office. The Company is the largest originator of government-
guaranteed student loans in Oklahoma. The Company markets its lending program
directly to financial aid directors at Oklahoma colleges and universities. These
loans are sold as they enter repayment. The Company also originates first
mortgage loans for sale to FNMA or private investors. Servicing on these loans
may be released in connection with the sale. See "Management's Discussion &
Analysis" (page ).
Support and Control Functions. Support and control functions are
centralized, although each Regional division has support and control personnel.
The Company's philosophy of customer service extends to its support and control
functions. Senior managers headquartered in the Stillwater offices travel to
Oklahoma City and Tulsa to help in marketing and management. The Company's Chief
Executive Officer, Chief Lending Officer, and others meet in committee in the
regional offices to consider credit proposals in order to ensure customers are
given prompt decisions while maintaining uniform credit standards.
BANKING OFFICES
Banking Offices. The Company has six full-service banking offices, two of
which are located in each of Stillwater and Tulsa, Oklahoma, and one each in
Oklahoma City and Chickasha, Oklahoma, and a loan production office in Oklahoma
City.
Oklahoma law significantly restricts the ability of the Bank to establish
branches without the acquisition of an existing branch or financial institution.
In general, an Oklahoma commercial bank may open only two full service branches,
which must be in the city where its home office is located. An exception exists
for branches acquired from other institutions. The Company has developed a
business strategy that does not rely on an extensive branch network. It has
acquired offices selectively, and has opened loan production offices in areas
where branch acquisitions were not feasible or necessary to its strategy.
Recently, Oklahoma law has been interpreted to permit more extensive branching.
The Bank has received permission to establish four additional branches under
this interpretation to support its existing operations: two in each of the Tulsa
and Oklahoma City metropolitan markets. Other Oklahoma banks also have applied
for branches under this interpretation, which is now subject to legal challenge.
If the interpretation is found to be invalid, then the Bank may not be able to
open the branches, or if opened, may be required to close them. In light of this
uncertainty, the Bank will limit its investment in the new offices.
17
<PAGE>
In January 1999, the Company occupied its new 42,000 square foot facility,
which it constructed to replace one of its Tulsa locations. Approximately half
of the building will be rented to others, although no leases have yet been
executed.
Additional financial and other information regarding the Company is
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations and in the Company's Consolidated Financial Statements.
You should carefully consider all of the information contained in, and
incorporated by reference in, this Prospectus.
18
<PAGE>
MANAGEMENT
The Company has assembled a management team of experienced bankers. The
Company's executive officers are listed below.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Robert L. McCormick...................... 64 Chairman of the Board of Directors of the Company and the Bank
Rick J. Green............................ 51 Chief Executive Officer of the Company and the Bank; Director of the
Company and the Bank
Stanley R. White......................... 52 Chief Lending Officer of the Bank; Director of the Company and the
Bank
Kerby E. Crowell......................... 48 Executive Vice President, Treasurer and Chief Financial Officer of the
Company and the Bank
Kimberly G. Sinclair..................... 43 Executive Vice President and Chief Administrative Officer of the Bank
Mark A. Poole............................ 39 President, Tulsa division of the Bank
Joseph P. Root........................... 34 President, Central Oklahoma division of the Bank
Patrick E. Zimmerman..................... 37 President, Stillwater division of the Bank
Terry M. Almon........................... 43 Senior Vice President and Director of Corporate Marketing Retail
Sales, Electronic Banking and Training
Jerry L. Lanier.......................... 50 Senior Vice President of the Bank
Charles H. Westerheide................... 50 Senior Vice President and Treasury Manager
of the Bank
</TABLE>
The principal occupations and business experience of each executive officer
of the Company are shown below. Unless otherwise indicated, each person has held
the indicated positions for at least the last five years.
Robert L. McCormick is Chairman of the Board of Directors of the Company
and the Bank, positions in which he has served since 199__, and has been a
director of the Company since its inception in 1981. He served as Chief
Executive Officer of the Company from its inception until December 31, 1998, and
as President, Chief Executive Officer and a director of the Bank from 1970 until
December 31, 1998. He is a Regent, Oklahoma State Regents for Higher Education.
He has served as President of the Independent Bankers Association of America;
President of the Independent Bankers Association of Oklahoma; President of the
Board of Directors Stillwater Chamber of Commerce; Chairman of the State
Chamber, Oklahoma's Association of Business and Industry; Chairman and President
of the Board of Directors for the Oklahoma Academy for State Goals; Chairman of
the Board of Trustees of the Oklahoma State University Foundation; 1991 Drive
Chairman for the Stillwater United Way; and was named 1990 Citizen of the Year
by the Stillwater Chamber of Commerce.
19
<PAGE>
Rick J. Green was appointed the Chief Executive Officer of the Company and
the Bank effective in January 1999. Previously, Mr. Green has served as Chief
Operating Officer, President of the Central Oklahoma division of the Bank, and
Executive Vice President of the Bank. Mr. Green was appointed to the Boards of
Directors of the Company and the Bank in November 1998. Mr. Green joined the
Bank in 1972. He is a member of the Oklahoma City and Edmond Chambers of
Commerce and has served as Chair/Ambassador of the Stillwater Chamber of
Commerce, on the Oklahoma State University Alumni Association Homecoming and
Honor Students Committees, as Chairman of the Payne County Youth Services, as
Co-Chairman of the United Way of Stillwater Fund Drive and as a member of the
Advisory Board of the Oklahoma State University Technical Institute. He is a
member of the Commercial Real Estate Association of Oklahoma City, the Oklahoma
and Oklahoma City Homebuilders Associations, and past member of the Stillwater
Medical Center Committee on Physician Recruitment. Mr. Green is also a member of
Leadership Stillwater and Leadership Oklahoma City.
Stanley R. White was appointed Chief Lending Officer in December 1995 and
elected to the Boards of Directors of the Company and the Bank in November 1998.
Prior to this appointment as Chief Lending Officer, he had been President of the
Stillwater division of the Bank since 1991. Mr. White joined the Bank in 1974.
He is a past member and past Chairman of the Board of Trustees of the Stillwater
Medical Center, past Director of the Stillwater Public Education Foundation, the
Judith Karman Hospice, United Way, March of Dimes, and the Stillwater Rotary,
and past President of the Stillwater Chamber of Commerce and the Stillwater
Industrial Foundation. Mr. White has also served as past Director of the
Oklahoma State University Alumni Association and the Oklahoma State Chamber of
Commerce, past Board Member of the Oklahoma Law Enforcement Retirement Board,
and currently serves as Director of the Oklahoma Medical Research Foundation,
Director of Leadership Oklahoma, Vice President of Leadership Oklahoma Alumni,
past Chairman and Trustee of the Board of Governors of the Oklahoma State
University Foundation, and is a Director of Oklahoma Academy for State Goals.
Mr. White is also past Chairman of the Oklahoma Bankers Association, past
Chairman of the Oklahoma Bankers Association Government Relations Council and
past Chairman of the Education Committee of this organization, and a member of
the American Bankers Association Government Relations Council. Mr. White is also
Director of the Texas Chapter and Senior Member of the Robert Morris
Association.
Kerby E. Crowell has served as Executive Vice President, Treasurer and
Chief Financial Officer of the Company and the Bank since 1986. Mr. Crowell
joined the Bank in 1969. He is a Past President and Board member of the Oklahoma
City Chapter of the Financial Executives Institute, and a member of the Bank
Operations Committee of the Independent Bankers Association of America and the
Federal Reserve's Industry Advisory Group on Electronic Check Presentment. He is
past President and Director of the Oklahoma 4-H Foundation, Inc., Director and
past President of the Payne County Affiliate of the American Diabetes
Association, past President of the Stillwater Breakfast Kiwanis Club, the Bank
Administration Institute's Northern Oklahoma Chapter, and the North Central
Chapter of Certified Public Accountants, and past Vice Chairman of the
Independent Bankers Association of America's Bank Services Committee. Mr.
Crowell is also a graduate of the Leadership Stillwater Class XI.
Kimberly G. Sinclair was appointed Chief Administrative Officer in 1995 and
has been Executive Vice President of the Bank since 1991. Prior to 1991, she had
been Senior Vice President and Chief Operations Officer of the Bank since 1985.
Ms. Sinclair joined the Bank in 1975. She is a member of the Stillwater Junior
Service League, Treasurer of the Board of Trustees of the Stillwater Public
Education Foundation, and a graduate of the Leadership Stillwater Class IX. She
has been an Ambassador with the Stillwater Chamber of Commerce and active with
the Pioneer Booster Club and Stillwater PTA.
Mark A Poole was appointed President of the Tulsa division of the Bank in
December 1998. Prior to joining the Bank in 1998, Mr. Poole was Senior Vice
President/Sales Manager of Bank One, Oklahoma in Tulsa from 1996 to 1998; and
served as commercial lending officer for BankIV in Oklahoma City from 1994 to
1996; Bank of Oklahoma in Oklahoma City from 1991 to 1994; and Security Pacific
Bank of Arizona from 1987 to 1991. In 1981, Mr. Poole was drafted by the Toronto
Blue Jays and played professional baseball in the A, AA and AAA leagues until
1986. Mr. Poole is a board member of the Tulsa Area United Way Allocations
Committee and Downtown Tulsa Unlimited. He is a former board member of Citizens
Caring for Children, was chairman of the 1996 OBA Basic Banking School, and a
member of the Advisory Board for the 1994 OBA Commercial Lending School. He is
co-advisor of the Explorer Scout Post at Bank of Oklahoma.
20
<PAGE>
Joseph P. Root was appointed President of the Central Oklahoma division of
the Bank in November 1997. Previously, Mr. Root was Senior Vice President in the
Central Oklahoma division. Mr. Root joined the Bank in 1992. He is a member of
the Oklahoma City Chamber of Commerce and the State Chamber of Commerce of
Oklahoma, and of Robert Morris Associates. In addition, he is a member of the
Oklahoma City Men's Dinner Club.
Patrick E. Zimmerman has been President of the Stillwater division since
July 1996. Prior to becoming President, Mr. Zimmerman served as Executive Vice
President and Stillwater division Manager from December 1995 to July 1996, as
Senior Vice President of Commercial Lending of the Bank from January 1995 to
December 1995, as Vice President of Commercial Lending of the Bank from January
1992 to January 1995, and as the Administrative Vice President and Branch
Manager of Farm Credit Services in Stillwater, an agricultural lending
institution, from February 1987 to January 1992. Mr. Zimmerman is a member of
the Stillwater Chamber of Commerce and a 1995 Graduate of Leadership Oklahoma.
He currently serves as a board member of the Oklahoma State University Alumni
Association. Mr. Zimmerman has also served as a board member of the Stillwater
Chamber of Commerce, Stillwater Area United Way, and as a Director of the
Stillwater Industrial Foundation. He was the Campaign Chairman for the 1996
Stillwater Area United Way Campaign and is past Chairman of the Board of the
Stillwater Chamber of Commerce. Mr. Zimmerman is past president of the
Stillwater Frontier Rotary Club and is past Chairman of the Banking Leadership
Oklahoma Committee for the Oklahoma Bankers Association. Mr. Zimmerman is also a
member of the Robert Morris Association.
Terry M. Almon is a Senior Vice President and was appointed Director of
Corporate Marketing, Retail Sales, Electronic Banking and Training in September
1998. Prior to September 1998, she was Senior Vice President and manager of
Electronic Banking from 1996, and was responsible for the management of the
Tulsa division's Marketing, Operations and Retail Sales from 1990 to 1996. Ms.
Almon joined the Bank in 1990. She is a member of the Oklahoma Commission for
Teacher Preparation, a member of the American Bank Marketing Association and a
director of the Southwest Education Development Laboratory. She is past Chairman
of the Oklahoma Commission for Teacher Preparation, former board member of the
Magic Empire Council of the Girl Scouts of America, a charter founding member of
the Juliette Lowe Leadership Society and a former Chairman of the Tulsa Women's
Foundation. Ms. Almon was awarded the Oklahoma Education Association's "Friend
of Education" award in 1992. She was elected to the Board of Education of the
Jenks Public Schools in 1992, and has served actively on numerous education
committees for public schools.
Jerry L. Lanier was appointed Senior Vice President in Credit
Administration in 1998, supervising this area Company-wide. From 1992 until
joining the Bank in 1998, Mr. Lanier was a consultant specializing in loan
review. During this same period he also served as court-appointed receiver for a
number of Oklahoma-based insurance companies. From 1982-1992, Mr. Lanier served
as President of American National Bank and Trust Co. of Shawnee, Oklahoma
including service as Chief Executive Officer from 1987-92. From 1970-1981, he
was a National Bank Examiner for the Comptroller of the Currency in Oklahoma
City and Dallas, Texas, and, while an examiner, served as Regional Director of
Special Surveillance from 1979 to 1981, and conducted bank examinations in
Europe. Mr. Lanier has served as United Way Drive Chairman and President;
Chairman of the Shawnee Advisory Board of Oklahoma Baptist University; Director
of the Shawnee Chamber of Commerce; Director and Chairman of the Youth and
Family Resource Center; and President and Trustee of the Shawnee Educational
Foundation.
Charles H. Westerheide is Senior Vice President and Treasury Manager of the
Bank. He joined the Bank in 1997 coming from NationsBank, Wichita, Kansas
(previously BankIV) where he served as Treasury/Funding Manager. Prior to
joining BankIV, Mr. Westerheide served as Executive Vice President and Chief
Financial Officer of Security Bank and Trust Co., Ponca City, OK. Mr.
Westerheide has held a number of community leadership positions including
Chairman of the Ponca City Chamber of Commerce, President of the Ponca City
Foundation for Progress, Inc., and a director and officer of numerous community
foundations and clubs. Mr. Westerheide is a graduate of Leadership Oklahoma,
Class II.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table shows selected historical financial data for the
Company. You should read it in connection with the historical financial
information and with the other information provided in this Prospectus. Detailed
historical financial information is included in the Consolidated Financial
Statements (page F-1) and in the documents incorporated by reference. See "
Additional Information" on page . The financial information for the interim
periods ended September 30, 1998 and 1997 has not been audited and in the
opinion of management reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of that data. The
results of operations for the nine months do not necessarily indicate the
results for the full year. See "Summary--Recent Developments" (page ).
<TABLE>
<CAPTION>
At and for the nine
months ended
September 30, At and for the years ended December 31,
--------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ------------ ------------ ------------ ------------ ------------
(dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS
Interest income $ 60,530 $ 56,816 $ 76,849 $ 64,668 $ 55,000 $ 37,654 $ 29,639
Interest expense 31,856 30,339 41,247 32,833 28,544 16,637 12,417
--------- --------- ------------ ------------ ------------ ------------ ------------
Net interest income 28,674 26,477 35,602 31,835 26,456 21,017 17,222
Provision for loan losses 2,705 8,903 12,104 3,100 2,000 1,800 1,400
--------- --------- ------------ ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 25,969 17,574 23,498 28,735 24,456 19,217 15,822
Gain on sales of securities and
loans 2,144 1,388 5,199 2,227 1,025 1,694 931
Other income 2,996 3,187 4,696 4,122 3,849 3,427 3,284
Other expenses 19,942 19,340 25,746 23,226 19,902 16,440 13,733
--------- --------- ------------ ------------ ------------ ------------ ------------
Income before taxes 11,167 2,809 7,647 11,858 9,428 7,898 6,304
Taxes on income 4,004 886 2,667 4,306 3,336 2,754 2,108
--------- --------- ------------ ------------ ------------ ------------ ------------
Net income $ 7,163 $ 1,923 $ 4,980 $ 7,552 $ 6,092 $ 5,144 $ 4,196
========= ========= ============ ============ ============ ============ ============
Net income available to common
shareholders (1) $ 5,177 $ 733 $ 3,393 $ 5,965 $ 5,426 $ 5,144 $ 4,196
========= ========= ============ ============ ============ ============ ============
PER SHARE DATA (2)
Basic earnings per common share
(1) $ 1.36 $ 0.20 $ 0.90 $ 1.59 $ 1.44 $ 1.37 $ 1.44
Diluted earnings per common
share (1) 1.32 0.19 0.88 1.56 1.43 1.37 1.44
Common stock cash dividends 0.27 0.24 0.32 0.28 0.24 0.20 0.14
Book value per common share (3) 14.87 12.74 13.38 12.66 11.44 10.09 9.21
Weighted average common shares
outstanding:
Basic 3,794,043 3,768,663 3,773,037 3,760,370 3,755,228 3,755,228 2,910,535
Diluted 3,916,744 3,864,556 3,872,888 3,828,381 3,788,089 3,756,674 2,910,535
FINANCIAL CONDITION DATA (3)
Investment securities (4) $ 170,698 188,591 $ 187,740 $ 147,351 $ 147,688 $ 143,517 $ 83,442
Loans (5) 755,056 723,971 719,113 644,646 531,988 412,614 319,260
Interest-earning assets 927,605 917,262 916,860 791,997 679,676 556,131 416,202
Total assets 977,787 971,176 963,286 829,117 711,135 582,170 434,119
Interest-bearing deposits (6) 725,743 761,889 744,865 670,216 556,079 458,899 339,605
Total deposits (6) 830,811 869,299 841,425 753,945 634,387 525,560 394,521
Long-term debt (7) 25,013 25,013 25,013 - - - -
Total shareholders' equity (8) 56,476 65,428 68,048 65,032 60,357 37,888 34,570
Common shareholders' equity 56,476 48,046 50,666 47,650 42,975 37,888 34,570
Mortgage servicing portfolio 121,587 133,456 132,824 118,953 130,188 143,899 129,648
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
At and for the nine
months ended
September 30, At and for the years ended December 31,
------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------------------------------------------------------------------------------
(dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS
Return on average assets 0.97% 0.28% 0.54% 0.98% 0.93% 1.01% 1.07%
Return on average total
shareholders'
equity (9) 14.02 3.92 7.54 12.15 12.81 14.17 17.76
Return on average common
equity(1) (9) 13.07 2.03 6.95 13.30 13.48 14.17 17.76
Net interest margin (9) 4.08 4.08 4.03 4.32 4.23 4.34 4.61
Efficiency ratio (10) 58.98 62.28 56.59 60.83 63.52 62.90 64.06
Average assets per employee $3,026 $2,566 $2,667 $2,162 $2,204 $2,089 $1,917
ASSET QUALITY RATIOS
Allowance for loan losses to
loans (3) 1.29% 1.12% 1.15% 1.11% 1.09% 1.20% 1.24%
Nonperforming loans to loans (3)
(11) 0.19 0.55 0.99 1.03 0.99 0.60 0.98
Allowance for loan losses to
nonperforming loans (3) (11) 678.48 205.14 116.08 107.37 110.12 199.16 126.07
Nonperforming assets to loans and
other real estate owned (3) (12) 0.69 0.62 1.04 1.04 1.03 0.61 1.13
Net loan charge-offs to average
loans (9) 0.23 1.53 1.57 0.31 0.24 0.22 0.30
CAPITAL RATIOS:
Average shareholders' equity to
average assets
Total 6.95 7.18 7.12 8.05 7.27 7.12 6.01
Common 5.39 5.29 5.26 5.81 6.15 7.12 6.01
Tier I Capital
(to risk-weighted assets) (13) 9.37 8.61 8.96 10.21 10.02 9.64 12.39
Total Capital
(to risk-weighted assets) (13) 11.47 13.12 13.30 11.40 11.41 10.89 13.64
Leverage ratio (13) 7.46 6.72 6.95 7.77 8.19 6.76 8.04
</TABLE>
(1) Amounts for the nine months ended September 30, 1998 are shown after
reduction for a one-time accounting adjustment of $928,000, or $0.24
per common share, relating to the redemption of the Company's Series A
Preferred Stock on September 1, 1998.
(2) Per share information for 1993 has been restated to reflect the
fourteen-for-one stock split effected in the form of a stock dividend
paid November 15, 1993.
(3) At period end.
(4) Includes investment securities available for sale.
(5) Net of unearned discounts but before deduction of allowance for loan
losses.
(6) In late 1997, the Company adopted a funding strategy that uses
alternative sources of funds in order to reduce overall funding cost.
(7) In 1997, the Company issued $25.0 million in Subordinated Debentures in
connection with the sale of the Trust Preferred.
(8) On September 1, 1998, the Company redeemed all of its Series A
Preferred Stock at its stated liquidation value of $17.25 million.
(9) The ratios for the nine-month periods are annualized.
(10) The efficiency ratio = other expense/(net interest income + gain on
sales of securities and loans + other income).
(11) Nonperforming loans consist of nonaccrual loans, loans contractually
past due 90 days or more plus loans with restructured terms.
(12) Nonperforming assets consist of nonperforming loans plus foreclosed
assets.
(13) Computed in accordance with current regulatory guidelines.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward Looking Statements. This management's discussion and analysis
of financial condition and results of operations includes forward looking
statements, such as: statements of the Company's goals, intentions, and
expectations; estimates of risks and of future costs and benefits; and
statements of the Company's ability to achieve financial and other goals. These
forward looking statements are subject to significant uncertainties because they
are based upon: future interest rates and other economic conditions; statements
by suppliers of data processing equipment and services, government agencies, and
other third parties as to year 2000 compliance and costs; future laws and
regulations; and a variety of other matters. Because of these uncertainties, the
actual future results may be materially different from the results indicated by
these forward looking statements. In addition, the Company's past growth and
performance do not necessarily indicate its future results. See "Caution About
Forward Looking Statements" (page ).
You should read this management's discussion and analysis of the
Company's consolidated financial condition and results of operations in
conjunction with "Selected Consolidated Financial Data," the Company's
consolidated financial statements and the accompanying notes, and other
financial data that is included in this Prospectus.
GENERAL
Performance for the First Nine Months of 1998. In the first nine months
of 1998, the Company's total assets increased by $14.5 million, or 2%, loans
increased by $35.9 million, or 5%, and common shareholders' equity increased by
$5.8 million, or 11%. For the nine months, return on assets was 0.97% and return
on common equity was 13.07%. At September 30, 1998, nonperforming assets were
0.69% percent of the total of loans and other real estate, and the allowance for
loan losses was 1.29% of total loans and 678% percent of nonperforming loans. In
the first nine months of 1998, the Company increased its net interest income by
8% over the same period of 1997. Operating expense increased 3% from the 1997
period. Diluted net income per common share of $1.32 increased $1.13 over
diluted net income per common share of $0.19 for the first nine months of 1997,
which were significantly depressed due to unusually high loan loss provisions.
The Company redeemed all of its Series A Preferred Stock on September
1, 1998. The redemption of the Series A Preferred Stock caused a decrease in
total shareholders' equity, but did not reduce regulatory Tier I capital and
leverage ratios or common shareholders' equity. The redemption caused the
Company to record a one-time accounting adjustment of $928,000 that relates to
the calculation of earnings per share and the components of shareholders'
equity. This adjustment reduced basic and fully diluted earnings per common
share by $0.24 for the first nine months of 1998.
Performance since Year-end 1993
Asset Growth. The Company's assets and revenues have increased
significantly since December 31, 1993. From year-end 1993 through September 30,
1998, assets have grown at an 18.6% compound annual growth rate. The Company's
growth since year-end 1993 reflects increased penetration of the Tulsa and
Oklahoma City markets, continued addition of experienced, sales-oriented
personnel, the Company's introduction of new banking products, the Company's
ability to capitalize on the disruption of customer relationships caused by
consolidation in the Oklahoma banking industry, and continued growth in the
Oklahoma economy. Asset growth has been driven by loan growth. Because of the
increased size of the Company's asset base, future percentage growth rates may
be more moderate. See "Loan Quality" below.
Net Income Growth. The Company also has increased its net income, and
its net income available to common shareholders (net income after dividends on
preferred stock) each year but 1997. Net income available to common shareholders
grew at a compound annual growth rate of 12.4% from year-end 1993 through 1996.
For 1997, however, net income available to common shareholders declined by 43%,
mainly as a result of unusually large loan loss provisions relating to the
deterioration of a small number of large loan relationships. See "Loan Quality"
below.
24
<PAGE>
Loans. Loans have been the primary source of asset and revenue growth.
Since 1993, loans have grown at a 19.9% compound annual growth rate. As noted
above, the Company's future loan growth may be more moderate as a result of the
larger base. Future loan growth also is subject to a variety of economic and
competitive considerations.
The Company is a commercial, real estate, and consumer lender.
Commercial loans and commercial loans secured by real estate (commercial
mortgage loans) are its two largest loan categories, and together have accounted
for over 60% of the loan portfolio at September 30, 1998 and each year end since
1993. The majority of the growth in commercial and commercial mortgage loans,
and in total loans, has originated in the Oklahoma City and Tulsa metropolitan
areas, Oklahoma's largest markets in terms of population and banking. The
outstanding balances of the Company's loans originated in those markets
increased at a compound annual growth rate of 34.3% from year-end 1993 to $486.3
million at September 30, 1998. At September 30, 1998, outstanding loans
originated by the Tulsa and Oklahoma City offices comprised 64% percent of the
total loan portfolio. All categories of loans have increased since the initial
public offering with the exception of government-guaranteed student loans, which
rise and fall from period to period, and credit card receivables. The Company
sold its credit card portfolio in the fourth quarter of 1997 after a review of
the increasing price competition for its affinity card groups. The Company
recorded a premium of $3.7 million on the credit card sale before taxes, but net
of other related expenses. The Company continues to offer credit cards to its
customers through a financial institution that is not affiliated with the
Company.
Loan Quality. In the first, third and fourth quarters of 1997, and for
the year 1997 as a whole, the Company recorded significant increases in loan
charge-offs and provisions for loan losses compared to those recorded in
corresponding periods of 1996 and earlier years. These provisions led to a
substantial decline in net income for 1997 from 1996. The charge-offs were
primarily the result of deterioration in the financial position of borrowers in
a small number of large commercial or commercial real estate lending
relationships. A motel property that is included in other real estate at
September 30, 1998, is the only asset relating to these relationships that
remains on the Company's books. Net charge-offs for the first nine months of
1998 were $1.3 million. Net charge-offs for 1997 were approximately $11.0
million, compared with net charge-offs of $1.8 million for 1996.
In 1997, management reviewed and revised the Company'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.
At September 30, 1998, nonperforming loans were $1.4 million and total
nonperforming assets were $5.2 million. From December 31, 1993 to September 30,
1998, the Company's ratio of nonperforming loans to total loans declined from
0.98% to 0.19%, and its ratio of nonperforming assets to total loans plus other
real estate declined from 1.13% to 0.69%, while loans increased from $319.3
million to $755.1 million. For the first nine months of 1998, the ratio of net
charge-offs to average loans was 0.23% on an annualized basis.
Deposits. The Company's principal sources of funds are core deposits
(demand deposits, NOW accounts, money market accounts, savings accounts, and
certificates of deposit of less than $100,000) from the local market areas
surrounding each of its offices. The largest source of funds for the Company
remains certificates of deposit. The Company's deposits grew at a compound
annual growth rate of 17.0% from year-end 1993 through September 30, 1998. In
February 1998, the Company began a new program that reclassifies excess funds in
transaction accounts as money market accounts for regulatory purposes. The freed
funds can then be used to support the Company's lending and investment
operations. In 1997, the Company developed a funding strategy that uses
alternative sources of funds in order to reduce overall funding costs. As part
of this strategy, the Company entered into retail certificate of deposit
programs with Merrill Lynch, Salomon Smith Barney and Morgan Stanley Dean Witter
(the "brokerage companies") and has obtained lines of credit from the Federal
Home Loan Bank. The brokerage companies do not offer the Company's certificates
of deposit through their Oklahoma offices. As of September 30, 1998, the Company
had $35.0 million in deposits through the retail certificate of deposit
programs. As a result of the Company's funding strategy, time deposits at
September 30, 1998, were 3% less than at December 31, 1997 and overall deposits
were 1% less.
25
<PAGE>
Capital and Trust Preferred Securities. In 1995, the Company sold 9.20%
Redeemable, Cumulative Preferred Stock ("Series A Preferred Stock") for total
proceeds of $17.25 million. In 1997, the Company issued $25.0 million of trust
preferred securities ("Trust Preferred") through a subsidiary formed for that
purpose. The Trust Preferred meets the regulatory criteria for Tier I Capital,
subject to guidelines that limit the amount of the preferred securities and
cumulative perpetual preferred stock to an aggregate of 25% of Tier I Capital
for the calculation of Tier I Capital. The proceeds of the Trust Preferred were
invested in subordinated debentures ("Subordinated Debentures") issued by the
Company. The issuance of the Subordinated Debentures decreased the ratio of
interest-earning assets to interest-bearing liabilities.
The Trust Preferred is less expensive to the Company than the Series A
Preferred Stock, since Trust Preferred dividends are, in effect, deductible for
federal income tax purposes. Accordingly, the Company used proceeds from the
Subordinated Debentures to redeem all of the Series A Preferred Stock when it
first became redeemable on September 1, 1998. The redemption of the Series A
Preferred Stock caused a decrease in total shareholder's equity, but did not
reduce common shareholders' equity. The Company recorded a one-time accounting
adjustment of $928,000 in combination with the redemption. The adjustment caused
a decrease in basic and diluted net income available to common shareholders and
earnings per common share, and affected the components of shareholders' equity.
New Tulsa Office. The Company occupied a newly constructed Tulsa
facility in January 1999. The building includes space for rental to third
parties, although no leases have yet been executed. The total cost of the
building is approximately $10.5 million. A substantial portion of these costs
have been capitalized and, except for the cost of the land, will be expensed
over the useful life of the property.
SUMMARY OF EARNINGS
NET INCOME
Nine months ended September 30, 1998 and 1997. For the first nine
months of 1998, the Company recorded net income of $7.2 million, 272% more than
the $1.9 million recorded for the first nine months of 1997. Net income
available to common shareholders, after deduction of dividends on Series A
Preferred Stock and a one-time accounting adjustment of approximately $928,000
relating to the redemption of the Company's Series A Preferred Stock on
September 1, 1998, was $5.2 million, compared with $733,000 for the first nine
months of 1997.
The substantial increase in earnings was primarily the result of the
after-tax effect of a $6.2 million reduction in the provision for loan losses.
Basic and diluted earnings per common share increased to $1.36 and $1.32 per
share for the first nine months of 1998 from $0.20 and $0.19 per share for the
same period in 1997. The adjustment relating to the redemption of the Series A
Preferred Stock reduced basic earnings per common share and diluted earnings per
common share by $0.24. Without this adjustment, basic net income per common
share would have been $1.61 and diluted net income per common share would have
been $1.56. Total net income and total common shareholders' equity were not
affected by this adjustment.
Net interest income increased $2.2 million, or 8%, for the first nine
months of 1998 compared to the same period in 1997. This increase in net
interest income, as well as a $6.2 million, or 70%, reduction in the provision
for loan losses, and a $565,000, or 12%, increase in other income, was offset in
part by a $602,000, or 3%, increase in other expenses and a $3.1 million, or
352%, increase in tax expense. For the first nine months of 1998, the return on
average total equity was 14.02% and the return on average common equity was
13.07% compared to a 3.92% return on average total equity and a 2.03% return on
average common equity for the first nine months of 1997. Without reduction for
the one-time accounting adjustment recorded in connection with the redemption of
the Series A Preferred Stock, the return on common equity for the nine months
ended September 30, 1998, would have been 15.41%.
Years ended December 31, 1997 and 1996. Net income for 1997 was $5.0
million, a 34% decrease from the $7.6 million earned in 1996. The substantial
reduction in net income during 1997 was due principally to a $9.0 million, or
290%, increase in the provision for loan losses. The increase in the provision
for loan losses resulted
26
<PAGE>
from the deterioration of a small number of large commercial and commercial real
estate lending relationships. Net income for 1997 benefited from increases in
net interest income ($3.8 million, or 12%) and other income ($3.5 million, or
56%) and a reduction in taxes on income ($1.6 million, or 38%). These increases
in income offset a $2.5 million, or 11%, increase in other expenses. Included in
other income was the $3.7 million gain on sale of the credit card portfolio. Net
income, after dividends on preferred stock, was $3.4 million, a decrease of $2.6
million, or 43%, from 1996. Basic earnings per common share decreased 43%, to
$0.90 per share for 1997 from $1.59 per share for 1996. Diluted earnings per
common share decreased 44% to $0.88 per share for 1997 from $1.56 per share for
1996.
Years ended December 31, 1996 and 1995. Net income for 1996 was $7.6
million, a 24% increase over the $6.1 million earned in 1995. The increase in
net income during 1996 was due principally to a $5.4 million, or 20%, increase
in net interest income. Net income for 1996 also benefited from a $1.5 million,
or 30% increase in other income. These increases in income offset a $3.3
million, or 17%, increase in other expenses, a $1.1 million, or 55%, increase in
the provision for loan losses, and a $970,000, or 29%, increase in taxes on
income. Net income, after dividends on the Series A Preferred Stock issued in
July 1995, was $6.0 million, an increase of $539,000, or 10%, over 1995. Basic
earnings per common share increased 10% to $1.59 per share for 1996 from $1.44
per share for 1995. Diluted earnings per common share increased 9% to $1.56 per
share for 1996 from $1.43 per share for 1995.
NET INTEREST INCOME
Nine months ended September 30, 1998 and 1997. Net interest income
increased to $28.7 million for the first nine months of 1998 from $26.5 million
for the same period in 1997 as continued growth in the loan portfolio enabled
the Company to post a $3.7 million increase in interest income that exceeded the
$1.5 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 16 basis points,
resulting in an increase in the interest rate spread to 3.36% for the first nine
months of 1998 from 3.34% for the first nine months of 1997. The net interest
margin was unchanged at 4.08% for both periods. The ratio of average
interest-earning assets to average interest-bearing liabilities was 115.79% for
the first nine months of 1998 compared to 115.68% for the first nine months of
1997. Total interest income for the first nine months of 1998 was $60.5 million,
up 7% from $56.8 million during the same period in 1997. The principal factor
providing greater interest income was the $60.2 million, or 9%, increase in the
volume of average loans outstanding. The Company's average yield on loans
declined to 9.22% for the first nine months of 1998 from 9.41% in 1997. During
the same period, the Company's average investment securities increased $20.7
million, or 13%, and the related yield declined to 6.17% from 6.21%. Total
interest expense for the first nine months of 1998 was $31.8 million, an
increase of 5% from $30.3 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 $61.6 million, or 8%. During the same period,
the rates paid on average interest-bearing liabilities declined to 5.25% from
5.41%. The increase in non interest-bearing money market accounts is the result
of the reserve sweep program implemented in February 1998. The reclassification
of excess funds in demand and NOW accounts in the sweep program has no effect on
the customer, but reduces the amount of reserve funds the Bank is required to
keep on deposit at the Federal Reserve Bank. The freed funds can then be used to
support the Company's lending and investment operations.
Years ended December 31, 1997 and 1996. Net interest income increased
to $35.6 million in 1997 from $31.8 million for 1996 as continued growth in the
loan portfolio enabled the Company to post a $12.2 million increase in interest
income that exceeded the $8.4 million increase in interest expense during the
year. Yields on the Company's interest-earning assets declined by 8 basis
points, and the rates paid on the Company's interest-bearing liabilities
increased by 13 basis points, resulting in a reduction in the interest rate
spread to 3.30% for 1997 from 3.51% in 1996. The ratio of average
interest-earning assets to average interest-bearing liabilities declined to
115.73% for 1997 from 118.29% for 1996, due primarily to a greater increase in
interest-bearing liabilities, including time deposits and the Subordinated
Debentures issued during the year, than in noninterest-bearing sources of funds,
including noninterest-bearing demand deposits and shareholders' equity. Total
interest income for 1997 was $76.8 million, up 19% from $64.7 million during
1996. The principal factor providing greater interest income was the $119.5
million, or 21%, increase in the volume of average loans outstanding. The
Company's loan yields declined to 9.36% for 1997 from 9.50% in 1996. During the
same period, the Company's yield on investment securities increased to 6.20%
from 6.12%. Total interest expense for 1997 was $41.2 million, an increase of
26% from $32.8 million for 1996. The
27
<PAGE>
increase in total interest expense is mainly the result of an increase in
average interest-bearing liabilities of $140.7 million, or 23%. During the same
period, the rates paid on average interest-bearing liabilities increased to
5.40% from 5.27%, as a 3 basis point decline in the average rate paid on time
deposits (to 5.72%) was more than offset by a 30 basis point increase (to 4.12%)
in the average rate paid on money market accounts. The issuance of the
Subordinated Debentures on June 4, 1997 increased the rates paid on average
interest-bearing liabilities by 7 basis points for 1997.
Years ended December 31, 1996 and 1995. Net interest income for 1996
increased to $31.8 million from $26.5 million in 1995, primarily as a result of
the increase in the Company's loan portfolio. Yields on the Company's
interest-earning assets declined by only 2 basis points during 1996, and the
rates paid on the Company's interest-bearing liabilities declined by 10 basis
points resulting in an increase in the interest rate spread to 3.51% for 1996
from 3.43% for 1995. Net interest income benefited from an increase in the ratio
of average interest-earning assets to average interest-bearing liabilities to
118.29% for 1996 from 117.56% for 1995. The improvement in this ratio reflects
an increase in noninterest-bearing demand deposits as well as an increase in the
Company's average shareholders' equity from the sale of Series A Preferred Stock
in July 1995 and through retention of earnings. Interest income for 1996 was
$64.7 million, up from $55.0 million in 1995 primarily as a result of growth in
interest-earning assets, which offset the slight decline in yields. Yields on
total interest-earning assets were 8.78% in 1996 and 8.80% in 1995. Loan
interest and fee income increased $9.6 million because the greater volume of
loans outstanding more than offset the effect of the 14 basis point decline in
loan yields. The Company generated growth of $107.5 million in average loans to
$580.6 million in 1996 from $473.1 million in 1995, a 23% increase. Interest
income on investment securities increased by $186,000 despite lower yields
earned, due to an increase in the size of the investment portfolio. The yield on
the investment portfolio declined 8 basis points. A decrease in interest income
on federal funds sold and other short-term investments was caused by slightly
lower volumes in those areas. The increase in interest-earning assets was funded
by growth in deposits at the Company's existing branches, the proceeds from the
July 1995 offering of preferred stock and retention of earnings. Total interest
expense for 1996 was $32.8 million, a $4.3 million increase from $28.5 million
in 1995. The increase in interest expense was primarily due to a $93.5 million,
or 18%, increase in average interest-bearing deposits from $527.4 million for
the year ended December 31, 1995 to $620.9 million for the year ended December
31, 1996. Growth in average time deposits of $85.7 million, or 21%, accounted
for most of the increase in average interest-bearing deposits, although average
NOW and money market accounts also increased. Use of federal funds declined
significantly for the year. Rates paid on interest-bearing liabilities declined
to 5.27% in 1996 from 5.37% in 1995.
28
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by the prior period's rate); and (ii) changes in
rates (change in rate multiplied by the prior period's volume). Changes in rate-
volume (changes in rate multiplied by the changes in volume) are allocated
between changes in rate and changes in volume in proportion to the relative
contribution of each.
<TABLE>
<CAPTION>
Nine Months ended Year ended Year ended
September 30, 1998 December 31, 1997 December 31, 1996
Compared to Compared to Compared to
September 30,1997 December 31, 1996 December 31, 1995
---------------------------- ---------------------------- ---------------------------
Increase (decrease) attributable to change in:
Yield/ Net Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change Volume Rate Change
--------- -------- --------- -------- -------- --------- -------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable (1) $4,119 $ (957) $ 3,162 $11,182 $ (799) $10,383 $10,201 $ (615) $ 9,586
Investment securities 980 (42) 938 1,534 49 1,583 243 (57) 186
Federal funds sold (385) (1) (386) 199 16 215 (46) (58) (104)
--------- -------- --------- -------- -------- --------- -------- -------- ---------
Total interest
income 4,714 (1,000) 3,714 12,915 (734) 12,181 10,398 (730) 9,668
Interest paid on: --------- -------- --------- -------- -------- --------- -------- -------- ---------
NOW accounts (520) (5) (525) 38 18 56 90 (16) 74
Money market accounts
(2) 631 (326) 305 449 258 707 332 (364) (32)
Savings accounts (8) (8) (16) (18) - (18) (22) 3 (19)
Time deposits (277) (895) (1,172) 6,222 (126) 6,096 4,916 (477) 4,439
Short-term borrowings 1,943 (6) 1,937 240 (5) 235 (143) (30) (173)
Long-term debt 988 - 988 1,338 - 1,338 - 0 0
--------- -------- --------- -------- -------- --------- -------- -------- ---------
Total interest
expense 2,757 (1,240) 1,517 8,269 145 8,414 5,173 (884) 4,289
--------- -------- --------- -------- -------- --------- -------- -------- ---------
Net interest income $1,957 $ 240 $ 2,197 $ 4,646 $ (879) $ 3,767 $ 5,225 $ 154 $ 5,379
========= ======== ========= ======== ======== ========= ======== ======== =========
</TABLE>
(1) Average balances include nonaccrual loans. Fees included in interest
income on loans receivable are not considered material. Interest on
tax-exempt loans and securities is not shown on a tax-equivalent basis
because it is not considered material.
(2) Includes interest-bearing money market accounts only.
29
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST, YIELDS AND RATES
The following table provides certain information relating to the
Company's average consolidated statements of financial condition and reflects
the interest income on interest-earning assets and interest expense of interest-
bearing liabilities for the periods indicated and the average yields earned and
rates paid for the periods indicated. These yields and costs are derived by
dividing income or expense by the average daily balance of the related assets or
liabilities for the periods presented. Non-accrual loans have been included in
the average balances of loans receivable.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, (3)
--------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans receivable $752,785 $51,886 9.22 % $692,554 $48,724 9.41 %
Investment securities 185,500 8,588 6.17 164,754 7,650 6.21
Other interest-earning assets 1,883 56 5.47 10,763 442 5.49
--------- -------- -------- -------
Total interest-earning assets 940,168 60,530 8.61 868,071 56,816 8.75
-------- -------
Noninterest-earning assets:
Other assets 43,273 45,266
--------- --------
Total assets $983,441 $913,337
========= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand (1) $ 7,915 $ 139 2.35 % $ 37,437 $ 664 2.37 %
Money market accounts (1) 124,554 3,137 3.37 91,029 2,832 4.16
Savings accounts 3,454 58 2.25 3,947 74 2.51
Time deposits 599,219 24,733 5.52 604,522 25,905 5.73
---------- --------- ---------- ---------
Total interest-bearing
deposits 735,142 28,067 5.10 736,935 29,475 5.35
Short-term borrowings (2) 51,826 2,045 5.28 2,571 108 5.62
Long-term debt (3) 25,013 1,744 9.30 10,902 756 9.30
---------- --------- ---------- ---------
Total interest-bearing
liabilities 811,981 31,856 5.25 750,408 30,339 5.41
---------- --------- ---------- ---------
Noninterest-bearing liabilities:
Noninterest-bearing demand (1) 24,160 86,776
Noninterest-bearing money market
accounts (1) 64,256 -
Other noninterest-bearing
liabilities 14,740 10,560
Shareholders' equity 68,304 65,593
---------- ----------
Total liabilities and
Shareholders' equity $983,441 $913,337
========== ==========
Net interest income $28,674 $26,477
========= =========
Interest rate spread 3.36 % 3.34 %
======== ========
Net interest margin (4) 4.08 % 4.08 %
======== ========
Ratio of average interest-earning
Assets to average
Interest-bearing liabilities 115.79 % 115.68 %
======== ========
</TABLE>
(1) Non-interest-bearing demand and money market accounts and interest-
bearing demand accounts and money market accounts reflect the Company's
program of reclassifying excess demand deposits into money market
accounts. The effect is to reduce the reserve amount required to be
maintained on deposit at the Federal Reserve Bank.
(2) The increase in short term borrowings resulted mainly from increases in
Federal Home Loan Bank borrowings and in Sweep Repurchase Agreements,
under which commercial demand deposits are moved into repurchase
agreements.
(3) Ratios for the nine month periods are annualized.
(4) Net interest margin = net interest income/total interest-earning
assets.
30
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------- --------------------------------- ---------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ----------- --------- -------- --------- --------- --------- --------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$700,129 $65,560 9.36% $580,590 $55,177 9.50% $473,080 $45,591 9.64%
170,635 10,582 6.20 146,973 8,999 6.12 142,254 8,813 6.20
12,819 707 5.53 9,200 492 5.35 10,007 596 5.96
- ---------- -------- -------- -------- -------- ---------
883,583 76,849 8.70 736,763 64,668 8.78 625,341 55,000 8.80
-------- -------- ---------
44,672 35,019 29,145
========== ======== ========
$928,255 $771,782 $654,486
========== ======== ========
$ 37,740 $ 894 2.37% $ 36,088 $ 838 2.32% $ 32,261 $ 764 2.37%
93,118 3,836 4.12 81,939 3,129 3.82 77,147 3,161 4.10
3,860 96 2.49 4,580 114 2.49 5,441 133 2.44
607,710 34,743 5.72 498,283 28,647 5.75 412,570 24,208 5.87
- ---------- -------- -------- -------- -------- ---------
742,428 39,569 5.33 620,890 32,728 5.27 527,419 28,266 5.36
6,605 340 5.15 1,940 105 5.41 4,527 278 6.14
14,459 1,338 9.30 - - - - - -
- ---------- -------- -------- -------- -------- ---------
763,492 41,247 5.40 622,830 32,833 5.27 531,946 28,544 5.37
- ---------- -------- -------- -------- -------- ---------
88,575 79,739 68,540
- - -
10,099 7,066 6,437
66,089 62,147 47,563
- ---------- -------- --------
$928,255 $771,782 $654,486
========== ======== ========
$35,602 $31,835 $26,456
======== ======== =========
3.30% 3.51% 3.43%
======= ======== =======
4.03% 4.32% 4.23%
======= ======== =======
115.73% 118.29% 117.56%
======= ======== =======
</TABLE>
31
<PAGE>
PROVISION FOR LOAN LOSSES
The Company makes provisions for loan losses in amounts necessary to
maintain the allowance for loan losses at the level the Company deems
appropriate. Provisions for loan losses and recoveries of loans charged off
increase the allowance for loan losses. Loan charge-offs decrease the allowance.
Management established an allowance of $9.7 million, or 1.29% of total
loans, at September 30, 1998 compared to an allowance of $8.3 million, or 1.15%
of total loans at December 31, 1997 and $7.1 million, or 1.11% of total loans,
at December 31, 1996. The Company recorded a provision for loan losses of $2.7
in the first nine months of 1998 to increase the allowance. This provision was
$6.2 million less than the $8.9 million provision recorded in the first nine
months of 1997. The main reason for the decrease in the provision for loan
losses was the significant reduction in the level of charge-offs for the 1998
period compared to the unusually high levels of 1997. The provision for loan
losses was $12.1 million in 1997, compared with $3.1 million for 1996. See
"Allowance for Loan Losses" (page ) and the "Summary of Earnings" (page ).
OTHER INCOME
The following table shows the Company's other income by category.
<TABLE>
<CAPTION>
For the Nine Months
Ended
September 30, For the Year Ended December 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Service charges and fees $ 2,610 $ 2,342 $ 3,177 $ 2,985 $ 2,574
Credit cards 66 568 659 869 901
Other noninterest income 320 277 360 268 374
Gain on sale of credit card
portfolio - (26) 3,745 - -
Gain on sales of loans receivable 1,959 1,407 1,936 1,768 1,033
Gain (loss) on sales of
investment
securities 185 7 18 459 (8)
--------- --------- --------- --------- ----------
Total other income $ 5,140 $ 4,575 $ 9,895 $ 6,349 $ 4,874
========= ========= ========= ========= ==========
</TABLE>
Nine months ended September 30, 1998 and 1997. Other income increased
by $565,000 for the first nine months of 1998 compared to the first nine months
of 1997 primarily as a result of a $672,000 increase in gains on sales of
residential mortgages and student loans. Other increases were $268,000 in
service charges and fees, $178,000 in gains on sales of securities and $43,000
in other noninterest income. These increases were offset by a $502,000 reduction
in credit card income that resulted from the sale of the Company's credit card
portfolio in 1997. The gains on sales of securities in 1998 occurred when
"available for sale" securities were called prior to their stated maturity date
or were sold to fund the redemption of the Company's Series A Preferred Stock.
Years ended December 31, 1997 and 1996. Total other income increased by
$3.5 million for 1997 compared to 1996 primarily as a result of the gain on sale
of the credit card portfolio. The gain on sale of investment securities of
$18,000 occurred when $1.0 million in "held to maturity" and $5.0 million in
"available for sale" Agency securities, originally purchased at a discount, were
called prior to their stated maturity date.
Years ended December 31, 1996 and 1995.Total other income increased by
$1.5 million for 1996 compared to 1995 primarily due to increased gains on sales
of student loans and residential mortgage loans, increased gains on sales of
investment securities and increased service charges attributable to its higher
deposit base. During 1996, the Company sold $46.7 million in student loans
compared to $40.2 million in such sales during 1995. The Company also was able
to increase its gain on sales of student loans by packaging its loans in a
manner that allowed it to obtain a higher premium from the Student Loan
Marketing Association ("SLMA"). The principal balance of residential mortgage
loans sold was $45.1 million during 1996 compared to $33.6 million during 1995.
The gain on sales of investment securities during 1996 occurred when $4.6
million in agency securities classified as
32
<PAGE>
"held to maturity", and $11.2 million in agency securities classified as
"available for sale", originally purchased at a discount, were called prior to
their stated maturity date, and $150,000 in corporate stock classified as
"available for sale" was sold. During 1995, a loss on sales of investment
securities occurred when the Bank sold securities classified as "held to
maturity". The Company concluded that these securities were sold at a time near
enough to their maturity dates that interest rate risk was substantially
eliminated as a pricing factor in conformity with SFAS No. 115.
The Company offers trust services through its relationship with the Trust
Company of Oklahoma, (the "Trust Company"). In December 1996, the Company sold
its investment in the capital stock of the parent corporation of the Trust
Company for a pre-tax gain of approximately $287,000, but continues to offer
trust services through the Trust Company.
OTHER EXPENSES
The following table shows the Company's other expenses by category.
<TABLE>
<CAPTION>
For the Nine Months
Ended
September 30, For the Year Ended December 31,
--------------------- -------------------------------
1998 1997 1997 1996 1995
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 10,510 $ 10,559 $ 13,808 $ 12,164 $ 10,057
Occupancy 3,673 3,393 4,681 3,671 3,080
FDIC and other insurance 190 190 254 859 856
Credit cards 5 247 313 411 547
General and administrative 5,564 4,951 6,690 6,121 5,362
-------- -------- -------- -------- --------
Total other expenses $ 19,942 $ 19,340 $ 25,746 $ 23,226 $ 19,902
======== ======== ======== ======== ========
</TABLE>
Nine months ended September 30, 1998 and 1997. The Company's other expenses
increased $602,000 for the first nine months of 1998 compared to the first nine
months of 1997. This increase was primarily the result of a $613,000 increase in
general and administrative expense. In addition, occupancy expenses increased
$280,000. These increases were offset by reductions in salaries and employee
benefits ($49,000) and credit card expense ($242,000). 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.
The Company's salaries and employee benefits expense decreased by $49,000 as a
result of the Company's efforts to reduce staffing levels in selected areas and
improve efficiency. The Company reduced staffing to 325 full-time equivalent
employees at September 30, 1998 from 348 at year end 1997 and 357 at year end
1996.
Years ended December 31, 1997 and 1996. The Company's other expenses
increased to $25.7 million for 1997 compared to $23.2 million for 1996. This
$2.5 million increase was primarily the result of an increase in salaries and
employee benefits, which increased $1.6 million as a result of a 3% increase in
staffing in selected areas from year-end 1996 to mid-year 1997 and salary
increases for current staff, the majority of which are effective at the first of
each year. Staffing levels declined 6% during the third and fourth quarters of
1997. In addition, occupancy expense increased $1.0 million and general and
administrative expense increased $569,000 compared to 1996. The increase in
occupancy expense was due primarily to increased data processing, depreciation
and equipment costs as systems, facilities and equipment were upgraded beginning
in November 1996 and continuing through 1997. These increases were partially
offset by a $605,000 reduction in FDIC and other insurance.
33
<PAGE>
Years ended December 31, 1996 and 1995.The Company's other expenses
increased $3.3 million, or 17%, for fiscal year 1996 compared to fiscal year
1995. This increase was primarily the result of an increase in salaries and
employee benefits, which increased $2.1 million, or 21%, as a result of a 20%
increase in staffing. The increase in staffing is related to the expansion of
the Company's asset and deposit bases. In addition, occupancy expense increased
$591,000, due primarily to the leasing of additional office space and the
depreciation on furniture and equipment purchased to furnish those new offices,
and general and administrative expense increased $759,000. Included in general
and administrative expense was $139,000 in expenses related to an unsuccessful
effort to establish additional branches. Despite the increase in the Company's
deposit base, FDIC and other insurance for 1996 increased only $3,000 compared
to 1995. Regular deposit insurance premium rates decreased beginning July 1,
1995 as the Bank Insurance Fund ("BIF"), of which the Bank is a member, achieved
its statutory reserve ratio. However, legislation enacted by Congress required
that the Bank pay a one-time special assessment of $436,000 to the FDIC with
respect to deposits it acquired from a savings association in 1991. After the
payment of this special assessment, the insurance premiums related to these
acquired deposits were also reduced.
INCOME TAXES
The Company's income tax expense for the first nine months of 1998 and 1997
was $4.0 million and $886,000. The Company's effective tax rates have been lower
than the Federal and State statutory rates primarily because of tax-exempt
income on municipal obligations and loans. The Company's income tax expense for
fiscal years 1997, 1996 and 1995 was $2.7 million, $4.3 million and $3.3
million.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
LENDING
The Company's loan portfolio is its main source of income, and has been the
main cause of its revenue growth. The Company offers commercial real estate
mortgage and construction loans, commercial loans, residential mortgage and
construction loans, student loans and other consumer loans. The Company
emphasizes commercial lending to professionals and businesses. Commercial loans
and loans secured by commercial real estate accounted for 65.4% of total loans
at September 30, 1998, and represented over 60% of total loans at year end 1997,
1996, 1995, and 1994. These loans increased at more than a 25% compound annual
growth to September 30, 1998 from year-end 1993, although annual growth rates
have declined over this period. Commercial and commercial mortgage loans grew
$29.3 million, or 6.3%, in the first nine months of 1998, $50.0 million, or
12.1%, in 1997, and $73.5 million, or 21.5%, in 1996. Most of the growth in
loans, and in commercial loans, originated in the Tulsa and Oklahoma City
markets. See "The Company-Operations" (page ).
The Company sold its credit card portfolio in 1997 for a $3.7 million pre-
tax gain. See Summary of Income (page ). Total loans increased $35.9 million,
or 5%, in the first nine months of 1998, but have increased at a 19.9% annual
compound growth rate from year-end 1993 through September 30, 1998. Because of
the Company's increased base, the Company expects that the percentage growth of
loans may moderate in the future.
Loans were $755.1 million at September 30, 1998, an increase of $35.9
million, or 5%, compared to December 31, 1997. The Company experienced increases
in the categories of commercial mortgages ($30.2 million, or 14%), real estate
construction loans ($3.1 million, or 4%), residential mortgages ($3.0 million,
or 4%) and other consumer loans ($1.0 million, or 3%). These increases were
offset by a slight reduction in commercial loans ($929,000, or less than 1%) and
government-guaranteed student loans ($416,000, or less than 1%).
34
<PAGE>
LOAN PORTFOLIO
Composition of Loan Portfolio. The following table presents the
composition of the Company's loan portfolio, net of unearned interest:
<TABLE>
<CAPTION>
At September 30, At December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------------- ----------------- ------------------ ---------------- ---------------- ---------------
Total Total Total
Amount % Amount % Amount Loans Amount Loans Amount Loans Amount %
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Residential $ 82,848 10.97 $ 79,843 11.10 $ 61,175 9.49 $ 42,988 8.08 $ 33,882 8.21 $ 31,864 9.98
Commercial 253,859 33.62 223,672 31.10 196,163 30.43 160,126 30.10 132,297 32.06 88,953 27.87
Real estate construction 75,594 10.01 72,454 10.08 54,369 8.43 33,159 6.23 20,725 5.02 9,844 3.08
Commercial 240,078 31.80 241,007 33.52 218,515 33.90 181,081 34.04 120,781 29.27 80,732 25.29
Installment and consumer
Guaranteed student loans 63,974 8.47 64,390 8.95 61,959 9.61 67,388 12.67 61,752 14.97 69,739 21.84
Credit cards - 0.00 73 0.01 20,839 3.23 21,869 4.11 20,958 5.08 19,189 6.01
Other consumer 38,703 5.13 37,674 5.24 31,626 4.91 25,377 4.77 22,219 5.39 18,939 5.93
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
755,056 100.00 719,113 100.00 644,646 100.00 531,988 100.00 412,614 100.00 319,260 100.00
====== ====== ====== ====== ====== ======
Less:
Allowance for loan losses (9,709) (8,282) (7,139) (5,813) (4,959) (3,960)
======= ======== ======== ======== ======== ========
Total $745,347 $710,831 $ 637,507 $526,175 $407,655 $315,300
======= ======== ======== ======== ======== ========
</TABLE>
35
<PAGE>
Collateral and Concentration. At September 30, 1998 and at December 31,
1997 and 1996, substantially all of the Company's loans were collateralized with
real estate, inventory, accounts receivable and/or other assets or were
guaranteed by federal government agencies. Loans to individuals and businesses
in the healthcare industry totaled $81.3 million, or 11% of total loans, at
September 30, 1998. The Company does not have any other concentrations of loans
to individuals or businesses involved in a single industry totaling 5% of total
loans. At September 30, 1998, approximately $10.0 million in outstanding loans
were directly related to the petroleum or natural gas industry. The Bank's
lending limit under federal law to any one borrower was $13.2 million at
September 30, 1998, but lending policy generally limits loans to any one
borrower to 90% of the Bank's legal lending limit. Exceptions to this policy are
made from time to time. The Bank's largest single borrower, net of
participations, at September 30, 1998 had outstanding loans of $8.5 million.
Loan Portfolio Maturity. The following table shows the remaining maturities
of loans at September 30, 1998. Student loans, which do not have stated
maturities, are shown as due in one year or less.
<TABLE>
<CAPTION>
One year One to Over
or less five years five years Total
----------- ------------ ------------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Real estate mortgage:
Commercial $ 16,855 $ 47,640 $ 189,364 $ 253,859
One-to-four family residential 12,492 33,795 36,561 82,848
Real estate construction 55,273 9,943 10,378 75,594
Commercial 95,919 101,565 42,594 240,078
Installment and consumer:
Guaranteed student loans 63,974 - - 63,974
Credit Cards - - - -
Other 11,884 25,436 1,383 38,703
--------- --------- --------- ---------
Total $ 256,397 $ 218,379 $ 280,280 $ 755,056
========= ========= ========= =========
</TABLE>
Loan Portfolio Sensitivity. The following table shows the sensitivity of
loans due after September 30, 1999 by dollar amount outstanding.
<TABLE>
<CAPTION>
Fixed Variable Total
---------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Real estate mortgage:
Commercial $ 64,261 $ 172,743 $ 237,004
One-to-four family residential 21,748 48,608 70,356
Real estate construction 5,116 15,205 20,321
Commercial 23,450 120,709 144,159
Installment and consumer:
Guaranteed student loans - - -
Credit Cards - - -
Other 24,653 2,166 26,819
-------- --------- ---------
Total $139,228 $ 359,431 $ 498,659
======== ========= =========
</TABLE>
36
<PAGE>
NONPERFORMING ASSETS
Nonperforming loans consist of loans on a nonaccrual basis, loans
contractually past due 90 days or more, and loans with restructured terms. At
September 30, 1998, approximately $177,000, or 12% of the total loans reported
as nonperforming, are guaranteed by the federal government, a government agency,
or a government sponsored corporation. The following table shows the amounts of
nonperforming loans:
<TABLE>
<CAPTION>
At
September
30, At December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ----------- ---------- ----------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Commercial:
Nonaccrual $186 $3,938 $ 191 $ 107 $ 179 $ 261
Past due 90 days or more 297 179 614 88 - -
Restructured terms - - 577 608 639 676
One-to-four family residential:
Nonaccrual 595 110 265 18 58 95
Past due 90 days or more 69 700 363 251 72 37
Restructured terms - - - - - -
Real estate construction:
Nonaccrual - - - - 86 101
Past due 90 days or more - 603 119 - - -
Restructured terms - - - - - -
Commercial:
Nonaccrual 258 1,403 4,149 567 805 1,473
Past due 90 days or more - 195 71 435 241 32
Restructured terms - - - 2,996 - 195
Installment and consumer:
Guaranteed student loans:
Nonaccrual - - - - - -
Past due 90 days or more - - - - - 17
Restructured terms - - - - - -
Credit cards:
Nonaccrual - - - - - -
Past due 90 days or more - - 82 63 138 52
Restructured terms - - - - - -
Other consumer:
Nonaccrual 16 7 30 32 210 28
Past due 90 days or more 10 - 188 114 62 174
Restructured terms - - - - - -
--------- --------- --------- --------- --------- ----------
Total nonperforming loans 1,431 7,135 6,649 5,279 2,490 3,141
Other real estate owned 3,788 362 64 195 264 472
========= ========= ========= ========= ========= ==========
Total nonperforming assets $ 5,219 $ 7,497 $6,713 $ 5,474 $ 2,754 $ 3,613
========= ========= ========= ========= ========= ==========
Loans receivable $ 755,056 $ 719,113 $ 644,646 $ 531,988 $ 412,614 $ 319,260
========= ========= ========= ========= ========= ==========
Summary:
Total nonaccrual $ 1,055 $ 5,458 $ 4,635 $ 724 $ 1,338 $ 1,958
Total past due 90 days or more 376 1,677 1,437 951 513 312
Total restructured - - 577 3,604 639 871
--------- --------- --------- --------- --------- ----------
Total nonperforming loans 1,431 7,135 6,649 5,279 2,490 3,141
Other real estate owned 3,788 362 64 195 264 472
========= ========= ========= ========= ========= ==========
Total nonperforming assets $ 5,219 $ 7,497 $ 6,713 $ 5,474 $ 2,754 $ 3,613
========= ========= ========= ========= ========= ==========
Allowance for loan losses to loans 1.29% 1.15% 1.11% 1.09% 1.20% 1.24%
Nonperforming loans to loans 0.19 0.99 1.03 0.99 0.60 0.98
Allowance for loan losses to nonperforming
loans 678.48 116.08 107.37 110.12 199.16 126.07
Nonperforming assets to loans and other
real estate owned 0.69 1.04 1.04 1.03 0.67 1.13
</TABLE>
37
<PAGE>
Other real estate owned consisted mainly of a foreclosed motel property
with a carrying value of $3.7 million, which is being operated by a motel
management company engaged by the Company while being actively marketed. The
loan secured by this property was classified as nonperforming at year-end 1997.
A new appraisal of this property is required in February 1999. If the appraisal
is below the current $3.7 million carrying value of the property, the Company
will be required to write down the property to the appraised value and the
difference will be charged as an expense, reducing income.
Other Nonperforming Assets. The Company does not have any material amounts
of interest-earning assets which would have been classified as nonperforming if
such assets were loans, or which were recognized by management as potential
problem assets based upon known information about possible credit problems of
the borrower or issuer.
Nonaccrual Loans. The recognition of interest income on loans is
discontinued when management believes that interest will not be collectible in
the normal course of business. Generally, the Company does not accrue interest
on any asset (i) that is maintained on a cash basis because of deterioration in
the financial condition of the borrower, (ii) for which payment in full of
principal or interest is not expected, or (iii) upon which principal or interest
has been in default for a period of 90 days or more, unless the asset is both
well secured and in the process of collection. During the first nine months of
1998, $92,000 in interest income was received on nonaccrual loans. If interest
on those loans had been accrued, total interest income of $497,000 would have
been recorded. During the years ended December 31, 1997 and 1996 gross interest
income of $144,000 and $398,000 would have been recorded on loans accounted for
on a nonaccrual or restructured basis if such loans had been current throughout
the period. Interest on such loans included in income during such periods
amounted to approximately $30,000 and $37,000.
Potential Nonperforming Loans. 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 $24.0 million at September 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.
Allowance For Loan Losses. The allowance for loan losses is a valuation
reserve established by management in an amount it deems adequate to provide for
losses in the loan portfolio. Management assesses the adequacy of the allowance
for loan losses based upon a number of factors including, among others:
analytical reviews of loan loss experience in relationship to outstanding loans
and commitments; unfunded loan commitments; problem and nonperforming loans and
other loans presenting credit concerns; trends in loan growth, portfolio
composition and quality; appraisals of the value of collateral; and management's
judgment with respect to current and expected economic conditions and their
impact on the existing loan portfolio.
The allowance for loan losses is increased by provisions for loan losses
charged to expense. Charge-offs of loan amounts determined by management to be
uncollectible or impaired decrease the allowance, and recoveries of previous
charge-offs are added to the allowance. The allowance for loan losses increased
by $1.4 million, or 17%, from December 31, 1997 to September 30, 1998. At
September 30, 1998, the allowance for loan losses was $9.7 million, or 1.29% of
total loans, compared to $8.3 million, or 1.15% of total loans, at December 31,
1997.
38
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
For the Nine Months
Ended
September 30, For the Year Ended December 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ---------- ----------- ----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 8,282 $ 7,139 $ 7,139 $ 5,813 $ 4,959 $ 3,960 $ 3,393
Loans charged-off:
Real estate mortgage:
Commercial 325 37 1,150 68 - 156 14
One-to-four family
residential 93 153 155 80 7 16 58
Real estate construction - - - - 1 - 13
Commercial 1,140 7,016 8,691 1,064 1,101 461 675
Installment and consumer:
Guaranteed student loans - 1 1 - - 1 8
Credit cards 11 746 829 803 528 370 519
Other consumer 440 395 702 286 166 199 129
----------- ---------- ---------- ----------- ----------- ----------- -----------
Total charge-offs 2,009 8,348 11,528 2,301 1,803 1,203 1,416
----------- ---------- ---------- ----------- ----------- ----------- -----------
Recoveries:
Real estate mortgage:
Commercial 66 4 6 10 119 34 251
One-to-four family
residential 6 77 79 15 33 23 15
Real estate construction - - - - - - -
Commercial 318 248 300 288 334 94 76
Installment and consumer:
Guaranteed student loans - 2 2 - 1 - 3
Credit cards 46 87 108 106 111 139 130
Other consumer 295 30 72 108 59 112 108
----------- ---------- ---------- ----------- ----------- ----------- -----------
Total recoveries 731 448 567 527 657 402 583
----------- ---------- ---------- ----------- ----------- ----------- -----------
Net loans charge-off 1,278 7,900 10,961 1,774 1,146 801 833
Provision for loan losses 2,705 8,903 12,104 3,100 2,000 1,800 1,400
=========== ========== ========== =========== =========== =========== ===========
Balance at end of period $ 9,709 $ 8,142 $ 8,282 $ 7,139 $ 5,813 $ 4,959 $ 3,960
=========== ========== ========== =========== =========== =========== ===========
Loans outstanding:
Average $ 752,785 $ 692,554 $ 700,129 $580,590 $ 473,080 $ 356,323 $ 277,099
End of period 755,056 723,971 719,113 644,646 531,988 412,614 319,260
Ratio of allowance for loan losses to loans
outstanding:
Average 1.29% 1.18% 1.18% 1.23% 1.23% 1.39% 1.43%
End of period 1.29 1.12 1.15 1.11 1.09 1.20 1.24
Ratio of net charge-offs to average loans
outstanding during the period (1) 0.23 1.53 1.57 0.31 0.24 0.22 0.30
</TABLE>
(1) Ratios for the nine-month periods are annualized.
In establishing the level of the allowance for September 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 September
30, 1998, total nonperforming loans were $1.4 million, or 0.19% 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 September 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.
Based upon its year-end 1997 review, management established an
allowance of $8.3 million, or 1.15% of total loans, at December 31, 1997
compared to an allowance of $7.1 million, or 1.11% of total loans, at December
31, 1996. In establishing this level of allowance for December 31, 1997,
management considered a number of
39
<PAGE>
factors that tended to indicate a potential need for an increased allowance
level, including the continued growth in the loan portfolio, the increased risk
associated with the level of real estate construction loans (10% of the loan
portfolio at December 31, 1997 and 8% of the portfolio at December 31, 1996),
which are viewed as entailing greater risk than certain other categories of
loans, and the increased level of one-to-four family residential mortgage loans
(11% of the loan portfolio at December 31, 1997 versus 9% at December 31, 1996),
which are viewed as entailing less risk than certain other categories of loans.
Government-guaranteed student loans, which are viewed as entailing relatively
low risk, comprised 9% of the portfolio at December 31, 1997 versus 10% at
year-end 1996. The level of commercial loans, which comprise the largest
category in the portfolio, remained unchanged at approximately 34% of the total
portfolio at December 31, 1997 and 1996. The level of commercial mortgage loans
increased slightly to 31% of the total loan portfolio at year-end 1997 from 30%
at the previous year-end. Overall, the loan portfolio, before deduction of the
allowance for loan losses, increased by $74.5 million, or 12%, from year-end
1996 to year-end 1997, while the allowance grew by $1.1 million, or 16%.
At December 31, 1997, nonperforming loans were $7.1 million, or 0.99%
of the portfolio, compared with $6.6 million, or 1.03% of the portfolio, at
December 31, 1996. The allowance for loan losses equaled 116.08% of
nonperforming loans at December 31, 1997, and 107.37% of nonperforming loans at
December 31, 1996. Large changes in the ratio of the allowance to nonperforming
loans may occur from period to period because of variations in the amounts of
nonperforming loans, which depend largely on the condition of a small number of
individual loans and borrowers relative to the total loan portfolio.
At December 31, 1997 and 1996, impaired loans totaled $5.5 million and
$4.8 million, and had been allocated a related allowance for loan losses of
$707,000 in 1997 and $2.0 million in 1996.
The amount of the allowance deemed appropriate by management, and the
levels of loan charge-offs and nonperforming loans, are affected by changing
economic conditions and economic prospects and the financial positions of
borrowers. Management strives to carefully monitor credit quality and the
adequacy of the allowance for loan losses, and to identify loans that may become
nonperforming. At any time, however, there are loans included in the portfolio
that will result in losses to the Company, but that have not been identified as
nonperforming or potential problem loans. Because the loan portfolio contains a
significant number of commercial and commercial real estate loans with
relatively large balances, the unexpected deterioration of one or a few of such
loans may cause a significant increase in nonperforming assets, and lead to a
material increase in charge-offs and the provision for loan losses. Since
problems with commercial and commercial real estate loans do not necessarily
appear early in their lives, the Company may experience increased levels of
nonperforming loans and loan charge-offs as the relatively large volume of
recently originated loans mature. In addition, the United States Comptroller of
the Currency, as an integral part of its examination process, periodically
reviews the Bank's allowance for loan losses. The Comptroller of the Currency
may require the Bank to recognize additions to its allowance based upon
judgments of bank examiners about information available to them at the time of
their examination.
The allowance for loan losses related to loans that are identified for
evaluation in accordance with Statement of Financial Accounting Standards No.
114 Accounting by Creditors for Impairment of a Loan ("SFAS No. 114") as
superseded by Statement of Financial Accounting Standards No. 118, Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures is based
on discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change. The allowance for loan
losses is established through a provision for loan losses charged to expense. A
loan is considered to be impaired when, based on current information and events,
it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. All of the Company's
nonaccrual loans have been defined as impaired loans.
40
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Allocation of the Allowance for Loan Losses. The following table
allocates the allowance for loan losses by loan category. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995
------------------------ ------------------------- ------------------------ -------------------------
Percentage of Percentage of Percentage of Percentage of
Loans in Each Loans in Each Loans in Each Loans in Each
Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
--------- -------------- --------- --------------- --------- -------------- --------- ---------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Residential $ 464 10.97% $ 488 11.10% $ 294 9.49% $ 176 8.08%
Commercial 679 33.62 1,073 31.10 584 30.43 538 30.10
Real estate
construction 971 10.01 732 10.08 457 8.43 310 6.23
Commercial 4,659 31.80 4,477 33.52 4,597 33.90 3,688 34.04
Installment and
consumer Guaranteed
student loans - 8.47 - 8.95 - 9.61 9 12.67
Credit cards - - 1 0.01 670 3.23 456 4.11
Other consumer 654 5.13 573 5.24 263 4.91 83 4.77
Unallocated 2,282 938 - 274 - 553 -
--------- ----------- --------- ------------ --------- ----------- --------- ------------
Total allowance for
loan losses $ 9,709 100.00% $ 8,282 100.00% $ 7,139 100.00% $ 5,813 100.00%
========= =========== ========= ============ ========= =========== ========= ============
<CAPTION>
-------------------------------------------------------
1994 1993
-------------------------- --------------------------
Percentage of Percentage of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Real estate mortgage:
Residential $ 178 8.21% $ 103 9.98%
Commercial 941 32.06 519 27.87
Real estate
construction 195 5.02 32 3.08
Commercial 2,616 29.27 1,302 25.29
Installment and
consumer Guaranteed
student loans 6 14.97 65 21.84
Credit cards 247 5.08 747 6.01
Other consumer 137 5.39 88 5.93
Unallocated 639 - 1,104 -
--------- ----------- -------- -----------
Total allowance for
loan losses 4,959 100.00% 3,960 100.00%
========= =========== ======== ===========
</TABLE>
41
<PAGE>
Investment Activities. The objectives of the investment portfolio are
to provide the Company with a source of liquidity (from scheduled maturities) as
well as a source of earnings. Investment securities were $170.7 million at
September 30, 1998, a reduction of $17.0 million, or 9%, compared to December
31, 1997. This large reduction was due primarily to the sale of
available-for-sale securities in connection with the redemption of the Company's
Series A Preferred Stock on September 1, 1998.
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------------------
1998 1997 1996 1995
------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 124,266 $ 154,209 $ 109,989 $ 110,785
State and municipal obligations 15,045 10,953 13,153 11,579
Mortgage-backed securities 24,952 16,427 23,060 24,222
Other securities 6,435 6,151 1,149 1,102
============ ============ ============ ============
Total investment securities $ 170,698 $ 187,740 $ 147,351 $ 147,688
============ ============ ============ ============
Available for sale (fair value) $ 89,219 $ 100,746 $ 63,762 $ 73,044
Held to maturity (amortized cost) 81479 86,994 83,589 74,644
============ ============ ============ ============
Total investment securities $ 170,698 $ 187,740 $ 147,351 $ 147,688
============ ============ ============ ============
</TABLE>
42
<PAGE>
INVESTMENT PORTFOLIO MATURITY
The following table shows the maturities, carrying value (amortized
cost in the case of investment securities being held to maturity or estimated
fair value in the case of investment securities available for sale), estimated
fair market values and average yields for the Company's investment portfolio at
September 30, 1998. Yields are not presented on a tax-equivalent basis.
Maturities of mortgage-backed securities are based on expected maturities.
Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers on the underlying mortgages may have the right
to call or prepay obligations with or without prepayment penalties. The
securities of no single issuer (other than the United States or its agencies),
or in the case of securities issued by state and political subdivisions, no
source or group of sources of repayment, accounted for more than 10% of
shareholders' equity of the Company at September 30, 1998.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years
------------------------- ----------------------- -----------------------
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
------------- ----------- ----------- ---------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. government and agency
Securities $ 18,048 6.31 % $ 50,062 6.15 % $ - - %
State and municipal
Obligations 1,894 4.08 11,475 4.01 - -
Mortgage-backed securities - - - - - -
Other securities - - - - - -
------------- ----------- -----------
Total held to maturity 19,942 6.10 61,537 5.75 - -
------------- ----------- -----------
Available for Sale:
U.S. government and agency
Securities 1,500 7.05 48,489 6.32 4,885 7.05
State and municipal
Obligations 1,229 5.07 440 3.98 - -
Mortgage-backed securities 6,120 6.39 17,323 6.16 1,277 5.79
Other securities - 0 4,122 6.89 - -
------------- ----------- -----------
Total available for sale 8,849 6.32 70,374 6.30 6,162 6.79
------------- ----------- -----------
Total investment
Securities $ 28,791 6.17 % $ 131,911 6.05 % $ 6,162 6.79 %
============= =========== ===========
<CAPTION>
More than Ten Years Total Investment Securities
----------------------- ------------------------------------
Amortized Average Amortized Market Average
Cost Yield Cost Value Yield
------------ ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. government and agency
Securities $ - - % $ 68,110 $ 69,671 6.20 %
State and municipal
Obligations - - 13,369 13,247 4.02
Mortgage-backed securities - - - - -
Other securities - - - - -
------------ ------------ -----------
Total held to maturity - - 81,479 82,918 5.84
------------ ------------ -----------
Available for Sale:
U.S. government and agency
Securities - - 54,874 56,156 6.41
State and municipal
Obligations - - 1,669 1,676 4.78
Mortgage-backed securities - - 24,720 24,952 6.20
Other securities 2,000 6.81 6,122 6,435 6.86
------------ ------------ -----------
Total available for sale 2,000 6.81 87,385 89,219 6.35
------------ ------------ -----------
Total investment
Securities $ 2,000 6.81 % $ 168,864 $172,137 6.10 %
============ ============ ===========
</TABLE>
43
<PAGE>
At September 30, 1998, the Company held mortgage-backed securities with
a book value of $25.0 million, all of which were collateralized by single-family
mortgage loans. It is the Company's policy to purchase mortgage-backed
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC" or
Freddie Mac), Federal National Mortgage Association ("FNMA" or Fannie Mae), or
the Government National Mortgage Association ("GNMA" or Ginnie Mae), when such
securities can be acquired at attractive yields, and where the investment
characteristics of the securities complement the Bank's asset/liability
management objectives, primarily as to interest rate adjustments and terms to
maturity. FHLMC, FNMA and GNMA mortgage-backed securities have lower risk
weightings, and therefore require less capital, than residential mortgage loans.
Mortgage-backed securities also may be used as collateral for borrowings and,
through repayments, as a source of liquidity. At September 30, 1998 and at
December 31, 1997, 1996, and 1995, the Company had no investments in privately
issued mortgage-backed securities, and had no mortgage-related securities that
were rated "high risk" under regulatory guidelines.
Deposit Activity. The principal sources of funds for the Company are
core deposits (demand deposits, NOW accounts, money market accounts, savings
accounts and certificates of deposit of less than $100,000) from the local
market areas surrounding each of the Company's offices. The Company's deposit
base includes transaction accounts, time and savings accounts and accounts which
customers use for cash management and which provide the Company with a source of
fee income and cross-marketing opportunities as well as a low-cost source of
funds. Time and savings accounts, including money market deposit accounts, also
provide a relatively stable and low-cost source of funding. The largest source
of funds for the Company remains certificates of deposit. The Company also
obtains deposit funds through its retail certificate of deposit programs with
brokerage companies (page ). Certificates of deposit issued through these
programs totaled $35.0 million at September 30, 1998.
In February 1998, the Company began a new program that reclassifies
excess funds in transaction accounts as money market accounts for regulatory
purposes. At September 30, 1998, $66.7 million and $36.3 million of demand and
NOW account balances had been reclassified as money market accounts. Without
these reclassifications, demand deposits would have increased $8.5 million, or
9%, NOW accounts would have increased $8.3 million, or 22%, and money market
deposits would have decreased $8.5 million, or 9%, as compared to December 31,
1997. This reclassification has no effect on the customer, but reduces the
amount of reserve funds the Bank is required to keep on deposit at the Federal
Reserve Bank. The freed funds can then be used to support the Company's lending
and investment operations.
44
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT COMPOSITION
At December 31,
------------------------------------------------------------------------------
At September 30, 1998 (1) 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent
of of of of
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate Amount Deposits
----------- --------- ------ ----------- -------- ------ -------- ---------- ----- ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $38,322 4.61% N/A $ 96,560 11.48% N/A $ 83,729 11.11% N/A $ 78,308 12.34%
Noninterest-bearing
money market accounts 66,746 8.03 N/A - - N/A - - N/A - -
NOW accounts 9,473 1.14 2.35% 37,447 4.45 2.37% 34,309 4.55 2.32% 33,762 5.32
Money market accounts 122,314 14.72 3.37 94,496 11.23 4.12 86,910 11.53 3.82 75,330 11.87
Savings accounts 3,492 0.42 2.25 3,655 0.43 2.49 4,086 0.54 2.49 4,788 0.76
Time deposits 590,464 71.08 5.52 609,267 72.41 5.72 544,911 72.27 5.75 442,199 69.71
---------- -------- --------- -------- -------- ------- -------- --------
Total deposits $830,811 100.00% $841,425 100.00% $753,945 100.00% $634,387 100.00%
========== ======== ========= ======== ======== ======= ========= ========
<CAPTION>
-----------------------------
Rate
-----------------------------
<S> <C>
Demand deposits N/A
Noninterest-bearing
money market accounts N/A
NOW accounts 2.37%
Money market accounts 4.10
Savings accounts 2.44
Time deposits 5.87
Total deposits
</TABLE>
(1) Without the effects of the resrve reclassification program, deposits at
September 30, 1998 would have been as follows:
<TABLE>
<CAPTION>
Percent
of
Amount Deposits
---------- --------
<S> <C> <C>
Demand deposits $ 105,068 12.65%
NOW accounts 45,755 5.51
Noninterest-bearing money
market accounts - -
Money market accounts 86,032 10.34
Savings accounts 3,492 0.42
Time deposits 590,464 71.08
---------- --------
Total deposits $ 830,811 100.00%
========== ========
</TABLE>
The Bank offers a variety of cash management services to its commercial
deposit customers including lockbox collections, imaging, deposit reconciliation
and verification. Commercial customers in Tulsa and Oklahoma City frequently use
third-party courier services to deliver deposits which has allowed the Bank to
effectively service these metropolitan areas from its current branch locations.
45
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of September 30,
1998:
<TABLE>
<CAPTION>
Maturity Period Amount
---------------------------------------------------
(dollars in thousands)
<S> <C>
Three months or less(1) $ 51,746
Over three through six months (1) 36,395
Over six through 12 months (1) 59,370
Over 12 months 25,343
-----------
Total $172,854
===========
</TABLE>
(1) The amount of certificates of deposit that mature within 12 months is $147.5
million. The Company does not have any liquidity concerns as a result of the
volume of these maturities.
46
<PAGE>
BORROWINGS
Borrowings. The Company uses various forms of short-term borrowings for
cash management and liquidity purposes on a limited basis. These forms of
borrowings include federal funds purchased, securities sold under agreements to
repurchase, and borrowings from the Federal Reserve Bank, the Federal Home Loan
Bank of Topeka ("FHLB") and the Student Loan Marketing Association ("SLMA"). The
Company also carries interest-bearing demand notes issued to the U.S. Treasury
in connection with the Treasury Tax and Loan note program. The Sweep Repurchase
Agreement product introduced by the Company in 1998 caused most of the large
increase in federal funds purchased and securities sold under repurchase
agreements (page ). At September 30, 1998, repurchase agreements were $33.2
million and federal funds purchased were $2.4 million.
<TABLE>
<CAPTION>
At September 30, At December 31,
-------------------- ------------------------------
1998 1997 1997 1996 1995
---------- --------- --------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Amounts outstanding at end of period
Treasury, tax and loan note option $ 1,494 $ 1,500 $ 1,595 $ 1,185 $ 471
Federal funds purchased and securities
sold under repurchase agreements 35,620 1,546 18,953 1,800 2,800
Borrowed from the Federal Home Loan Bank 20,000 - - - -
Other short-term borrowings - - - - 7,500
Weighted average rate outstanding
Treasury, tax and loan note option 5.41% 5.41% 5.25% 4.99% 5.15%
Federal funds purchased and securities
sold under repurchase agreements 5.05% 4.97% 4.94% 6.70% 5.75%
Borrowed from the Federal Home Loan Bank 5.45% - - - -
Other short-term borrowings - - - - 5.55%
Maximum amount of borrowings outstanding at any
month-end: Treasury, tax and loan note option $ 2,500 $ 1,843 $ 1,843 $ 1,500 $ 1,710
Federal funds purchased and securities
sold under repurchase agreements 47,570 2,546 19,953 2,300 11,200
Borrowed from the Federal Home Loan Bank 37,000 - - - -
Other short-term borrowings - 5,000 5,000 - 12,500
Approximate average short-term borrowings
outstanding with respect to:
Treasury, tax and loan note option 1,543 1,181 1,205 1,135 1,152
Federal funds purchased and securities
sold under repurchase agreements 29,957 397 4,657 251 1,536
Borrowed from the Federal Home Loan Bank 20,292 - - - -
Other short-term borrowings - 988 739 554 1,839
Approximate weighted average rate paid on:
Treasury, tax and loan note option 5.15% 5.50% 5.36% 4.96% 5.79%
Federal funds purchased and securities
sold under repurchase agreements 5.11% 5.52% 4.98% 5.78% 6.05%
Borrowed from the Federal Home Loan Bank 5.53% - - - -
Other short-term borrowings - 5.84% 5.84% 5.59% 6.41%
</TABLE>
47
<PAGE>
CAPITAL RESOURCES
The Company effected its planned redemption of the Series A Preferred
Stock on September 1, 1998, at the cash redemption price of $17.25 million.
Funds for this redemption came from the sale of securities purchased with
proceeds from the Trust Preferred issued in 1997. The Trust Preferred is less
expensive to the Company, on an after tax basis, than the Series A Preferred
Stock. The redeemed Preferred Stock exceeded the amount of Trust Preferred that
may be included in Tier 1 capital for regulatory purposes, so the redemption did
not cause a decrease in the Company's Tier 1 or Leverage Capital ratios. At
September 30, 1998, total shareholders' equity was $56.5 million, compared to
$68.0 million at December 31, 1997.
In the first nine months of 1998, earnings, net of common and preferred
stock dividend payments, contributed $4.9 million to common shareholders'
equity. In addition, net unrealized gains on investment securities available for
sale (net of tax) increased to $1.1 million at September 30, 1998 compared to
$580,000 at December 31, 1997. Sale of common stock through the dividend
reinvestment plan, the employee stock purchase plan and the employee stock
option plan contributed an additional $209,000 to shareholders' equity in the
first nine months of 1998. As a result, common shareholders' equity increased
$5.8 million, or 11%, in the first nine months of 1998.
Shareholders' equity increased to $68.0 million at December 31, 1997
from $65.0 million a year earlier. 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 $580,000 at December 31, 1997 compared to $205,000 at December 31,
1996. The Company also increased common stock and related surplus by $456,000
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 Trust
Preferred, having a liquidation amount of $25 per security, for a total price of
$25,012,500. The distributions payable on the Trust Preferred are based on a
9.30% fixed annual rate. The Trust Preferred meet the regulatory criteria for
Tier I capital, subject to Federal Reserve guidelines that limit the amount of
the Trust Preferred and cumulative perpetual preferred stock to an aggregate of
25% of Tier I Capital for the calculation of Tier I capital. Proceeds from the
Trust Preferred were invested in 9.30% Subordinated Debentures of the Company.
For accounting purposes, the Trust Preferred 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." 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, and, on September 1,
1998, redemption of the Company's Series A Preferred Stock.
Bank holding companies are required to maintain capital ratios in
accordance with guidelines adopted by the Federal Reserve Board. The guidelines
are commonly known as Risk-Based Capital Guidelines. On September 30, 1998, the
Company exceeded all applicable capital requirements, having a total risk-based
capital ratio of 11.47%, a Tier I risk-based capital ratio of 9.37%, and a
leverage ratio of 7.46%. As of September 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.
48
<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 of less than
$100,000 were 79% and 84% of total deposits at September 30, 1998 and 1997.
The Company uses various forms of short-term borrowings for cash
management and liquidity purposes. These forms of borrowings include federal
funds purchases, securities sold under agreements to repurchase, and borrowings
from the Federal Reserve Bank, the Student Loan Marketing Association ("SLMA")
and the Federal Home Loan Bank of Topeka ("FHLB"). The Bank also carries
interest-bearing demand notes issued to the U.S. Treasury in connection with the
Treasury Tax and Loan note program. The Bank has approved federal funds purchase
lines with three other banks. The Bank has available a $35.0 million line of
credit from the SLMA and a $195.6 million line of credit from the FHLB.
Borrowings under the SLMA line would be secured by student loans. Borrowings
under the FHLB line would be secured by unpledged securities and other loans.
The Bank also has available unsecured brokered certificate of deposit lines of
credit in connection with its retail certificate of deposit program from Merrill
Lynch & Co., Morgan Stanley Dean Witter, and Salomon Smith Barney that total
$260 million. During the first nine months and third 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 1997 and 1996, no category of borrowings averaged more than 30%
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.
ASSET/LIABILITY MANAGEMENT AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company's net income is largely dependent on its net interest
income. The Company seeks to maximize its net interest margin within an
acceptable level of interest rate risk. Interest rate risk can be defined as the
amount of forecasted net interest income that may be gained or lost due to
favorable or unfavorable movements in interest rates. Interest rate risk, or
sensitivity, arises when the maturity or repricing characteristics of assets
differ significantly from the maturity or repricing characteristics of
liabilities. Net Interest income is also affected by changes in the portion of
interest-earning assets that are funded by interest-bearing liabilities rather
than by other sources of funds, such as noninterest-bearing deposits and
shareholders' equity.
The Company attempts to manage interest rate risk while enhancing net
interest margin by adjusting its asset/liability position. At times, depending
on the level of general interest rates, the relationship between long- and
short-term interest rates, market conditions and competitive factors, the
Company may determine to increase its interest rate risk position somewhat in
order to increase its net interest margin. The Company monitors interest rate
risk and adjusts the composition of its interest- related assets and liabilities
in order to limit its exposure to changes in interest rates on net interest
income over time. The Company's asset/liability committee reviews its interest
rate risk position and profitability, and recommends adjustments. The Company
also reviews the securities portfolio, formulates investment strategies, and
oversees the timing and implementation of transactions. Notwithstanding the
Company's interest rate risk management activities, the potential for changing
interest rates is an uncertainty that can have an adverse effect on net income.
The Company's results of operations and portfolio market values remain
49
<PAGE>
vulnerable to changes in interest rates and to fluctuations in the difference
between long- and short-term interest rates.
"Gap analysis" is a measure of interest rate sensitivity traditionally
used in the banking industry. Gap analysis measures the cumulative differences
between the amount of assets and liabilities maturing or repricing within
various time periods. The following table shows the Company's interest rate
sensitivity gaps for selected maturity periods at September 30, 1998.
<TABLE>
<CAPTION>
0 to 3 4 to 12 Over 1 to Over
Months Months 5 Years 5 Years Total
------------ ------------ ----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 383,297 $ 216,413 $ 99,959 $ 55,387 $ 755,056
Investment securities 10,186 23,095 129,080 8,337 170,698
Federal funds sold - - - - -
Due from banks 1,851 - - - 1,851
----------- ----------- ----------- ---------- -----------
Total 395,334 239,508 229,039 63,724 927,605
Interest-bearing liabilities:
Money market deposit accounts 122,314 - - - 122,314
Time deposits 144,046 353,599 92,810 9 590,464
Savings accounts 3,492 - - - 3,492
NOW accounts 9,473 - - - 9,473
Short-term borrowings 57,114 - - - 57,114
Long-term debt - - - 25,013 25,013
----------- ----------- ---------- ---------- -----------
Total 336,439 353,599 92,810 25,022 807,870
----------- ----------- ---------- ---------- -----------
Interest sensitivity gap $ 58,895 $ (114,091) $ 136,229 $ 38,702 $ 119,735
=========== =========== ========== ========== ===========
Cumulative interest sensitivity gap $ 58,895 $ (55,196) $ 81,033 $ 119,735 $ 119,735
=========== =========== ========== ========== ===========
Percentage of interest-earning assets
To interest-bearing liabilities 117.51% 67.73% 246.78% 254.67% 114.82%
=========== =========== ========== ========== ===========
Percentage of cumulative gap to total
assets 6.02% (5.64)% 8.29% 12.25% 12.25%
=========== =========== ========== ========== ===========
</TABLE>
50
<PAGE>
It is the Company's goal to maintain a total percentage of
rate-sensitive assets to rate-sensitive liabilities of between 75% and 125%.
This percentage of rate- sensitive assets to rate-sensitive liabilities presents
a static position as of a single day and is not necessarily indicative of the
Company's position at any other point in time and does not take into account the
sensitivity of yields and costs of specific assets and liabilities to changes in
market rates. The foregoing analysis assumes that the Company's mortgage-backed
securities mature during the period in which they are estimated to prepay. No
other prepayment or repricing assumptions have been applied to the Company's
interest-earning assets.
Quantitative and Qualitative Disclosures about Market Risk. A principal
objective of the Company's asset/liability management effort is to balance the
various factors that generate interest rate risk, thereby maintaining the
interest rate sensitivity of the Company within acceptable risk levels. To
measure its interest rate sensitivity position, the Company utilizes a
simulation model that facilitates the forecasting of net interest income under a
variety of interest rate and growth scenarios. At December 31, 1997, the model
projected net income would increase by 1.15% if interest rates would immediately
fall by 200 basis points. It projects a decrease in net income of 0.94% if
interest would immediately rise by 200 basis points. The earnings simulation
model includes assumptions about how the various components of the balance sheet
and rate structure are likely to react through time in different interest rate
environments. These assumptions are derived from historical analysis and
Management's outlook. Management has determined that no additional disclosures
are necessary to assess changes in information about market risk that have
occurred from December 31, 1997 through September 30, 1998.
YEAR 2000
Many computer programs now in use have not been designed to properly
recognize years after 1999. If not corrected, these programs could fail or
create erroneous results. This Year 2000 ("Y2K") issue affects the entire
banking industry because of its reliance on computers and other equipment that
use computer chips. This problem is not limited to computer systems. Y2K issues
may affect every system that has an embedded microchip, such as automated teller
machines, elevators, vaults, heating, air conditioning, and security systems.
Y2K issues may also affect the operation of third parties with whom the Company
does business such as vendors, suppliers, utility companies, and customers.
Risks Related To Year 2000. The Y2K issue poses certain risks to the
Company and its operations. Some of these risks are present because the Company
purchases technology and information system applications from other parties who
also face Y2K challenges. Other risks are specific to the banking industry.
Commercial banks may experience a deposit base reduction if customers
withdraw significant amounts of cash in anticipation of Y2K. Such a deposit
contraction could cause an increase in interest rates, require the Company to
locate alternative sources of funding or sell investment securities or other
liquid assets to meet liquidity needs, and may reduce future earnings. To reduce
customer concerns regarding Y2K noncompliance, a customer awareness plan has
been implemented which is directed towards making deposit customers
knowledgeable about the Company's Y2K compliance efforts.
The Company lends significant amounts to businesses and individuals in
its marketing areas. If these borrowers are adversely affected by Y2K problems,
they may not be able to repay their loans in a timely manner. This increased
credit risk could adversely affect the Company's financial performance. In an
effort to identify any potential loan loss risk because of borrower Y2K
noncompliance, all loan customers with loans or commitments exceeding $500,000
were asked to complete a Y2K questionnaire. Where the customer does not reply,
the loan officer will personally contact the customer. The Company has purchased
software to assist it in interpreting the responses, and is in the process of
analyzing the results and any risks identified. The Company has also modified
its loan underwriting controls to ensure that potential borrowers are carefully
evaluated for Y2K compliance before any new loan is approved.
51
<PAGE>
The Company's operations, like those of many other companies, can be
adversely affected by Y2K triggered failures which may be experienced by third
parties upon whom the Company relies for processing transactions. The Company
has identified all critical third-party service providers and vendors and is
monitoring their Y2K compliance programs. The Company's primary supplier of data
processing services has adopted a Y2K compliance plan which includes a timetable
for making changes necessary to be able to provide services in the Y2K. That
supplier has provided written assurances to the Company regarding its progress
toward Y2K compliance and has been examined for Y2K readiness by federal bank
examiners.
The Company's operations may also be adversely affected by Y2K related
failures of third party providers of electricity, telecommunications services
and other utility services. Although the Company's contingency plan includes
backup power generation, failures in these areas could impact the Company's
ability to conduct business. The Y2K compliance of these providers is largely
beyond the control of the Company.
The Company's State of Readiness. The Company has created a task force
to establish a Y2K plan to prevent or mitigate the adverse effects of the Y2K
issue on the Company and its customers. Goals of the Y2K plan include
identifying Y2K risks, information systems and equipment used by the Company,
informing customers of Y2K issues and risks, establishing a contingency plan for
operating if Y2K issues cause important systems or equipment to fail,
implementing changes necessary to achieve Y2K compliance, and verifying that
these changes are effective. The Comptroller of Currency has examined the
Company's Y2K compliance plan and the Company's progress in implementation. In
addition, the Board of Directors is carefully monitoring progress under the plan
on a monthly basis.
The Company's plan to address the Y2K issues involves several phases,
described below:
. Awareness - In this phase, the Company's Y2K plan and project team
were established, the overall Y2K approach was identified,
compliance standards were defined, and responsibility for
corrective action was assigned. This phase is 100% complete.
. Assessment - During this phase, the Company gathered and analyzed
information to determine the size and the impact of the Y2K
problem and then made decisions to modify, re-engineer, or replace
existing systems and programs. This phase has been completed.
. Renovation - This phase involves obtaining and implementing
upgraded software applications provided by the Company's vendors,
modifying system codes, reengineering Y2K vulnerable systems and
programs, developing bridges for systems which cannot be
reengineered, and changing files and databases as necessary. The
tasks to be performed in this phase are 70% complete. All system
renovations are expected to be completed by March 31, 1999.
. Validation - During the validation phase, the Company is testing
systems and software for Y2K compliance in an effort to identify
and correct any errors that may be identified in the renovation
phase. Thirty percent of system validation has been performed and
the remainder is expected to be completed by June 30, 1999.
. Implementation - In this phase all new and revised systems will be
implemented, data exchange issues will be resolved, and back up
and recovery plans will be developed. This phase will begin once
the validation phase is complete and will be fully executed by
December 31, 1999.
52
<PAGE>
Based on information developed to date, Company management believes that
the cost of remediation will not be material to the Company's business,
operations, liquidity, capital resources, or financial condition. The Company
estimates that total cash outlays in connection with Y2K compliance will be less
than $500,000, excluding costs of Company employees involved in Y2K compliance
activities. Less than one half of this amount had been expended as of September
30, 1998. The Company is funding Y2K expenditures through continuing operations.
All designated personnel will report to work on January 1 and 2, 2000,
(Saturday and Sunday) to assess the proper functioning of critical and
non-critical systems. In the event that some or all systems experience failure,
the Company has developed a detailed contingency plan. This plan calls for
manual processing of bank transactions at designated locations supported by
backup power systems. Delays in processing transactions would result in the
event that the Company is forced to process transactions manually. These delays
could disrupt normal business activities of the Company and its customers.
Forward Looking Statements. The discussion above regarding issues associated
with Y2K includes certain "forward looking statements". The Company's ability to
predict results or effects of issues related to the Y2K issue is inherently
uncertain and is subject to factors that may cause actual results to differ
materially from those projected. Factors that could affect the actual results
include the following:
. The possibility that protection procedures, contingency plans, and
remediation efforts will not operate as intended;
. The Company's failure to timely or completely identify all software or
hardware applications requiring remediation;
. Unexpected costs;
. The uncertainty associated with the impact of Y2K issues on the banking
industry and the Company's customers, vendors, and others with whom it
conducts business;
. The general economy.
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 that require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. Unlike most industrial companies, virtually
all the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 129, Disclosure
of Information About Capital Structure. SFAS No. 129 establishes standards for
disclosure of information regarding an entity's capital structure. The adoption
of SFAS No. 129 did not affect the Company.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
establishes standards for computing and presenting earnings per share. The
Company adopted SFAS No. 128 as of December 31, 1997, and restated all per share
data as reflected in the consolidated financial statements in accordance with
SFAS No. 128.
53
<PAGE>
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
125 requires the Company to recognize the financial and servicing assets it
controls and liabilities it has incurred, remove financial assets from its
statement of condition when control has been surrendered, and remove liabilities
when they are 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.
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. Comprehensive income includes gains or losses based upon changes in
the market values of certain assets. 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.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
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 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 January 1, 2000, 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.
54
<PAGE>
SELLING SHAREHOLDERS; OWNERSHIP OF COMMON STOCK
SELLING SHAREHOLDERS.
The following shareholders are selling common stock in this offering.
Percentage ownership is based upon the 3,799,065 common shares outstanding at
December 31, 1998. The Selling Shareholders will sell all of the shares of
common stock that they own in the offering.
<TABLE>
<CAPTION>
Shares Owned
-------------------------------
Percentage of
Selling Shareholder Position with the Company Number Outstanding Shares
- ----------------------- --------------------------------------------------------------- ---------- -----------------
<S> <C> <C> <C>
Estate of Paul C. Wise Paul C. Wise was an officer and director of the Company and the
Bank until
his death in February 1998. James B. Wise, M.D. is a co-executor
of the Estate. 696,311 18.33%
James B. Wise, M.D. Director of the Company and the Bank 114,686 3.02
------- ------
Total 810,997 21.35%
======= ======
</TABLE>
BENEFICIAL OWNERSHIP OF SECURITIES
The following table shows the common stock owned by directors and executive
officers of the Company and persons known by the Company to beneficially own
more than 5% of the Company's outstanding common stock as of December 31, 1998.
The table includes the numbers and percentages of shares owned after the
offering is completed. This information has been prepared based upon the SEC's
"beneficial ownership" rules. Under these rules a person is deemed to be a
beneficial owner of a security if that person has or shares voting power, which
includes the power to vote or to direct the voting of a security, or investment
power, which includes the power to dispose or to direct the disposition of a
security. More than one person may be deemed to be a beneficial owner of the
same securities. A person is deemed to be a beneficial owner of any security
that the person has the right to acquire within 60 days. The shares of common
stock issuable upon exercise of options exercisable within 60 days from the
record date are assumed to be outstanding for the purpose of determining the
percentage of shares beneficially owned by that person. The SEC's rules
sometimes cause the total percentage ownership disclosed to be less than the sum
of the individual ownership percentages.
<TABLE>
<CAPTION>
Ownership Prior Ownership After
to the Offering Shares to the Offering
------------------------ ----------------------
Beneficial Owner Shares Percentage Be Sold Shares Percentage
- -------------------------------------------------- ------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Selling Shareholders:
James B. Wise, M.D. (1) 114,686 3.02% 114,686 - -
Estate of Paul C. Wise 696,311 18.33 696,311 - -
---------- -------- --------
Total Selling Shareholders 810,997 21.35 810,997 - -
All Directors (15 persons) (2) (3) 1,332,830 34.40 810,997 521,833 12.65%
Executive officers (11 persons) (4) 191,211 4.88 - 191,211 4.58
All directors and executive officers (2) (4) 1,388,487 35.40 810,997 577,490 13.84
Known holders of more than 5% of the Company's
outstanding common stock (2) (5) 1,660,196 43.70 810,997 849,199 20.97
Directors, officers and known holders of more
than 5% of the Company's common stock (2) (4) (5) 2,016,785 51.42 810,997 1,205,788 28.90
</TABLE>
(1) James B. Wise, M.D. is a director of the Company. The shares of common
stock held in the Estate of Paul C. Wise are deemed to be owned by Dr. Wise
because he is co-executor of the estate.
(2) Includes shares to be sold by the Selling Shareholders, all of which are
deemed to be owned by Dr. Wise.
(3) Also includes 75,000 shares of common stock issuable upon exercise of
options that were exercisable at December 31, 1998, or that become
exercisable by February 28, 1999. These options are held by three executive
officers who are directors of the Company.
(4) Includes 122,000 shares of common stock issuable upon exercise of options
that were exercisable at December 31, 1998, or that become exercisable by
February 28, 1999. Includes shares owned by executive officers who are
directors of the Company and other executive officers.
(5) Includes shares owned by Joyce P. Berry, a director of the Company, which
will represent 5.46% of outstanding shares after the offering. Also
includes 234,380 shares owned by George M. Berry, which will represent
5.79% of outstanding shares after the offering, and 347,918 shares owned by
American Fidelity Corporation, which will represent 8.60% of outstanding
shares after the offering. Mr. Berry is the retired Chairman of the Board
of Directors of the Company. Mr. Alfred L. Litchenburg, who is a director
of the Company, is an executive officer of the principal subsidiary of
American Fidelity Corporation. The Bank holds 200,000 shares in trust that
are beneficially owned by Mr. Berry, and 46,000 additional shares that are
included above.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company has 12,000,000 shares of capital stock authorized, of which
10,000,000 are shares of common stock, 1,000,000 are shares of serial preferred
stock, and 1,000,000 are shares of Class B serial preferred stock. As of
September 30, 1998, 3,797,107 shares of common stock, and no shares of serial
preferred stock or Class B serial preferred stock were issued and outstanding.
COMMON STOCK
Each share of common stock is entitled to one vote on all matters
submitted to shareholders, except that in the election of directors, cumulative
voting is permitted. Cumulative voting gives each shareholder the right to cast,
in the aggregate, a number of votes equal to the total number of the holder's
shares, multiplied by the number of directors to be elected, all of which may be
cast for any one or more candidates.
Holders of shares of common stock do not have preemptive rights to
subscribe for shares of common stock or any other class of stock that may be
issued in the future. The shares of common stock are not subject to redemption
and, upon receipt by the Company of the full purchase price therefor, will be
fully paid and nonassessable.
Each share of common stock participates equally in dividends which are
payable when, as and if declared by the Company's Board of Directors out of
funds legally available for such purpose, and is entitled to share equally in
the assets of the Company available for distribution to common shareholders in
the event of liquidation of the Company. If any shares of preferred stock are
outstanding, such shares may have priority in dividends or liquidation over the
Shares.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue serial
preferred stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof. The serial preferred stock may rank prior to the shares as
to dividend rights or liquidation preferences, or both, and may have full or
limited voting rights. In 1995, the Board of Directors authorized the issuance
of the Series A Preferred Stock, all shares of which were redeemed on September
1, 1998. Upon redemption, shares of Series A Preferred Stock returned to the
status of authorized but unissued shares.
RESTRICTIONS ON CHANGES IN CONTROL
The Company's Amended and Restated Certificate of Incorporation
requires the affirmative vote of not less than 80% of the outstanding voting
stock of the Company to authorize the merger or consolidation of the Company
with, or a sale, exchange or lease of more than 25% of the assets of the Company
to any person or entity unless approval of the transaction is recommended by at
least a majority of the entire Board of Directors.
Under the Amended and Restated Certificate of Incorporation, the
holders of at least 80% of the Company's outstanding shares of voting stock and
at least a majority of the Company's outstanding shares of voting stock not
including shares held by a "Related Person," would be required to approve
certain "Business Combinations," as defined. The increased voting requirements
would apply in connection with Business Combinations involving a Related Person,
except in cases where the proposed transaction was approved in advance by
two-thirds of the members of the Board of Directors who are unaffiliated with
the Related Person and who were directors prior to the time when the Related
Person became a Related Person (the "Continuing Directors"). The term "Related
Person" is defined to include any individual, corporation, partnership, or other
entity, which owns beneficially or controls, directly or indirectly, more than
10% of the outstanding shares of voting stock of the Company. A "Business
Combination" is defined to include: (i) any merger or consolidation of the
Company with or into any Related Person; (ii) any sale, lease, exchange,
mortgage, transfer or other disposition of all or a Substantial Part of the
assets of the Company or a subsidiary to any Related Person (the term
"Substantial Part" is defined to include more than 25% of the Company's total
assets); (iii) any merger or consolidation of a Related Person with or into the
Company or a subsidiary of the Company; (iv) any sale, lease, exchange,
transfer, or other disposition of all or any Substantial Part of the assets of a
Related Person to the Company or a subsidiary of the Company; (v) the issuance
of any securities of the Company or
56
<PAGE>
subsidiary of the Company to a Related Person; (vi) any reclassification of the
Company's common stock, or any recapitalization involving the Company's common
stock; (vii) the acquisition by the Company or any subsidiary of any securities
of the Related Person; and (viii) any agreement, contract or other arrangement
providing for any of the above transactions.
Under the Oklahoma General Corporation Act, mergers, consolidations and
sales of substantially all of the assets of an Oklahoma corporation must
generally be approved by a vote of the holders of a majority of the outstanding
shares of stock entitled to vote thereon. Section 1090.3 of the Oklahoma General
Corporation Act, however, restricts certain transactions between an Oklahoma
corporation (or its majority owned subsidiaries), and a holder of 15% or more of
the corporation's outstanding voting stock, together with affiliates or
associates thereof (excluding persons who were 15% shareholders on September 1,
1991, or who become such by action of the corporation alone) (an "Interested
Shareholder"). For a period of three years following the date that a shareholder
became an Interested Shareholder, Section 1090.3 prohibits the following types
of transactions between the corporation and the Interested Shareholder (unless
certain conditions, described below, are met): (i) mergers or consolidations;
(ii) sales, leases, exchanges, mortgages, pledges, transfers, or other
dispositions of 10% or more of the aggregate assets of the corporation; (iii)
issuances or transfers by the corporation of any stock of the corporation that
would have the effect of increasing the Interested Shareholder's proportionate
share of the stock of any class or series of the corporation; (iv) receipt by
the Interested Shareholder of the benefit, except proportionately as a
shareholder of the corporation, of loans, advances, guarantees, pledges or other
financial benefits provided by the corporation; and (v) any other transaction
which has the effect of increasing the proportionate share of the stock of any
class or series of the corporation that is owned by the Interested Shareholder.
This restriction does not apply if: (1) before such person became an Interested
Shareholder, the Board of Directors approved the transaction in which the
Interested Shareholder becomes an Interested Shareholder or approved the
business combination; or (2) upon consummation of the transaction which resulted
in the shareholder's becoming an Interested Shareholder, the Interested
Shareholder owned at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced, excluding for purposes of determining the
number of shares outstanding, those shares owned by (i) persons who are
directors and also officers, and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or (3)
on or subsequent to such date, the business combination is approved by the Board
of Directors and authorized at an annual or special meeting of shareholders, and
not by written consent, by the affirmative vote of at least 66-2/3% of the
outstanding voting stock which is not owned by the Interested Shareholder. An
Oklahoma corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation.
The Amended and Restated Certificate of Incorporation and Bylaws of the
Company provide that the Board of Directors of the Company shall be divided into
three classes which shall be as nearly equal in number as possible. The
directors of each class hold office following their election for a period of
three years, with only one-third (1/3) of the directors coming up for
re-election each year. Each director serves until his or her successor is
elected and qualified. Although such provisions may have the effect of making it
more difficult and time consuming for a shareholder to gain control of the
Company, the Board of Directors believes these provisions provide greater
continuity and stability in the management of the Company and provide the Board
with greater ability to negotiate with respect to any proposal for a business
combination, corporate restructuring or other significant transaction in order
to help assure that favorable terms are made available to all of the Company's
shareholders.
Under the Amended and Restated Certificate of Incorporation and Bylaws
of the Company any director or the entire Board may be removed at any time, but
only for cause and only by the affirmative vote of the holders of at least 80%
of the outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors, cast at a meeting of shareholders called
for that purpose. Additionally, the number of directors may be increased to as
many as 21 (exclusive of directors, if any, to be elected by holders of
preferred stock of the Company, voting separately as a class) or decreased to as
few as three by the Board of Directors, but no decrease shall result in the
shortening of the term of any incumbent director. Vacancies in the Board of the
Company, however caused, and newly created directorships shall be filled by a
vote of two-thirds (2/3) of the directors then in office, whether or not a
quorum.
The Amended and Restated Certificate of Incorporation and Bylaws of the
Company provide that special meetings of shareholders for any purpose can only
be called by the Board of Directors of the Company, or by a
57
<PAGE>
committee of the Board of Directors which has been duly designated by the Board.
Neither shareholders nor any other person or persons may call a special meeting.
The Amended and Restated Certificate of Incorporation of the Company
provides that the affirmative vote of not less than 80% of the outstanding
shares of the Company is required to amend the provisions regarding election and
removal of directors, amendment of the Certificate of Incorporation and Bylaws,
indemnification, directors liability and certain business combinations and other
transactions. The Bylaws may be repealed, altered, amended or rescinded by a
vote of a majority of the Board of Directors or by the holders of at least 80%
of the outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors at a meeting of the shareholders called
for that purpose.
The Amended and Restated Certificate of Incorporation authorizes the
Company to issue 10,000,000 shares of Common stock, 1,000,000 shares of serial
preferred stock, and 1,000,000 shares of Class B serial preferred stock, from
time to time as approved by the Board of Directors of the Company without the
approval of the shareholders. The ability of the Company to issue additional
shares could be construed as having an anti-takeover effect because it can
dilute the voting or other rights of the proposed acquiror or create a
substantial voting block in institutional or other hands.
The Amended and Restated Certificate of Incorporation of the Company
provides that nominations for the election of directors and proposals for any
new business to be taken up at an annual or special meeting of shareholders may
be made by the board of directors or by any shareholder of the Company entitled
to vote generally in the election of directors. However, in order for a
shareholder to make any such nominations or proposals, he or she must give
notice in writing of such nomination or proposal to the Secretary of the Company
not less than 30 nor more than 60 days prior to any such meeting unless less
than 40 days notice of the meeting has been given to shareholders in which case
notice may be given up to the tenth day following notice to the shareholders.
58
<PAGE>
UNDERWRITING
The Underwriters named below, have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement to purchase from
the Company and the Selling Shareholders the total number of shares of common
stock set forth opposite their respective names. The Underwriters have agreed,
subject to the terms and conditions set forth in the Underwriting Agreement
(including, without limitation, the approval of certain legal matters by counsel
to the Underwriters), to purchase all of the shares offered hereby (other than
the shares subject to the over-allotment option described below) if any of the
shares are purchased. In the event of a default by an Underwriter, the
Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the Underwriters which do not default may be increased, or the
Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
Underwriter Number of Shares
--------------------------------------------------------------- ----------------------
<S> <C>
Stifel, Nicolaus & Company, Incorporated
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
----------------------
Total
======================
</TABLE>
CONCESSIONS AND DISCOUNTS
The Underwriters have advised the Company and the Selling Shareholders
that they propose initially to offer the shares to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per Share to certain other dealers.
The following table shows the per share and total offering price of the
shares offered hereby, the underwriting discount to be paid by the Company and
the Selling Shareholders, and the proceeds of the offering to the Company and
the Selling Shareholders, before expenses of the offering, assuming that the
over-allotment option is not exercised, and assuming the exercise in full of the
over-allotment option.
<TABLE>
<CAPTION>
Total If The
Over-Allotment Total If The
Option Is Not Over-Allotment Option
Per Share Exercised Is Fully Exercised
-------------- ---------------------- -----------------------
<S> <C> <C> <C>
Offering Price
Underwriting Discount
Company
Selling Shareholders
Company portion of
Selling Shareholders
Underwriting Discount
Net Proceeds (before expenses)
Company
Selling Shareholders
</TABLE>
The Company's expenses of the offering (exclusive of the underwriting
discount) are estimated at $
OVER-ALLOTMENT OPTION
The Company has granted the Underwriters an option to purchase up to an
additional 159,149 shares of common stock at the initial offering price, less
underwriting discounts and commissions. Such option, which expires 30 days from
the date of this Prospectus, may be exercised solely to cover over-allotments
incurred in connection with the sale of the shares offered hereby. To the extent
that the Underwriters exercise their option to purchase additional
59
<PAGE>
shares, each Underwriter will, subject to certain conditions, become obligated
to purchase approximately the same percentage of additional shares as the number
of shares set forth opposite such Underwriter's name bears to the total number
of shares listed in the table.
PRICE STABILIZATION AND SHORT POSITIONS
In connection with the offering of the shares, the Underwriters and any
selling group members may engage in transactions (effected in accordance with
Rule 104 of the Securities and Exchange Commission's Regulation M) that are
intended to stabilize, maintain or otherwise affect the market price of the
common stock. Such transactions may include over-allotment transactions in which
the Underwriters create a short position for their own account by selling more
shares than they are committed to purchase. In such case, to cover all or part
of the short position, the Underwriters may exercise the over-allotment option
described above or may purchase common stock in the open market following
completion of the offering of the shares. The Underwriters may also engage in
stabilizing transactions in which they bid for and purchase common stock at a
level above that which might otherwise prevail in the open market, for the
purpose of preventing or retarding a decline in the market price of the common
stock. The Underwriters also may reclaim any selling concession allowed to an
Underwriter or dealer if the Underwriters repurchase shares distributed by that
Underwriter or dealer. Any of the foregoing transactions may cause the price for
the common stock to be maintained at a level above that which might otherwise
prevail in the open market. Neither the Company, the Selling Shareholders nor
any of the Underwriters make any representation or prediction as to the
direction or magnitude of any effect that such transactions may have on the
price of the common stock. The Underwriters are not required to engage in the
foregoing transactions and, if commenced, such transactions may be discontinued
without notice.
RESTRICTIONS ON AFFILIATES ON SALE OF SIMILAR SECURITIES
During a period of 180 days from the date of this Prospectus, neither
the Company, its directors or executive officers or the person known to the
Company to own more than 5% of the Company's outstanding common stock will,
subject to certain exceptions, without the prior written consent of the
Underwriters, directly or indirectly, sell, offer to sell, grant any option for
sale of, or otherwise dispose of, any shares of common stock, or any security
convertible into or exchangeable into or exercisable for common stock.
INDEMNIFICATION
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act.
OTHER SERVICES
The Underwriters engage in transactions with, and, from time to time,
have performed services for, the Company and its subsidiaries in the ordinary
course of business.
LEGAL MATTERS
The validity of the Shares offered hereby and certain other legal
matters will be passed upon for the Company by the law firm of Kennedy, Baris &
Lundy, L.L.P., Bethesda, Maryland. Certain legal matters will be passed upon for
the Underwriters by Bryan Cave LLP, St. Louis, Missouri.
EXPERTS
The consolidated financial statements at December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the report of such firm given upon their
60
<PAGE>
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the Company files with the SEC at
the SEC's public reference room at 450 Fifth Street, NW, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The SEC maintains a World Wide Web site on the Internet at
"http://www.sec.gov" that contains reports, proxy and information statements,
and other information regarding companies that file electronically with the SEC,
including the Company.
The Company filed a Registration Statement on Form S-2 (the
"Registration Statement") to register the common stock to be sold in the
offering. This Prospectus is a part of that Registration Statement. As allowed
by SEC rules, this Prospectus does not contain all the information you can find
in the Registration Statement or the exhibits to that Registration Statement.
SEC regulations allow the Company to "incorporate by reference"
information into this Prospectus, which means that the Company can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
part of this Prospectus. Information incorporated by reference from earlier
documents is superceded by information that has been incorporated by reference
from more recent documents.
This Prospectus incorporates by reference the documents listed below
that the Company has previously filed with the SEC (file no. 0-23064). These
documents contain important information about the Company and its finances. Some
of these filings have been amended by later filings, which are also listed.
1. Annual Report on Form 10-K for the Year ended December 31, 1997;
2. Quarterly Report on Form 10-Q for the Quarter ended March 31 1998;
3. Current Report on Form 8-K dated June 8, 1998;
4. Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998;
5. Form 15-12G dated September 3, 1998;
6. Quarterly Report on Form 10-Q/A for the Quarter ended September 30,
1998;
7. Current Report on Form 8-K dated January 6, 1999.
The Company also incorporates by reference additional documents that
may be filed with the SEC after the date of this Prospectus and before the
termination of the offering. These additional documents shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on
Form 8-K, as well as proxy statements.
The Company has supplied all information contained or incorporated by
reference in this Prospectus relating to the Company, and the Selling
Shareholders have supplied all such information relating to them.
You can obtain any of the documents incorporated by reference through
the Company, the SEC or the SEC's Internet web site as described above.
Documents incorporated by reference are available from the Company without
charge, including any exhibits, specifically incorporated by reference therein.
You may obtain documents
61
<PAGE>
incorporated by reference in this Prospectus by requesting them in writing or by
telephone from the Company at the following address:
Deborah T. Bradley
Corporate Secretary
Southwest Bancorp, Inc.
608 South Main Street
Stillwater, Oklahoma 74074.
Telephone: (405) 372-2230.
You should rely only on the information contained or incorporated by
reference in this Prospectus. The Company has not authorized anyone to provide
you with information that is different from what is contained in this
Prospectus. This Prospectus is dated , 1999. You should not assume that the
information contained in this Prospectus is accurate as of any date other than
that date.
62
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Unaudited Consolidated Statements of Financial Condition at September 30, 1998 and
December 31, 1997................................................................................. F-2
Unaudited Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and 1997..................................................... F-3
Unaudited Consolidated Statements of Shareholders' Equity for the
Nine Months Ended September 30, 1998 and 1997..................................................... F-4
Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997..................................................... F-5
Unaudited Consolidated Statements of Comprehensive Income............................................ F-6
Notes to Consolidated Financial Statements........................................................... F-7
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997
Independent Auditors' Report......................................................................... F-13
Consolidated Statements of Financial Condition at December 31, 1997 and 1996......................... F-14
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.................................................................. F-15
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995.................................................................. F-16
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.................................................................. F-17
Notes to Consolidated Financial Statements........................................................... F-18
</TABLE>
F-1
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- -----------------
<S> <C> <C>
Assets
Cash and due from banks $25,020 $26,259
Federal funds sold - 10,000
--------------- -----------------
Cash and cash equivalents 25,020 36,259
Investment securities:
Held to maturity, fair value $82,918 (1998) and $87,592 (1997) 81,479 86,994
Available for sale, amortized cost $87,385 (1998) and $99,778 (1997) 89,219 100,746
Loans receivable, net of allowance for loan losses
of $9,709 (1998) and $8,282 (1997) 745,347 710,831
Accrued interest receivable 9,102 8,883
Premises and equipment, net 17,894 13,571
Other assets 9,726 6,002
=============== =================
Total assets $977,787 $963,286
=============== =================
Liabilities & shareholders' equity Deposits:
Noninterest-bearing demand $ 38,322 $ 96,560
Interest-bearing demand 9,473 37,447
Money market accounts 189,060 94,496
Savings accounts 3,492 3,655
Time deposits 590,464 609,267
--------------- -----------------
Total deposits 830,811 841,425
--------------- -----------------
Income taxes payable 108 521
Accrued interest payable 5,508 6,504
Other liabilities 2,757 1,227
Short-term borrowings 57,114 20,548
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
--------------- -----------------
Total liabilities 921,311 895,238
--------------- -----------------
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 (1997) - 690
Class B, $1 par value; 1,000,000 shares authorized; none issued - -
Common stock - $1 par value; 10,000,000 shares authorized; issued
and outstanding 3,797,107 (1998) and 3,787,839 (1997) 3,797 3,788
Capital surplus (As restated. See Note 10.) 9,332 24,764
Retained earnings (As restated. See Note 10.) 42,247 38,226
Accumulated other comprehensive income:
Unrealized gain (loss) on investment securities available for sale,
net of tax 1,100 580
--------------- -----------------
Total shareholders' equity 56,476 68,048
=============== =================
Total liabilities & shareholders' equity $977,787 $963,286
=============== =================
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
As restated. See Note 10.
-------------------------------
For the nine months
ended September 30,
1998 1997
--------------- -------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 51,886 $ 48,724
Investment securities:
U.S. Government and agency obligations 6,980 6,213
State and political subdivisions 427 392
Mortgage-backed securities 836 962
Other securities 345 83
Federal funds sold 56 442
--------------- -------------
Total interest income 60,530 56,816
Interest expense:
Interest-bearing demand 139 664
Money market accounts 3,137 2,832
Savings accounts 58 74
Time deposits 24,733 25,905
Short-term borrowings 2,045 108
Long-term debt 1,744 756
--------------- -------------
Total interest expense 31,856 30,339
--------------- -------------
Net interest income 28,674 26,477
Provision for loan losses 2,705 8,903
--------------- -------------
Net interest income after provision for loan losses 25,969 17,574
Other income:
Service charges and fees 2,610 2,342
Credit cards 66 568
Other noninterest income 320 277
Gain (loss) on sales of loans receivable 1,959 1,381
Gain (loss) on sales of investment securities 185 7
--------------- -------------
Total other income 5,140 4,575
Other expenses:
Salaries and employee benefits 10,510 10,559
Occupancy 3,673 3,393
FDIC and other insurance 190 190
Credit cards 5 247
General and administrative 5,564 4,951
--------------- -------------
Total other expenses 19,942 19,340
--------------- -------------
Income before taxes 11,167 2,809
Taxes on income 4,004 886
--------------- -------------
Net income $ 7,163 $ 1,923
=============== =============
Net income available to common shareholders $ 5,177 $ 733
=============== =============
Basic earnings per common share $ 1.36 $ 0.20
=============== =============
Diluted earnings per common share $ 1.32 $ 0.19
=============== =============
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<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>
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 - - - - - (1,190) - (1,190)
Common, $0.08 per share - - - - - (603) - (603)
Cash dividends declared:
Common, $0.08 per share - - - - - (302) - (302)
Common stock issued:
Employee Stock Option Plan - - - - - - - -
Employee Stock Purchase Plan - - 2,886 3 58 - - 61
Dividend Reinvestment Plan - - 4,356 4 87 - - 91
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - 416 416
Net income - - - - - 1,923 - 1,923
----------------------------------------------------------------------------------------------
Balance, September 30, 1997 690,000 $690 3,771,458 $3,771 $24,477 $35,869 $621 $65,428
==============================================================================================
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 - - - - - (1,190) - (1,190)
Common, $0.09 per share - - - - - (683) - (683)
Cash dividends declared:
Preferred, $0.575 per share - - - - - - - -
Common, $0.09 per share - - - - - (341) - (341)
Common stock issued:
Employee Stock Option Plan - - 4,000 4 55 - - 59
Employee Stock Purchase Plan - - 1,913 2 52 - - 54
Dividend Reinvestment Plan - - 3,355 3 93 - - 96
Preferred Stock Redeemed (1) (690,000) (690) - - (15,632) (928) - (17,250)
Change in unrealized gain
(loss) on available for sale
securities, net of tax - - - - - - 520 520
Net income - - - - - 7,163 - 7,163
----------------------------------------------------------------------------------------------
Balance, September 30, 1998 (1) - - 3,797,107 $3,797 $ 9,332 $42,247 1,100 $56,476
==============================================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
(1) As restated. See Note 10.
F-4
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Operating activities:
Net income $ 7,163 $ 1,923
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 2,705 8,903
Depreciation and amortization expense 1,384 1,171
Amortization of premiums and accretion of
discount on securities, net 117 101
Amortization of intangibles 186 157
(Gain) Loss on sales of securities (185) (7)
(Gain) Loss on sales of loans receivable (1,959) (1,381)
(Gain) Loss on sales of premises/equipment 17 (28)
(Gain) Loss on other real estate owned, net 60 2
Proceeds from sales of residential mortgage loans 95,464 51,326
Residential mortgage loans originated for resale (94,453) (48,842)
Changes in assets and liabilities:
Accrued interest receivable (219) (3,592)
Other assets (831) (1,285)
Income taxes payable (413) (187)
Accrued interest payable (996) 1,229
Other liabilities 1,491 154
--------------- ---------------
Net cash (used in) provided from operating activities 9,531 9,644
--------------- ---------------
Investing activities:
Proceeds from sales of held to maturity securities - -
Proceeds from sales of available for sale securities 13,968 -
Proceeds from principal repayments and maturities:
Held to maturity securities 24,521 13,812
Available for sale securities 25,112 13,795
Purchases of held to maturity securities (19,105) (21,245)
Purchases of available for sale securities (26,519) (47,002)
Loans originated and principal repayments, net (65,332) (119,769)
Proceeds from sales of guaranteed student loans 25,186 30,992
Purchases of premises and equipment (5,806) (4,812)
Proceeds from sales of premises and equipment 82 115
Proceeds from sales of other real estate 387 17
--------------- ---------------
Net cash (used in) provided from investing activities (27,506) (134,097)
--------------- ---------------
Financing activities:
Net increase (decrease) in deposits (10,614) 115,354
Net increase (decrease) in short-term borrowings 36,566 61
Net proceeds from issuance of common stock 209 152
Redemption of preferred stock (17,250) -
Proceeds from issuance of subordinated debentures - 25,013
Common stock dividends paid (985) (866)
Preferred stock dividends paid (1,190) (1,190)
--------------- ---------------
Net cash (used in) provided from financing activities 6,736 138,524
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (11,239) 14,071
Cash and cash equivalents,
Beginning of period 36,259 22,914
=============== ===============
End of period $ 25,020 $ 36,985
=============== ===============
</TABLE>
See notes to unaudited consolidated financial statements.
F-5
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1998 1997
------------- -------------
<S> <C> <C>
Net income $7,163 $1,923
Other comprehensive income, net of tax:
Unrealized gain (loss) on investment
securities available for sale 866 692
Less: Tax (expense) benefit (346) (276)
------------- -------------
Comprehensive income $7,683 $2,339
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
F-6
<PAGE>
SOUTHWEST BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements
NOTE 1: GENERAL
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, and cash flows
in conformity with generally accepted accounting principles. However, the
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 nine
months ended September 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
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
F-7
<PAGE>
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 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 January 1, 2000, 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 or results of operations.
NOTE 5: ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below for the indicated
periods.
<TABLE>
<CAPTION>
For the nine For the
months ended year ended
September 30, 199 December 31, 1997
--------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 8,282 $ 7,139
Loans charged-off:
Real estate mortgage 418 1,305
Real estate construction - -
Commercial 1,140 8,691
Installment and consumer 451 1,532
------------ -------------
Total charge-offs 2,009 11,528
Recoveries:
Real estate mortgage 72 85
Real estate construction - -
Commercial 318 300
Installment and consumer 341 182
------------ -------------
Total recoveries 731 567
------------ -------------
Net loans charged-off 1,278 10,961
Provision for loan losses 2,705 12,104
------------ -------------
Balance at end of period $ 9,709 $ 8,282
============ =============
Loans outstanding:
Average $ 752,785 $ 700,129
End of period 755,056 719,113
Net charge-offs to total average loans (annualized) 0.23% 1.57%
Allowance for loan losses to total loans 1.29% 1.15%
</TABLE>
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates:
F-8
<PAGE>
<TABLE>
<CAPTION>
At At
September 30, 199 December 31,1997
----------------- ----------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans (1) $1,055 $5,458
Past due 90 days or more (2) 376 1,677
Restructured terms - -
----------------- ----------------
Total nonperforming loans 1,431 7,135
Other real estate owned 3,788 362
----------------- ----------------
Total nonperforming assets $5,219 $7,497
================= ================
Nonperforming loans to loans receivable 0.19% 0.99%
Allowance for loan losses to nonperforming loans 678.48% 116.08%
Nonperforming assets to loans receivable and
other real estate owned 0.69% 1.04%
</TABLE>
(1) The government-guaranteed portion of loans included in these totals was
$177 (1998) and $541 (1997).
(2) The government-guaranteed portion of loans included in these totals was $0
(1998) and $223 (1997).
In the first and third quarters of 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. The higher provision recorded in the
third quarter of 1997 was the amount deemed necessary by management to restore
the allowance for loan losses to an appropriate level after charging-off
substantially the entire balance of a group of related loans, which totaled $4.8
million. These loans were not related to the loans that resulted in the larger
than normal provision for loan losses in the first quarter of 1997. 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 nine months of 1998 to $1.3 million and
$2.7 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 $9.7
million, or 1.29% of total loans, at September 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 September 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 September
30, 1998, total nonperforming loans were $1.4 million, or 0.19% 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 September 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.
F-9
<PAGE>
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
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 September 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 September 30, 1998, loans to individuals and businesses in the healthcare
industry totaled approximately $81.3 million, or 11% of total loans. Other
notable concentrations of credit within the loan portfolio include $22.2
million, or 3% of total loans, in residential construction loans, $16.7 million,
or 2% of total loans, in hotel/motel loans, and $14.7 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 $1.1 million at September 30, 1998. During
the first nine months of 1998, $92,000 in interest income was received on
nonaccruing loans. If interest on those loans had been accrued, total interest
income of $497,000 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 $24.0
million at September 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 September 1, 1998, redemption of all 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 ("MD&A"). 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
F-10
<PAGE>
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.
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 and the excess of the
redemption price of preferred stock over its carrying value, 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
September 30, 1998 and 1997, there were no antidilutive options to purchase
common shares. The following is a reconciliation of net income available to
common shareholders and the common shares used in the calculations of basic and
diluted earnings per common share:
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1998 1997
------------ --------------
<S> <C> <C>
(dollars in thousands)
Net income $7,163 $1,923
Less: preferred stock divided requirement (1,058) (1,190)
Redemption of preferred stock in excess of
the carrying amount (928) -
------------ --------------
Net income available to common shareholders $5,177 $773
============ ==============
Weighted average common shares outstanding:
Basic earnings per share 3,794,043 3,768,663
Effect of dilutive securities:
Stock options 122,857 95,893
------------ --------------
Weighted average common shares outstanding:
Diluted earnings per share 3,916,900 3,864,556
============ ==============
</TABLE>
F-11
<PAGE>
NOTE 9: REDEMPTION OF PREFERRED STOCK
The Company redeemed all of the outstanding shares of its 9.20% Redeemable,
Cumulative Preferred Stock, Series A, on September 1, 1998, at the cash
redemption price of $17.25 million. Substantially all of the funds for this
redemption were obtained from maturities or sales of investment securities
acquired by the Company with proceeds from the 1997 issuance of Preferred
Securities. (See "Capital Resources" at MD&A.)
NOTE 10: RESTATEMENT
Subsequent to the issuance of the Company's September 30, 1998 financial
statements, the Company's management determined that its calculation of net
income available to common shareholders was not in accordance with Emerging
Issues Task Force D-42, The Effect on the Calculation of Earnings per Share for
the Redemption or Induced Conversion of Preferred Stock ("EITF D-42"). The
Company redeemed its Series A, Redeemable, Cumulative Preferred Stock on
September 1, 1998. The redemption price was $928,000 in excess of the carrying
amount of the preferred stock; such excess represents original issue costs
charged to capital surplus. EITF D-42 requires that the excess of the fair value
of the consideration transferred to the preferred shareholders over the carrying
amount of the preferred stock should be subtracted from net income to arrive at
net income available to common shareholders in the calculation of earnings per
share. In addition, this excess should be reclassified to retained earnings. As
a result, the accompanying financial statements for the nine month period ended
September 30, 1998 have been restated as follows:
<TABLE>
<CAPTION>
At September 30, 1998
As previously
reported As restated
-------------------------- ---------------------------
(Dollars in thousands)
<S> <C> <C>
Capital surplus $ 8,404 $ 9,332
Retained earnings 43,175 42,247
Nine months ended September 30, 1998
As previously
reported As restated
-------------------------- ---------------------------
Net income available to common shareholders $6,105 $5,177
Basic earnings per common share 1.61 1.36
Diluted earnings per common share 1.56 1.32
</TABLE>
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF SOUTHWEST BANCORP, INC.:
We have audited the accompanying consolidated statements of financial
condition of Southwest Bancorp, Inc. and subsidiaries (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Southwest Bancorp, Inc. and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Oklahoma City, Oklahoma
January 30, 1998
F-13
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 26,259 $ 22,914
Federal funds sold 10,000 -
----------- -----------
Cash and cash equivalents 36,259 22,914
Investment securities:
Held to maturity, fair value $87,592 (1997) and $83,963 (1996) 86,994 83,589
Available for sale, amortized cost $99,778 (1997) and $63,419 (1996) 100,746 63,762
Loans receivable, net of allowance for loan losses
of $8,282 (1997) and $7,139 (1996) 710,831 637,507
Accrued interest receivable 8,883 7,400
Premises and equipment, net 13,571 9,649
Other Assets 6,002 4,296
----------- -----------
Total assets $ 963,286 $ 829,117
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 96,560 $ 83,729
Interest-bearing demand 37,447 34,309
Money market accounts 94,496 86,910
Savings accounts 3,655 4,086
Time deposits 609,267 544,911
----------- -----------
Total deposits 841,425 753,945
----------- -----------
Income taxes payable 521 187
Accrued interest payable 6,504 5,061
Other liabilities 1,227 1,907
Short-term borrowings 20,548 2,985
Long-term debt:
Guaranteed preferred beneficial interests in the
Company's subordinated debentures 25,013 -
----------- -----------
Total liabilities 895,238 764,085
----------- -----------
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 3,787,839 (1997) and 3,764,216 (1996) 3,788 3,764
Capital surplus 24,764 24,332
Retained earnings 38,226 36,041
Unrealized gain (loss) on investment securities available for sale,
net of tax 580 205
----------- -----------
Total shareholders' equity 68,048 65,032
----------- -----------
Total liabilities & shareholders' equity $ 963,286 $ 829,117
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 65,560 $ 55,177 $ 45,591
Investment securities:
U.S. Government and agency obligations 8,667 6,815 6,737
State and political subdivisions 508 577 477
Mortgage-backed securities 1,234 1,531 1,535
Other securities 173 76 64
Federal funds sold 707 492 596
----------- ----------- -----------
Total interest income 76,849 64,668 55,000
Interest expense:
Interest-bearing demand 894 838 764
Money market accounts 3,836 3,129 3,161
Savings accounts 96 114 133
Time deposits 34,743 28,647 24,208
Short-term borrowings 340 105 278
Long-term debt 1,338 - -
----------- ----------- -----------
Total interest expense 41,247 32,833 28,544
----------- ----------- -----------
Net interest income 35,602 31,835 26,456
Provision for loan losses 12,104 3,100 2,000
----------- ----------- -----------
Net interest income after provision for loan losses 23,498 28,735 24,456
Other income:
Service charges and fees 3,177 2,985 2,574
Credit cards 659 869 901
Other noninterest income 360 268 374
Gain on sale of credit card portfolio 3,745 - -
Gain on sales of loans receivable 1,936 1,768 1,033
Gain (loss) on sales of investment securities 18 459 (8)
----------- ----------- -----------
Total other income 9,895 6,349 4,874
Other expense:
Salaries and employee benefits 13,808 12,164 10,057
Occupancy 4,681 3,671 3,080
FDIC and other insurance 254 859 856
Credit cards 313 411 547
General and administrative 6,690 6,121 5,362
----------- ----------- -----------
Total other expenses 25,746 23,226 19,902
----------- ----------- -----------
Income before taxes 7,647 11,858 9,428
Taxes on income 2,667 4,306 3,336
----------- ----------- -----------
Net income $ 4,980 $ 7,552 $ 6,092
=========== =========== ===========
Net income available to common shareholders $ 3,393 $ 5,965 $ 5,426
=========== =========== ===========
Basic earnings per common share $ 0.90 $ 1.59 $ 1.44
=========== =========== ===========
Diluted earnings per common share $ 0.88 $ 1.56 $ 1.43
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Total
on Available Share-
Preferred Stock Common Stock Capital Retained for sale holders'
shares Amount Shares Amount Surplus Earnings Securities Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 - - 3,755,228 $ 3,755 $ 8,539 $26,471 $ (877) $37,888
Cash dividends paid:
Common, $0.18 per share - - - - - (676) - (676)
Preferred, $0.7731 per share - - - - - (533) - (533)
Cash dividends declared:
Common, $0.06 per share - - - - - (225) - (225)
Issuance of preferred stock,
net of offering costs 690,000 $ 690 - - 15,632 - - 16,322
Change in unrealized gain
(Loss) on available for sale
securities, net of tax - - - - - - 1,489 1,489
Net income - - - - - 6,092 - 6,092
----------------------------------------------------------------------------------------------
Balance, December 31, 1995 690,000 690 3,755,228 3,755 24,171 31,129 612 60,357
Cash dividends paid:
Common, $0.21 per share - - - - - (790) - (790)
Preferred, $2.30 per share - - - - - (1,587) - (1,587)
Cash dividends declared:
Common, $0.07 per share - - - - - (263) - (263)
Common stock issued:
Employees Stock Purchase Plan - - 3,552 4 64 - - 68
Dividend Reinvestment Plan - - 5,436 5 97 - - 102
Changed in unrealized gain
(Loss) on available for sale
securities, net of tax - - - - - - (407) (407)
Net income - - - - - 7,552 - 7,552
----------------------------------------------------------------------------------------------
Balance, December 31, 1995 690,000 690 3,764,216 3,764 24,332 36,041 205 65,032
Cash dividends paid:
Common, $0.24 per share - - - - - (905) - (905)
Preferred, $2.30 per share - - - - - (1,587) - (1,587)
Cash dividends declared:
Common, $0.08 per share - - - - - (303) - (303)
Common stock issued:
Employees Stock Purchase Plan - - 3,767 4 78 - - 82
Dividend Reinvestment Plan - - 5,856 6 117 - - 123
Stock Option Plan - - 14,000 14 237 - - 251
Changed in unrealized gain
(Loss) on available for sale
securities, net of tax - - - - - - 375 375
Net income - - - - - 4,980 - 4,980
----------------------------------------------------------------------------------------------
Balance, December 31, 1995 690,000 $ 690 3,787,839 $ 3,788 $24,764 $38,226 $ 580 $68,048
==============================================================================================
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income $ 4,980 $ 7,552 $ 6,092
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 12,104 3,100 2,000
Depreciation and amortization expense 1,577 1,254 1,026
Amortization of premiums and accretion of
discounts on securities, net 113 244 248
Amortization of intangibles 221 174 174
(Gain) Loss on sales of securities (18) (459) 8
(Gain) Loss on sales of loans receivable (1,936) (1,768) (1,033)
(Gain) Loss on sale of credit card portfolio (3,745) - -
(Gain) Loss on sales of premises/equipment (25) (10) 3
(Gain) Loss on other real estate owned, net 13 (2) (52)
Proceeds from sales of residential mortgage loans 71,710 45,519 34,002
Residential mortgage loans originated for resale (69,205) (48,469) (34,947)
Changes in assets and liabilities:
Accrued interest receivable (1,483) (283) (1,240)
Other assets (1,879) (1,188) (986)
Income taxes payable 334 (84) 78
Accrued interest payable 1,443 795 1,632
Other liabilities (720) 786 (449)
---------- --------- ---------
Net cash (used in) provided from operating activities 13,484 7,161 6,556
---------- --------- ---------
Investing activities:
Proceeds from sales of held to maturity securities - - 5,993
Proceeds from sales of available for sale securities - 438 -
Proceeds from principal repayments, calls and maturities:
Held to maturity securities 19,649 25,388 17,193
Available for sale securities 18,017 28,969 6,286
Purchases of held to maturity securities (23,178) (34,538) (23,363)
Purchases of available for sale securities (54,347) (20,383) (8,054)
Loans originated and principal repayments, net (145,116) (157,501) (159,227)
Proceeds from sale of credit card portfolio 21,798 - -
Proceeds from sales of guaranteed student loans 40,545 47,768 40,738
Purchases of premises and equipment (5,603) (4,693) (1,936)
Proceeds from sales of premises and equipment 129 24 18
Proceeds from sales of other real estate 210 152 68
---------- --------- ---------
Net cash (used in) provided from investing activities (127,896) (114,376) (122,284)
---------- --------- ---------
Financing activities:
Net increase in deposits 87,480 119,558 108,827
Net increase (decrease) in short-term borrowings 17,563 (7,786) (3,629)
Net proceeds from issuance of common stock 456 170 -
Net proceeds from issuance of preferred stock - - 16,322
Proceeds from issuance of subordinated debentures 25,013 - -
Common stock dividends paid (1,168) (1,015) (864)
Preferred stock dividends paid (1,587) (1,587) (533)
---------- --------- ---------
Net cash (used in) provided from financing activities 127,757 109,340 120,123
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 13,345 2,125 4,395
Cash and cash equivalents,
Beginning of period 22,914 20,789 16,394
---------- --------- ---------
End of period $ 36,259 $ 22,914 $ 20,789
========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
SOUTHWEST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS - Southwest Bancorp, Inc. ("the
Company") was incorporated in 1981 as a bank holding company headquartered in
Stillwater, Oklahoma engaged primarily in commercial and consumer banking
services in the State of Oklahoma. The accompanying consolidated financial
statements include the accounts of Stillwater National Bank and Trust Company
(the "Bank"), a national bank established in 1894, and SBI Capital Trust, a
Delaware Business Trust established in 1997. The Bank and SBI Capital Trust are
wholly owned, direct subsidiaries of the Company. The Company has six full-
service banking offices, two of which are located in each of Stillwater and
Tulsa, Oklahoma, with one each in Oklahoma City and Chickasha, Oklahoma. The
Company pursues a decentralized community banking strategy and operates through
three regional divisions. All significant intercompany balances and transactions
have been eliminated.
MANAGEMENT ESTIMATES - In preparing its financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of the dates shown on the consolidated statements of
financial position and revenues and expenses during the periods reported. Actual
results could differ significantly from those estimates. Changes in economic
conditions could impact the determination of material estimates such as the
allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
INVESTMENT SECURITIES - Investments in debt and equity securities are
identified as held to maturity, trading, and available for sale based on
management considerations of asset/liability strategy, changes in interest rates
and prepayment risk, the need to increase capital and other factors. Under
certain circumstances (including the deterioration of the issuer's
creditworthiness, a change in tax law, or statutory or regulatory requirements),
the Company may change the investment security classification. The
classifications the Company utilizes determines the related accounting treatment
for each category of investments. Investments classified as trading are
accounted for at fair value with unrealized gains and losses included in other
income. Available for sale securities are accounted for at fair value with
unrealized gains or losses, net of taxes, excluded from earnings and reported as
a separate component of shareholders' equity. Held to maturity securities are
accounted for at amortized cost.
All investment securities are adjusted for amortization of premiums
and accretion of discounts. Amortization of premiums and accretion of discounts
are recorded to income over the contractual maturity or estimated life of the
individual investment on the level yield method. The Company has the ability and
intent to hold to maturity its investment securities classified as held to
maturity. Declines in the fair value of securities below their cost that are
other than temporary result in write-downs of the individual securities to their
fair value. The related write-down is included in earnings as realized losses.
Gain or loss on sale of investments is based upon the specific identification
method. Income earned on the Company's investments in state and political
subdivisions is not taxable.
LOANS RECEIVABLE - Interest on loans is accrued and credited to income
based upon the principal amount outstanding. In general, accrued interest income
on impaired loans is written off after the loan is 90 days past due; subsequent
interest income is recorded when cash receipts are received from the borrower.
The Bank originates real estate mortgage loans and guaranteed student loans for
portfolio investment or sale in the secondary market. During the period of
origination, real estate mortgage loans are designated as held either for
investment purposes or sale. Mortgage loans held for sale are generally sold
within a one-month period from loan closing at amounts approximating par value
of the loans. Guaranteed student loans are generally sold after the Company has
been notified of the borrower's change from deferment status, which can range
from one to five years, or longer. Real estate mortgage loans held for sale and
guaranteed student loans are carried at cost, which does not exceed market.
Gains or losses recognized upon the sales of loans are determined on a specific
identification basis.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
established through a provision for loan losses charged to expense. Loans which
are determined to be impaired are charged against this allowance, to the extent
of the impairment, and recoveries, if any, are added to the allowance. A loan is
considered to be impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The allowance for loan losses
related to loans that are
F-18
<PAGE>
identified for evaluation of impairment is based on discounted cash flows using
the loan's initial effective interest rate or the fair value of the collateral
for certain collateral dependent loans. Smaller balance, homogeneous loans,
including mortgage, student and consumer, are collectively evaluated for
impairment. This evaluation is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant change. All of
the Company's nonaccrual loans have been defined as impaired loans.
The adequacy of the allowance for loan losses is determined by
management based upon a number of factors including, among others, analytical
reviews of loan loss experience in relationship to outstanding loans and
commitments; unfunded loan commitments; problem and nonperforming loans and
other loans presenting credit concerns; trends in loan growth, portfolio
composition and quality; use of appraisals to estimate the value of collateral;
and management's judgment with respect to current and expected economic
conditions and their impact on the existing loan portfolio. Changes in the
allowance may occur because of changing economic conditions and economic
prospects or financial positions of borrowers. While there can be no assurance
that the allowance for loan losses will be adequate to cover all losses from all
loans, management believes that the allowance for loan losses is adequate. While
management uses all available information to estimate the adequacy of the
allowance for loan losses, the ultimate collectability of a substantial portion
of the loan portfolio and the need for future additions to the allowance will be
based upon changes in economic conditions and other relevant factors. Recovery
of the carrying value of such loans is dependent to a great extent on conditions
that may be beyond the Company's control. Actual future losses could differ
significantly from the amounts estimated by management adversely affecting net
income.
DEPOSITS - The total amount of time deposits with a minimum
denomination of $100,000 was approximately $132.0 million and $123.1 million at
December 31, 1997 and 1996, respectively. The total amount of overdrawn deposit
accounts that were reclassified as loans at December 31, 1997 and 1996 was
$437,000 and $952,000, respectively.
LOAN SERVICING INCOME - The Company earns fees for servicing real
estate mortgages owned by others. These fees are generally calculated on the
outstanding principal balance of the loans serviced and are recorded as income
when received.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost
less accumulated depreciation and amortization. Major additions or improvements
are charged to the asset account while normal maintenance and repairs are
expensed as incurred. Depreciation and amortization are computed using the
straight-line and declining-balance methods based on asset lives which vary from
three to forty years.
OTHER REAL ESTATE OWNED - Other real estate owned is initially
recorded at the lesser of the fair value less the estimated costs to sell the
asset or the recorded amount of the related loan. Write-downs of carrying value
required at the time of foreclosure are recorded as a charge to the allowance
for loan losses. Costs related to the development of such real estate are
capitalized whereas those related to holding the property are expensed.
Foreclosed property is subject to periodic reevaluation based upon estimates of
fair value. In determining the valuation of other real estate owned, management
obtains independent appraisals for significant properties. Valuation adjustments
are provided, as necessary, by charges to operations. The net cost of operating
other real estate owned, including provision for losses, rental income, and
gains and losses on sales of real estate, is not significant.
Profit from sales of foreclosed property by the Company is recognized
in accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 66, Accounting for Sales of Real Estate. Losses are recognized as
incurred.
INTANGIBLES - Intangibles consist of a core deposit intangible,
goodwill and mortgage servicing rights. The core deposit intangible is amortized
over the estimated life of the assumed deposits, ranging from four to seven
years using the level yield method. Goodwill is amortized using the straight-
line method over 15 years. Mortgage servicing rights are capitalized using an
allocated cost of the observable market price at the point of origination. The
servicing rights are amortized on an individual loan by loan basis in proportion
to, and over the period of, estimated net servicing income. Impairment of
mortgage servicing rights is assessed based on the fair value of those rights.
The capitalized amounts and amortization of the mortgage servicing rights is not
material. At December 31, 1997 and 1996, the Bank had recorded cumulative
amortization of $1.2 million and $1.0 million, respectively.
LONG-TERM DEBT - The long-term debt consists of the Guaranteed
Preferred Beneficial Interests in the Company's Subordinated Debentures
purchased from SBI Capital Trust. See Note 6.
TAXES ON INCOME - The Company and its subsidiaries file consolidated
income tax returns. Deferred income taxes arise from temporary differences
between financial and tax bases of certain assets and liabilities. A
F-19
<PAGE>
valuation allowance will be established if it is more likely than not that some
portion of the deferred tax asset will not be realized.
EARNINGS PER COMMON SHARE - The Company has adopted Financial
Accounting Standards Board ("FASB") SFAS No. 128, Earnings Per Share, and has
restated earnings per share for all periods presented in accordance with that
Statement. 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
preferred stock dividend requirements, 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 December
31, 1997 and 1996, the Company had 3,858 and 302 antidilutive options to
purchase common shares, respectively. There were no antidilutive options at
December 31, 1995. The following is a reconciliation of the common shares used
in the calculations of basic and diluted earnings per common share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding:
Basic earnings per share 3,773,037 3,760,370 3,755,228
Effect of dilutive securities:
Stock options 99,851 68,011 32,861
---------- ---------- ----------
Weighted average common shares outstanding:
Diluted earnings per share 3,872,888 3,828,381 3,788,089
========== ========== ==========
</TABLE>
TRUST - The Company offers trust services to customers through its
relationship with the Trust Company of Oklahoma, a trust services company.
Property (other than cash on deposit) held by the Bank in a fiduciary or agency
capacity for its customers is not included in the consolidated statements of
financial condition as it is not an asset or liability of the Bank.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from depository
institutions, and federal funds sold. Federal funds sold are sold for one day
periods.
LIQUIDITY - The Bank is required by the Federal Reserve Bank to
maintain average reserve balances. Cash and due from banks in the consolidated
statements of financial condition include restricted amounts of $4.6 million and
$5.1 million at December 31, 1997 and 1996, respectively.
At December 31, 1997, the Bank had available unsecured lines of credit
from correspondent banks, the Student Loan Marketing Association ("SLMA"), and
the Federal Home Loan Bank of Topeka ("FHLB") totaling $20.0 million, $35.0
million, and $177.0 million, respectively. Short-term borrowings outstanding on
these lines of credit totaled $1.8 million, with weighted average rates of
6.70%, at December 31, 1996; there were no borrowings outstanding on these lines
of credit at December 31, 1997. The average balances outstanding on these lines
of credit were not material for either year.
RECLASSIFICATIONS - Certain reclassifications have been made to the
prior year amounts to conform to the current year presentation.
F-20
<PAGE>
2. INVESTMENT SECURITIES
A summary of the amortized cost and fair values of investment
securities follows:
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and agency obligations $ 77,261 $ 677 $ 30 $ 77,908
Obligations of state and political subdivisions 9,733 29 78 9,684
-------- ------- ------ --------
Total $ 86,994 $ 706 $ 108 $ 87,592
======== ======= ====== ========
Available for Sale:
U.S. Government and agency obligations $ 76,277 $ 690 $ 19 $ 76,948
Obligations of state and political subdivisions 1,220 1 1 1,220
Mortgage-backed securities 16,388 72 33 16,427
Other securities 5,893 268 10 6,151
-------- ------- ------ --------
Total $ 99,778 $ 1,031 $ 63 $100,746
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and agency obligations $ 72,345 $ 467 $ 100 $ 72,712
Obligations of state and political subdivisions 11,244 52 45 11,251
-------- ------- ------ --------
Total $ 83,589 $ 519 $ 145 $ 83,963
======== ======= ====== ========
Available for Sale:
U.S. Government and agency obligations $ 37,440 $ 253 $ 50 $ 37,643
Obligations of state and political subdivisions 1,892 17 - 1,909
Mortgage-backed securities 23,108 56 103 23,061
Other securities 979 170 - 1,149
-------- ------- ------ --------
Total $ 63,419 $ 496 $ 153 $ 63,762
======== ======= ====== ========
</TABLE>
As required by law, investment securities are pledged to secure public and
trust deposits. Securities with an amortized cost of $99.7 million and $134.9
million were pledged to meet such requirements of $34.9 million and $15.4
million at December 31, 1997 and 1996, respectively. Any amount overpledged can
be released at any time.
F-21
<PAGE>
A comparison of the amortized cost and approximate fair value of the
company's investment securities by maturity date at December 31, 1997 follows.
Mortgage-backed securities are included in the period in which they are
estimated to repay.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
--------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
One year or less $ 13,633 $ 13,648 $ 27,920 $ 27,970
Two years through five years 72,396 72,973 59,074 59,622
Five years through ten years 7,856 7,974 - -
More than ten years 2,000 2,000 - -
Other securities not due at a single
maturity date 3,893 4,151 - -
-------- -------- -------- --------
Total $ 99,778 $100,746 $ 86,994 $ 87,592
======== ======== ======== ========
</TABLE>
Realized gross gains (losses) on sales of investment securities were $18,000,
$459,000 and $(8,000) during 1997, 1996 and 1995, respectively. The gross
proceeds from such sales of investment securities totaled approximately $0,
$438,000 and $6.0 million during 1997, 1996 and 1995, respectively. All of the
gain on sales of investment securities during 1997 and a portion of the gain on
sales of investment securities during 1996 occurred when securities classified
as "held to maturity" and "available for sale", originally purchased at a
discount, were called prior to their stated maturity dates. During 1995, a loss
on sales of investment securities occurred when the Bank sold securities
classified as "held to maturity". The Company concluded that these securities
were sold at a time near enough to their maturity dates that interest rate risk
was substantially eliminated as a pricing factor.
3. LOANS RECEIVABLE
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------------
1997 1996
--------------------------
(dollars in thousands)
<S> <C> <C>
Real estate mortgage:
Commercial $ 223,672 $ 196,163
One-to-four family residential 79,843 61,175
Real estate construction 72,454 54,369
Commercial 241,007 218,515
Installment and consumer:
Guaranteed student loans 64,390 61,959
Credit cards 73 20,839
Other 37,674 31,626
--------- ---------
719,113 644,646
Allowance for loan losses (8,282) (7,139)
--------- ---------
Loans receivable, net $ 710,831 $ 637,507
========= =========
</TABLE>
The Bank extends commercial and consumer credit primarily to customers in
the State of Oklahoma which subjects the loan portfolio to the general economic
conditions within this area. At December 31, 1997 and 1996, substantially all of
the Bank's loans, except for credit cards, are collateralized with real estate,
inventory, accounts receivables and/or other assets or guaranteed by agencies of
the United States Government.
Loans to individuals and businesses in the healthcare industry totaled
approximately $71.1 million, or 10% of total loans. The loan portfolio also
includes $17.7 million, or 2% of total loans, in hotel/motel loans, $22.4
million, or 3% of total loans, in residential construction loans, and $14.8
million, or 2% of total loans, in restaurant
F-22
<PAGE>
loans. In the event of total nonperformance by the borrowers, the Company's
accounting loss would be limited to the recorded investment in the loans
receivable reduced by proceeds received from disposition of the related
collateral.
The Company had loans which were held for sale of $13.0 million and $12.3
million at December 31, 1997 and 1996, respectively. These loans are carried at
cost, which does not exceed market. Guaranteed student loans are generally sold
to a single servicer. A substantial portion of the one-to-four family
residential loans and loan servicing rights are sold to two servicers.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $5.5 million and $4.6 million at December 31,
1997 and 1996, respectively. If interest on those loans had been accrued, the
interest income as reported in the accompanying consolidated statements of
operations would have increased by approximately $144,000, $398,000 and $48,000
for 1997, 1996 and 1995, respectively.
The unpaid principal balance of real estate mortgage loans serviced for
others totaled $132.8 million and $119.0 million at December 31, 1997 and 1996,
respectively. The Bank maintained escrow accounts totaling $547,000 and $366,000
for real estate mortgage loans serviced for others at December 31, 1997 and 1996
respectively.
The following table sets forth the remaining maturities for certain loan
categories at December 31, 1997. Credit card and student loans that do not have
stated maturities are treated as due in one year or less.
<TABLE>
<CAPTION>
One year One to Over
or less five years five years Total
-------- ------------ ------------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Real estate mortgage:
Commercial $ 10,228 $ 54,713 $158,731 $223,672
One-to-four family residential 11,683 28,615 39,545 79,843
Real estate construction 51,304 11,246 9,904 72,454
Commercial 104,690 87,273 49,044 241,007
Installment and consumer:
Guaranteed student loans 64,390 - - 64,390
Credit Cards 73 - - 73
Other 11,332 25,415 927 37,674
-------- ------------ ------------ ----------
Total $253,700 $207,262 $258,151 $719,113
======== ============ ============ ==========
</TABLE>
The following table sets forth at December 31, 1997 the dollar amount of
all loans due more than one year after December 31, 1997.
<TABLE>
<CAPTION>
Fixed Variable Total
---------- ------------ ----------
(dollars in thousands)
<S> <C> <C> <C>
Real estate mortgage:
Commercial $ 39,264 $174,180 $213,444
One-to-four family residential 18,857 49,303 68,160
Real estate construction 3,178 17,972 21,150
Commercial 24,921 111,396 136,317
Installment and consumer:
Guaranteed student loans - - -
Credit Cards - - -
Other 24,134 2,208 26,342
---------- ------------ ----------
Total $110,354 $355,059 $465,413
========== ============ ==========
</TABLE>
F-23
<PAGE>
The allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1997 1996 1995
------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 7,139 $ 5,813 $ 4,959
Provision for loan losses 12,104 3,100 2,000
Loans charged off (11,528) (2,301) (1,803)
Recoveries 567 527 657
-------- ------- -------
Total $ 8,282 $ 7,139 $ 5,813
======== ======= =======
</TABLE>
As of December 31, 1997 and 1996, impaired loans totaled $5.5 million and
$4.8 million and had been allocated a related allowance for loan loss of
$707,000 and $2.0 million, respectively. The average balance of impaired loans
totaled $4.1 million and $3.8 million and interest income recognized on impaired
loans totaled $187,000 and $37,000, respectively, for the years ended December
31, 1997 and 1996.
Directors and officers of the Company and the Bank were customers of, and
had transactions with, the Bank in the ordinary course of business, and similar
transactions are expected in the future. All loans included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of loss or present other
unfavorable features. Certain officers, directors, employees, and companies in
which they have partial ownership had indebtedness to the Bank totaling $2.1
million and $1.0 million at December 31, 1997 and 1996, respectively. During
1997, $1.6 million of new loans were made to these persons and repayments
totaled $509,000.
4. PREMISES AND EQUIPMENT
These consist of the following:
<TABLE>
<CAPTION>
At December 31,
-------------------------
1997 1996
-------------------------
(dollars in thousands)
<S> <C> <C>
Land $ 4,397 $ 1,214
Buildings and improvements 4,115 3,869
Furniture, fixtures, and equipment 13,750 12,024
------- -------
22,262 17,107
Accumulated depreciation and amortization (8,691) (7,458)
------- -------
Premises and equipment, net $13,571 $ 9,649
======= =======
</TABLE>
OTHER BORROWED FUNDS
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, minimizes the
Company's risk of exposure to loss. These transactions are for one-to-three day
periods and do not materially impact the Company's liquidity or operations. As
of December 31, 1997, no material repurchase agreements exist with any one
customer.
F-24
<PAGE>
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
(dollars in thousands)
<S> <C> <C> <C>
End of period balance $18,953 - -
Average balance 4,412 - -
Maximum month-end balance 18,953 - -
Average interest rate 4.94% - -
</TABLE>
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 investment activities and the
Bank's lending 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.
The Company and SBI Capital Trust 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 Trust under the Preferred
Securities.
SBI Capital Trust 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 Trust.
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. At December 31, 1997, all of the Company's Preferred Stock and
$580,000 of the Preferred Securities were included in Tier I Capital.
For accounting purposes, the Preferred 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".
F-25
<PAGE>
7. INCOME TAXES
The components of taxes on income follow:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $3,266 $4,275 $3,366
State 366 667 508
Deferred tax benefit:
Federal (820) (543) (458)
State (145) (93) (80)
------ ------ ------
Taxes on income $2,667 $4,306 $3,336
====== ====== ======
</TABLE>
The taxes on income reflected in the accompanying consolidated statements
of operations differs from the expected U.S. Federal income tax rates for the
following reasons:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Computed tax expenses at 34% $2,600 $4,032 $3,206
Increase (decrease) in income
taxes resulting from:
Benefit of income not subject
to U.S. Federal income tax (240) (210) (202)
State income taxes, net of
Federal income tax benefit 146 379 281
Other 161 105 51
------ ------ ------
Taxes on income $2,667 $4,306 $3,336
====== ====== ======
</TABLE>
Deferred tax expense (benefit) relating to temporary differences includes
the following components:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1997 1996 1995
------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Provision for loan losses $ (772) $ (754) $ (494)
Accelerated depreciation 158 135 56
Intangibles (16) (26) (25)
Sales of other real estate owned 5 225 -
Other (340) (216) (75)
------ ------ ------
Total $ (965) $ (636) $ (538)
====== ====== ======
</TABLE>
Net deferred tax assets of $2.9 million and $2.2 million at December 31,
1997 and 1996, respectively, are reflected in the accompanying consolidated
statements of financial condition in other assets. There were no valuation
allowances at December 31, 1997 or 1996.
F-26
<PAGE>
Temporary differences that give rise to the deferred tax assets and
(liabilities) include the following:
<TABLE>
<CAPTION>
At December 31,
---------------------------
1997 1996
---------------------------
(dollars in thousands)
<S> <C> <C>
Allowance for loan losses $3,125 $2,353
Accumulated depreciation (834) (676)
Write-down on other real estate owned 30 35
Deferred compensation accrual 103 88
Intangibles 178 162
Other 726 401
-------------- -----------
3,328 2,363
-------------- -----------
Deferred taxes (payable) receivable on
investment securities available for sale (387) (137)
-------------- ------------
Net deferred tax asset $2,941 $2,226
============== ============
</TABLE>
8. SHAREHOLDERS' EQUITY
In 1996, the Company's shareholders increased the authorized shares of
capital stock from 7,000,000 to 12,000,000, consisting of 10,000,000 shares of
common stock, par value $1.00 per share ("Common Stock"), and an aggregate of
2,000,000 shares of serial preferred stock, par value $1.00 per share. The
Company's Board of Directors can determine the voting powers, dividend rights,
liquidation preferences and other limitations on the preferred stock prior to
issuance. On July 31, 1995, the Company issued 690,000 shares of 9.20%
Redeemable, Cumulative Preferred Stock, Series A (the "Shares"), and received
net proceeds of $16.3 million. The liquidation preference of the Shares is $25
per share plus an amount equal to accrued and unpaid dividends. The Shares may
not be redeemed by the Company prior to September 1, 1998. Subject to prior
regulatory approval, the Shares may be redeemed at the option of the Company, in
whole or in part, on or after September 1, 1998, at a price equal to $25 per
share plus accumulated unpaid dividends to the redemption date. Such dividends
are cumulative from the date of issuance and payable quarterly at the rate of
9.20% of the original liquidation preference, or $2.30 per annum per share. For
the year ended December 31, 1997, the cumulative accrued dividend requirement
was $1.6 million, $1.5 million of which was declared and paid.
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. Dividends on common stock were declared in the third quarter of 1997,
prior to the adoption of this policy, although a loss was incurred for that
quarter.
The Company has reserved for issuance 200,000 shares of common stock
pursuant to the terms of Dividend Reinvestment and Employee Stock Purchase
Plans. The Dividend Reinvestment Plan allows shareholders of record a
convenient and economical method of increasing their equity ownership of the
Company. The Employee Stock Purchase Plan allows Company employees to acquire
additional common shares through payroll deductions. At December 31, 1997,
18,611 shares had been issued by these plans.
9. CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators, that if undertaken, could have a
direct material effect on the Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's and the Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
F-27
<PAGE>
As of December 31, 1997 and 1996, the most recent notifications form the
Federal Deposit Insurance Corporation ("FDIC") categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum Total Capital,
Tier I Capital, and Tier I Leverage ratios as set forth in the table below.
Since the notifications, management believes there are no conditions or events
that have changed the Bank's category.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets and Tier I capital to average assets (all
as defined). Management believes the Company and the Bank meet all capital
adequacy requirements to which they are subject as of December 31, 1997 and
1996.
The Company's and Bank's actual capital amounts and ratios are presented
below.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective For Capital
Actual Action Provisions Adequacy Purposes
--------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to risk-weighted assets)
Company $100,322 13.30% N/A N/A $60,331 8.00%
Bank 80,631 10.72% $75,182 10.00% 60,145 8.00%
Tier I Capital (to risk-weighted assets)
Company 67,607 8.96% N/A N/A 30,165 4.00%
Bank 72,349 9.62% 45,109 6.00% 30,073 4.00%
Tier I Leverage (to average assets)
Company 67,607 6.95% N/A N/A 38,901 4.00%
Bank 72,349 7.57% 47,756 5.00% 38,205 4.00%
As of December 31, 1996:
Total Capital (to risk-weighted assets)
Company $ 71,376 11.40% N/A N/A $50,077 8.00%
Bank 69,139 11.06% $62,490 10.00% 49,992 8.00%
Tier I Capital (to risk-weighted assets)
Company 63,886 10.21% N/A N/A 25,039 4.00%
Bank 62,000 9.92% 37,494 6.00% 24,996 4.00%
Tier I Leverage (to risk-average assets)
Company 63,886 7.77% N/A N/A 32,894 4.00%
Bank 62,000 7.56% 41,026 5.00% 32,821 4.00%
</TABLE>
The approval of the Comptroller of the Currency is required if the total of
all dividends declared by the Bank in any calendar year exceeds the total of its
net profits of that year combined with its retained net profits of the preceding
two years. In addition, the Bank may not pay a dividend if, after paying the
dividend, the Bank would be under capitalized. This Bank's maximum amount of
dividends available for payment totaled approximately $13.2 million at December
31, 1997. Dividends declared by the Bank for the years ended December 31,1997,
1996 and 1995 did not exceed the threshold requiring regulatory approval.
F-28
<PAGE>
10. STOCK OPTION PLAN
The Southwest Bancorp, Inc. 1994 Stock Option Plan (the "Stock Plan")
provides selected key employees with the opportunity to acquire common stock.
The exercise price of all options granted under the Stock Plan is the fair
market value on the grant date. The Company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for the Stock Plan;
accordingly, no compensation expense has been recorded in the accompanying
consolidated statements of operations. Had compensation cost for the Stock Plan
been determined based upon the fair value of the options at their grant date as
prescribed in SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's proforma data would have been as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Proforma net income $4,778,707 $7,382,355 $5,986,700
Proforma net income available to common shareholders $3,191,707 $5,795,355 $5,320,700
Basic earnings per common share $ 0.85 $ 1.54 $ 1.42
Diluted earnings per common share $ 0.82 $ 1.51 $ 1.40
Weighted average fair value at grant date $ 9.24 $ 7.57 $ 5.40
</TABLE>
The compensation cost is calculated using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Expected dividend yield 1.30% 1.47% 1.79%
Expected volatility 17.87% 20.66% 25.20%
Risk-free interest rate 5.89% 6.90% 6.61%
Expected option term (in years) 10 10 10
</TABLE>
The Stock Plan's activity follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
----------------------------------
<S> <C> <C>
Outstanding at January 1, 1995 182,000 $12.75
Granted 30,000 13.38
Exercised - -
Canceled/expired - -
----------------------------------
Outstanding at December 31, 1995 212,000 12.84
Granted 35,000 18.82
Exercised - -
Canceled/expired - -
----------------------------------
Outstanding at December 31, 1996 247,000 13.69
Granted 35,000 25.47
Exercised (14,000) 17.95
Canceled/expired ( 7,500) 18.50
----------------------------------
Outstanding at December 31, 1997 260,500 $14.90
==================================
Total exercisable at December 31, 1995 72,000 $12.78
Total exercisable at December 31, 1996 116,500 $13.36
Total exercisable at December 31, 1997 126,000 $13.30
</TABLE>
At December 31, 1997, the Company has reserved 375,522 shares under
the Stock Plan, 260,500 shares of which are under option. The following
summarizes the information concerning options outstanding and exercisable at
December 31, 1997.
F-29
<PAGE>
<TABLE>
<CAPTION>
Number of Range of Weighted Average Weighted Exercisable
Options Exercise Remaining Average Number Weighted Average
Outstanding Prices Contractual Life Exercise Price Exerciseable Exercise Price
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
210,500 $12.75-$13.38 6.51 $12.84 119,500 $12.79
20,000 $19.25-$21.81 8.74 $19.89 3,500 $19.62
30,000 $24.75-$26.75 9.91 $26.08 3,000 $26.08
</TABLE>
11. EMPLOYEE BENEFITS
The Company sponsors a noncontributory, defined contribution profit
sharing plan intended to provide retirement benefits for employees of the
Company. The plan covers all employees who have completed one year of service
and have attained the age of 21. The plan is subject to the Employee Retirement
Income Security Act of 1974, as amended. Company contributions are made at the
discretion of the Board of Directors; however, the annual contribution may not
exceed 15% of the total annual compensation of all participants. The Company
made contributions of $588,000, $671,000 and $680,000 in 1997, 1996, and 1995,
respectively.
12. OPERATING LEASES
The Company leases certain equipment and facilities for its
operations. Future minimum annual rental payments required under operating
leases that have initial or remaining lease terms in excess of one year as of
December 31, 1997 follow:
<TABLE>
<CAPTION>
<S> <C>
1998 $1,001,620
1999 746,070
2000 613,093
2001 519,967
2002 368,313
</TABLE>
The total rental expense was $1.2 million, $1.0 million and $803,000
in 1997, 1996 and 1995, respectively.
13. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the
carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - The fair value of U.S. Government and agency
obligations, other securities and mortgage-backed securities is estimated based
on quoted market prices or dealer quotes. The fair value for other investments
such as obligations of state and political subdivisions is estimated based on
quoted market prices.
LOANS RECEIVABLE - Fair values are estimated for certain homogeneous
categories of loans adjusted for differences in loan characteristics. The
Bank's loans have been aggregated by categories consisting of commercial, real
estate, student, credit card and other consumer. The fair value estimate for
student loans is the current historical cost carrying value as such loans are
typically sold in the secondary market at par value. The fair value of all
other loans is estimated by discounting the cash flows using credit and interest
rate risks inherent in the loan category and interest rates currently offered
for loans with similar terms and credit risks.
F-30
<PAGE>
ACCRUED INTEREST RECEIVABLE - The carrying amount is a reasonable
estimate of fair value for accrued interest receivable.
DEPOSITS - The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the statement
of financial condition date. The fair value of fixed-maturity certificates of
deposits is estimated using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS - The fair values of short-term borrowings are the
amounts payable at the statement of financial condition date, as the carrying
amount is a reasonable estimate of fair value. Included in short-term borrowings
are federal funds purchased, securities sold under agreements to repurchase, and
treasury tax and loan demand notes.
LONG-TERM DEBT - The fair value of long-term debt, which consists of the
Subordinated Debentures, is estimated based on quoted market prices or dealer
quotes.
OTHER LIABILITIES AND ACCRUED INTEREST PAYABLE - The estimated fair value
of other liabilities, which primarily include trade accounts payable, and
accrued interest payable approximates their carrying value.
COMMITMENTS - Commitments to extend credit, standby letters of credit and
financial guarantees written or other items have short maturities and therefore
have no significant fair values.
The carrying values and estimated fair values of the Company's financial
instruments follow:
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
------------------------------ --------------------------------
Carrying Fair Carrying Fair
Values Values Values Values
---------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 36,259 $ 36,259 $ 22,914 $ 22,914
Investment securities:
Held to maturity 86,994 87,592 83,589 83,963
Available for sale 100,746 100,746 63,762 63,762
Loans receivable 710,831 731,459 637,507 643,927
Accrued interest receivable 8,883 8,883 7,400 7,400
Deposits 841,425 841,935 753,945 756,093
Accrued interest payable 6,504 6,504 5,061 5,061
Other liabilities 1,227 1,227 1,907 1,907
Short-term borrowings 20,548 20,548 2,985 2,985
Long-term debt 25,013 25,607 - -
Commitments - - - -
</TABLE>
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company makes use of a number of
different financial instruments to help meet the financial needs of its
customers. In accordance with generally accepted accounting principles, these
transactions are not presented in the accompanying consolidated financial
statements and are referred to as off-balance sheet instruments. These
transactions and activities include commitments to extend lines of commercial
and real estate mortgage credit, standby and commercial letters of credit and
available credit card lines of credit.
F-31
<PAGE>
The following table provides a summary of the Company's off-balance
sheet financial instruments:
<TABLE>
<CAPTION>
At December 31,
------------------------------------
1997 1996
-------------------------------------
(dollars in thousands)
<S> <C> <C>
Commitments to extend commercial and real estate mortgage credit $242,401 $154,041
Standby and commercial letters of credit 4,505 4,214
Credit card lines of credit 559,261 348,144
------------ --------------
Total $806,167 $506,399
============= ==============
</TABLE>
A loan commitment is a binding contract to lend up to a maximum amount
for a specified period of time provided there is no violation of any financial,
economic or other terms of the contract. A standby letter of credit obligates
the Company to honor a financial commitment by issuing a guarantee to a third
party should the Company's customer fail to perform. Many loan commitments and
most standby letters of credit expire unfunded, and, therefore, total
commitments do not represent future funding obligations of the Company. Loan
commitments and letters of credit are made under normal credit terms, including
interest rates and collateral prevailing at the time, and usually require the
payment of a fee by the customer. Commercial letters of credit are commitments
generally issued to finance the movement of goods between buyers and sellers.
The Bank's exposure to credit loss, assuming commitments are funded, in the
event of nonperformance by the other party to the financial instrument is
represented by the contractual amount of those instruments. The Bank has an
agreement with other financial institutions to purchase $558.1 million and
$285.0 million of unadvanced credit card lines of credit at December 31, 1997
and 1996, respectively, if such credit card lines of credit are funded. Such
commitments are made with the same terms as similarly funded extensions of
credit including collateral, rates and maturities. The Bank does not anticipate
any material losses as a result of the commitments.
15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is at all times subject
to various pending and threatened legal actions. The relief or damages sought in
some of these actions may be substantial. After reviewing pending and threatened
actions with counsel, management considers that the outcome of such actions will
not have a material adverse effect on the Company's financial position; however,
the Company is not able to predict whether the outcome of such actions may or
may not have a material adverse effect on results of operations in a particular
future period as the timing and amount of any resolution of such actions and
relationship to the future results of operations are not known.
At periodic intervals, the Federal Reserve Bank and the Office of the
Comptroller of the Currency routinely examine the Company's and the Bank's
financial statements as part of their legally prescribed oversight of the
banking industry. Based on these examinations, the regulators can direct that
the Company's and the Bank's financial statements be adjusted in accordance with
their findings.
The Bank has adopted a Severance Compensation Plan (the "Plan") for
the benefit of certain officers and key members of management. The Plan's
purpose is to protect and retain certain qualified employees in the event of a
change in control (as defined) and to reward those qualified employees for loyal
service to the Bank by providing severance compensation to them upon their
involuntary termination of employment after a change in control of the Bank. At
December 31, 1997, the Bank has not recorded any amounts in the consolidated
financial statements relating to the Plan. If a change of control were to occur,
the maximum amount payable to certain officers and key members of management
would approximate $1.1 million.
F-32
<PAGE>
16. SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
For the Years Ended December31,
----------------------------------------
1997 1996 1995
----------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Cash paid for interest $39,804 $32,038 $26,913
Cash paid for taxes on income 2,333 4,390 3,600
Loans originated to finance the
sale of other real estate owned - - 68
Loans transferred to other real estate owned 521 21 15
Reclassification of investment securities
from held to maturity to available for sale - - 32,672
Unrealized gain/(loss) on investment
securities available for sale, net of tax 375 (407) 1,489
</TABLE>
17. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
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
will adopt SFAS No. 127 on January 1, 1998 as required. Management believes the
adoption of SFAS No. 127 will not have a material impact on the Company's
consolidated financial 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 financial statement and display
the accumulated balance of other comprehensive income separately in the
shareholders' equity section of the statement of financial condition. The
Company will adopt 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 will adopt SFAS No.
131 on January 1, 1998 as required and believes the Company has only one
segment, as that term is defined in SFAS No. 131.
F-33
<PAGE>
18. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Following are the condensed financial statements of Southwest Bancorp,
Inc. ("Parent Company only") for the periods indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and due from banks $ 3,506 $ 754
Investment in subsidiary bank 73,297 62,808
Investment securities, available for sale 15,408 1,446
Other assets 1,603 423
-------- --------
Total $ 93,814 $ 65,431
======== ========
Liabilities
Subordinated debentures $ 25,013 -
Other liabilities 753 $ 399
Shareholders' Equity:
Preferred 17,382 17,382
Common 50,666 47,650
-------- --------
Total $ 93,814 $ 65,431
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Income:
Cash dividends from subsidiary bank $ 1,875 $ 1,053 $ 901
Dividend income - 22 28
Investment income 585 116 98
Other income 2 - -
Security gains/(losses) - 288 -
------- ------- -------
Total income 2,462 1,479 1,027
Expense:
Interest on subordinated debentures 1,338 - -
General and administrative expense 227 150 95
------- ------- -------
Total expense 1,565 150 95
------- ------- -------
Total income before tax expense and equity
in undistributed income of subsidiary bank 897 1,329 932
Taxes on income (383) 99 4
------- ------- -------
Income before equity in undistributed
income of subsidiary bank 1,280 1,230 928
Equity in undistributed income of subsidiary bank 3,700 6,322 5,164
======= ======= =======
Net income $ 4,980 $ 7,552 $ 6,092
======= ======= =======
Net income available to common shareholders $ 3,393 $ 5,965 $ 5,426
======= ======= =======
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Operating activities:
Net income $ 4,980 $ 7,552 $ 6,092
Equity in undistributed income of subsidiary bank (3,700) (6,322) (5,164)
Other, net (871) 140 (421)
-------- -------- --------
Net cash provided by operating activities 409 1,370 507
-------- -------- --------
Investing activities:
Available for sale securities:
Purchases (15,506) (1,806) (3,146)
Sales - - -
Maturities 1,635 3,325 1,245
-------- -------- --------
Net cash provided by (used in) investing activities (13,871) 1,519 (1,901)
-------- -------- --------
Financing activities:
Proceeds from issuance of:
Preferred stock - - 16,322
Common stock 456 170 -
Subordinated debentures 25,013 - -
Capital contribution to Bank (6,500) - (13,500)
Cash dividends paid:
Preferred stock (1,587) (1,587) (533)
Common stock (1,168) (1,015) (864)
-------- -------- --------
Net cash provided by (used in) financing activities 16,214 (2,432) 1,425
-------- -------- --------
Net increase in cash and cash equivalents 2,752 457 31
Cash and cash equivalents,
Beginning of year 754 297 266
-------- -------- --------
End of year $ 3,506 $ 754 $ 297
======== ======== ========
</TABLE>
* * * * * * * * * *
F-35
<PAGE>
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Caution About Forward Looking Statements.........................................
Summary..........................................................................
Risk Factors.....................................................................
Credit Risk................................................................
Local Economic Conditions..................................................
Loan Portfolio Concentrations..............................................
Interest Rate Risk.........................................................
Certificate of Incorporation, Bylaw and Statutory
Provisions that Could Discourage Acquisitions of Control
Restrictions on Branching..................................................
Dividend Restrictions......................................................
Competition................................................................
Year 2000 Risk.............................................................
Regulatory Risk............................................................
Litigation Risk............................................................
Use of Proceeds..................................................................
Capitalization...................................................................
Market For Common Stock and Dividends............................................
The Company......................................................................
Management.......................................................................
Selected Consolidated Financial Data.............................................
Management's Discussion and Analysis.............................................
Selling Shareholders; Ownership of Common Stock..................................
Description of Capital Stock.....................................................
Underwriting.....................................................................
Legal Matters....................................................................
Experts..........................................................................
Additional Information...........................................................
Index to Consolidated Financial Statements....................................... F-1
</TABLE>
THE COMPANY HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE OFFERING THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION
IN THIS PROSPECTUS OR IN THE COMPANY'S DOCUMENTS THAT ARE PUBLICLY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. THE DELIVERY OF
THIS PROSPECTUS AND/OR THE SALE OF SHARES OF COMMON STOCK DO NOT MEAN THAT THERE
HAVE NOT BEEN ANY CHANGES IN THE CONDITION OF THE COMPANY SINCE THE DATE OF THIS
PROSPECTUS. IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO SELL,
OR TO ASK FOR OFFERS TO BUY, THE SECURITIES OFFERED BY THIS PROSPECTUS, OR IF
YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE
OFFER PRESENTED BY THIS PROSPECTUS DOES NOT EXTEND TO YOU. THIS PROSPECTUS
SPEAKS ONLY AS OF ITS DATE EXCEPT WHERE IT INDICATES THAT ANOTHER DATE APPLIES.
DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS SPEAK ONLY AS OF
THEIR DATE, EXCEPT WHERE THEY SPECIFY THAT OTHER DATES APPLY.
1,060,997 SHARES
SOUTHWEST BANCORP, INC.
PARENT COMPANY OF
[LOGO] STILLWATER NATIONAL
BANK & TRUST COMPANY
COMMON STOCK
___________________
Prospectus
___________, 1999
___________________
STIFEL, NICOLAUS & COMPANY
Incorporated
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
================================================================================
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the Offering
described in this Registration Statement (other than underwriting discounts and
commissions) are as follows:
SEC Registration Fee...........................................$ 8,400
NASD Filing Fee..................................................3,500
Nasdaq Listing Fee...............................................8,200
*Blue Sky Filing Fees and Expenses (Including counsel fees)......2,000
*Legal Fees....................................................150,000
*Printing, Engraving and Edgar................................. 30,000
*Accounting Fees and Expenses...................................45,000
*Other Expenses..................................................7,900
Total....................................$250,000
_______
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1031 of the Oklahoma General Corporation Act sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities.
Article XV of the Amended and Restated Certificate of Incorporation of
the Company provides that the Company shall indemnify any individual who is or
was a director, officer, employee or agent of the Company, and any individual
who serves or served at the Company's request as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in any proceeding in which the individual is made a
party as a result of his or her service in such capacity, if the individual
acted in good faith and in a manner reasonably believed to be in, or not opposed
to, the best interests of the Company and, with respect to any criminal
proceeding, he or she had no reasonable cause to believe the conduct was
unlawful, unless such indemnification would be prohibited by law. An individual
will not be indemnified in connection with a proceeding by or in the right of
the Company in which the individual was adjudged liable to the Company, unless
the court in which the suit was brought determines the individual is fairly and
reasonably entitled to indemnification in view of all of the relevant
circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits filed as part of this registration statement are as
follows:
(a) LIST OF EXHIBITS
Number Description
------ -----------
1 Form of Underwriting Agreement
5 Form of Opinion of Kennedy, Baris & Lundy, L.L.P.
10.1 Severance Compensation Plan (incorporated by reference to
Exhibit 10.2 to Registration Statement on Form S-1 (File No.
33-71168))
10.2 Southwest Bancorp, Inc. 1994 Stock Option Plan (incorporated
by reference to Exhibit 10.3 to Annual Report on Form 10-K for
the fiscal year ended December 31, 1993)
II-1
<PAGE>
Number Description
------ -----------
10.3 Southwest Bancorp, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8 (File No. 33-97850))
10.4 Offering Agreement by and among the Estate of Paul C. Wise,
through its co-executors, James B. Wise and Allen H. Wise,
James B. Wise in his individual capacity, Southwest Bancorp,
Inc. and Stifel, Nicolaus & Company, Incorporated
11 Statement Regarding Computation of Earnings Per Share
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Kennedy, Baris & Lundy, L.L.P. (included in Exhibit
5)
24 Power of Attorney
- ------------------------
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d)
II-2
<PAGE>
of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stillwater, State of Oklahoma, on February 9, 1999.
SOUTHWEST BANCORP, INC.
By: /s/ Rick J. Green
-------------------------
Rick J. Green
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Robert L. McCormick Chairman of the Board of Directors February 9, 1999
- --------------------------
Robert L. McCormick
/s/ Rick J. Green President, Chief Executive February 9, 1999
- --------------------------
Rick J. Green Officer and Director
(Principal Executive Officer)
/s/ Kerby E. Crowell Executive Vice President
- --------------------------
Kerby E. Crowell and Chief February 9, 1999
Financial Officer (Principal Financial and
Accounting Officer)
/s/ Stanley R. White Chief Lending Officer and Director February 9, 1999
- --------------------------
Stanley R. White
* /s/ James E. Berry, II Director
- --------------------------
James E. Berry, II
* /s/ Tom D. Berry Director
- --------------------------
Tom D. Berry
* /s/ Joyce P. Berry Director
- --------------------------
Joyce P. Berry
* /s/ Joe Berry Cannon Director
- --------------------------
Joe Berry Cannon
* /s/ J. Berry Harrison Director
- --------------------------
J. Berry Harrison
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
* /s/ Erd M. Johnson Director
- ------------------------------
Erd M. Johnson
* /s/ David P. Lambert Director
- ------------------------------
David P. Lambert
* /s/ Alfred L. Lichtenberg Director
- ------------------------------
Alfred L. Lichtenberg
* /s/ Linford R. Pitts Director
- ------------------------------
Linford R. Pitts
* /s/ Robert B. Rodgers Director
- ------------------------------
Robert B. Rodgers
/s/ Lee A. Wise
- ------------------------------ Director
Lee A. Wise
/s/ James B. Wise, M.D. Director February 9, 1999
- ------------------------------
James B. Wise, M.D.
*By: /s/ Robert L. McCormick February 9, 1999
-------------------------
Robert L. McCormick
By Power of Attorney
</TABLE>
II-5
<PAGE>
EXHIBIT 1
1,060,997 Shares
SOUTHWEST BANCORP, INC.
Common Stock
$1.00 Par Value
UNDERWRITING AGREEMENT
----------------------
______________, 1999
STIFEL, NICOLAUS & COMPANY, INCORPORATED
As Representative of the Several Underwriters
named in Schedule I hereto
500 North Broadway
St. Louis, Missouri 63102
Ladies and Gentlemen:
Southwest Bancorp, Inc., an Oklahoma corporation (the "Company"),
proposes to issue and sell to the underwriters listed on Schedule I hereto (the
"Underwriters"), pursuant to the terms of this Agreement, 250,000 shares of the
Company's Common Stock, par value $1.00 per share (the "Common Stock"), and the
Estate of Paul C. Wise (through its co-executors, Dr. James B. Wise and Allen H.
Wise) (the "Estate") and James B. Wise ("Wise", and together with the Estate,
the "Selling Shareholders") propose to sell to the Underwriters the respective
number of shares of Common Stock set forth opposite their names on Schedule II,
which represent a total of 810,997 shares of Common Stock. The 1,060,997 shares
of Common Stock to be sold by the Company and the Selling Shareholders are
herein called the "Firm Shares." Solely for the purpose of covering over-
allotments in the sale of the Firm Shares, the Company further proposes to issue
and sell to the Underwriters, at their option, up to an additional 159,149
shares of Common Stock (the "Option Shares") upon exercise of the over-allotment
option granted in Section 1 hereof. The Firm Shares and any Option Shares are
herein collectively referred to as the "Shares." You are acting as
representative of the Underwriters and in such capacity are sometimes herein
referred to as the "Representative."
The Company hereby confirms as follows its agreement with each of the
Underwriters in connection with the proposed purchase of the Shares.
1. SALE, PURCHASE AND DELIVERY OF SHARES. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, and subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
hereby agree to sell to each of the Underwriters and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and the Selling
Shareholders, at a purchase price per share of $[______] (the "Purchase Price")
the respective number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto. The Representative may by notice to the
Company amend Schedule I to add, eliminate or substitute names set forth therein
(other than to eliminate the names of the Representative) and to amend the
number of Firm Shares to be purchased by any firm or corporation listed thereon,
provided that the total number of Firm Shares listed on Schedule I shall equal
1,060,997.
The number of Firm Shares to be purchased by each Underwriter from the
Company and from the Selling Shareholders, respectively, shall bear the same
ratio to the total number of Firm Shares to be sold by the Company and by each
Selling Shareholder, respectively, as the total number of Firm Shares to be
purchased by such Underwriter bears to the total number of Firm Shares to be
purchased by the Underwriters; provided, however, that the Representative shall
-------- -------
adjust the number of Firm Shares to be purchased by each Underwriter from the
Selling Shareholders as necessary to eliminate fractional shares.
<PAGE>
In addition, on the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants to the Underwriters, severally and not jointly,
an option to purchase all or any portion of the 159,149 Option Shares, and upon
the exercise of such option in accordance with this Section 1, the Company
hereby agrees to sell to the Underwriters, severally and not jointly, all or any
portion of the Option Shares at the same Purchase Price per share paid for the
Firm Shares. If any Option Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company that proportion
(subject to adjustment as you may determine to avoid fractional shares) of the
number of Option Shares to be purchased that the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to 1,060,997. The option
hereby granted (the "Option") shall expire 30 days after the date upon which the
Registration Statement (as hereinafter defined) becomes effective and may be
exercised only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Firm Shares. The Option
may be exercised in whole or in part at any time (but not more than once) by you
giving notice (confirmed in writing) to the Company setting forth the number of
Option Shares as to which the Underwriters are exercising the Option and the
time, date and place for payment and delivery of certificates for such Option
Shares. Such time and date of payment and delivery for the Option Shares (the
"Option Closing Date") shall be determined by you, but shall not be earlier than
two nor later than five full business days after the exercise of such option,
nor in any event prior to the Closing Date (as hereinafter defined). The Option
Closing Date may be the same as the Closing Date.
Payment of the Purchase Price and delivery of certificates for the
Firm Shares shall be made at the offices of Stifel, Nicolaus & Company,
Incorporated, 500 North Broadway, St. Louis, Missouri 63102, or such other place
as shall be agreed to by you and the Company, at 10:00 a.m., St. Louis time, on
[_____________], 1999, or at such other time not more than five full business
days thereafter as the Company and you shall determine (the "Closing Date"). If
the Underwriters exercise the option to purchase any or all of the Option
Shares, payment of the Purchase Price and delivery of certificates for such
Option Shares shall be made on the Option Closing Date at the offices of Stifel,
Nicolaus & Company, Incorporated, or at such other place as the Company and you
shall determine. Such payments shall be made to the Company and the Selling
Shareholders, as appropriate, or their respective order by wire transfer or
certified or bank cashier's check, in same day funds, in the amount of the
Purchase Price therefor, against delivery by or on behalf of the Company and the
Selling Shareholders to you for the respective accounts of the Underwriters of
certificates for the Shares to be purchased by them.
The Agreement contained herein with respect to the timing of the
Closing Date and Option Closing Date is intended to, and does, constitute an
express agreement, as described in Rule 15c6-1[(A)/(C)] and (d) promulgated
under the 1934 Act (as defined herein), for a settlement date other than
[THREE/FOUR] business days after the date of the contract.
Certificates for Shares to be purchased by the Underwriters shall be
delivered in fully registered form in such authorized denominations and
registered in such names as you shall request in writing not later than 12:00
noon, St. Louis time, two business days prior to the Closing Date and, if
applicable, the Option Closing Date. Certificates for Shares to be purchased by
the Underwriters shall be made available to you for inspection, checking and
packaging at such office as you may designate in writing not later than 1:00
p.m., St. Louis time, on the last business day prior to the Closing Date and, if
applicable, on the last business day prior to the Option Closing Date.
Time shall be of the essence, and delivery of the certificates for the
Shares at the time and place specified pursuant to this Agreement is a further
condition of the obligations of each Underwriter hereunder.
2. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) The reports filed with the Securities and Exchange
Commission (the "Commission") by the Company under the Securities Exchange
Act of 1934, as amended (the "1934 Act") and the rules and regulations
thereunder (the "1934 Act Regulations") at the time they were filed with
the Commission, complied as to form with the requirements of the 1934 Act
and the 1934 Act Regulations and did
<PAGE>
not contain an untrue statement of fact or omit to state any fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
(ii) The Company has carefully prepared and filed with the
Commission a registration statement on Form S-2 (File No.
[_______________]) for the registration of the Shares under the Securities
Act of 1933, as amended (the "1933 Act"), including the related prospectus
subject to completion, and one or more amendments to such registration
statement may have been so filed, in each case in conformity with the
requirements of the 1933 Act and the rules and regulations promulgated
thereunder (the "1933 Act Regulations"). The Company meets the
requirements for use of Form S-2. Copies of such registration statement,
including any amendments thereto, each Preliminary Prospectus (as defined
herein) contained therein and the exhibits, financial statements and
schedules to such registration statement, as finally amended and revised,
have heretofore been delivered by the Company to the Representative. After
the execution of this Agreement, the Company will file with the Commission
(A) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the 1933 Act, a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by
Rule 430A of the 1933 Act Regulations ("Rule 430A") or permitted by Rule
424(b) of the 1933 Act Regulations ("Rule 424(b)") and as have been
provided to and not objected to by the Representative prior to (or as are
agreed to by the Representative subsequent to) the execution of this
Agreement, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
1933 Act, an amendment to such registration statement, including a form of
final prospectus, necessary to permit such registration statement to become
effective, a copy of which amendment has been furnished to and not objected
to by the Representative prior to (or is agreed to by the Representative
subsequent to) the execution of this Agreement. The Company will not file
any amendment to the registration statement or any amended Preliminary
Prospectus or any amendment thereto, of which you have not been previously
furnished a copy or to which you or counsel for the Underwriters shall
reasonably object. As used in this Agreement, the term "Registration
Statement" means such registration statement, as amended at the time when
it was or is declared effective under the 1933 Act, including (1) all
financial schedules and exhibits thereto (2) all documents (or portions
thereof) incorporated by reference therein filed under the 1934 Act, and
(3) any information omitted therefrom pursuant to Rule 430A and included in
the Prospectus (as hereinafter defined); the term "Preliminary Prospectus"
means each prospectus subject to completion filed with such registration
statement or any amendment thereto, including all documents (or portions
thereof) incorporated by reference therein under the 1934 Act (including
the prospectus subject to completion, if any, included in the Registration
Statement and each prospectus filed pursuant to Rule 424(a) under the 1933
Act); and the term "Prospectus" means the prospectus first filed with the
Commission pursuant to Rule 424(b)(1) or (4) or, if no prospectus is
required to be filed pursuant to Rule 424(b)(1) or (4), the prospectus
included in the Registration Statement, in each case including the
financial schedules and all documents (or portions thereof) incorporated by
reference therein under the 1934 Act. The date on which the Registration
Statement becomes effective is hereinafter referred to as the "Effective
Date."
(iii) The documents incorporated by reference in the Preliminary
Prospectus or Prospectus or from which information is so incorporated by
reference, when they became effective or were filed with the Commission, as
the case may be, complied with the requirements of the 1934 Act and the
1934 Act Regulations and any future documents incorporated by reference so
filed, when they are filed, will comply with the requirements of the 1934
Act and the 1934 Act Regulations; no such incorporated document contained
or will contain any untrue statement of fact or omit to state any fact
required to be stated therein or necessary to make the statements therein
not misleading, and when read together and with the other information in
the Preliminary Prospectus or Prospectus, as the case may be, at the time
the Registration Statement became or becomes effective and at the Closing
Date and any Option Closing Date, did not or will not, as the case may be,
contain an untrue statement of fact or omit to state any fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(iv) No order preventing or suspending the effectiveness of the
Registration Statement or preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending the qualification or
registration of the Shares for offering or sale in any jurisdiction has
been issued by the Commission, any state or other jurisdiction or other
regulatory body nor has the Commission, any state or other
<PAGE>
jurisdiction or other regulatory body, to the knowledge of the Company,
threatened to issue such an order or instituted proceedings for such
purpose. Each Preliminary Prospectus, at the time of filing thereof, (A)
complied with the requirements of the 1933 Act and the 1933 Act Regulations
and (B) did not contain an untrue statement of fact or omit to state any
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty does
-------- -------
not apply to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by you
expressly for inclusion in the Prospectus beneath the heading
"Underwriting" (such information referred to herein as the "Underwriters'
Information") or by any Selling Shareholder expressly for inclusion in the
Prospectus (such information referred to herein as the "Selling
Shareholders' Information").
(v) At the Effective Date and at all times subsequent thereto,
up to and including the Closing Date and, if applicable, the Option Closing
Date, the Registration Statement and any post-effective amendment thereto
(A) complied and will comply with the requirements of the 1933 Act and the
1933 Act Regulations and (B) did not and will not contain an untrue
statement of fact or omit to state any fact required to be stated therein
or necessary to make the statements therein not misleading. At the
Effective Date and at all times when the Prospectus is required to be
delivered in connection with offers and sales of Shares, including, without
limitation, the Closing Date and, if applicable, the Option Closing Date,
the Prospectus, as amended or supplemented, (A) complied and will comply
with the requirements of the 1933 Act and the 1933 Act Regulations and (B)
did not contain and will not contain an untrue statement of fact or omit to
state any fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and
-------- -------
warranty does not apply to Underwriters' Information or Selling
Shareholder's Information.
(vi) The Company is duly organized, validly existing and in
good standing under the laws of the State of Oklahoma, with full corporate
and other power and authority to own, lease and operate its properties and
conduct its business as described in and contemplated by the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) and as currently being conducted
and is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act").
(vii) The Company has two direct subsidiaries, Stillwater
National Bank & Trust Company (the "Bank") and SBI Capital Trust (the
"Trust"), and three indirect subsidiaries, Stillwater National Building
Corporation ("SNBC"), CRK Properties, Inc. ("CRK") and Stillwater
Properties, Inc. ("Stillwater Properties") that are wholly-owned by the
Bank. The Bank, the Trust, SNBC, CRK and Stillwater Properties are
hereinafter collectively referred to as the "Subsidiaries." The Company
does not own or control, directly or indirectly, more than 5% of any class
of equity security of any corporation, association or other entity other
than the Subsidiaries. Each Subsidiary is a national banking association,
business trust or Oklahoma corporation duly incorporated or organized (as
the case may be), validly existing and in good standing under the laws of
its respective jurisdiction of incorporation or organization (as the case
may be). Each such Subsidiary has full corporate and other power and
authority to own, lease and operate its properties and to conduct its
business as described in and contemplated by the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and as currently being conducted. The Bank is a
member of the Federal Reserve System, and no proceedings for the
termination or revocation of such membership are pending or, to the
knowledge of the Company, threatened. The deposit accounts of the Bank are
insured by the Bank Insurance Fund administered by the Federal Deposit
Insurance Corporation (the "FDIC") up to the maximum amount provided by
law, except to the extent the Prospectus discloses such deposit accounts
are insured by the Savings Association Insurance Fund administered by the
FDIC and to such extent the deposit accounts are so insured up to the
maximum amount provided by law; and no proceedings for the modification,
termination or revocation of any such insurance are pending or, to the
knowledge of the Company, threatened.
(viii) The Company and each of the Subsidiaries is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property or
conducts its business so as to require such qualification and in which the
failure to so qualify would, individually or in the aggregate, have an
adverse effect on the condition (financial or otherwise), earnings,
<PAGE>
business, prospects or results of operations of the Company and the
Subsidiaries on a consolidated basis. All of the issued and outstanding
shares of capital stock of the Subsidiaries (A) have been duly authorized
and are validly issued, (B) are fully paid and nonassessable except to the
extent such shares may be deemed assessable under 12 U.S.C. Section 55 or
12 U.S.C. Section 1831o. Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
all of the issued and outstanding shares of capital stock of the Bank are
directly owned by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, restriction upon voting or transfer,
preemptive rights, claim or equity. Except as disclosed in the Prospectus,
there are no outstanding rights, warrants or options to acquire or
instruments convertible into or exchangeable for any capital stock or
equity securities of the Subsidiaries, except for preemptive rights under
the National Bank Act.
(ix) The capital stock of the Company conforms to the
description thereof contained in the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus. The outstanding
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and no such shares
were issued in violation of the preemptive or similar rights of any
security holder of the Company; no person has any preemptive or similar
right to purchase any shares of capital stock or equity securities of the
Company. Except as disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding rights, options or warrants to acquire any securities of the
Company other than options issued under the Company's 1994 Stock Option
Plan, and there are no outstanding securities convertible into or
exchangeable for any such securities, and no restrictions upon the voting
or transfer of any capital stock of the Company pursuant to the Company's
corporate charter or by-laws or any agreement or other instrument to which
the Company is a party or by which it is bound.
(x) The Company has all requisite power and authority to
issue, sell and deliver the Shares in accordance with and upon the terms
and conditions set forth in this Agreement and in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus). All corporate action required to
be taken by the Company for the authorization, issuance, sale and delivery
of the Shares has been validly and sufficiently taken. The Shares, when
delivered and paid for in accordance with this Agreement, will be duly and
validly issued and outstanding, fully paid and nonassessable, will not be
issued in violation of or subject to any preemptive or similar rights, and
will conform to the description thereof in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). None of the Shares, immediately prior to delivery,
will be subject to any security interest, lien, mortgage, pledge,
encumbrance, restriction upon voting or transfer, preemptive rights, claim,
equity or other defect.
(xi) The Company and the Subsidiaries have complied with all
federal, state and local statutes, regulations, ordinances and rules
applicable to the ownership and operation of their properties or the
conduct of their businesses as described in and contemplated by the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and as currently being
conducted.
(xii) The Company and the Subsidiaries have all material
permits, easements, consents, licenses, grants, certificates, orders,
approvals, franchises and other governmental and regulatory authorizations
from all appropriate federal, state, local or other public authorities
("Permits") as are necessary to own and lease their properties and conduct
their businesses in the manner described in and contemplated by the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and as currently being
conducted in all material respects. All such Permits are in full force and
effect and each of the Company and the Subsidiaries are in all material
respects complying therewith, and no event has occurred that allows, or
after notice or lapse of time would allow, revocation or termination
thereof or will result in any other material impairment of the rights of
the holder of any such Permit. Such Permits contain no restrictions that
would materially impair the ability of the Company or the Subsidiaries to
conduct their businesses in the manner consistent with their past
practices. Neither the Company nor any of the Subsidiaries has received
notice or otherwise has knowledge of any proceeding or action relating to
the revocation or modification of any such Permit.
<PAGE>
(xiii) Neither of the Company nor any of the Subsidiaries is in
breach or violation of its corporate charter, by-laws or other governing
documents. Neither of the Company nor any of the Subsidiaries is, and to
the knowledge of the Company no other party is, in violation, breach or
default (with or without notice or lapse of time or both) in the
performance or observance of any term, covenant, agreement, obligation,
representation, warranty or condition contained in (A) any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease,
franchise, license, Permit or any other agreement or instrument to which it
is a party or by which it or any of its properties may be bound, which such
breach, violation or default could have material adverse consequences to
the Company on a consolidated basis, and to the knowledge of the Company,
no other party has asserted that the Company or any of the Subsidiaries is
in such violation, breach or default (provided that the foregoing shall not
apply to defaults by borrowers from the Bank), or (B) except as disclosed
in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), any order, decree, judgment, rule or
regulation, including, without limitation, Section 13 of the 1934 Act, of
any court, arbitrator, government, or governmental agency or
instrumentality, domestic or foreign, having jurisdiction over the Company
or the Subsidiaries or any of their respective properties the breach,
violation or default of which could have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, business, prospects,
or results of operations of the Company and the Subsidiaries on a
consolidated basis.
(xiv) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein, in the
Registration Statement and in the Prospectus (or, if the Prospectus in not
in existence, the most recent Preliminary Prospectus) do not and will not
conflict with, result in the creation or imposition of any material lien,
claim, charge, encumbrance or restriction upon any property or assets of
the Company or the Subsidiaries or the Shares pursuant to, constitute a
breach or violation of, or constitute a default under, with or without
notice or lapse of time or both, any of the terms, provisions or conditions
of the charter, by-laws or any other governing document of the Company or
the Subsidiaries, any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease, franchise, license, Permit or any other
agreement or instrument to which the Company or any of the Subsidiaries is
a party or by which any of them or any of their respective properties may
be bound or any order, decree, judgment, rule or regulation of any court,
arbitrator, government, or governmental agency or instrumentality, domestic
or foreign, having jurisdiction over the Company or the Subsidiaries or any
of their respective properties which conflict, creation, imposition,
breach, violation or default would have either singly or in the aggregate
have a material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Company and the Subsidiaries on a consolidated basis. No authorization,
approval, consent or order of, or filing, registration or qualification
with, any person (including, without limitation, any court, governmental
body or authority) is required in connection with the transactions
contemplated by this Agreement, the Registration Statement and the
Prospectus (or such Preliminary Prospectus), except such as have been
obtained under the 1933 Act and from the Nasdaq National Market relating to
the listing of the Shares, and such as may be required under state
securities laws or Interpretations or Rules of the National Association of
Securities Dealers, Inc. ("NASD") in connection with the purchase and
distribution of the Shares by the Underwriters.
(xv) The Company has all requisite corporate power and
authority to enter into this Agreement and this Agreement has been duly and
validly authorized, executed and delivered by the Company and constitutes
the legal, valid and binding agreement of the Company, enforceable in
accordance with its terms, except as the enforcement thereof may be limited
by general principles of equity and by bankruptcy or other laws relating to
or affecting creditors' rights generally.
(xvi) The Company and the Subsidiaries have good and marketable
title in fee simple to all real property and good title to all personal
property owned by them and material to their business on a consolidated
basis, in each case free and clear of all security interests, liens,
mortgages, pledges, encumbrances, restrictions, claims, equities and other
defects except such as are referred to in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or
such as do not materially affect the value of such property in the
aggregate and do not materially interfere with the use made or proposed to
be made of such property; and all of the leases under which the Company or
any of the Subsidiaries holds real or personal property are valid, existing
and enforceable leases and in full force and effect with such exceptions as
are not material and do not materially interfere with the use made or
proposed to be made of such real or personal property, and neither the
Company nor any of the Subsidiaries is in default in any material respect
of any of the terms or provisions of any leases.
<PAGE>
(xvii) Deloitte & Touche LLP, who have certified the
consolidated financial statements of the Company and the Subsidiaries,
including the notes thereto, included by incorporation by reference or
otherwise in the Registration Statement and Prospectus, are independent
public accountants with respect to the Company and the Subsidiaries, as
required by the 1933 Act and the 1933 Act Regulations.
(xviii) The consolidated financial statements, including the
notes thereto, included by incorporation by reference or otherwise in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) with respect to the
Company and its Subsidiaries comply in all material respects with the 1933
Act and the 1933 Act Regulations and present fairly the consolidated
financial position of the Company and its Subsidiaries as of the dates
indicated and the consolidated results of operations, cash flows and
stockholders' equity of the Company and its Subsidiaries for the periods
specified and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The selected and
summary consolidated financial data concerning the Company and its
Subsidiaries included or incorporated by reference in the Registration
Statement and the Prospectus (or such Preliminary Prospectus) comply in all
material respects with the 1933 Act and the 1933 Act Regulations, present
fairly the information set forth therein, and have been compiled on a basis
consistent with that of the consolidated financial statements of the
Company and its Subsidiaries in the Registration Statement and the
Prospectus (or such Preliminary Prospectus). The other financial,
statistical and numerical information included in the Registration
Statement and the Prospectus (or such Preliminary Prospectus) comply in all
material respects with the 1933 Act and the 1933 Act Regulations, present
fairly the information shown therein, and to the extent applicable have
been compiled on a basis consistent with the consolidated financial
statements of the Company and its Subsidiaries included in the Registration
Statement and the Prospectus (or such Preliminary Prospectus).
(xix) The Company and each of the Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that: (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accounts for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect thereto.
(xx) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
except as otherwise stated therein:
(A) neither the Company nor any of its Subsidiaries has
sustained any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree which is material to the condition (financial or
otherwise), earnings, business, prospects or results of operations of
the Company and the Subsidiaries on a consolidated basis;
(B) there has not been any material adverse change in,
or any development which is likely to have a material adverse effect
on, the condition (financial or otherwise), earnings, business,
prospects or results of operations of the Company and the Subsidiaries
on a consolidated basis, whether or not arising in the ordinary course
of business;
(C) neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations, direct or contingent, or
entered into any material transactions, other than in the ordinary
course of business which is material to the condition (financial or
otherwise), earnings, business, prospects or results of operations of
the Company and the Subsidiaries on a consolidated basis;
<PAGE>
(D) the Company has not declared or paid any dividend,
and neither the Company nor any of its Subsidiaries has become
delinquent in the payment of principal or interest on any outstanding
borrowings; and
(E) there has not been any change in the capital stock
(except for the exercise of employee stock options issued under the
Company's 1994 Stock Option Plan, and disclosed as outstanding, stock
issued pursuant to the Company's Employee Stock Purchase Plan and
stock issued pursuant to the Company's Dividend Reinvestment Plan),
long-term debt, obligations under capital leases or, other than in the
ordinary course of business, short-term borrowings of the Company or
the Subsidiaries.
(xxi) The Company and its Subsidiaries maintain insurance of
the types and in the amounts generally deemed adequate for its business,
including, but not limited to, directors' and officers' insurance,
insurance covering real and personal property owned or leased by the
Company and its Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. Neither the Company nor any of its
Subsidiaries has been refused any insurance coverage sought or applied for,
and the Company has no reason to believe that it and its Subsidiaries will
not be able to renew their existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Company and the Subsidiaries on a consolidated basis.
(xxii) Except as set forth in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), no charge, investigation, action, suit or
proceeding is pending or, to the knowledge of the Company, threatened,
against or affecting the Company or the Subsidiaries or any of their
respective properties before or by any court or any regulatory,
administrative or governmental official, commission, board, agency or other
authority or body, or any arbitrator, and there is no factual basis for any
such charge, investigation, action, suit or proceeding wherein an
unfavorable decision, ruling or finding could have a material adverse
effect on the consummation of this Agreement or the transactions
contemplated herein or the condition (financial or otherwise), earnings,
affairs, business, prospects or results of operations of the Company and
the Subsidiaries on a consolidated basis or which is required to be
disclosed in the Registration Statement or the Prospectus (or such
Preliminary Prospectus) and is not so disclosed.
(xxiii) There are no contracts or other documents required to be
filed as exhibits to the Registration Statement by the 1933 Act or the 1933
Act Regulations which have not been filed as exhibits or incorporated by
reference to the Registration Statement, or that are required to be
summarized in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) that are not so summarized.
(xxiv) The Company has not taken, directly or indirectly, any
action designed to result in or which has constituted or which might cause
or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares, and the Company
is not aware of any such action taken or to be taken by any affiliate of
the Company.
(xxv) The Company and the Subsidiaries own, or possess
adequate rights to use, all patents, copyrights, trademarks, service marks,
trade names and other rights necessary to conduct the businesses now
conducted by them in all material respects or as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and neither the Company nor any of the Subsidiaries
has received any notice of infringement or conflict with asserted rights of
others with respect to any patents, copyrights, trademarks, service marks,
trade names or other rights, which, individually or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Company and the Subsidiaries on a consolidated basis, and the Company does
not know of any basis for any such infringement or conflict.
<PAGE>
(xxvi) Except as adequately disclosed in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus), no labor dispute involving the Company or the Subsidiaries
exists or, to the knowledge of the Company, is imminent which might be
expected to have a material adverse effect on the condition (financial or
otherwise), earnings, affairs, business, prospects or results of operations
of the Company and the Subsidiaries on a consolidated basis or which is
required to be disclosed in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). Neither the Company
nor any of the Subsidiaries has received notice of any existing or
threatened labor dispute by the employees of any of its principal
suppliers, customers or contractors which might be expected to have a
material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Company and the Subsidiaries on a consolidated basis.
(xxvii) The Company and the Subsidiaries have timely and
properly prepared and filed all necessary federal, state, local and foreign
tax returns which are required to be filed and have paid all taxes shown as
due thereon and have paid all other taxes and assessments to the extent
that the same shall have become due, except such as are being contested in
good faith or where the failure to so timely and properly prepare and file
would not have a material adverse effect on the condition (financial or
otherwise), earnings, affairs, business, prospects or results of operations
of the Company and the Subsidiaries on a consolidated basis. The Company
has no knowledge of any tax deficiency which has been or might be assessed
against the Company or the Subsidiaries which, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the condition (financial or otherwise), earnings, affairs,
business, prospects or results of operations of the Company and the
Subsidiaries on a consolidated basis.
(xxviii) Each of the material contracts, agreements and
instruments described or referred to in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and each contract, agreement and instrument filed
as an exhibit to the Registration Statement is in full force and effect and
is the legal, valid and binding agreement of the Company or the
Subsidiaries, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by general principles of equity and by
bankruptcy or other laws relating to or affecting creditors' rights
generally. Except as disclosed in the Prospectus (or such Preliminary
Prospectus), to the knowledge of the Company, no other party to any such
agreement is (with or without notice or lapse of time or both) in breach or
default in any material respect thereunder; provided, however, that the
foregoing shall not apply to defaults by borrowers from the Bank.
(xxix) No relationship, direct or indirect, exists between or
among the Company or the Subsidiaries, on the one hand, and the directors,
officers, trustees, stockholders, customers or suppliers of the Company or
the Subsidiaries, on the other hand, which is required to be described in
the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) which is not
adequately described therein.
(xxx) No person has the right to request or require the
Company or the Subsidiaries to register any securities for offering and
sale under the 1933 Act by reason of the filing of the Registration
Statement with the Commission or the issuance and sale of the Shares.
(xxxi) The Common Stock has been approved for quotation on the
Nasdaq National Market subject to official notice of issuance, and will be
quoted on a "when issued" basis prior to the Closing.
(xxxii) Except as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there are no contractual encumbrances or restrictions or no legal
restrictions, on the ability of the Subsidiaries (A) to pay dividends or
make any other distributions on its capital stock or to pay any
indebtedness owed to the Company, (B) to make any loans or advances to, or
investments in, the Company or (C) to transfer any of its property or
assets to the Company.
(xxxiii) Without limiting the generality of any of the foregoing
representations and warranties, the Trust Department Service Agreement (the
"Service Agreement") dated August 24, 1992
<PAGE>
between the Bank and The Trust Company of Oklahoma (the "Trust Company") is
in full force and effect and neither the Bank nor, to the best knowledge of
the Company, the Trust Company, is in violation, breach or default (with or
without notice or lapse of time or both) in the performance or observance
of any term, covenant, agreement, obligation, representation, warranty or
condition contained in the Service Agreement and the Service Agreement
complies in all material respects with all applicable federal, state and
local statutes, regulations, ordinances and rules.
(xxxiv) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(xxxv) The Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the
offering of the Shares, other than a Preliminary Prospectus, the
Prospectus, the Registration Statement and the other materials permitted by
the 1933 Act and the 1933 Act Regulations and reviewed by the
Representative.
(b) Each Selling Shareholder represents and warrants, jointly and
severally, to, and agrees with, each of the Underwriters and the Company that:
(i) Such Selling Shareholder has caused to be executed and
delivered on his or her behalf (A) a Custody Agreement (the "Custody
Agreement") appointing [_________________] as such Selling Shareholder's
custodian (the "Custodian") with authority to deliver on behalf of such
Selling Shareholder certificates, representing the Shares to be sold by the
Selling Shareholder pursuant to this Agreement and (B) a Power of Attorney
(the "Power of Attorney") appointing [____________] and [______________] as
such Selling Shareholder's agents and attorneys-in-fact (the "Attorneys-in-
Fact") with the Attorneys-in-Fact having authority to execute and deliver
this Agreement on behalf of such Selling Shareholder, to determine the
purchase price to be paid by the Underwriters to the Selling Shareholders
as provided in Section 1, to authorize the delivery of the Shares to be
sold by it hereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this
Agreement and such Custody Agreement. Pursuant to the Power of Attorney
and Custody Agreement, such certificates in negotiable form, endorsed in
blank or accompanied by blank stock powers duly executed, with signatures
appropriately guaranteed, representing the Shares to be sold by such
Selling Shareholder hereunder have been deposited with the Custodian for
the purpose of delivery pursuant to this Agreement. Such Selling
Shareholder has full legal right, power and authority to execute the Power
of Attorney, to enter into this Agreement and the Custody Agreement, and to
sell, assign, transfer and deliver to the Underwriters the Shares to be
sold by such Selling Shareholder hereunder. Such Selling Shareholder
agrees that each of the shares of Common Stock represented by the
certificates on deposit with the Custodian is subject to the interests of
the Underwriters hereunder, that the arrangements made for such custody,
the appointment of the Custodian and of the Attorneys-in-Fact under the
Custody Agreement and the Power of Attorney and the right, power and
authority of the Custodian to deliver, in accordance with the terms of the
Custody Agreement, the Shares to be sold by such Selling Shareholder to the
Underwriters, are to that extent irrevocable and that the obligations of
the Selling Shareholder hereunder shall not be terminated, except as
expressly provided in this Agreement, the Custody Agreement or the Power of
Attorney, by any act of such Selling Shareholder, by operation of law, by
the death or incapacity of such Selling Shareholder (or in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust) or otherwise. If the Selling
Shareholder or an executor or trustee of the Selling Shareholder, as the
case may be, should die or become incapacitated, if any such estate or
trust should be terminated, or if any other event should occur, before
delivery of the Shares hereunder, the certificates representing the Shares
to be sold by the Selling Shareholder hereunder and other documents then on
deposit with the Custodian shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement and actions
taken by the Attorneys-in-Fact in accordance with the Power of Attorney
shall be valid as if such death, incapacity, termination or other event had
not occurred, regardless of whether or not the Custodian or the Attorneys-
in-Fact, or any of them, shall have received notice thereof. This
Agreement, the Power of Attorney and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of such Selling
Shareholder in the forms heretofore delivered to you and are the legal,
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with their terms, except as the enforcement thereof may be
limited by general principles of equity and by bankruptcy or other laws
relating to or affecting creditors' rights generally.
<PAGE>
(ii) Such Selling Shareholder has, and on the Closing Date will
have, good and marketable title to the Shares to be sold by the Selling
Shareholder hereunder and full right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver such Shares, free
and clear of all voting trust arrangements, security interests, liens,
mortgages, pledges, encumbrances, restrictions, preemptive rights, claims,
equities and other defects; and upon delivery of and payment for such
Shares as provided in this Agreement, good and marketable title thereto,
free and clear of all voting trust arrangements, security interests, liens,
mortgages, pledges, encumbrances, restrictions, claims, equities and
defects, will pass to the Underwriters. Except as disclosed in the
Prospectus, such Selling Shareholder is on the date hereof, and on the
Closing Date will be, the sole record and beneficial owner of the Shares to
be sold by the Selling Shareholder hereunder.
(iii) Neither the execution, delivery or performance of this
Agreement, the Power of Attorney or the Custody Agreement, nor the
consummation of the transactions contemplated hereby or thereby, (A) will
require any consents, approvals, authorizations, registrations or
qualifications, except such as have been obtained, such as may be required
under state securities or blue sky laws of any jurisdiction in the United
States and, if the Registration Statement is not effective under the 1933
Act as of the time of execution hereof, such as may be required (and shall
be obtained as provided in this Agreement) under the 1933 Act, or (B) will
conflict with or result in a breach or violation by such Selling
Shareholder of any of the terms or provisions of, or constitute a default
by such Selling Shareholder under, any voting trust agreement, shareholders
agreement, mortgage, deed of trust, trust (constructive or other), security
agreement, loan agreement, lease, franchise, license, indenture, permit or
other agreement or instrument to which such Selling Shareholder is a party
or by which such Selling Shareholder or any of its properties is bound or
any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling
Shareholder.
(iv) Such Selling Shareholder has not, since the filing of the
date of the first public announcement of the offering of the Shares, (A)
sold, bid for, purchased, attempted to induce any person to purchase, or
paid anyone any consideration for soliciting purchases of, Common Stock (or
securities convertible into or exchangeable for Common Stock) or (B) paid
or agreed to pay any person any consideration for soliciting another to
purchase any securities of the Company, except for the sale of shares of
Common Stock by such Selling Shareholder under this Agreement.
(v) Such Selling Shareholder has not taken, directly or
indirectly, any action designed to result in or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares, and such Selling Shareholder is not aware of
any such action taken or to be taken by any affiliate of such Selling
Shareholder.
(vi) Such Selling Shareholder does not have any knowledge or
any reason to believe that the Registration Statement or the Prospectus (or
any amendment or supplement thereto) contains any untrue statement of fact
or omits to state any fact required to be stated therein or necessary to
make the statements therein not misleading. To the extent that any
statement or omission is made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto relating to such Selling Shareholder or in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of such Selling Shareholder, such Preliminary Prospectus did, and
the Registration Statement and the Prospectus and any amendments or
supplements thereto when they become effective or are filed with the
Commission, as the case may be, will conform to the requirements of the
1933 Act and the 1933 Act Regulations and will not contain any untrue
statement of fact or omit to state any fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading. Such Selling
Shareholder has reviewed the most recent Preliminary Prospectus, the
Prospectus (if the same shall be in existence) and the Registration
Statement, and the information regarding such Selling Shareholder set forth
therein, including information set forth under the caption "Selling
Shareholders; Ownership of Common Stock," is complete and accurate and
fairly presents the information required to be stated therein.
<PAGE>
(vii) The representations and warranties of such Selling
Shareholder in the Custody Agreement and the Power of Attorney are, and on
the Closing Date and any Option Closing Date will be, true and correct.
(viii) Such Selling Shareholder is not aware that any of the
representations and warranties of the Company set forth in Section 2(a) of
this Agreement is untrue or inaccurate in any material respect, and the
sale by the Selling Shareholder of shares of Common Stock pursuant to this
Agreement is not prompted by any adverse information concerning the Company
or any of its Subsidiaries that is not set forth in the Prospectus.
3. OFFERING BY THE UNDERWRITERS. After the Registration Statement
----------------------------
becomes effective or, if the Registration Statement is already effective, after
this Agreement becomes effective, the Underwriters propose to offer the Firm
Shares for sale to the public upon the terms and conditions set forth in the
Prospectus. The Underwriters may from time to time thereafter reduce the public
offering price and change the other selling terms, provided the proceeds to the
Company shall not be reduced as a result of such reduction or change.
The Underwriters may reserve and sell such of the Shares purchased by
the Underwriters as the Underwriters may elect to dealers chosen by them (the
"Selected Dealers") at the public offering price set forth in the Prospectus
less the applicable Selected Dealers' concessions set forth therein, for re-
offering by Selected Dealers to the public at the public offering price. The
Underwriters may allow, and Selected Dealers may re-allow, a concession set
forth in the Prospectus to certain other brokers and dealers.
4. CERTAIN COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
-------------------------------------------------------------
The Company and, where expressly stated, the Selling Shareholders, covenant with
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto, if not effective at the time
of execution of this Agreement, to become effective as promptly as possible. If
the Registration Statement has become or becomes effective pursuant to Rule 430A
and information has been omitted therefrom in reliance on Rule 430A, then, the
Company will prepare and file in accordance with Rule 430A and Rule 424(b)
copies of the Prospectus or, if required by Rule 430A, a post-effective
amendment to the Registration Statement (including the Prospectus) containing
all information so omitted and will provide evidence satisfactory to the
Representative of such timely filing.
(b) The Company shall notify you immediately, and confirm such
notice in writing:
(i) when the Registration Statement, or any post-
effective amendment to the Registration Statement, has become effective, or
when the Prospectus or any supplement to the Prospectus or any amended
Prospectus has been filed;
(ii) of the receipt of any comments or requests from the
Commission relating in any way to the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendments or supplements to
any of the aforementioned of any request of the Commission to amend or
supplement the Registration Statement, any Preliminary Prospectus or the
Prospectus or for additional information; and
(iii) of the issuance by the Commission or any state or
other regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement, preventing or suspending the
use of any Preliminary Prospectus or the Prospectus, or suspending the
qualification of any of the Shares for offering or sale in any jurisdiction
or the institution or threat of institution of any proceedings for any of
such purposes. The Company shall use its best efforts to prevent the
issuance of any such stop order or of any other such order and if any such
order is issued, to cause such order to be withdrawn or lifted as soon as
possible.
(c) The Company shall furnish to you, from time to time without
charge, as soon as available, as many copies as you may reasonably request of
(i) the registration statement as originally filed and of all amendments and
supplements thereto, in executed form, including exhibits, whether filed before
or after the Registration Statement becomes effective, (ii) all exhibits and
documents incorporated therein or filed therewith, (iii) all consents and
<PAGE>
certificates of experts in executed form, (iv) each Preliminary Prospectus and
all amendments and supplements thereto, and (v) the Prospectus, and all
amendments and supplements thereto.
(d) During the time when a prospectus is required to be delivered
under the 1933 Act, the Company shall comply with the 1933 Act and the 1933 Act
Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the
completion of the distribution of the Shares as contemplated herein and in the
Prospectus. The Company shall not file any amendment to the registration
statement as originally filed or to the Registration Statement and shall not
file any amendment thereto or make any amendment or supplement to any
Preliminary Prospectus or to the Prospectus and will not file any document under
the 1934 Act before the termination of the offering of the Shares by the
Underwriters if the document would be deemed to be incorporated by reference
into the Registration Statement or the Prospectus of which you shall not
previously have been advised in writing and provided a copy within a reasonable
time prior to the proposed filings thereof or to which you or your counsel shall
reasonably object. If it is necessary, in your reasonable opinion or in the
reasonable opinion of counsel for the Underwriters, to amend or supplement the
Registration Statement or the Prospectus in connection with the distribution of
the Shares, the Company shall forthwith amend or supplement the Registration
Statement or the Prospectus, as the case may be, by preparing and filing with
the Commission, and furnishing to you, such number of copies as you may
reasonably request of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement or the Prospectus, as the case may be
(in form and substance reasonably satisfactory to you and to counsel for the
Underwriters). If any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus to correct an untrue statement of fact or to
include any fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if for any reason
it is necessary at any time to amend or supplement the Prospectus to comply with
the 1933 Act and the 1933 Act Regulations, the Company shall, subject to the
second sentence of this subsection (d), forthwith amend or supplement the
Prospectus by preparing and filing with the Commission, and furnishing to you,
such number of copies as you may reasonably request of an amendment or
amendments of, or a supplement or supplements to, the Prospectus (in form and
substance satisfactory to you and to counsel for the Underwriters) so that, as
so amended or supplemented, the Prospectus shall not contain an untrue statement
of fact or omit to state any fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(e) The Company shall cooperate with you and counsel for the
Underwriters in order to qualify the Shares for offering and sale under the
securities or blue sky laws of such jurisdictions as you may reasonably request
and shall continue such qualifications in effect so long as may be advisable for
distribution of the Shares; provided, however, that the Company shall not be
required to qualify to do business as a foreign corporation or file a general
consent to service of process in any jurisdiction in connection with the
foregoing. The Company shall file such statements and reports as may be
required by the laws of each jurisdiction in which the Shares have been
qualified as above. The Company will notify you immediately of, and confirm in
writing, the suspension of qualification of the Shares or threat thereof in any
jurisdiction.
(f) The Company shall make generally available to its security
holders in the manner contemplated by Rule 158 of the 1933 Act Regulations and
furnish to you as soon as practicable, but in any event not later than 16 months
after the Effective Date, a consolidated earnings statement of the Company
conforming with the requirements of Section 11(a) of the 1933 Act and Rule 158.
(g) The Company shall use the proceeds from the sale of the Shares to
be sold by the Company hereunder in the manner specified in the Prospectus under
the caption "Use of Proceeds."
(h) For five years from the Effective Date, the Company shall furnish
to the Representative copies of all reports and communications (financial or
otherwise) furnished by the Company to the holders of the Common Stock as a
class, copies of all reports and financial statements filed with or furnished to
the Commission (other than portions for which confidential treatment has been
obtained from the Commission) or with any national securities exchange or the
Nasdaq National Market and such other documents, reports and information
concerning the business and financial condition of the Company as the
Representative may reasonably request, other than such documents, reports and
information for which the Company has the legal obligation not to reveal to the
Representatives.
(i) For a period of 180 days from the date hereof, neither the
Company nor any Selling Shareholder shall, directly or indirectly, offer for
sale, sell or agree to sell or otherwise dispose of (except, in the case of
<PAGE>
the Selling Shareholder, for bona fide gifts), any shares of Common Stock, or
any securities convertible into, exercisable or exchangeable for, or that are
the economic or voting equivalent of, any such shares of Common Stock, or
announce the offering of, or register with the Commission, any shares of Common
Stock or any such other securities, without your prior written consent; and the
Company will use its best efforts to cause the persons listed on Schedule III
hereto not to, directly or indirectly, offer for sale, sell or agree to sell or
otherwise dispose of (except for bona fide gifts) any shares of Common Stock, or
any securities convertible into, exercisable or exchangeable for, or that are
the economic or voting equivalent of, any such shares of Common Stock for a
period of 180 days from the date hereof without your prior written consent.
(j) The Company shall use its best efforts to obtain approval for,
and maintain the quotation of the Common Stock on the Nasdaq National Market, or
in lieu thereof a national securities exchange, and to remain so quoted for at
least five years from the Effective Date or for such shorter period as may be
specified in a written consent of the Representative.
(k) The Company will promptly provide you with copies of all
correspondence to and from, and all documents issued to and by, the Commission
in connection with the registration of the Shares under the 1933 Act or relating
to any documents incorporated by reference into the Registration Statement or
the Prospectus.
(l) Subsequent to the date of this Agreement and through the date
which is the later of (i) the day following the date on which the Underwriters'
option to purchase the Option Shares shall expire or (ii) the day following the
Option Closing Date with respect to any Option Shares that the Underwriters
shall elect to purchase, except as described in or contemplated by the
Prospectus, neither the Company nor any of the Subsidiaries shall take any
action (or refrain from taking any action) which will result in the Company or
the Subsidiaries incurring any liability or obligation, direct or contingent, or
enter into any transaction, except in the ordinary course of business, and there
will not be any change in the financial position, capital stock, or any increase
in long-term debt, obligations under capital leases or short-term borrowings of
the Company and the Subsidiaries on a consolidated basis.
(m) The Company shall not, for a period of 180 days after the date
hereof, without the prior written consent of the Representative, redeem or call
for redemption, or prepay or give notice of prepayment (or announce any
redemption or call for redemption, or any repayment or notice of prepayment) of
any of the Company's securities which are convertible into Common Stock.
(n) Neither the Company nor any Selling Shareholder shall take,
directly or indirectly, any action designed to result in or which has
constituted or which might cause or result in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Shares and neither the Company nor any Selling Shareholder is aware of any such
action taken or to be taken by any affiliate of the Company or any Selling
Shareholder or (ii) otherwise violate the Commission's Regulation M shares.
(o) Prior to the Closing Date (and, if applicable, the Option Closing
Date), neither the Company nor any Selling Shareholder will issue any press
release or other communication directly or indirectly or hold any press
conference with respect to the Company, the Subsidiaries or the offering of the
Shares without your prior written consent, which will not be unreasonably
withheld.
(p) The Company and the Subsidiaries shall conduct their businesses
in compliance with all applicable federal and state laws, rules, regulations,
decisions, directives and orders (including, without limitation, the applicable
provisions of the 1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act
Regulations, the BHC Act, the National Bank Act, the Federal Deposit Insurance
Corporation Improvement Act, the Oklahoma General Corporation Act, the Oklahoma
banking laws and all decisions, directives and orders of the FDIC, the OCC, the
Oklahoma Banking Commissioner, the Oklahoma Banking Board, and the Board of
Governors of the Federal Reserve System, as applicable).
(p) The Company and the Subsidiaries will maintain and keep accurate
books and records reflecting their assets and maintain internal accounting
controls which provide reasonable assurance that (1) transactions are executed
in accordance with management's authorization, (2) transactions are recorded as
necessary to permit the preparation of the Company's consolidated financial
statements and to maintain accountability for the assets of the Company and its
Subsidiaries, (3) access to the assets of the Company and its Subsidiaries is
permitted
<PAGE>
only in accordance with management's authorization, and (4) the recorded
accounts of the assets of the Company and its Subsidiaries are compared with
existing assets at reasonable intervals.
(q) Each of the Selling Shareholders shall (i) cooperate to the
extent necessary to cause the Registration Statement or any post-effective
amendment thereto to become effective at the earliest possible time; (ii) pay
all Federal and other taxes, if any, on the transfer or sale of the Shares being
sold by the Selling Shareholder to the Underwriters; (iii) do or perform all
things required to be done or performed by the Selling Shareholder prior to the
Closing Date or any Option Closing Date, as the case may be, to satisfy all
conditions precedent to the delivery of the Shares pursuant to this Agreement;
and (iv) advise you promptly, and if requested by you, will confirm such advice
in writing, of any change in the Company's condition (financial or other), net
worth, business, affairs, management, prospects, results of operations or cash
flow or of any change in information relating to such Selling Shareholder or the
Company or any new information relating to the Company or relating to any matter
stated in the Prospectus or any amendment or supplement thereto which comes to
the attention of such Selling Shareholder that suggests that any statement made
in the Registration Statement or the Prospectus (as then amended or
supplemented, if amended or supplemented) is or may be untrue in any material
respect or that the Registration Statement or Prospectus (as then amended or
supplemented, if amended or supplemented) omits or may omit to state a fact or a
fact necessary to be stated therein in order to make the statements therein not
misleading in any material respect, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented, if amended or supplemented) in
order to comply with the 1933 Act or any other law.
5. PAYMENT OF EXPENSES.
-------------------
(a) Whether or not this Agreement is terminated or the sale of the
Shares to the Underwriters is consummated, the Company covenants and agrees that
it will pay or cause to be paid (directly or by reimbursement) all costs and
expenses incident to the performance of the obligations of the Company and the
Selling Shareholders under this Agreement, including:
(i) the preparation, printing, filing, delivery and shipping
of the initial registration statement, the Preliminary Prospectus or
Prospectuses, the Registration Statement and the Prospectus and any amendments
or supplements thereto, and the printing, delivery and shipping of this
Agreement and any other underwriting documents (including, without limitation,
underwriters' questionnaires, underwriters' powers of attorney, agreements among
underwriters and selected dealers' agreements), the certificates for the Shares
and the Preliminary and Final Blue Sky Memoranda and any legal investment
surveys and any supplements thereto;
(ii) all fees, expenses and disbursements of the Company's
counsel and accountants;
(iii) all fees and expenses incurred in connection with the
qualification of the Shares under the securities or blue sky laws of such
jurisdictions as you may request, including all filing fees and fees and
disbursements of counsel for the Underwriters in connection therewith,
including, without limitation, in connection with the preparation of the
Preliminary and Final Blue Sky Memoranda and any legal investment surveys and
any supplements thereto;
(iv) all fees and expenses incurred in connection with filings
made with the NASD;
(v) any applicable fees and other expenses incurred in
connection with the listing of the Shares on the Nasdaq National Market;
(vi) the cost of furnishing to you as many copies as you
reasonably request of the initial registration statements, any Preliminary
Prospectus, the Registration Statement and the Prospectus and all amendments or
supplements thereto;
(vii) the costs and charges of any transfer agent or registrar
and the fees and disbursements of counsel for any transfer agent or registrar;
<PAGE>
(viii) all costs and expenses (including stock transfer taxes)
incurred in connection with the printing, issuance and delivery of the Shares to
the Underwriters; and
(ix) all other costs and expenses incident to the performance
of the obligations of the Company hereunder that are not otherwise specifically
provided for in this Section 5.
Provided, however, that the Company shall not be responsible for payment of any
- -------- -------
fees, expenses and disbursements of the Selling Shareholders' counsel or any
underwriting discount or commission applicable to the sale of Shares by the
Selling Shareholders hereunder.
(b) Whether or not this Agreement is terminated or the sale of the
Shares to the Underwriters is consummated, each of the Selling Shareholders
covenants and agrees that such Selling Shareholder will pay all costs and
expenses incident to the performance of such Selling Shareholder's obligations
hereunder which are not otherwise specifically provided for in the Section 5(a);
including (i) any fees and expenses of counsel for such Selling Shareholder,
(ii) such Selling Shareholder's pro rata share of the fees and expenses of the
Attorneys-in-Fact and the Custodian, and (iii) all expenses (including stock
transfer taxes) incident to the sale and delivery of the Shares to be sold by
such Selling Shareholder to the Underwriters hereunder.
(c) If the sale of Shares contemplated by this Agreement is not
completed for any reason whatsoever, including, without limitation, if this
Agreement is terminated by the Company or by you for any reason whatsoever,
whether or not such termination is allowable hereunder, the Company will pay you
your accountable out-of-pocket expenses in connection herewith or in
contemplation of the performance of your obligations hereunder, including,
without limitation, travel expenses, reasonable fees, expenses and disbursements
of counsel or other out-of-pocket expenses incurred by you in connection with
any discussion of the offering of the Shares or the contents of the Registration
Statement, any investigation of the Company and the Subsidiaries, or any
preparation for the marketing, purchase, sale or delivery of the Shares in each
case following presentation of reasonably detailed invoices therefor.
If the sale of the Shares contemplated by this Agreement is completed,
the Company shall not be responsible for payment of fees or disbursements of
counsel for the Underwriters other than in accordance with paragraph (c) above,
or for the reimbursement of any expenses of the Underwriters, provided that any
fees previously paid to the Representative for its acting as financial advisor
to the Company as disclosed in the Prospectus shall not have to be refunded.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
-------------------------------------------
the Underwriters to purchase and pay for the Firm Shares and, following exercise
of the option granted by the Company in Section 1 of this Agreement, the Option
Shares, are subject, in your sole discretion, to the accuracy of and compliance
with the representations and warranties and agreements of the Company and the
Selling Shareholders herein as of the date hereof and as of the Closing Date (or
in the case of the Option Shares, if any, as of the Option Closing Date), to the
accuracy of the written statements of the Company and its officers and the
Selling Shareholders made pursuant to the provisions hereof, to the performance
by the Company and the Selling Shareholders of their respective covenants and
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Closing Date has not been declared effective prior to the time of
execution hereof, the Registration Statement shall become effective not later
than 10:00 a.m., St. Louis time, on the first business day following the time of
execution of this Agreement, or at such later time and date as you may agree to
in writing. If required, the Prospectus and any amendment or supplement thereto
shall have been timely filed in accordance with Rule 424(b) and Rule 430A under
the 1933 Act and Section 4(a) hereof. No stop order suspending the effectiveness
of the Registration Statement or any amendment or supplement thereto shall have
been issued under the 1933 Act or any applicable state securities laws and no
proceedings for that purpose shall have been instituted or shall be pending, or,
to the knowledge of the Company or the Representative, shall be contemplated by
the Commission or any state authority. Any request on the part of the Commission
or any state authority for additional information (to be included in the
Registration Statement or Prospectus or otherwise) shall have been disclosed to
you and complied with to your satisfaction and to the satisfaction of counsel
for the Underwriters.
<PAGE>
(b) No Underwriter shall have advised the Company or any Selling
Shareholder at or before the Closing Date (and, if applicable, the Option
Closing Date) that the Registration Statement or any post-effective amendment
thereto, or the Prospectus or any amendment or supplement thereto, contains an
untrue statement of any fact which, in your opinion, is material or omits to
state a fact which, in your opinion, is material and is required to be stated
therein or is necessary to make statements therein (in the case of the
Prospectus or any amendment or supplement thereto, in light of the circumstances
under which they were made) not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization by the Company, form and validity of this Agreement, and the
authorization by the Company and form of the Registration Statement and
Prospectus, other than financial statements and other financial data, and all
other legal matters relating to this Agreement and the transactions contemplated
hereby shall be satisfactory in all respects to counsel for the Underwriters,
and the Company and the Subsidiaries shall have furnished to such counsel all
documents and information relating thereto that they may reasonably request to
enable them to pass upon such matters.
(d) Kennedy, Baris & Lundy, L.L.P., counsel for the Company, shall
have furnished to you their signed opinion, dated the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Oklahoma, and is
duly registered as a bank holding company under the BHC Act. Each of the
Subsidiaries is duly incorporated or organized (as the case may be), validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization (as the case may be). Each of the Company and the
Subsidiaries has full corporate power and authority to own or lease its
properties and to conduct its business as such business is described in the
Prospectus and is currently conducted. All outstanding shares of capital stock
of the Subsidiaries have been duly authorized and validly issued and are fully
paid and nonassessable (except to the extent such shares may be deemed
assessable under 12 U.S.C. Section 55 or 12 U.S.C. Section 1831o) and, to such
counsel's actual knowledge, except as disclosed in the Prospectus, there are no
outstanding rights, options or warrants to purchase any such shares or
securities convertible into or exchangeable for any such shares. The Bank is a
member of the Federal Reserve System, and to such counsel's knowledge, no
proceedings for termination or revocation of such membership are pending or
threatened. The deposit accounts of the Bank are insured by the FDIC up to the
maximum amount provided by law, and, to such counsel's knowledge, no
proceedings for the termination or revocation of any such insurance or such
membership are pending or threatened.
(ii) The capital stock of the Company conforms to the
description thereof contained in the Prospectus. The outstanding capital
stock of the Company as of September 30, 1998 is as set forth under the
caption "Capitalization" in the Prospectus, has been duly authorized and
validly issued, is fully paid and nonassessable and, to the knowledge of
such counsel, not in violation of or subject to any other rights to
subscribe for or purchase any securities. The form of certificates to
evidence the Common Stock has been approved by the Board of Directors and
is in due and proper form and complies with all applicable requirements. To
such counsel's actual knowledge, there are no outstanding rights, options
or warrants to purchase, no other outstanding securities convertible into
or exchangeable for, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company, except as described in the
Prospectus.
(iii) The Company has all requisite corporate power and
authority to issue, sell and deliver the Shares in accordance with and upon
the terms and conditions set forth in this Agreement and in the
Registration Statement and the Prospectus. All corporate action required
to be taken by the Company for the authorization, issuance, sale and
delivery of the Shares has been validly and sufficiently taken. All of the
Shares have been duly and validly authorized and, when delivered in
accordance with this Agreement, will be duly and validly issued, fully paid
and nonassessable, and will conform to the description thereof in the
Registration Statement and the Prospectus. The Common Stock has been
approved for quotation on the Nasdaq National Market subject to official
notice of issuance. There are no preemptive or other rights to subscribe
for or to purchase, and other than as disclosed in the Prospectus no
restrictions upon the voting or transfer of, any shares of capital stock of
the Company or the Subsidiaries pursuant to the corporate charter, by-laws
or other governing documents of the Company or the Subsidiaries, or, to
such counsel's actual knowledge,
<PAGE>
any agreement or other instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries
may be bound.
(iv) The Company has all requisite corporate power to enter
into and perform its obligations under this Agreement and this Agreement
has been duly and validly authorized, executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as the enforcement hereof
may be limited by general principles of equity and by bankruptcy or other
laws relating to or affecting creditors' rights generally, and except as
the indemnification and contribution provisions hereof may be limited under
applicable laws and certain remedies may not be available in the case of a
non-material breach.
(v) To such counsel's actual knowledge, neither the Company
nor any of the Subsidiaries is in breach or violation of, or default under,
with or without notice or lapse of time or both, its corporate charter, by-
laws or other governing document. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
herein do not and will not conflict with, result in the creation or
imposition of any material lien, claim, charge, encumbrance or restriction
upon any property or assets of the Company or the Subsidiaries or the
Shares pursuant to, or constitute a material breach or violation of, or
constitute a default under, with or without notice or lapse of time or
both, any of the terms, provisions or conditions of the charter, by-laws or
other governing document of the Company or the Subsidiaries, or to such
counsel's actual knowledge, any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease, franchise, license or any
other agreement or instrument to which the either the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties may be bound or any order, decree, judgment, franchise, license,
Permit (as defined herein), rule or regulation, including, without
limitation, Section 13 of the 1934 Act, of any court, arbitrator,
government, or governmental agency or instrumentality, domestic or foreign,
known to such counsel having jurisdiction over the Company or the
Subsidiaries or any of their respective properties which, in each case, is
material to the Company on a consolidated basis. No authorization,
approval, consent or order of, or filing, registration or qualification
with, any person (including, without limitation, any court, governmental
body or authority) is required in connection with the transactions
contemplated by this Agreement, except such as required under the 1933 Act,
and such as may be required under state securities laws in connection with
the purchase and distribution of the Shares by the Underwriters.
(vi) To the best of such counsel's actual knowledge, holders of
securities of the Company either do not have any right that, if exercised,
would require the Company to cause such securities to be included in the
Registration Statement or have waived such right, except as adequately
disclosed in the Prospectus. To the best of such counsel's actual
knowledge, neither the Company nor any of the Subsidiaries is a party to
any agreement or other instrument which grants rights for or relating to
the registration of any securities of the Company except as adequately
disclosed in the Prospectus.
(vii) Except as set forth in the Registration Statement and the
Prospectus, to such counsel's actual knowledge, no action, suit or
proceeding at law or in equity is pending or threatened in writing to which
the Company or any of the Subsidiaries is or may be a party, and no action,
suit or proceeding is pending or threatened in writing against or affecting
the Company or any of the Subsidiaries or any of their properties before or
by any court or governmental official, commission, board or other
administrative agency, authority or body, or any arbitrator, wherein an
unfavorable decision, ruling or finding could have a material adverse
effect on the consummation of this Agreement or the issuance and sale of
the Shares as contemplated herein or the condition (financial or
otherwise), earnings, affairs, business, prospects or results of operations
of the Company and the Subsidiaries on a consolidated basis or which is
required to be disclosed in the Registration Statement or the Prospectus
and is not so disclosed.
(viii) No authorization, approval, consent or order of or
filing, registration or qualification with, any person (including, without
limitation, any court, governmental body or authority) is required in
connection with the transactions contemplated by this Agreement, the
Registration Statement and the Prospectus, except such as have been
obtained under the 1933 Act, and such as may be required under state
securities laws or Interpretations or Rules of the NASD in connection with
the purchase and distribution of the Shares by the Underwriters, and from
the Nasdaq National Market relating to the listing of the Shares.
<PAGE>
(ix) The Registration Statement and the Prospectus and any
amendments or supplements thereto and any documents incorporated therein by
reference (other than the financial statements or other financial data
included therein or omitted therefrom and Underwriters' Information and
Selling Shareholders' Information, as to which such counsel need express no
opinion) comply as to form in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations as of their respective dates
of effectiveness; the conditions for use of Form S-2 have been satisfied;
and, as of the date they were filed with the Commission, the documents
incorporated by reference in the Prospectus appear on their face to comply
as to form and be appropriately responsive in all material respects with
the requirements of the 1934 Act and the applicable 1934 Act Rules and
Regulations (other than the financial statements or other financial data
included therein or omitted therefrom).
(x) To such counsel's actual knowledge, there are no
contracts, agreements, leases or other documents of a character required to
be disclosed in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not so disclosed or filed.
(xi) The statements under the captions "Risk Factors",
"Capitalization" and "Description of Capital Stock", in the Prospectus and
in Item 15 of Part II of the Registration Statement and in the Company's
Annual Report on Form 10-K for the year ended December 31, 199[__] under
Item 1, "Business -- Regulation of Branch and Interstate Banking" and
"Supervision and Regulation", Item 11, "Management Remuneration" and Item
13, "Certain Relationships and Related Transactions", insofar as such
statements constitute a summary of legal and regulatory matters, documents
or proceedings referred to therein are accurate descriptions of the matters
summarized therein in all material respects and fairly present the
information called for with respect to such legal and regulatory matters,
documents and proceedings in all material respects, other than financial
and statistical data as to which said counsel expresses no opinion or
belief.
(xii) Such counsel has been advised by the staff of the
Commission that the Registration Statement has become effective under the
1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made within the time period required by Rule 424(b); to the best of
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for a stop order
are pending or threatened by the Commission.
(xiii) Except as described in or contemplated by the Prospectus,
to the best of such counsel's knowledge, there are no contractual
encumbrances or restrictions, or no material legal restrictions (excluding
any encumbrances or restrictions of general application to national banks
contained in laws, rules and regulations of applicable regulatory
authorities) required to be described therein, on the ability of the
Subsidiaries (A) to pay dividends or make any other distributions on its
capital stock or to pay indebtedness owed to the Company, (B) to make any
loans or advances to, or investments in, the Company or (C) to transfer any
of its property or assets to the Company.
(xiv) To such counsel's actual knowledge, (A) the business and
operations of the Company and the Subsidiaries comply in all material
respects with all statutes, ordinances, laws, rules and regulations
applicable thereto, except in those instances where non-compliance would
not materially impair the ability of the Company and the Subsidiaries to
conduct their businesses; and (B) the Company and the Subsidiaries possess
and are operating in all material respects in compliance with the terms,
provisions and conditions of all Permits (as defined herein) known to such
counsel and required to conduct their businesses as described in the
Prospectus and which are material to the Company and the Subsidiaries on a
consolidated basis, except in those instances where the loss thereof or
non-compliance therewith would not have an adverse effect on the condition
(financial or otherwise), earnings, affairs, business, prospects or results
of operations of the Company and the Subsidiaries on a consolidated basis;
such counsel has no actual knowledge that any such Permit (as defined
herein) is not valid and in full force and effect, and such counsel has no
actual knowledge of any action, suit or proceeding that is pending or
threatened (or any basis therefor) which may lead to the revocation,
termination, suspension or non-renewal of any such Permit (as defined
herein), except in those instances where the loss thereof or non-compliance
therewith would not materially impair the ability of the Company or the
Subsidiaries to conduct their businesses.
<PAGE>
In giving this opinion, such counsel may rely, as to matters governed
by the laws of Oklahoma and as to the ownership of the capital stock of the Bank
by the Company, and the due authorization and valid issuance of fully paid and
nonassessable stock of the Company, SNBC, CRK and Stillwater Properties, upon
the opinion of [_____________] rendered pursuant to Section 6(e) hereof. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied upon certificates of officers of the Company including, without
limitation, certificates as to the identity of any and all material contracts,
indentures, mortgages, deeds of trust, loans or credit agreements, notes,
leases, franchises, licenses or other agreements or instruments, and all
material permits, easements, consents, licenses, franchises and government
regulatory authorizations, for purposes of paragraphs (v), (x) and (xiv) hereof
and certificates of public officials.
Such counsel shall also confirm that, in connection with the
preparation of the Registration Statement and Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with its independent public accountants and with the Representative and its
counsel, at which conferences such counsel made inquiries of such officers,
representatives and accountants and discussed in detail the contents of the
Registration Statement and Prospectus and the documents incorporated therein by
reference and such counsel has no reason to believe (A) that the Registration
Statement or any amendment thereto (except for the financial statements and
related schedules and statistical data included therein or omitted therefrom,
Underwriters' Information and Selling Shareholder Information, as to which such
counsel need express no opinion), at the time the Registration Statement or any
such amendment became effective, contained any untrue statement of material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading or (B) that the Prospectus or any amendment or
supplement thereto or the documents incorporated therein by reference (except
for the financial statements and related schedules and statistical data included
therein or omitted therefrom Underwriters' Information and Selling Shareholder
Information, as to which such counsel need express no opinion), at the time the
Registration Statement became effective (or, if the term "Prospectus" refers to
the prospectus first filed pursuant to Rule 424(b) of the 1933 Act Regulations,
at the time the Prospectus was issued), at the time any such amended or
supplemented Prospectus was issued, at the Closing Date and, if applicable, the
Option Closing Date, contained or contains any untrue statement of material fact
or omitted or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (C) that there is any amendment to the
Registration Statement required to be filed that has not already been filed.
(e) [_____________], counsel for the Company, shall have furnished to
you their signed opinion, dated the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) Each of the Company, SNBC, CRK and Stillwater Properties has
been duly incorporated and is validly existing and in good standing under
the laws of the State of Oklahoma. The Company is duly registered as a
bank holding company under the BHC Act. The Bank is a national banking
association duly incorporated, validly existing and in good standing under
the laws of the United States of America. The Bank is a member of the
Federal Reserve System, and to the knowledge of such counsel, no
proceedings for the termination or revocation of such membership are
pending or threatened. The deposit accounts of the Bank are insured by the
FDIC up to the maximum amount provided by law, and to the knowledge of such
counsel, no proceedings for the termination or revocation of any such
insurance or such membership are pending or threatened. Each of the
Company, SNBC, CRK, Stillwater Properties and the Bank has full corporate
power and authority to conduct its business as described in the Prospectus
in all material respects and as currently conducted in all material
respects. Except as disclosed in the Prospectus, to the best of such
counsel's knowledge, the Company owns directly, free and clear of any
security interests, mortgage, pledge, lien, charge, encumbrance,
restriction upon voting or transfer, preemptive rights or any other claim
or equity, all outstanding shares of capital stock of the Bank. All of
such shares of the Bank, SNBC, CRK and Stillwater Properties have been duly
authorized and validly issued and are fully paid and nonassessable (except
to the extent such shares may be deemed assessable under 12 U.S.C. Section
55 or 12 U.S.C. Section 1831o) and, to the best of such counsel's
knowledge, except as disclosed in the Prospectus, there are no outstanding
rights, options or warrants to purchase any such shares or securities
convertible into or exchangeable for any such shares.
<PAGE>
(ii) The capital stock of the Company conforms to the
description thereof contained in the Prospectus in all material respects.
The outstanding capital stock of the Company as of September 30, 1998 is as
set forth under the caption "Capitalization" in the Prospectus, has been
duly authorized and validly issued, is fully paid and nonassessable and, to
the knowledge of such counsel, has been issued in compliance with
applicable federal and state securities laws not in violation of or subject
to any other rights to subscribe for or purchase any securities. The form
of certificates to evidence the Common Stock has been approved by the Board
of Directors and is in due and proper form and complies with all applicable
requirements of Oklahoma law. To the best of such counsel's knowledge,
there are no outstanding rights, options or warrants to purchase, no other
outstanding securities convertible into or exchangeable for, and no
commitments, plans or arrangements to issue, any shares of capital stock of
the Company, except as described in the Prospectus.
(iii) There are no preemptive or other rights to subscribe for
or to purchase, and, other than as described in the Prospectus, no
restrictions upon the voting or transfer of, any shares of capital stock of
the Company, the Bank, SNBC, CRK or Stillwater Properties pursuant to the
corporate charter, by-laws or other governing documents of the Company, the
Bank, SNBC, CRK or Stillwater Properties or, to the best of such counsel's
knowledge, pursuant to any agreement or other instrument to which the
Company, the Bank, SNBC, CRK or Stillwater Properties is a party or by
which the Company, the Bank, SNBC, CRK or Stillwater Properties may be
bound.
(iv) The Company has all requisite corporate power to enter into
and perform its obligations under this Agreement and this Agreement has
been duly and validly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as the enforcement hereof
may be limited by general principles of equity and by bankruptcy or other
laws relating to or affecting creditors' rights generally, and except as
the indemnification and contribution provisions hereof may be limited under
applicable laws and certain remedies may not be available in the case of a
non-material breach.
(v) To the best of such counsel's knowledge, neither the
Company, the Bank, SNBC, CRK nor Stillwater Properties is in breach or
violation of, or default under, with or without notice or lapse of time or
both, its corporate charter, by-laws or other governing document. The
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein do not and will not conflict with,
result in the creation or imposition of any material lien, claim, charge,
encumbrance or restriction upon any property or assets of the Company, the
Bank, SNBC, CRK or Stillwater Properties or the Shares pursuant to, or
constitute a material breach or violation of, or constitute a material
default under, with or without notice or lapse of time or both, any of the
terms, provisions or conditions of the charter, by-laws or other governing
document of the Company, the Bank, SNBC, CRK or Stillwater Properties, or
to the best knowledge of such counsel's after due inquiry, any material
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease, franchise, license or any other agreement or instrument to
which the Company, the Bank, SNBC, CRK or Stillwater Properties is a party
or by which any of them or any of their respective properties may be bound
or any order, decree, judgment, franchise, license, Permit (as defined
herein), rule or regulation, including, without limitation, Section 13 of
the 1934 Act, of any court, arbitrator, government, or governmental agency
or instrumentality, domestic or foreign, having jurisdiction over the
Company, the Bank, SNBC, CRK or Stillwater Properties or any of their
respective properties which, in each case, is material to the Company on a
consolidated basis. No authorization, approval, consent or order of, or
filing, registration or qualification with, any person (including, without
limitation, any court, governmental body or authority) is required under
Oklahoma law in connection with the transactions contemplated by this
Agreement except as may be required under Oklahoma securities laws in
connection with the purchase and distribution of the Shares by the
Underwriters.
(vi) To the best of such counsel's knowledge, holders of
securities of the Company either do not have any right that, if exercised,
would require the Company to cause such securities to be included in the
Registration Statement or have waived such right, except as adequately
disclosed in the Prospectus. To the best of such counsel's knowledge,
neither the Company, the Bank, SNBC, CRK nor Stillwater Properties is a
party to any agreement or other instrument which grants rights for or
relating to the registration of any securities of the Company except as
described in the Prospectus.
<PAGE>
(vii) Except as set forth in the Registration Statement and the
Prospectus, to the best of such counsel's knowledge, no action, suit or
proceeding at law or in equity is pending or threatened in writing to which
the Company or any of the Subsidiaries is or may be a party, and no action,
suit or proceeding is pending or threatened in writing against or affecting
the Company or any of the Subsidiaries or any of their properties before or
by any court or governmental official, commission, board or other
administrative agency, authority or body, or any arbitrator, wherein an
unfavorable decision, ruling or finding could have a material adverse
effect on the consummation of this Agreement or the transactions
contemplated herein or the condition (financial or otherwise), earnings,
affairs, business, prospects or results of operations of the Company and
the Subsidiaries on a consolidated basis.
(viii) No authorization, approval, consent or order of or
filing, registration or qualification with, any person (including, without
limitation, any court, governmental body or authority) is required by
Oklahoma law in connection with the transactions contemplated by this
Agreement except such as may be required under Oklahoma securities laws in
connection with the purchase and distribution of the Shares by the
Underwriters.
(ix) To such counsel's knowledge, based solely upon
identification of material contracts, agreements, leases and other material
documents by the Company, there is no material contract, agreement, lease,
or other document which has not been made in the ordinary course of
business and either is to be performed in whole or in part at or after
[________________, 1999] or within the preceding twenty-four months and (A)
to which any director, officer, or security-holder named in the
Registration Statement is a party (other than any contract involving only
the purchase or sale of current assets having a determinable market price,
at such market price); (B) call for the acquisition or sale of any property
or equipment for a consideration exceeding fifteen percent (15%) of
consolidated fixed assets of the Company at [_____________, 199__]; (C) is
a material lease under which any of the Company, the Bank, SNBC, CRK or
Stillwater Properties holds property described in the Registration
Statement; or (D) is a management contract or compensatory plan, contract
or arrangement in which any director or any officer of the Company named in
the Registration Statement participates, and which has not been described
in or filed as an exhibit to the Registration Statement.
(x) The statements under the captions "Risk Factors",
"Capitalization" and "Description of Capital Stock", in the Prospectus and
in Item 15 of Part II of the Registration Statement and in the Company's
Annual Report on Form 10-K for the year ended December 31, 199[___] under
Item 1, "Business -- Regulation of Branch and Interstate Banking" and
"Supervision and Regulation", Item 11, "Management Remuneration" and Item
13, "Certain Relationships and Related Transactions," insofar as such
statements constitute a summary of legal and regulatory matters, documents
or proceedings referred to therein and depend upon, refer to, or describe
Oklahoma law, are, to the best of such counsel's knowledge, accurate in all
material respects and fairly present the information called for with
respect to such legal and regulatory matters, documents and proceedings.
(xi) Except as set forth in the Prospectus, to the best of such
counsel's knowledge, there are no contractual encumbrances or restrictions,
or material legal restrictions, on the ability of the Subsidiaries (A) to
pay dividends or make any other distributions on its capital stock or to
pay indebtedness owed to the Company, (B) to make any loans or advances to,
or investments in, the Company or (C) to transfer any of its property or
assets to the Company.
(xii) To the best of such counsel's knowledge, (A) the business
and operations of the Company and the Subsidiaries comply in all material
respects with all statutes, ordinances, laws, rules and regulations
applicable thereto and which are material to the Company and the
Subsidiaries on a consolidated basis, except in those instances where non-
compliance would not materially impair the ability of the Company or any of
its Subsidiaries to conduct their businesses; and (B) the Company and the
Subsidiaries possess and are operating in all material respects in
compliance with the terms, provisions and conditions of all Permits (as
defined herein) known to such counsel and required to conduct their
businesses as described in the Prospectus and which are material to the
Company and the Subsidiaries on a consolidated basis, except in those
instances where the loss thereof or non-compliance therewith would not have
a material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, prospects or results of operations of the
Company
<PAGE>
and the Subsidiaries on a consolidated basis, such counsel has no knowledge
that any such Permit (as defined herein) is not valid and in full force and
effect, and such counsel has no knowledge of any action, suit or proceeding
that is pending or threatened (or any basis therefor) which may lead to the
revocation, termination, suspension of any such Permit (as defined herein),
except in those instances where the loss thereof or non-compliance
therewith would not materially impair the ability of the Company or any of
its Subsidiaries to conduct their businesses.
In giving this opinion such counsel may state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company, including, without
limitation, certificates as to the identity of any and all material
contracts, indentures, mortgages, deeds of trust, loans or credit
agreements, notes, leases, franchises, licenses or other agreements or
instruments, and all material permits, consents, licenses, franchises and
government regulatory authorizations, for purposes of paragraphs (v), (ix)
and (xii) hereof and certificates of public officials.
Such counsel shall state that Kennedy, Baris & Lundy, L.L.P. and Bryan
Cave llp may rely on their opinion in rendering the opinions required by
Sections 6(d) and 6(g).
(f) [_________________], counsel for the Selling Shareholders
shall have furnished to you their signed opinion, dated the Closing Date or the
Option Closing Date, as the case may be, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
(i) To the best of such counsel's knowledge this
Agreement, the Powers of Attorney and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of each Selling
Shareholder; the Attorney-in-Fact of each Selling Shareholder has been duly
and validly authorized to act in such capacity; the Custodian has been duly
and validly authorized to act as the custodian of the Shares to be sold by
each Selling Shareholder; and the performance and delivery of this
Agreement and the Custody Agreement and the transactions contemplated
hereby and thereby will not result in a breach of or constitute a default
under any material voting trust agreement, shareholders agreement,
mortgage, deed of trust, trust (constructive or otherwise), loan agreement,
security agreement, lease, franchise, license, indenture, permit or other
agreement or instrument known to such counsel to which any Selling
Shareholder is a party or by which any Selling Shareholder or any of its
material properties is bound, or violate any statute, judgment, decree,
order, rule or regulation known to such counsel of any court or
governmental body having jurisdiction over any Selling Shareholder or any
of its properties; and to the knowledge of such counsel, no approval,
authorization, order or consent of any court or governmental body is
required for the execution and delivery of this Agreement, the Powers of
Attorney or the Custody Agreement, or the consummation of the transactions
contemplated hereby or thereby, except such as have been obtained and are
in full force and effect under the 1933 Act and such as may be required
under the rules of the NASD or applicable blue sky laws.
(ii) The Selling Shareholders have full right, power and
authority and any approval required by law to enter into this Agreement,
the Powers of Attorney and the Custody Agreement and to sell, assign,
transfer and deliver the Shares to be sold by such Selling Shareholders
hereunder. Upon delivery of and payment for the Shares being sold by the
Selling Shareholders, the Underwriters that are purchasing such Shares will
receive good and marketable title to such Shares, free and clear of all
liens, encumbrances, equities, claims, restrictions, security interests,
voting trusts, or other defects of title whatsoever.
(iii) No consent, approval, authorization or order of any
court, or governmental agency or body is required for consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by each Selling Shareholder hereunder except such as may be
required under the 1933 Act or the 1933 Act Rules and Regulations or as may
be required by the NASD or under state securities laws.
<PAGE>
(iv) To such counsel's knowledge, this Agreement, the Powers
of Attorney and the Custody Agreement are legal, valid and binding
agreements of each of the Selling Shareholders enforceable in accordance
with their respective terms except as enforceability may be limited by
general principles, bankruptcy and of equity and by other laws relating to
or affecting creditors' rights generally, and except as the indemnification
and contribution provisions hereof may be limited under applicable laws and
certain remedies may not be available in the case of a non-material breach.
In giving the opinion described in paragraph 6(f)(i), such counsel
shall be entitled to rely on representation of Selling Shareholders which they
represent, to the extent such reliance involves factual matters, as such
representations may be given in the Custody Agreement.
(g) Bryan Cave llp, counsel for the Underwriters, shall have
furnished you their signed opinion, dated the Closing Date or the Option Closing
Date, as the case may be, with respect to the sufficiency of all corporate
procedures and other legal matters relating to this Agreement, the validity of
the Shares, the Registration Statement, the Prospectus and such other related
matters as you may reasonably request and there shall have been furnished to
such counsel such documents and other information as they may request to enable
them to pass on such matters. In giving such opinion, Bryan Cave llp may rely as
to matters of fact upon statements and certifications of officers of the Company
and of other appropriate persons and may rely as to matters of law, other than
law of the United States and the State of Missouri, and upon the opinions of
Kennedy, Baris & Lundy, L.L.P., [______________] and [_______________] described
herein.
(h) On the date of this Agreement and on the Closing Date (and,
if applicable, any Option Closing Date), the Representative on behalf of the
Underwriters shall have received from Deloitte & Touche LLP a letter, dated the
date of this Agreement and the Closing Date (and, if applicable, the Option
Closing Date), respectively, in form and substance satisfactory to the
Representative, confirming that they are independent public accountants with
respect to the Company and the Subsidiaries, within the meaning of the 1933 Act
and the 1933 Act Regulations, and stating in effect that:
(i) In their opinion, the consolidated financial
statements of the Company and its Subsidiaries audited by them and included
or incorporated by reference (and if applicable they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants ("AICPA") of the unaudited consolidated
interim financial statements, selected financial data, pro forma financial
information, prospective financial statements and/or condensed financial
statements derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports thereon,
copies of which have been furnished to the Representative) in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations.
(ii) On the basis of the procedures specified by the AICPA
as described in SAS No. 71, "Interim Financial Information", inquiries of
officials of the Company and its Subsidiaries responsible for financial and
accounting matters, and such other inquiries and procedures as may be
specified in such letter, which procedures do not constitute an audit in
accordance with U.S. generally accepted auditing standards, nothing came to
their attention that caused them to believe that, if applicable, the
unaudited interim consolidated financial statements of the Company and its
Subsidiaries included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements
of the 1934 Act and 1934 Act Regulations or are not in conformity with U.S.
generally accepted accounting principles applied on a basis substantially
consistent, except as noted in the Registration Statement with the basis
for the audited consolidated financial statements of the Company and its
Subsidiaries included in the Registration Statement.
(iii) On the basis of limited procedures, not constituting
an audit in accordance with U.S. generally accepted auditing standards,
consisting of a reading of the unaudited interim financial statements of
the Company and its Subsidiaries and other information referred to below, a
reading of the latest available unaudited financial statements of the
Company and its Subsidiaries, inspection of the minute books of the Company
and its Subsidiaries since the date of the latest audited financial
statements of the Company and its Subsidiaries included or incorporated by
reference in the Registration Statement, inquiries of officials of the
<PAGE>
Company and its Subsidiaries responsible for financial and accounting
matters and such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe that:
(A) as of a specified date not more than five days
prior to the date of such letter, there have been any changes in the
capital stock, allowance for loan losses, or net loans receivable of
the Company or its Subsidiaries other than changes related to the
Employee Stock Purchase Plan and/or Dividend Reinvestment Plan, any
increase in the long-term debt, short-term borrowings, obligations
under capital leases or real estate owned of the Company or its
Subsidiaries, any decreases in consolidated total assets or
shareholders' equity of the Company or its Subsidiaries, or any
changes, decreases or increases in other items specified by the
Underwriters, in each case as compared with amounts shown in the
latest unaudited interim consolidated statement of financial condition
of the Company or its Subsidiaries included or incorporated by
reference in the Registration Statement except in each case for
changes, increases or decreases which the Registration Statement
specifically discloses have occurred or may occur or which are
described in such letter; and
(B) for the period from the date of the latest
unaudited interim consolidated financial statements included or
incorporated by reference in the Registration Statement to the
specified date referred to in Clause (iii)(A), there were any
decreases in the interest income, net interest income, other income or
net income of the Company and its Subsidiaries or in the net income
per common share of the Company and its Subsidiaries, any increase in
other expense of the Company and its Subsidiaries, or any changes,
decreases or increases in any other items specified by the
Representative, in each case as compared with the comparable period of
the preceding year and with any other period of corresponding length
specified by the Underwriters, except in each case for changes,
increases or decreases which the Registration Statement discloses have
occurred or may occur, or which are described in such letter.
(iv) In addition to the audit referred to in their report
included in the Registration Statement and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
paragraphs (ii) and (iii) above, they have carried out certain specified
procedures, not constituting an audit in accordance with U.S. generally
accepted auditing standards, with respect to certain amounts, percentages
and financial information specified by the Representative which are derived
from the general accounting records and consolidated financial statements
of the Company and its Subsidiaries which appear or are incorporated by
reference in the Registration Statement specified by the Representative,
and have compared such amounts, percentages and financial information with
the accounting records and the material derived from such records and
consolidated financial statements of the Company and its Subsidiaries and
have found them to be in agreement.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases as specified in Clauses (iii)(A)
or (iii)(B) above, or any exceptions from such agreement specified in Clause
(iv) above, it shall be a further condition to the obligations of the
Underwriters that the Representative shall have determined, after discussions
with officers of the Company and its Subsidiaries responsible for financial and
accounting matters, that such changes, decreases, increases or exceptions as are
set forth in such letters do not (x) reflect an adverse change in the items
specified in Clause (iii)(A) above as compared with the amounts shown in the
latest unaudited consolidated statement of financial condition of the Company
and its Subsidiaries included in the Registration Statement, (y) reflect an
adverse change in the items specified in Clause (iii)(B) above as compared with
the corresponding periods of the prior year or other period specified by the
Representative, or (z) reflect a material change in items specified in Clause
(iv) above from the amounts shown in the Preliminary Prospectus distributed by
the Underwriters in connection with the offering contemplated hereby or from the
amounts shown in the Prospectus.
(i) At the Closing Date and, if applicable, the Option Closing
Date, you shall have received certificates of the chief executive officer and
the chief financial and accounting officer of the Company, which certificates
shall be deemed to be made on behalf of the Company, and of the Selling
Shareholders or their authorized representatives, dated as of the Closing Date
and, if applicable, the Option Closing Date, evidencing satisfaction of the
conditions of Section 6(a) and stating that (i) the representations and
warranties of the Company and the Selling Shareholders, as the case may be, set
forth in Section 2 hereof are accurate as of the Closing Date and, if
applicable, the Option Closing Date, and that the Company and the Selling
Shareholders, as the case may be, have complied with all
<PAGE>
agreements and satisfied all conditions on their part to be performed or
satisfied at or prior to such Closing Date; (ii) since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
there has not been any (and the Selling Shareholders are not aware of any)
material adverse change in the condition (financial or otherwise), earnings,
affairs, business, prospects or results of operations of the Company and the
Subsidiaries on a consolidated basis; (iii) since such dates there has not been
any (and the Selling Shareholders are not aware of any) material transaction
entered into by the Company or the Subsidiaries other than transactions in the
ordinary course of business; (iv) they have carefully examined the Registration
Statement and the Prospectus as amended or supplemented and all documents
incorporated therein by reference and nothing has come to their attention that
would lead them to believe that either the Registration Statement or the
Prospectus, or any amendment or supplement thereto or any document incorporated
therein by reference as of their respective effective or issue dates, contained,
and the Prospectus as amended or supplemented and any document incorporated
therein by reference at such Closing Date (and, if applicable, the Option
Closing Date), contains any untrue statement of fact, or omits to state any fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) covering such other matters as you may request. The
officers' certificate of the Company shall further state that no stop order
affecting the Registration Statement is in effect or, to their knowledge,
threatened.
(j) The NASD, upon review of the terms of the public offering of
the Shares, shall not have objected to any Underwriter's participation in such
offering.
(k) Prior to the Closing Date and, if applicable, the Option
Closing Date, the Company and the Selling Shareholders shall have furnished to
you and counsel for the Underwriters all such other documents, certificates and
opinions as they have reasonably requested.
(l) Prior to the date hereof, each Selling Shareholder and each
person identified on Schedule III hereto shall have executed and delivered to
the Underwriters an agreement, in form satisfactory to the Underwriters,
providing that such Selling Shareholder or person shall not, for a period of 180
days from the date hereof, directly or indirectly, offer for sale, sell or agree
to sell or otherwise dispose of (except for bona fide gifts) any shares of
Common Stock, or any securities convertible into, exercisable or exchangeable
for, or that are the economic or voting equivalent of, any such shares of Common
Stock without your prior written consent.
All opinions, certificates, letters and other documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel. Any certificate signed by an
officer of the Company and delivered to you pursuant hereto shall also be deemed
to be a representation and warranty of the Company to the Underwriters as to the
statements made therein. The Company and the Selling Shareholders shall furnish
you with conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
If any of the conditions referred to in this Section 6 shall not have
been fulfilled when and as required by this Agreement, this Agreement and all
obligations of the Underwriters hereunder may be terminated by you on notice to
the Company and the Selling Shareholders at, or at any time before, the Closing
Date or the Option Closing Date, as applicable. Any such termination shall be
without liability of the Underwriters to the Company or any Selling Shareholder.
7. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each of its directors, officers and agents, and each person, if
any, who controls any Underwriter within the meaning of the 1933 Act, against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and reasonable attorneys' fees and expenses),
joint or several, arising out of or based (i) upon any untrue statement or
alleged untrue statement of fact made by the Company contained in Section 2(a)
of this Agreement (or any certificate delivered by the Company pursuant hereto)
or the registration statement as originally filed or the Registration Statement,
any Preliminary Prospectus or the Prospectus, or in any amendment or supplement
thereto, (ii) upon any blue sky application or other document executed by the
Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any of the Shares under the securities laws thereof (any such
application, document or information being hereinafter referred to as a "Blue
Sky Application"),
<PAGE>
(iii) any omission or alleged omission to state a fact in the registration
statement as originally filed or the Registration Statement, any Preliminary
Prospectus or the Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application required to be stated therein or necessary to make the
statements therein not misleading, and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation
and attorneys' fees and expenses), joint or several, arising out of or based
upon any untrue statement or alleged untrue statement of fact contained in any
Preliminary Prospectus or the Prospectus, or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading or (iv) the enforcement of this indemnification provision
or the contribution provisions of Section 7(e); andshall reimburse each such
indemnified party for any reasonable legal or other expenses as incurred, but in
no event less frequently than 30 days after each invoice is submitted, incurred
by them in connection with investigating or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action, notwithstanding the possibility that payments for such expenses might
later be held to be improper, in which case such payments shall be promptly
refunded; provided, however, that the Company shall not be liable in any such
-------- -------
case to the extent, but only to the extent, that any such losses, claims,
damages, liabilities and expenses arise out of or are based upon any untrue
statement or omission or allegation thereof that has been made therein or
omitted therefrom in reliance upon and in conformity with information furnished
in writing to the Company through you by or on behalf of any Underwriter
expressly for use therein beneath the heading "Underwriting;" provided, that the
--------
indemnification contained in this paragraph with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or of any of its
directors, officers or agents or any person controlling such Underwriter) to the
extent any such losses, claims, damages, liabilities or expenses directly
results from the fact that such Underwriter sold Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus (as amended or supplemented if any amendments or
supplements thereto shall have been furnished to such Underwriter in sufficient
time to distribute same with or prior to the written confirmation of the sale
involved), if required by law, and if such loss, claim, damage, liability or
expense would not have arisen but for the failure to give or send such person
such document, and provided further, that the Company shall have no liability
-------- -------
under this indemnity in any such case to the extent, but only to the extent,
that such losses, claims, damages, liabilities and expenses arose out of or were
based upon any untrue statement or omission made or omitted from any Preliminary
Prospectus or Prospectus in justifiable reliance upon information with respect
to a Selling Shareholder or its or his shares furnished to the Company by such
Selling Shareholder. The foregoing indemnity agreement is in addition to any
liability the Company may otherwise have to any such indemnified party.
(b) The Selling Shareholders severally agree to indemnify and
hold harmless each Underwriter, each of its directors, officers and agents and
each person, if any, who controls any Underwriter within the meaning of the 1933
Act, against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and attorneys' fees and expenses),
joint or several, arising out of or based (i) upon any untrue statement or
alleged untrue statement of a material fact made by a Selling Shareholder
contained in Section 2(b) of this Agreement (or in a certificate of such Selling
Shareholder delivered pursuant hereto) or in the registration statement as
originally filed or the Registration Statement, any Preliminary Prospectus or
the Prospectus, or in any amendment or supplement thereto, or (ii) any omission
or alleged omission to state a material fact in the registration statement as
originally filed or the Registration Statement, any Preliminary Prospectus, or
in any amendment or supplement thereto required to be stated therein or
necessary to make the statements therein not misleading, and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation and attorneys' fees and expenses), joint or several, arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus or the Prospectus, or in any
amendment or supplement thereto, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and shall reimburse each such
indemnified party for any legal or other expenses as incurred, but in no event
less frequently than 30 days after each invoice is submitted, reasonably
incurred by them in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments for
such expenses might later be held to be improper, in which case such payments
shall be promptly refunded; provided, however, that the Selling Shareholders
-------- -------
shall be liable in any such case to the extent, but only to the extent, that any
such losses, claims, damages, liabilities and expenses arise out of or are based
upon any untrue statement or omission or allegation thereof that has been made
therein or omitted therefrom in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of a Selling Shareholder,
including, without limitation, the information with respect to a Selling
Shareholder beneath the heading "Selling Shareholders;
<PAGE>
Ownership of Common Stock" and any certificate of a Selling Shareholder
delivered pursuant hereto; provided further that in no event shall the Selling
-------- -------
Shareholders be liable under this paragraph for an amount exceeding the
aggregate purchase price received by the Selling Shareholders from the
Underwriters for the Shares sold by the Selling Shareholders hereunder; and
provided further that the indemnification contained in this paragraph with
- -------- -------
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or of any person controlling such Underwriter) to the extent any
such losses, claims, damages, liabilities or expenses directly results from the
fact that such Underwriter sold Shares to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus (as amended or supplemented if any amendments or supplements thereto
shall have been furnished to such Underwriter in sufficient time to distribute
same with or prior to the written confirmation of the sale involved), if
required by law, and if such loss, claim, damage, liability or expense would not
have arisen but for the failure to give or send such person such document. The
foregoing indemnity agreement is in addition to any liability any Selling
Shareholder may otherwise have to any such indemnified party.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement (and each person, if any, who
controls the Company within the meaning of the 1933 Act), and the Selling
Shareholders, to the same extent as required by the foregoing indemnity from the
Company or the Selling Shareholders, as the case may be, to each Underwriter,
but only with respect to information relating to such Underwriter furnished in
writing to the Company through you by or on behalf of it expressly for use in
connection with the registration statement as originally filed, the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, beneath the heading "Underwriting" or in a Blue Sky
Application. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to any such indemnified party.
(d) If any action or claim shall be brought or asserted against
any indemnified party or any person controlling an indemnified party in respect
of which indemnity may be sought from the indemnifying party, such indemnified
party or controlling person shall promptly notify the indemnifying party in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all expenses; provided, however, that the failure so to notify
-----------------
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under such paragraph, and further, shall
only relieve it from liability under such paragraph to the extent prejudiced
thereby. Any indemnified party or any such controlling person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or such controlling person unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) the indemnifying party has failed to assume the defense or to
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
such indemnified party or such controlling person and the indemnifying party and
such indemnified party or such controlling person shall have been advised by
such counsel that there may be one or more legal defenses available to it that
are different from or in addition to those available to the indemnifying party
(in which case, if such indemnified party or controlling person notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
or such controlling person); it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys at any time and for
such indemnified party and controlling persons, such firm shall be designated in
writing by the indemnified party. Each indemnified party and each controlling
person, as a condition of such indemnity, shall use reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. The indemnifying party shall not be liable for any settlement of any
such action effected without its written consent, but if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
An indemnifying party shall not, without the prior written consent of
each indemnified party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnity may be sought hereunder (whether or not such
indemnified party or any person who controls such indemnified party within the
meaning of the 1933 Act is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes a release of each such
indemnified party reasonably satisfactory to each
<PAGE>
such indemnified party and each such controlling person from all liability
arising out of such claim, action, suit or proceeding or unless the indemnifying
party shall confirm in a written agreement of the indemnifying party to each
indemnified party, that notwithstanding any federal, state or common law, such
settlement, compromise or consent shall not alter the right of any indemnified
party or controlling person to indemnification or contribution as provided in
this Agreement.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from the offering
of the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Shareholders on the one hand and the Underwriters on
the other shall be deemed to be allocated pro rata on the basis of the total
underwriting discounts, commissions and compensation received by the
Underwriters relative to the total net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the Selling
Shareholders, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Selling Shareholders on
the one hand and of the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of or the omission or alleged omission to state a fact relates to information
supplied by the Company or a Selling Shareholder or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company, the Selling
Shareholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this paragraph (e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in the first sentence of this paragraph (e) shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (e), no Underwriter or Selling Shareholder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public, or the amount sold by such Selling
Shareholder, exceeds the amount of any damages that such Underwriter or Selling
Shareholder, as the case may be, has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
For purposes of this paragraph (e), each person who controls an
Underwriter within the meaning of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each person who controls the Company
within the meaning of the 1933 Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
preceding paragraph. The Underwriters' obligations in this paragraph (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint. The obligations of the Company and the Selling
Shareholders under this paragraph (e) shall be in addition to any liability
which the Company and the Selling Shareholders may otherwise have and the
obligations of the Underwriters under this paragraph (e) shall be in addition to
any liability that the respective Underwriters may otherwise have.
<PAGE>
(f) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company and the Selling
Shareholders set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter or by or on behalf of
the Company or any Selling Shareholder, or such directors, trustees or officers
(or any person controlling the Company or any Selling Shareholder), (ii)
acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement. A successor of any Underwriter or of the Company
or any Selling Shareholder, such directors, trustees or officers (or of any
person controlling any Underwriter, the Company or any Selling Shareholder)
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 7.
8. TERMINATION. You shall have the right to terminate this
-----------
Agreement on behalf of the Underwriters at any time at or prior to the Closing
Date or, with respect to the Underwriters' obligation to purchase the Option
Shares, at any time at or prior to the Option Closing Date, without liability on
the part of any Underwriter to the Company or a Selling Shareholder, if:
(a) the Company or a Selling Shareholder shall have failed,
refused, or been unable to perform any agreement on its part to be performed
under this Agreement, or any of the conditions referred to in Section 6 shall
not have been fulfilled, when and as required by this Agreement;
(b) The Company or any of the Subsidiaries shall have sustained
any loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree which in the judgment of the
Representative impairs the investment quality of the Shares;
(c) There has been since the respective dates as of which
information is given in the Registration Statement or the Prospectus, any
adverse change in, or any development which is likely to have an adverse effect
on, the condition (financial or otherwise), earnings, affairs, business,
prospects or results of operations of the Company and the Subsidiaries on a
consolidated basis, whether or not arising in the ordinary course of business;
(d) There has occurred any outbreak of hostilities or other
calamity or crisis or change in general economic, political or financial
conditions, or internal conditions, the effect of which on the financial markets
of the United States is such as to make it, in your reasonable judgment,
impracticable to market the Shares or enforce contracts for the sale of the
Shares;
(e) Trading generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required, by any of said
exchanges or market system or by the Commission or any other governmental
authority;
(f) A banking moratorium shall have been declared by either
federal or Oklahoma authorities; or
(g) Any action shall have been taken by any government in respect
of its monetary affairs which, in your reasonable judgment, has an adverse
effect on the United States securities markets.
If this Agreement shall be terminated pursuant to this Section 8, the
Company and the Selling Shareholders shall not then be under any liability to
any Underwriter except as provided in Sections 5 and 7 hereof.
9. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters
-----------------------
shall default in its or their obligations to purchase Shares hereunder, the
other Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase; provided, however,
-------- -------
that the non-defaulting Underwriters shall be under no obligation to purchase
such Shares if the aggregate number of Shares to be purchased by such non-
defaulting Underwriters shall exceed 110% of the aggregate underwriting
commitments set forth in Schedule I hereto, and provided further, that no non-
---------- ----------------
defaulting Underwriter shall be obligated to purchase Shares to the extent that
the number of such Shares is more than 110% of such Underwriter's underwriting
commitment set forth in Schedule I hereto.
----------
<PAGE>
In the event that the non-defaulting Underwriters are not obligated
under the above paragraph to purchase the Shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase, the Representative
may in its discretion arrange for one or more of the Underwriters or for another
party or parties to purchase such Shares on the terms contained herein. If
within one business day after such default the Representative does not arrange
for the purchase of such Shares, then the Company shall be entitled to a further
period of one business day within which to procure another party or parties
satisfactory to the Representative to purchase such Shares on such terms.
In the event that the Representatives or the Company do not arrange
for the purchase of any Shares to which a default relates as provided above,
this Agreement shall be terminated.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or a part of the Shares of a defaulting
Underwriter or Underwriters as provided in this Section 9, (i) you shall have
the right to postpone the Closing Date for a period of not more than five full
business days, in order to effect any changes that, in the opinion of counsel to
the Underwriters or the Company, may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
agreements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which, in its opinion,
may thereby be made necessary and (ii) the respective numbers of Shares to be
purchased by the remaining Underwriters or substituted underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
any liability it may have for damages occasioned by its default hereunder. Any
termination of this Agreement pursuant to this Section 9 shall be without
liability on the part of any non-defaulting Underwriter, the Company or any
Selling Shareholder, except for expenses to be paid or reimbursed pursuant to
Section 5 and except for the provisions of Section 7.
10. EFFECTIVE DATE OF AGREEMENT. If the Registration Statement is
---------------------------
not effective at the time of execution of this Agreement, this Agreement shall
become effective on the Effective Date at the time the Commission declares the
Registration Statement effective. The Company shall immediately notify the
Representative when the Registration Statement becomes effective.
If the Registration Statement is effective at the time of execution of
this Agreement, this Agreement shall become effective at the earlier of 11:00
a.m. St. Louis time, on the first full business day following the day on which
this Agreement is executed, or at such earlier time as the Representative shall
release the Shares for public offering. The Representative shall notify the
Company and Selling Shareholders immediately after it has taken any action which
causes this Agreement to become effective.
Until such time as this Agreement shall have become effective, it may
be terminated by the Company, by notifying you and the Selling Shareholders, or
by you, as Representative of the Underwriters, by notifying the Company and the
Selling Shareholders, except that the provisions of Sections 5 and 7 shall at
all times be effective.
11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
--------------------------------------------------------------
The representations, warranties, indemnities, agreements and other statements of
the Company and its officers and the Selling Shareholders set forth in or made
pursuant to this Agreement and the agreements of the Underwriters contained in
Section 7 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Company or any Selling
Shareholder or controlling persons of the Company or any Selling Shareholder, or
by or on behalf of the Underwriters or controlling persons of any Underwriters
or any termination or cancellation of this Agreement and shall survive delivery
of and payment for the Shares.
12. NOTICES. Except as otherwise provided in this Agreement, all
-------
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, mailed by registered or
certified mail, return receipt requested, or transmitted by any standard form of
telecommunication and confirmed. Notices to the Company shall be sent to 608
South Main Street, Stillwater, Oklahoma 74074, Attention: Robert L. McCormick,
Jr. (with a copy to Kennedy, Baris & Lundy, L.L.P., 4719 Hampden Lane, Suite
300, Bethesda, Maryland 20814, Attention: James I. Lundy III, Esq.); notices to
a Selling Shareholder shall be sent to the address set forth for such Selling
Shareholder on Schedule II (with a copy to [____________________,
_________________, ______________, ____________, ATTENTION: ________________,
ESQ., AND _____________________]); and notices to the Underwriters shall be sent
to Stifel, Nicolaus & Company, Incorporated, 500 North Broadway, Suite 1500, St.
<PAGE>
Louis, Missouri 63102, Attention: Rick E. Maples (with a copy to Bryan Cave
llp, 211 North Broadway, Suite 3600, St. Louis, Missouri 63102, Attention:
Frederick W. Scherrer, Esq.).
13. PARTIES. The Agreement herein set forth is made solely for the
-------
benefit of the Underwriters, the Company and the Selling Shareholders and, to
the extent expressed, directors and officers of the Company, any person
controlling the Company, any Selling Shareholder or any Underwriter, and their
respective successors and assigns. No other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns"
shall not include any purchaser, in his status as such purchaser, from any
Underwriter of the Shares.
14. GOVERNING LAW. This Agreement shall be governed by the laws of
-------------
the State of Missouri, without giving effect to the choice of law or conflicts
of law principles thereof.
15. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and when a counterpart has been executed by each party hereto all
such counterparts taken together shall constitute one and the same Agreement.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
shall become a binding agreement among the Company, the Selling Shareholders and
you in accordance with its terms.
Very truly yours,
SOUTHWEST BANCORP, INC.
By:________________________________
Name:
Title:
SELLING SHAREHOLDERS:
By:________________________________
Name:
Attorney-in-Fact for each of the
Selling Shareholders named in
Schedule II hereto
CONFIRMED AND ACCEPTED,
as of the date first above written.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By:_____________________________________
Name:
Title:
For itself and as Representative
of the Underwriters named in
Schedule I hereto.
<PAGE>
SCHEDULE I
Number of Firm
Shares to be
Name of Underwriters Purchased
- -------------------- --------------
Stifel, Nicolaus & Company, Incorporated
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Total 1,060,997
=========
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Name and Address of Number of Firm
Selling Shareholder Shares To Be Sold
- ------------------- -----------------
<S> <C>
Estate of Paul C. Wise 696,311
c/o John T. Eberle, Esquire
120 North Robinson Avenue, Suite 1615
Oklahoma City, Oklahoma 73102
Dr. James B. Wise 114,686
3401 Hickory Stick Road
Oklahoma City, Oklahoma 73120
Total 810,997
=======
</TABLE>
<PAGE>
SCHEDULE III
<PAGE>
EXHIBIT 5
KENNEDY, BARIS & LUNDY, L.L.P.
ATTORNEYS AT LAW
SUITE 300
4719 HAMPDEN LANE
TEXAS OFFICE: BETHESDA, MD 20814 WASHINGTON OFFICE:
SUITE 1775 (301) 654-6040 SEVENTH FLOOR
112 EAST PECAN STREET FAX: (301) 654-1733 1225 NINETEENTH STREET, NW
SAN ANTONIO, TX 78205 WASHINGTON, DC 20036
(210) 228-9500 (202) 835-0313
FAX:(210) 228-0781 FAX: (202) 835-0319
February 9, 1999
Southwest Bancorp, Inc
608 South Main Street
Stillwater, Oklahoma 74074
Re: Registration Statement on Form S-2 (File No. 333-_______)
Gentlemen:
We have acted as counsel to Southwest Bancorp, Inc. an Oklahoma corporation
(the "Company") in connection with the preparation of a Registration Statement
on Form S-2 (the "Registration Statement") to be filed by the Company with the
Securities and Exchange Commission (the "SEC") for the purpose of registering
under the Securities Act of 1933, as amended, an aggregate of 1,220,146 shares
of the common stock (the "Common Stock") of the Company, 810,997 of which are to
be sold by the Selling Shareholders, and 409,149 of which are newly issued
shares (the "Shares") to be sold by the Company (including 159,149 shares which
are subject to the Underwriter's over-allotment option).
As counsel to the Company, we have examined such corporate records,
certificates and other documents of the Company, and made such examinations of
law and inquiries of such officers of the Company, as we have deemed necessary
or appropriate for purposes of this opinion. Based upon such examinations we are
of the opinion that the Shares, when sold in the manner set forth in the
Registration Statement, will be duly authorized, validly issued, fully paid and
non-assessable shares of the Common Stock of the Company.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement on Form SB-2 filed by the Company and the reference to
our firm contained therein under "Legal Matters."
Very truly yours,
/s/ Kennedy, Baris & Lundy, L.L.P.
<PAGE>
EXHIBIT 10.4
Offering Agreement
<PAGE>
OFFERING AGREEMENT
THIS OFFERING AGREEMENT (the "Agreement") is made this 5th
day of January, 1999, by and among the (i) the Estate of Paul C. Wise (the
"Estate") through its co-executors, James B. Wise and Allen H. Wise, (ii) James
B. Wise in his individual capacity (each a "Selling Shareholder"), Southwest
Bancorp, Inc. (the "Company"), and Stifel, Nicolaus & Company, Incorporated (the
"Underwriter").
PREMISES
A. The Selling Shareholders desire to sell certain shares of the common
stock, par value $1.00 per share, (the "Common Stock") of the Company in order
to receive the maximum amount of net proceeds available in a sale effected as
expeditiously as possible.
B. The Selling Shareholders desire the cooperation of the Company in
preparing the registration statement and other documents necessary or desirable
for the sale of their shares.
C. The Company has determined that the interests of its shareholders will
be better served if the shares owned by the Selling Shareholders are widely
distributed in a public offering (the "Public Offering") rather than being sold
to a small number of institutions or individuals (a "Narrow Distribution").
D. The Selling Shareholders and the Company have been advised that the
selling price per share is likely to be higher in a Public Offering than in a
Narrow Distribution, but that the Selling Shareholders are likely to receive
higher sales proceeds from a Narrow Distribution, after payment of underwriter's
compensation and offering expenses.
E. In order to obtain the benefits of a Public Offering for its remaining
shareholders, the Company is prepared: to offset the decrease in sales proceeds
likely to be incurred by the Selling Shareholders in a Public Offering (as
described below); to divert its employees from other tasks in order to prepare
and file the Registration Statement; and to commit other resources necessary for
expeditious sale of shares; provided that the Selling Shareholders proceed with
-------- ----
the Offering and provide certain other promises and assurances to the Company.
F. The Company plans to offer newly issued shares of its Common Stock
with the shares offered by the Selling Shareholders in order to provide funds
for the payment of offering expenses and underwriters' compensation provided for
by this Agreement and for general corporate purposes, including use in its
lending and investment activities.
NOW, THEREFORE, based upon the premises and mutual promises contained
in this Agreement, and intending to be legally bound, the parties to this
Agreement agree as follows:
ARTICLE 1
COOPERATION TO ACCOMPLISH THE PUBLIC OFFERING
1.1 The Company and each of the Selling Shareholders agree to proceed in good
faith to effect a sale of the shares designated on Exhibit I to this Agreement
(the "Subject Shares") pursuant to the letter agreement dated January 5, 1999
(the "Letter Agreement"), a copy of which is attached as Exhibit II to this
Agreement, and an underwriting agreement described in the Letter Agreement (the
Underwriting Agreement").
1.2 Each of the Selling Shareholders agrees to provide information reasonably
requested by the Company or the Underwriter in connection with the Public
Offering and the registration of the Subject Shares under federal and state
securities laws.
1.3 The Company agrees to prepare and file a registration statement on Form S-2
(the "Registration Statement") for the Public Offering, including the sale of
the Subject Shares and, at the discretion of the Company, up to a total of
250,000 additional shares of Common Stock (the "Additional Shares") in the
Public Offering. The Additional Shares may be newly issued shares sold by the
Company or outstanding shares sold
<PAGE>
by others, at the discretion of the Company. The Company also may issue and sell
shares of Common Stock upon exercise by the Underwriter of the over-allotment
option described in the Letter Agreement. The Public Offering will not be
increased without the approval of the Selling Shareholders.
1.4 The Subject Shares, the Additional Shares, and the over-allotment option
shall include and shall be automatically increased to reflect any stock split or
stock dividend paid on or before the closing of the Public Offering and per
share amounts shall be proportionally adjusted to reflect such stock split or
dividend. No such adjustment shall decrease the amount to be paid to or increase
the reimbursements of expenses to be made by the Selling Shareholders pursuant
to this Agreement.
1.5 The Company and the Selling Shareholders agree to use their best efforts to
effect the sale of the Subject Shares as soon as is reasonably possible.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS
Each of the Selling Shareholders represents and warrants as follows with
respect to the Selling Shareholder and its Subject Shares:
2.1 Each of the Selling Shareholders is the owner of the Subject Shares
designated on Exhibit I to this Agreement. None of the Subject Shares is subject
to any pledge, lien, or encumbrance of any nature other than liens on the
Subject Shares owned by the Estate for federal and state estate taxes.
2.2 Each Selling Shareholder has executed the Letter Agreement in the form
attached as Exhibit II to this Agreement.
2.3. Each Selling Shareholder has full power and authority to enter into this
Agreement, the Letter Agreement and the Underwriting Agreement and to effect the
transactions contemplated by this Agreement and those other agreements. (This
Agreement, the Letter Agreement, and the Underwriting Agreement are referred to
together as the "Selling Agreements.")
ARTICLE 3.
PAYMENT OF OFFERING EXPENSES; DISTRIBUTION OF NET PROCEEDS
3.1 Subject to reimbursement as provided in Article 5, the Company will pay the
offering expenses of the Public Offering (the "Direct Expenses"), consisting of:
(i) the fees and expenses of legal counsel to the Company, (ii) the fees and
expenses of the Company's independent accountants, (iii) printing costs,
including the costs of filing the Registration Statement and of printing and
coping the prospectus contained in the Registration Statement, (iv) the SEC
registration fee for the Subject Shares, (v) "blue sky" filing fees and
expenses, and (vi) other related costs of the Public Offering. Direct Expenses
do not include underwriter's compensation.
3.2 The Selling Shareholders will pay the fees and expenses of their legal
counsel, accountants and advisers.
3.3 The Selling Shareholders shall be entitled to the amount of net proceeds of
the Public Offering equal to the estimated net sales proceeds, after payment of
offering expenses, that the Selling Shareholders would have received had the
Subject Shares been sold in a Narrow Distribution, based solely on the following
formula:
(((Actual Offering Price per Share - $0.25) X Subject Shares Actually Sold) X
(0.97)) - ($92,500+SEC Registration Fee applicable to total Subject Shares).
The Company and each of the Selling Shareholders expressly agree that this
formula, without alteration, shall be the basis for the distribution of proceeds
of the Public Offering to the Selling Shareholders. A sample calculation is
provided as Exhibit III to this Agreement, for illustration only.
<PAGE>
ARTICLE 4
DISTRIBUTION OF PROCEEDS; LIMITATION OF UNDERWRITER'S LIABILITY
4.1 On the Closing Date (as defined in the Underwriting Agreement) of the
Public Offering, the Underwriter will distribute a portion of the total proceeds
of the Public Offering after reduction for underwriter's compensation (the "Net
Proceeds") to the Selling Shareholders in the amount determined under Section
3.3 of this Agreement, and then shall pay the remaining amount of Net Proceeds
to the Company and any other seller. The Selling Shareholders will not be
entitled to any proceeds of the Public Offering in addition to the distribution
made pursuant to this Agreement or to any proceeds from the exercise of the
over-allotment option.
4.2 The Subject Shares shall be sold in the following priority: First, the
Subject Shares owned by the Estate; Second, the Subject Shares owned by the
other Selling Shareholder: Third, the Company and any other seller as they shall
determine. The Underwriter shall distribute funds among the Selling Shareholders
in the proportion that the Subject Shares actually sold by a Selling Shareholder
bear to the total Subject Shares actually sold.
4.3 The Underwriter may consult with counsel of its choice regarding these
duties, and shall be fully protected for any action taken in good faith in
accordance with that advice. The Underwriter shall have no liability under this
Agreement other than as a direct result of its gross negligence, willful
misconduct, or criminal act. In the event any disagreement between one or more
Selling Shareholders and the Company results in adverse claims or demands being
made on the Net Proceeds of the Public Offering prior to distribution of those
funds, or in the event the Underwriter in good faith is in doubt as to what
action it should take under this Agreement with respect to distribution of those
funds, the Underwriter shall retain the Net Proceeds of the Public Offering
until the Underwriter shall have received (i) an enforceable final order of a
court of competent jurisdiction which is not subject to further appeal directing
delivery of such funds, or (ii) a written agreement executed by the Selling
Shareholders and the Company directing delivery of such funds, in which event
the Underwriter shall distribute the Net Proceeds in accordance with such order
or agreement. Any court order referred to in (i) above shall be accompanied by a
legal opinion of counsel for the presenting party satisfactory to the
Underwriter to the effect that said court order or judgement is final and
enforceable and is not subject to further appeal. The Underwriter shall act on
such court order and legal opinion without further question. The Underwriter
shall cause any funds retained by it pursuant to this paragraph to be invested
promptly in a money market mutual fund chosen by it in its good faith
discretion, and shall pay interest on such funds to the Selling Shareholders,
the Company and any other seller in proportion to their relative share of such
funds at the average total return earned on such fund for the period beginning
on the sixth business day after the Closing Date of the Public Offering and
ending with the calendar day immediately preceding delivery of such funds.
ARTICLE 5
FAILURE TO CONCLUDE OFFER; REIMBURSEMENT OF DIRECT EXPENSES
5.1 Notwithstanding the provisions of Article 3 of this Agreement, the Selling
Shareholders shall reimburse the Company for the Direct Expenses in an amount
determined by the Company in good faith, plus any amount payable by the Company
pursuant to Section 15 of the Letter Agreement, in each case relating only to
expenses incurred in the period beginning on the date of this Agreement and
ending on the date of termination of this Agreement, plus the sum of $25,000
(which relates to Direct Expenses incurred in June, July and August of 1998) if:
(a) The Public Offering is not completed because of a breach of any of the
Selling Agreements by one or more of the Selling Shareholders; or
(b) If the Letter Agreement is terminated pursuant to paragraph 1 of the
Letter Agreement and the Public Offering is not completed, in which case
the maximum amount required to be paid by the Selling Shareholders under
this section 5.1 is the lesser of (i) $92,500 plus any SEC registration fee
applicable to the Subject Shares, or (ii) 76% of the sum of Direct Expenses
incurred in the period beginning on the date of this Agreement and ending
on the date of termination of this Agreement and $25,000.
<PAGE>
5.2 The Selling Shareholders' obligation to make the payment of Direct Expenses
to the Company under this Article 5 is joint and several.
5.4. In the event the Public Offering is completed and all proceeds are
distributed to the Selling Shareholders and the Company in accordance with this
Agreement, the Selling Shareholders, on the one hand, and the Company, on the
other hand, each hereby mutually releases the other from any and all claims and
causes of action of whatsoever form and nature that may have existed between
them as of the date of distribution of such proceeds. In the event the Public
Offering is not completed and/or this Agreement terminates for any reason, the
Selling Shareholders and the Company each reserves their respective rights to
pursue any and all legal remedies against each other.
ARTICLE 6
TERMINATION
6.1. This Agreement may be terminated as provided below:
(a) By mutual consent of the Company and the Selling Shareholders,
evidenced by their written agreement;
(b) By the Company or the Selling Shareholders if the Closing Date under
the Underwriting Agreement (the "Closing Date") is not held before July 7,
1999, provided that the right to terminate under this Section 6.1 (b) will
not be available to the Selling Shareholders if a Selling Shareholder's
breach of one or more of the Selling Agreements was the cause for the delay
in the Closing Date, and shall not be available to the Company if the
Company's Breach of one or more of the Selling Agreements was the cause of
the delay in the Closing Date.
(c) By the Selling Shareholders, upon delivery of written notice from the
Selling Shareholders of a material breach by the Company, provided that (i)
the Selling Shareholders previously have provided notice in accordance with
this Agreement to the Company of that breach, and (ii) the breach has not
been substantially cured within thirty days of that notice or has not been
waived by the Selling Shareholders.
(d) By the Company, upon delivery of written notice of a material breach
by a Selling Shareholder, provided that (i) the Company previously has
provided notice in accordance with this Agreement to the Selling
Shareholders of that breach, and (ii) the breach has not been substantially
cured within thirty days of that notice or has not been waived by the
Company.
(e) By the Company or the Selling Shareholders, if the Underwriter has
advised the Company or the Selling Shareholders in writing that it has
terminated the Letter Agreement or the Underwriting Agreement, provided
that the right to terminate under this Section 6.1(e) will not be available
to the Selling Shareholders if a Selling Shareholder's breach of one or
more of the Selling Agreements has been the cause of, or has resulted in,
the Underwriter's termination of the Letter Agreement or the Underwriting
Agreement, and shall not be available to the Company, if its breach of one
or more of the Selling Agreements has been the cause of, or has resulted
in, the Underwriter's termination of the Letter Agreement or the
Underwriting Agreement.
6.3 No termination will act to impair the limitation of liability provided to
the Underwriter under Article 4 of this Agreement.
6.4 Each of the Selling Shareholders agrees that it will not encourage, assist,
cooperate with, or participate in any attempt by any party to cause a change in
control of the Company during the period beginning on the date of this Agreement
and ending on (i) if this Agreement is terminated other than because of a breach
of any of the Selling Agreements by one or more Selling Shareholders and the
Public Offering is not completed, the date of such termination, or (ii) if the
Public Offering is completed, the second anniversary of this Agreement.
<PAGE>
6.5 The Company represents and warrants that it does not contemplate any sale
of control of the Company or any change in its strategy of independent
operation. The Company agrees that, if the Public Offering is completed pursuant
to this Agreement and its Board of Directors shall agree or agree in principle
to any sale of control to any party prior to the Closing Date of the Public
Offering, it shall not enter into an agreement with such party for such a change
in control that does not obligate the acquiror to pay to the Selling
Shareholders, for each share sold by them in the Public Offering, the difference
between the per share sales price in the Public Offering and the value received
by shareholders of the common stock of the Company in such sale of control in
cash or other consideration as is received by such shareholders in such change
in control.
6.6 The provisions of Section 4.3 and Articles 5 and 6 of this Agreement,
including, without limitation, the definitions used therein, will survive
termination of this Agreement for a period of two years following such
termination.
ARTICLE 7
OTHER PROVISIONS
7.1 Any notices or other communications required or permitted by this Agreement
will be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed:
If to the Selling Shareholders, to each of the Selling Shareholders at the
respective addresses shown on Exhibit I to this Agreement, with a copy to:
Robert C. Bright, Esquire
Bright & Bryant, P.C.
Two Leadership Square
Suite 810
211 North Robinson
Oklahoma City, Oklahoma 73102
Michael M. Stewart, Esquire
Crowe & Dunlevy, P.C.
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
If to the Company, to:
Robert L. McCormick
Chairman of the Board
Southwest Bancorp, Inc.
608 South Main Street
Stillwater, Oklahoma 74074
With a copy to:
James I. Lundy, Esquire
Kennedy, Baris & Lundy, L.L.P.
Suite 300
4719 Hampden Lane
Bethesda, Maryland 20814
If to the Underwriter, to:
Rick E. Maples
Stifel Nicolaus & Company, Incorporated
500 North Broadway
Suite 1560
St. Louis, Missouri 63102
<PAGE>
With a copy to:
Frederick W. Scherrer, Esquire
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St Louis, Missouri 63102-2750
or such other address provided in writing by the party. Any notice or
communication made as required by this section will be deemed to have been given
three business days after the date of mailing, except that a change in address
will not be deemed given until it is actually received. Notices also may be
given by telegram, facsimile transmission, or hand delivery, and, in that event,
will be deemed to be given as of the date they are actually received.
7.2 This Agreement shall be construed to reflect the intention of the parties
to the extent allowed by law. If any of the provisions contained in this
Agreement shall be held illegal or unenforceable by a court with appropriate
jurisdiction, no other provision of this Agreement shall be affected by such a
holding.
7.3 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Oklahoma, without regard to its
conflict of laws principles. This Agreement shall not be assigned, pledged or
transferred in any way by any party without the prior written consent of the
other parties. This Agreement supersedes all prior agreements between the
parties with respect to the subject matter hereof. No change, alteration or
modification hereof may be made except in writing, signed by each of the Selling
Shareholders, the Company, and the Underwriter. No act or failure to act by any
party shall be deemed to constitute a waiver of any breach by any other party of
any provision of this Agreement, nor shall the waiver by any party of any such
breach be construed or operate as a waiver of any subsequent breach. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original. Each of the parties agrees that a signed copy of a
counterpart delivered by facsimile shall constitute valid execution of this
Agreement or the Letter Agreement.
SIGNATURES
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
SOUTHWEST BANCORP, INC. STIFEL, NICOLAUS & COMPANY,
INCORPORATED, Solely as to Article 4
By: /s/ Robert L. McCormick By: /s/ Patrick Koster
----------------------- ------------------
Its: Chairman of the Board Its: First Vice President
---------------------- --------------------
SELLING SHAREHOLDERS:
ESTATE OF PAUL C. WISE
/s/ James B. Wise
-----------------
James B. Wise, Co-Executor
/s/ Allen H. Wise
-----------------
Allen H. Wise, Co-Executor
INDIVIDUALS:
/s/ James B. Wise
-----------------
Name: James B. Wise
<PAGE>
EXHIBIT 11
Computation of Earnings per Share
Set forth below is a reconciliation of net income available to common
shareholders and the common shares used in the calculations of basic and diluted
earnings per common share.
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Weighted average common shares outstanding:
Basic earnings per share 3,773,037 3,760,370 3,755,228
Effect of dilutive securities:
Stock options 99,851 68,011 32,861
--------- --------- ---------
Weighted average common shares outstanding:
Diluted earnings per share 3,872,888 3,828,381 3,788,089
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1998 1997 1998 1997
------------- ------------ -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 2,420 ($440) $ 7,163 $ 1,923
Less: preferred stock dividend requirement (264) (396) (1,058) (1,190)
Redemption of preferred stock in excess of
the carrying amount (928) - (928) -
---------- ---------- ---------- ----------
Net income available to common shareholders $ 1,228 ($836) $ 5,177 $ 733
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic earnings per share 3,796,886 3,771,101 3,794,043 3,768,663
Effect of dilutive securities:
Stock options 117,253 101,537 122,857 95,893
---------- ---------- ---------- ----------
Weighted average common shares outstanding:
Diluted earnings per share 3,914,139 3,872,638 3,916,900 3,864,556
========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Southwest Bancorp, Inc.
on Form S-2 of our report dated January 30, 1998, included and incorporated by
reference in the Annual Report on Form 10-K of Southwest Bancorp, Inc. for the
year ended December 31, 1997, and to the use of our report dated January 30,
1998, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Oklahoma City, Oklahoma
February 8, 1999
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors of the Southwest Bancorp, Inc.(the
"Registrant"), hereby severally constitute and appoint Robert L. McCormick, our
true and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said person may deem necessary or advisable to
enable the Registrant to comply with the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
preparation and filing of a registration statement on Form S-2 and the
registration and sale of the securities described therein under the federal
securities laws and the laws of the various states, including specifically, but
not limited to, power and authority to sign for us in our names in the
capacities indicated below such registration statement and any amendments
thereto and any document or filing necessary or appropriate in connection with
offering described therein; and we hereby approve, ratify and confirm all that
said person shall do or cause to be done by virtue thereof.
Signature Date
/s/ James E. Berry II January 21, 1999
- ----------------------------
James E. Berry, II
Director
/s/ Joyce P. Berry January 21, 1999
- ----------------------------
Joyce P. Berry
Director
/s/ Tom D. Berry January 21, 1999
- ----------------------------
Tom D. Berry
Director
/s/ Joe Berry Cannon January 21, 1999
- ----------------------------
Joe Berry Cannon
Director
/s/ J. Berry Harrison January 21, 1999
- ----------------------------
J. Berry Harrison
Director
/s/ Erd M. Johnson January 21, 1999
- ----------------------------
Erd M. Johnson
Director
/s/ David P. Lambert January 21, 1999
- ----------------------------
David P. Lambert
Director
/s/ Alfred L. Litchenburg January 21, 1999
- ----------------------------
Alfred L. Linchenburg
Director
/s/ Linford R. Pitts January 21, 1999
- ----------------------------
Linford R. Pitts
Director
/s/ Robert B. Rodgers January 21, 1999
- ----------------------------
Robert B. Rodgers
Director
- ----------------------------
James B. Wise, M.D.
Director
/s/ Lee A. Wise January 21, 1999
- ----------------------------
Lee A. Wise
Director
