<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-23064
SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1136584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
608 South Main Street 74074
Stillwater, Oklahoma (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (405) 372-2230
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
[x] YES [_] NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
3,786,807
---------
<PAGE>
SOUTHWEST BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at
September 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations for the
nine months ended September 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and 1999 5
Unaudited Consolidated Statements of Shareholders' Equity for the
nine months ended September 30, 2000 and 1999 6
Unaudited Consolidated Statements of Comprehensive Income for the
nine months ended September 30, 2000 and 1999 7
Notes to Unaudited Consolidated Financial Statements 8
Average Balances, Yields and Rates 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 18
PART II. OTHER INFORMATION 19
SIGNATURES 20
</TABLE>
2
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 31,287 $ 26,340
Investment securities:
Held to maturity, fair value $66,288 (2000) and $71,087 (1999) 66,703 71,814
Available for sale, amortized cost $151,642 (2000) and $134,223 (1999) 149,752 131,379
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 8,585 8,489
Loans receivable, net of allowance for loan losses
of $11,845 (2000) and $11,190 (1999) 902,821 841,618
Accrued interest receivable 11,812 9,413
Premises and equipment, net 20,468 20,800
Other assets 12,589 10,567
------------- --------------
Total assets $1,204,017 $1,120,420
============= ==============
Liabilities & shareholders' equity
Deposits:
Noninterest-bearing demand $ 123,583 $ 109,754
Interest-bearing demand 46,710 44,782
Money market accounts 93,923 101,302
Savings accounts 4,974 3,984
Time deposits 664,969 611,413
------------- --------------
Total deposits 934,159 871,235
------------- --------------
Accrued interest payable 7,801 6,004
Other liabilities 3,479 2,094
Short-term borrowings 164,257 151,820
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
------------- ---------------
Total liabilities 1,134,709 1,056,166
------------- ---------------
Shareholders' equity:
Common stock - $1 par value; 20,000,000 shares authorized;
4,081,056 shares issued 4,081 4,081
Capital surplus 14,826 14,855
Retained earnings 57,559 51,385
Accumulated other comprehensive loss (1,135) (1,708)
Treasury stock, at cost; 295,433 (2000) and 197,931 (1999) shares (6,023) (4,359)
------------- --------------
Total shareholders' equity 69,308 64,254
------------- --------------
Total liabilities & shareholders' equity $1,204,017 $1,120,420
============= ==============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except earnings per share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $21,162 $17,085 $61,059 $51,457
Investment securities:
U.S. Government and agency obligations 1,688 1,720 5,029 5,299
Mortgage-backed securities 1,152 828 3,373 1,722
State and political subdivisions 400 249 1,093 592
Other securities 211 151 606 400
Federal funds sold 69 5 115 28
------- ------- ------- -------
Total interest income 24,682 20,038 71,275 59,498
Interest expense:
Interest-bearing demand 340 219 934 638
Money market accounts 1,135 909 3,219 2,635
Savings accounts 25 19 69 54
Time deposits 10,364 7,166 28,543 21,976
Short-term borrowings 2,593 1,639 7,151 4,009
Long-term debt 582 582 1,745 1,745
------- ------- ------- -------
Total interest expense 15,039 10,534 41,661 31,057
------- ------- ------- -------
Net interest income 9,643 9,504 29,614 28,441
Provision for loan losses 925 600 2,725 1,700
------- ------ ------- -------
Net interest income after provision for loan losses 8,718 8,904 26,889 26,741
Other income:
Service charges and fees 1,613 1,223 4,612 3,403
Other noninterest income 76 528 328 1,121
Gain on sales of loans receivable 699 742 1,398 1,746
Gain on sales of investment securities 1 86
- -
------- ------- ------- -------
Total other income 2,388 2,494 6,338 6,356
Other expenses:
Salaries and employee benefits 3,728 3,369 10,860 10,225
Occupancy 1,614 1,503 4,873 4,296
FDIC and other insurance 70 59 203 180
Other real estate 57 628 473 1,008
General and administrative 1,770 1,746 5,554 6,180
------- ------- ------- -------
Total other expenses 7,239 7,305 21,963 21,889
------- ------- ------- -------
Income before taxes 3,867 4,093 11,264 11,208
Taxes on income 1,292 1,453 3,829 4,003
------- ------- ------- ------
Net income $ 2,575 $2,640 $7,435 $7,205
======= ======= ======= ======
Basic earnings per share $ 0.68 $ 0.66 $ 1.94 $ 1.81
======= ======= ======= ======
Diluted earnings per share $ 0.67 $ 0.64 $ 1.92 $ 1.77
======= ======= ======= ======
Cash dividends declared per share $ 0.11 $ 0.10 $ 0.33 $ 0.30
======= ======= ======= ======
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 7,435 $ 7,205
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 2,725 1,700
Depreciation and amortization expense 1,863 1,685
Amortization of premiums and accretion of
discount on securities, net 5 235
Amortization of intangibles 140 205
(Gain) Loss on sales/calls of securities - (86)
(Gain) Loss on sales of loans receivable (1,398) (1,746)
(Gain) Loss on sales of premises and equipment 14 (849)
(Gain) Loss on other real estate owned, net 228 650
Proceeds from sales of residential mortgage loans 41,597 71,818
Residential mortgage loans originated for resale (39,793) (70,668)
Changes in assets and liabilities:
Accrued interest receivable (2,399) (1,546)
Other assets (2,105) (1,475)
Income taxes payable - 15
Accrued interest payable 1,797 (597)
Other liabilities 1,357 1,282
--------- ---------
Net cash (used in) provided from operating activities 11,466 7,828
--------- ---------
Investing activities:
Proceeds from sales/calls of available for sale securities 1,176 16,415
Proceeds from principal repayments and maturities:
Held to maturity securities 18,000 15,408
Available for sale securities 8,822 7,300
Purchases of held to maturity securities (12,925) (19,916)
Purchases of available for sale securities (27,385) (55,812)
Purchases of Federal Reserve Bank and Federal Home Loan
Bank stock (96) (3,167)
Loans originated and principal repayments, net (104,764) (29,193)
Proceeds from sales of guaranteed student loans 38,111 18,703
Purchases of premises and equipment (1,631) (3,434)
Proceeds from sales of premises and equipment 86 1,112
Proceeds from sales of other real estate owned 1,652 -
--------- ---------
Net cash (used in) provided from investing activities (78,954) (52,584)
--------- ---------
Financing activities:
Net increase (decrease) in deposits 62,924 (16,954)
Net increase (decrease) in short-term borrowings 12,437 49,444
Net proceeds from issuance of common stock 84 5,781
Purchases of treasury stock (1,777) (2,048)
Dividends paid (1,233) (1,156)
--------- ---------
Net cash (used in) provided from financing activities 72,435 35,067
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,947 (9,689)
Cash and cash equivalents,
Beginning of period 26,340 32,339
--------- ---------
End of period $ 31,287 $ 22,650
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated Total
Other Share-
Common Stock Capital Retained Comprehensive Treasury holders'
Shares Amount Surplus Earnings Income (Loss) Stock Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 3,799,065 $3,799 $ 9,369 $44,120 $ 513 - $ 57,801
Cash dividends
Common, $0.30 per share - - - (1,214) - - (1,214)
Common stock issued:
Employee Stock Option Plan 30,000 30 353 - - - 383
Employee Stock Purchase Plan 2,345 1 29 - - 16 46
Dividend Reinvestment Plan 722 1 16 - - 9 26
Public Offering 250,000 250 5,101 - - - 5,351
Other comprehensive income
(loss), net of tax - - - - (925) - (925)
Treasury shares purchased - - - - - (2,073) (2,073)
Net income - - - 7,205 - - 7,205
-------------------------------------------------------------------------------------
Balance, September 30, 1999 4,082,132 $4,081 $14,868 $50,111 $ (412) $(2,048) $ 66,600
=====================================================================================
Balance, January 1, 2000 4,081,056 $4,081 $14,855 $51,385 $(1,708) $(4,359) $ 64,254
Cash dividends:
Common, $0.33 per share - - - (1,261) - - (1,261)
Common stock issued:
Employee Stock Option Plan - - (9) - - 23 14
Employee Stock Purchase Plan - - (11) - - 47 36
Dividend Reinvestment Plan - - (9) - - 43 34
Other comprehensive income
(loss), net of tax - - - - 573 - 573
Treasury shares purchased - - - - - (1,777) (1,777)
Net income - - - 7,435 - - 7,435
-------------------------------------------------------------------------------------
Balance, September 30, 2000 4,081,056 $4,081 $14,826 $57,559 $(1,135) $(6,023) $ 69,308
=====================================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $2,575 $2,640 $7,435 $ 7,205
Other comprehensive income (loss)
Unrealized holding gain (loss) on available
for sale securities 1,389 250 954 (1,532)
Reclassification adjustment for (gains) losses
arising during the period - (1) - (86)
-------- -------- -------- --------
Other comprehensive income (loss), before tax 1,389 249 954 (1,618)
Tax (expense) benefit related to items
of other comprehensive income (loss) (556) (55) (381) 693
-------- -------- -------- --------
Other comprehensive income (loss), net of tax 833 194 573 (925)
-------- -------- -------- --------
Comprehensive income $3,408 $2,834 $8,008 $6,280
======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
7
<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 notes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, cash flows and
comprehensive income in conformity with accounting principles generally accepted
in the United States of America. However, the unaudited consolidated financial
statements include all adjustments which, in the opinion of management, are
necessary for a fair presentation. Those adjustments consist of normal,
recurring accruals. The results of operations and cash flows for the nine months
ended September 30, 2000 and 1999 should not be considered indicative of the
results to be expected for the full year. These unaudited 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, 1999.
NOTE 2: PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Southwest Bancorp, Inc. ("Southwest") and its wholly owned
subsidiaries, the Stillwater National Bank and Trust Company ("Stillwater
National") and SBI Capital Trust ("SBI Capital"). All significant intercompany
transactions and balances have been eliminated in consolidation.
NOTE 3: ACCOUNTING STANDARD ISSUED BUT NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes new accounting and
reporting standards for derivative financial instruments and for hedging
activities. SFAS No. 133 requires that Southwest recognize all derivatives at
fair value and to recognize them in the statement of financial condition as an
asset or liability, depending on Southwest's rights or obligations under the
applicable derivative contract. In June 1999, the FASB issued SFAS No. 137,
which deferred the effective date of adoption of SFAS No. 133 for one year. SFAS
No. 133 was also amended by SFAS No. 138 in June 2000. Southwest will adopt SFAS
No. 133, as amended, on January 1, 2001, as required. Management of Southwest
believes that adoption of the new method of accounting for derivatives and
hedging activities will not have a material impact on Southwest's consolidated
financial condition or results of operations.
8
<PAGE>
NOTE 4: 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, 2000 December 31, 1999
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $11,190 $10,401
Loans charged-off:
Real estate mortgage 536 307
Real estate construction 952 10
Commercial 708 1,229
Installment and consumer 376 802
-------------------- -------------------
Total charge-offs 2,572 2,348
Recoveries:
Real estate mortgage 130 30
Commercial 246 382
Installment and consumer 126 230
-------------------- -------------------
Total recoveries 502 642
-------------------- -------------------
Net loans charged-off 2,070 1,706
Provision for loan losses 2,725 2,495
-------------------- -------------------
Balance at end of period $11,845 $11,190
==================== ===================
Net charge-offs to total average loans (annualized) 0.31% 0.21%
Allowance for loan losses to total loans 1.30% 1.31%
</TABLE>
Southwest makes provisions for loan losses in amounts necessary to maintain the
allowance for loan losses at the level Southwest deems appropriate. An
appropriate level 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;
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.
In establishing the level of the allowance for September 30, 2000, management
considered a number of factors that indicated a need for the recorded increase
in the allowance level, including: the continued growth in the portfolio; the
increased risk associated with the higher volume of the loan portfolio invested
in commercial and commercial real estate loans, which are viewed as entailing
greater risk than certain other categories of loans; the nonperforming portion
of the portfolio; and charge-off history. Management also considered other
factors, including the relative volumes of the loan portfolio invested in
certain types of credits, such as residential mortgage loans which are deemed to
be of relatively low risk, and therefore require a lower allowance. Southwest
determined the level of the allowance for loan losses at September 30, 2000 was
appropriate as a result of considering these and other factors it deemed
relevant to an appropriate level of the allowance. Management conducted a
similar analysis in order to determine the appropriate allowance as of December
31, 1999.
9
<PAGE>
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
<TABLE>
<CAPTION>
At At
September 30, 2000 December 31, 1999
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans (1) $11,821 $5,205
Past due 90 days or more 249 194
-------------------- -------------------
Total nonperforming loans 12,070 5,399
Other real estate owned 2,168 1,729
-------------------- -------------------
Total nonperforming assets $14,238 $7,128
==================== ===================
Nonperforming loans to loans receivable 1.32% 0.63%
Allowance for loan losses to nonperforming loans 98.14% 207.26%
Nonperforming assets to loans receivable and
other real estate owned 1.55% 0.83%
</TABLE>
(1) The government-guaranteed portion of loans included in these totals was $209
(2000) and $585 (1999).
Management strives to carefully monitor credit quality and an appropriate level
of the allowance for loan losses, and to identify loans that may become
nonperforming. At September 30, 2000, total nonperforming loans were $12.1
million, or 1.32% of total loans, compared to $5.4 million, or 0.63% of total
loans, at December 31, 1999. This increase was primarily the result of the
classification in the second quarter of 2000 of one large credit. See
Management's Discussion and Analysis for additional information. At any time,
there are loans included in the portfolio that will result in losses to
Southwest, 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 may lead to a material increase in charge-
offs and the provision for loan losses in future periods.
NOTE 5: LOANS RECEIVABLE
Southwest extends commercial and consumer credit primarily to customers in the
State of Oklahoma, but its commercial lending operations are concentrated in the
Stillwater, Tulsa, and Oklahoma City areas of the state. As a result, the
collectibility of Southwest's loan portfolio can be affected by changes in the
general economic conditions in the state and in those metropolitan areas. At
September 30, 2000 and December 31, 1999, substantially all of Southwest'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, 2000, loans to individuals and businesses in the healthcare
industry totaled approximately $130.2 million, or 14% of total loans. Southwest
does not have any other concentrations of loans to individuals or businesses
involved in a single industry totaling 5% or more of total loans.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $11.8 million at September 30, 2000. No
interest income was received on those nonaccruing loans during the first nine
months of 2000. If interest on those loans had been accrued, additional total
interest income of $625,500 would have been recorded.
NOTE 6: LONG-TERM DEBT
The guaranteed preferred beneficial interests in Southwest's subordinated
debentures represent interests in 9.30% subordinated debentures ("Subordinated
Debentures"), due July 31, 2027, issued by Southwest to its subsidiary, SBI
Capital, in connection with SBI Capital's Cumulative Trust Preferred Securities
(the "Preferred Securities"). The Subordinated Debentures and related payments
are SBI Capital's only assets.
10
<PAGE>
The Preferred Securities meet the regulatory criteria for Tier I capital,
subject to Federal Reserve guidelines that limit the amount of the Preferred
Securities and cumulative perpetual preferred stock to an aggregate of 25% of
Tier I capital.
NOTE 7: EARNINGS PER SHARE
Basic earnings per share is computed based upon net income divided by the
weighted average number of shares outstanding during each period. Diluted
earnings per share is computed based upon net income divided by the weighted
average number of shares outstanding during each period adjusted for the effect
of dilutive potential shares calculated using the treasury stock method. For the
three and nine month periods ending September 30, 2000, there were 291,000 and
281,000 antidilutive options to purchase common shares, respectively. For both
the three and nine month periods ending September 30, 1999, there were 175,000
antidilutive options to purchase common shares.
The following is a reconciliation of the shares used in the calculations of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding:
Basic earnings per share 3,798,789 4,036,097 3,834,011 3,986,286
Effect of dilutive securities:
Stock options
31,118 78,067 44,704 84,016
------------- ------------- ------------- -------------
Weighted average shares outstanding:
Diluted earnings per share 3,829,907 4,114,164 3,878,715 4,070,302
============= ============= ============= =============
</TABLE>
NOTE 8: SHAREHOLDERS' EQUITY
Share Repurchase Program
In April 1999, Southwest implemented a stock repurchase program covering 204,000
shares, or 5%, of its outstanding common stock. The program was completed by the
end of 1999 with Southwest purchasing 204,000 shares at an average price of
$22.05 per share, which reduced shareholders' equity by $4.5 million. In
December 1999, Southwest authorized the repurchase of an additional 5% of its
current outstanding common stock. During the first nine months of 2000,
Southwest purchased another 102,500 shares at an average price of $17.33 per
share, which reduced shareholders' equity by $1.8 million. Repurchases may be
made from time to time based on market conditions and other factors. In making a
decision regarding future repurchases, management balances the potential
advantages to shareholders of such repurchases versus the reduction in equity
needed to support potential asset and income growth that would result from the
repurchases.
Shareholder Rights Plan
On April 22, 1999, Southwest adopted a Rights Plan designed to protect its
shareholders against acquisitions that the Board of Directors believes are
unfair or otherwise not in the best interests of Southwest and its shareholders.
Under the Rights Plan, each holder of record of Southwest's common stock, as of
the close of business on April 22, 1999, received one right per common share.
The rights generally become exercisable if an acquiring party accumulates, or
announces an offer to acquire, 10% or more of Southwest's voting stock. The
rights will expire on April 22, 2009. Each right will entitle the holder (other
than the acquiring party) to buy, at the right's then current exercise price,
Southwest's common stock or equivalent securities having a value of twice the
right's exercise price. The exercise price of each right was initially set at
$110.00. In addition, upon the occurrence of certain events, holders of the
rights would be entitled to purchase, at the then current exercise price, common
stock or equivalent securities of an acquiring entity worth twice the exercise
price. Under the Rights Plan, Southwest also may exchange each right, other than
rights owned by an acquiring party, for a share of its common stock or
equivalent securities.
11
<PAGE>
NOTE 9: SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
For the nine months ended September 30,
------------------------------------------
2000 1999
------------------------------------------
(dollars in thousands)
<S> <C> <C>
Loans transferred to other real estate owned 2,319 29
Other comprehensive income (loss), net of tax 573 (925)
</TABLE>
* * * * * * *
SOUTHWEST BANCORP, INC.
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months ended September 30,
2000 1999
----------------------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Loans receivable $ 894,896 9.11% $ 804,170 8.56%
Investment securities 219,570 6.14 180,978 5.90
Other interest-earning assets 2,829 6.14 1,495 4.92
------------ ----------
Total interest-earning assets 1,117,295 8.52 986,643 8.06
Noninterest-earning assets 52,891 50,133
------------ ----------
Total assets $1,170,186 $1,036,776
============ ==========
Liabilities and shareholders' equity:
Interest-bearing demand $ 48,288 2.58% $ 45,797 1.86%
Money market accounts 93,011 4.62 96,364 3.66
Savings accounts 4,628 1.99 3,642 1.98
Time deposits 654,250 5.83 578,111 5.08
------------ ----------
Total interest-bearing deposits 800,177 5.47 723,914 4.67
Short-term borrowings 158,685 6.02 109,998 4.87
Long-term debt 25,013 9.30 25,013 9.30
------------ -----------
Total interest-bearing liabilities 983,875 5.66 858,925 4.83
Noninterest-bearing demand 104,493 99,727
Other noninterest-bearing liabilities 14,520 14,544
Shareholders' equity 67,298 63,580
------------ ----------
Total liabilities and shareholders' equity $1,170,186 $1,036,776
============ ==========
Interest rate spread 2.86% 3.23%
======= ======
Net interest margin (1) 3.54% 3.85%
======= ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.56% 114.87%
============ ==========
</TABLE>
(1) Net interest margin = net interest income / total interest-earning
assets
12
<PAGE>
SOUTHWEST BANCORP, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Forward-Looking Statements. This Management's Discussion and Analysis includes
forward-looking statements, such as: statements of Southwest's goals,
intentions, and expectations; estimates of risks and of future costs and
benefits; assessment of potential loan losses; and statements of Southwest'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; 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, Southwest's past growth and performance do not
necessarily indicate its future results.
You should read this Management's Discussion and Analysis of Southwest's
consolidated financial condition and results of operations in conjunction with
Southwest's unaudited consolidated financial statements and the accompanying
notes.
GENERAL
Southwest Bancorp, Inc. ("Southwest") is a registered bank holding company
headquartered in Stillwater, Oklahoma. Southwest and its subsidiary, the
Stillwater National Bank and Trust Company ("Stillwater National"), are
independent, Oklahoma institutions, and are not controlled by out of state
organizations or individuals.
Southwest offers a broad range of commercial and consumer banking and other
financial services through full service offices in Stillwater, Oklahoma City,
Tulsa and Chickasha, Oklahoma. Southwest devotes substantial efforts to
marketing and providing services to local businesses, their primary employees,
and to other managers and professionals living and working in Southwest's
Oklahoma market areas. Southwest has developed a marketing and delivery system
that uses alternative channels for providing financial services, including
commercial and retail Internet banking and client site service, but does not
rely on an extensive branch network.
Southwest has established and pursued a strategy of independent operation for
the benefit of all of its shareholders, and has capitalized on its position as
an Oklahoma owned and operated banking organization to increase its banking
business. Southwest has grown from $434 million in assets since becoming a
public company at year-end 1993, to $1.204 billion at September 30, 2000,
without acquiring other financial institutions. Southwest considers acquisitions
of other financial institutions and other companies, however, from time to time,
although it does not have any specific agreements or understandings for any such
acquisition at present.
FINANCIAL CONDITION
Total Assets
Southwest's total assets were $1.204 billion at September 30, 2000, a 7%
increase from $1.120 billion at December 31, 1999.
Loans Receivable
Loans were $914.7 million at September 30, 2000, a 7% increase ($61.9 million)
from December 31, 1999. Southwest experienced increases in the categories of
real estate construction loans ($25.0 million, or 29%), commercial loans ($24.3
million, or 8%), commercial real estate mortgages ($7.1 million, or 3%),
residential mortgages ($5.0 million, or 5%), and consumer loans ($456,000, or
1%) and a slight reduction in student loans ($40,000, or less than 1%). The
allowance for loan losses increased by $655,000, or 6%, from December 31, 1999
to September 30, 2000. At September 30, 2000, the allowance for loan losses was
$11.8 million, or 1.30% of total loans, compared to $11.2 million, or 1.31% of
total loans, at December 31, 1999. The increase in total loans from year-end
1999 to September 30, 2000 is the net result of continued growth in new loans,
which is partially offset by payoffs of old credits.
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Deposits
Southwest's deposits increased $63.0 million, or 7%, from $871.2 million at
December 31, 1999 to $934.2 million at September 30, 2000. Increases occurred in
time deposits ($53.6 million, or 9%), demand deposits ($13.8 million, or 13%),
NOW accounts ($1.9 million, or 4%), and savings accounts ($990,000, or 25%).
These increases were offset by a decrease in money market accounts ($7.4
million, or 7%) compared to December 31, 1999.
Shareholders' Equity
Shareholders' equity increased by $5.1 million, or 8%, due primarily to $6.2
million in earnings, net of common stock dividends, for the first nine months of
2000. That increase, as well as a $573,000 increase attributable to a change in
accumulated other comprehensive loss, was partially offset by a $1.7 million
decrease attributable to treasury stock transactions. On September 30, 2000,
Southwest and Stillwater National continued to exceed all applicable regulatory
capital requirements.
RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
Net Income
For the first nine months of 2000, Southwest recorded net income of $7.4
million. This was $230,000 more than the $7.2 million in net income recorded for
the first nine months of 1999. Average shares outstanding were 3,834,011 for the
first nine months of 2000 and 3,986,286 for the first nine months of 1999. Basic
and diluted earnings per share increased by 7% and 8% to $1.94 and $1.92 per
share for the first nine months of 2000 from $1.81 and $1.77 per share for the
same period in 1999, respectively.
Net interest income increased $1.2 million, or 4%, for the first nine months of
2000 compared to the same period in 1999. This increase in net interest income,
as well as a $174,000, or 4%, reduction in taxes on income, was offset by a $1.0
million, or 60%, increase in the provision for loan losses, a $74,000, or less
than 1%, increase in other expense and an $18,000, or less than 1%, reduction in
other income. For the first nine months of 2000, the return on average total
equity was 14.76% compared to a 15.15% return on average total equity for the
first nine months of 1999.
Net Interest Income
Net interest income increased to $29.6 million for the first nine months of 2000
from $28.4 million for the same period in 1999 as the $11.8 million, or 20%,
increase in interest income was only partially offset by a $10.6 million, or
34%, increase in interest expense. Yields on Southwest's interest-earning assets
increased by 46 basis points, and the rates paid on Southwest's interest-bearing
liabilities increased by 83 basis points, resulting in a reduction in the
interest rate spread to 2.86% for the first nine months of 2000 from 3.23% for
the first nine months of 1999. Net interest margin also decreased to 3.54% from
3.85%. The ratio of average interest-earning assets to average interest-bearing
liabilities decreased to 113.56% for the first nine months of 2000 from 114.87%
for the first nine months of 1999.
Total interest income for the first nine months of 2000 was $71.3 million, a 20%
increase from $59.5 million during the same period in 1999. The increase in
total interest income can be attributed to increases in the yields earned on
average interest-earning assets, which increased to 8.52% from 8.06%, and in the
average balances outstanding of interest-earning assets, which increased $130.7
million, or 13%. Southwest's average loans increased $90.7 million, or 11%, and
the related yield increased to 9.11% for the first nine months of 2000 from
8.56% in 1999. During the same period, average investment securities increased
$38.6 million, or 21%, and the related yield increased to 6.14% from 5.90%.
Total interest expense for the first nine months of 2000 was $41.7 million, an
increase of 34% from $31.1 million for the same period in 1999. The increase in
total interest expense can be attributed to increases in the rates paid on
average interest-bearing liabilities, which increased to 5.66% from 4.83%, and
in the average balances outstanding of interest-bearing liabilities, which
increased $125.0 million, or 15%. Rates paid on deposits increased for all
categories.
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Other Income
Other income decreased by $18,000 for the first nine months of 2000 compared to
the same period of 1999. Other income for the first nine months of 1999 included
$840,000 in one-time gains on sales of three former branch locations, which is
reflected in the reduction of other noninterest income of $793,000. This
decrease, as well as a $348,000 reduction in gains on sales of loans and an
$86,000 reduction in gains on sales of securities, was offset by a $1.2 million
increase in service charges and fees. The change in service charges and fees was
primarily due to increased ATM fees as Southwest expanded its ATM network in and
outside of the state of Oklahoma. The reduction in gains on sales of loans was
due primarily to lower originations and subsequent sales of residential mortgage
loans during 2000. During the first nine months of 2000, $39.8 million in
residential mortgage loans were originated and $41.6 million were sold as
compared to $70.7 million originated and $71.8 million sold during the same
period in 1999. The gains on sales of securities in 1999 occurred when
"available for sale" securities were called prior to their stated maturity date.
Other Expenses
Southwest's other expenses increased $74,000 for the first nine months of 2000
compared to the same period in 1999. This increase was primarily the result of a
$635,000 increase in salaries and employee benefits and a $577,000 increase in
occupancy expense. These increases were offset by a $626,000 reduction in
general and administrative expense and a $535,000 reduction in other real estate
expense. The increase in occupancy expense is due primarily to increased
depreciation and maintenance contract costs associated with the expansion of the
ATM network and a payment to cancel a rental agreement for space in Tulsa after
consolidating administrative departments into another office. The reduction in
general and administrative expense was due primarily to a $600,000 payment early
in the second quarter of 1999 to settle pending litigation and $303,000 in
offering expenses paid during the first quarter of 1999 on behalf of the selling
shareholders in Southwest's public offering. The sale of a large other real
estate property during the second quarter 2000 reduced the amount of other real
estate expense during 2000 as compared to 1999.
Provision for Loan Losses
Southwest makes provisions for loan losses in amounts deemed necessary to
maintain the allowance for loan losses at an appropriate level. An appropriate
level of the allowance for loan losses is determined by management. See Note 4,
Allowance for Loan Losses, in the Notes to Unaudited Consolidated Financial
Statements for additional information. At September 30, 2000, total
nonperforming loans were $12.1 million, or 1.32% of total loans, compared to
$5.4 million, or 0.63% of total loans, at December 31, 1999. This increase was
primarily the result of the classification during the second quarter 2000 of one
large credit, originated in 1996, as a nonaccrual loan. Southwest may make one
or more additional loans to facilitate the favorable resolution of the credit.
Management does not expect a loss of principal on this newly classified credit
and believes that revenues from the credit are likely to cover interest,
although delays in payments are expected over the next several months. Southwest
has recorded the credit as a nonaccrual loan, and will record interest income on
a cash basis while the credit remains in this status. Like any other
forward-looking information, management's assessment of this credit, the
likelihood of potential losses from it, and the timing of its resolution are
based upon estimates and assumptions, and are subject to uncertainties, most of
which are beyond Southwest's control.
Taxes on Income
Southwest's income tax expense was $3.8 million for the first nine months of
2000 and $4.0 million for the same period in 1999. Southwest's effective tax
rates have been lower than federal and state statutory rates primarily because
of tax-exempt income on municipal obligations and loans.
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
Net Income
For the third quarter of 2000, Southwest recorded net income of $2.6 million.
This was $65,000 less than the $2.6 million in net income recorded for the third
quarter of 1999. Average shares outstanding were 3,798,789 for the third quarter
of 2000 and 4,036,097 for the third quarter of 1999. Basic and diluted earnings
per share increased to $0.68 and $0.67 per share for the third quarter of 2000
from $0.66 and $0.64 per share for the same period in 1999, respectively.
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Net interest income increased $139,000, or 1%, for the third quarter of 2000
compared to the same period in 1999. This increase in net interest income, as
well as a $161,000, or 11%, reduction in taxes on income and a $66,000, or 1%,
reduction in other expenses, was offset by a $325,000, or 54% increase in the
provision for loan losses and a $106,000, or 4%, reduction in other income. For
the third quarter of 2000, the return on average total equity was 14.70%
compared to a 15.90% return on average total equity for the third quarter of
1999.
Net Interest Income
Net interest income increased to $9.6 million for the third quarter of 2000 from
$9.5 million for the same period in 1999 as the $4.6 million, or 23%, increase
in interest income was only partially offset by a $4.5 million, or 43%, increase
in interest expense. Yields on Southwest's interest-earning assets increased by
64 basis points, and the rates paid on Southwest's interest-bearing liabilities
increased by 116 basis points, resulting in a reduction in the interest rate
spread to 2.64% for the third quarter of 2000 from 3.16% for the third quarter
of 1999. Net interest margin also declined to 3.37% from 3.79%. The ratio of
average interest-earning assets to average interest-bearing liabilities declined
to 113.88% for the third quarter of 2000 from 114.88% for the third quarter of
1999.
Total interest income for the third quarter of 2000 was $24.6 million, a 23%
increase from $20.0 million during the same period in 1999. The increase in
total interest income can be attributed to increases in the yields earned on
average interest-earning assets, which increased to 8.63% from 7.99%, and in the
average balances outstanding of interest-earning assets, which increased $143.4
million, or 14%. Southwest's average loans increased $115.1 million, or 14%, and
the related yield increased to 9.24% for the third quarter of 2000 from 8.52% in
1999. During the same period, average investment securities increased $24.7
million, or 12%, and the related yield increased to 6.16% from 5.89%.
Total interest expense for the third quarter of 2000 was $15.0 million, an
increase of 43% from $10.5 million for the same period in 1999. The increase in
total interest expense can be attributed to increases in the rates paid on
average interest-bearing liabilities, which increased to 5.99% from 4.83%, and
in the average balances outstanding of interest-bearing liabilities, which
increased $133.5 million, or 15%. Rates paid on deposits increased for all
categories.
Other Income
Other income declined by $106,000 for the third quarter of 2000 compared to the
same period of 1999 primarily as a result of a $452,000 reduction in other
noninterest income and a $43,000 reduction in gains on sales of loans. These
reductions were partially offset by a $390,000 increase in service charges and
fees. Other noninterest income for the third quarter of 1999 included $429,000
in one-time gains on the sales of two former branch locations. The change in
service charges and fees was primarily due to increased ATM fees as Southwest
expanded its ATM network in and outside of the state of Oklahoma. The gains on
sales of securities in 1999 occurred when "available for sale" securities were
called prior to their stated maturity date.
Other Expenses
Southwest's other expenses declined $66,000 for the third quarter of 2000
compared to the same period in 1999. This reduction was primarily the result of
a $571,000 reduction in other real estate expense. This reduction was partially
offset by a $359,000 increase in salaries and employee benefits and a $111,000
increase in occupancy expense.
Taxes on Income
Southwest's income tax expense was $1.3 million for the third quarter of 2000
and $1.5 million for the same period in 1999. Southwest's effective tax rates
have been lower than federal and state statutory rates primarily because of
tax-exempt income on municipal obligations and loans.
* * * * * * *
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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 and available for sale investments.
Southwest's portfolio of government-guaranteed student loans and Small Business
Administration 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 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.
Southwest has available 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 Home Loan Bank of Topeka ("FHLB"), the F&M Bank of Tulsa
("F&M"), the Federal Reserve Bank, and the Student Loan Marketing Association
("SLMA"). Southwest has available a $5.0 million line of credit from F&M,
$222,500 of which was outstanding at September 30, 2000. Stillwater National
carries interest-bearing demand notes issued by the U.S. Treasury in connection
with the Treasury Tax and Loan note program; the outstanding balance of those
notes was $2.5 million at September 30, 2000. Stillwater National has approved
federal funds purchase lines totaling $19.0 million with three other banks; no
amounts were outstanding on these lines at September 30, 2000. In addition,
Stillwater National has available a $152.9 million line of credit from the FHLB
and a $35.0 million line of credit from the SLMA. The FHLB line of credit had an
outstanding balance of $101.8 million at September 30, 2000. The SLMA line
expires April 20, 2007; no amount was outstanding on this line at September 30,
2000. Borrowings under the FHLB line are collateralized by all unpledged
securities and other loans. Borrowings under the SLMA line would be
collateralized by student loans. Stillwater National 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, Salomon Smith Barney, PaineWebber, Inc., and CountryWide Securities
that total $415.0 million. Four of these lines of credit had balances included
in total deposits of $145.6 million.
Stillwater National sells securities under agreements to repurchase with
Stillwater National retaining custody of the collateral. Collateral consists of
direct obligations of the U.S. Government or U.S. Government Agency issues,
which are designated as pledged with Stillwater National's safekeeping agent.
The type of collateral required, and the retention of the collateral and the
security sold minimize Stillwater National's risk of exposure to loss. These
transactions are for one-to-four day periods.
During the first nine months of 2000, the only categories of short-term
borrowings whose averages exceeded 30% of ending shareholders' equity were
repurchase agreements and funds borrowed from the FHLB.
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
------------------------------- --------------------------------
Repurchase Funds Borrowed Repurchase Funds Borrowed
Agreements from the FHLB Agreements from the FHLB
------------------------------- --------------------------------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Amount outstanding at end of period $59,766 $101,769 $40,516 $100,000
Weighted average rate paid at end of period 5.72% 6.52% 4.61% 5.33%
Average Balance:
For the three months ended $55,558 $106,878 $34,629 $86,242
For the nine months ended $50,733 $106,094 $37,037 $66,460
Average Rate Paid:
For the three months ended 5.74% 6.55% 4.50% 5.26%
For the nine months ended 5.54% 6.25% 4.41% 5.11%
Maximum amount outstanding at any month end $59,766 $127,850 $41,238 $111,600
</TABLE>
During the first nine months of 2000, cash and cash equivalents increased by
$4.9 million. This increase was the net result of cash provided from financing
activities of $72.4 million (primarily from increases in deposits and short-term
borrowings) and cash provided from operating activities of $11.5 million offset
in part by cash used in net loan origination and other investing activities of
$79.0 million.
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During the first nine months of 1999, cash and cash equivalents decreased by
$9.7 million. This decline was the result of cash used in net loan origination
and other investing activities of $52.6 million which was not entirely offset by
cash provided from financing activities of $35.1 million (primarily from an
increase in short-term borrowings) and $7.8 million in cash provided from
operating activities.
CAPITAL RESOURCES
In the first nine months of 2000, total shareholders' equity increased $5.1
million, or 8%, as a result of earnings, offset in part by dividends, an
increase in accumulated other comprehensive loss and the purchase of treasury
stock. Earnings, net of common stock dividends, contributed $6.2 million to
shareholders' equity during this nine month period. The sale or issuance of
common stock through the dividend reinvestment plan, the employee stock purchase
plan and the employee stock option plan contributed an additional $84,000 to
shareholders' equity in the first nine months of 2000. Accumulated other
comprehensive loss decreased to $1.1 million at September 30, 2000 compared to
$1.7 million at December 31, 1999. Treasury stock purchases totaled $1.8 million
during the first nine months of 2000.
Bank holding companies are required to maintain capital ratios in accordance
with guidelines adopted by the Federal Reserve Board ("FRB"). The guidelines are
commonly known as Risk-Based Capital Guidelines. On September 30, 2000,
Southwest exceeded all applicable capital requirements, having a total
risk-based capital ratio of 11.31%, a Tier I risk-based capital ratio of 9.90%,
and a leverage ratio of 7.87%. As of September 30, 2000, Stillwater National
also met the criteria for categorization as a "well-capitalized" institution
under the prompt corrective action rules promulgated under the Federal Deposit
Insurance Act. Designation of the bank as a "well-capitalized" institution under
these regulations does not constitute a recommendation or endorsement of
Stillwater National by Federal bank regulators.
Southwest declared a dividend of $.11 per common share payable on October 2,
2000 to shareholders of record as of September 18, 2000.
EFFECTS OF INFLATION
The unaudited consolidated financial statements and related unaudited
consolidated financial data presented herein have been prepared in accordance
with accounting principles generally accepted in the United States of America
and practices within the banking industry which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
* * * * * * *
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management has determined that no additional disclosures are necessary to assess
changes in information about market risk that have occurred since December 31,
1999.
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PART II. OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
On August 31, 2000, Southwest filed a Form 8-K reporting,
in Item 4., a change in Southwest's certifying accountant
from Deloitte & Touche LLP to Ernst & Young LLP.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST BANCORP, INC.
(Registrant)
By: /s/ Rick J. Green November 14, 2000
-------------------------------------------- ------------------
Rick J. Green Date
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kerby E. Crowell November 14, 2000
-------------------------------------------- ------------------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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