<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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.
3,846,191
---------
1 of 19
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SOUTHWEST BANCORP, INC.
INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at
March 31, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 5
Unaudited Consolidated Statements of Shareholders' Equity
for the three months ended March 31, 2000 and 1999 6
Unaudited Consolidated Statements of Comprehensive Income
for the three months ended March 31, 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 17
PART II. OTHER INFORMATION 18
SIGNATURES 19
2
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 23,715 $ 26,340
Investment securities:
Held to maturity, fair value $67,730 (2000) and $71,087 (1999) 68,789 71,814
Available for sale, amortized cost $144,008 (2000) and $134,223 (1999) 140,639 131,379
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 8,584 8,489
Loans receivable, net of allowance for loan losses
of $11,299 (2000) and $11,190 (1999) 877,633 841,618
Accrued interest receivable 12,413 9,413
Premises and equipment, net 20,938 20,800
Other assets 10,050 10,567
----------- -----------
Total assets $ 1,162,761 $ 1,120,420
=========== ===========
Liabilities & shareholders' equity
Deposits:
Noninterest-bearing demand $ 110,994 $ 109,754
Interest-bearing demand 47,957 44,782
Money market accounts 93,695 101,302
Savings accounts 4,666 3,984
Time deposits 658,155 611,413
----------- -----------
Total deposits 915,467 871,235
----------- -----------
Income taxes payable 1,168 --
Accrued interest payable 6,879 6,004
Other liabilities 3,219 2,094
Short-term borrowings 145,623 151,820
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
----------- -----------
Total liabilities 1,097,369 1,056,166
----------- -----------
Commitments and contingencies -- --
Shareholders' equity:
Common stock - $1 par value; 20,000,000 shares authorized;
4,081,056 shares issued 4,081 4,081
Capital surplus 14,842 14,855
Retained earnings 53,407 51,385
Accumulated other comprehensive income (loss) (2,021) (1,708)
Treasury stock, at cost; 225,807 (2000) and 197,931 (1999) shares (4,917) (4,359)
----------- -----------
Total shareholders' equity 65,392 64,254
----------- -----------
Total liabilities & shareholders' equity $ 1,162,761 $ 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)
For the three months
ended March 31,
2000 1999
-------- --------
Interest income:
Interest and fees on loans $19,568 $17,258
Investment securities:
U.S. Government and agency obligations 1,668 1,832
Mortgage-backed securities 1,060 448
State and political subdivisions 327 156
Other securities 189 118
Federal funds sold 39 4
-------- --------
Total interest income 22,851 19,816
Interest expense:
Interest-bearing demand 278 214
Money market accounts 1,044 860
Savings accounts 22 17
Time deposits 8,740 7,509
Short-term borrowings 2,191 1,194
Long-term debt 582 582
-------- --------
Total interest expense 12,857 10,376
-------- --------
Net interest income 9,994 9,440
Provision for loan losses 825 675
-------- --------
Net interest income after provision for loan losses 9,169 8,765
Other income:
Service charges and fees 1,429 998
Other noninterest income 114 83
Gain on sales of loans receivable 453 606
Gain on sales of investment securities -- 81
-------- --------
Total other income 1,996 1,768
Other expenses:
Salaries and employee benefits 3,566 3,359
Occupancy 1,579 1,472
FDIC and other insurance 66 60
Other real estate 317 232
General and administrative 1,904 2,123
-------- --------
Total other expenses 7,432 7,246
-------- --------
Income before taxes 3,733 3,287
Taxes on income 1,287 1,177
-------- --------
Net income $ 2,446 $ 2,110
======== ========
Basic earnings per share $ 0.63 $ 0.55
======== ========
Diluted earnings per share $ 0.62 $ 0.54
======== ========
See notes to unaudited consolidated financial statements
4
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SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the three months
ended March 31,
2000 1999
-------- --------
Operating activities:
Net income $ 2,446 $ 2,110
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 825 675
Depreciation and amortization expense 620 653
Amortization of premiums and accretion of
discount on securities, net 15 75
Amortization of intangibles 47 67
(Gain) Loss on sales/calls of securities -- (81)
(Gain) Loss on sales of loans receivable (453) (606)
(Gain) Loss on sales of premises and equipment (4) --
(Gain) Loss on other real estate owned, net 258 150
Proceeds from sales of residential mortgage loans 12,622 26,298
Residential mortgage loans originated for resale (12,640) (27,202)
Changes in assets and liabilities:
Accrued interest receivable (3,000) (635)
Other assets 726 (113)
Income taxes payable 1,168 1,034
Accrued interest payable 875 (14)
Other liabilities 1,089 (189)
-------- --------
Net cash (used in) provided from operating activities 4,594 2,222
-------- --------
Investing activities:
Proceeds from sales/calls of available for sale securities 1,000 7,419
Proceeds from principal repayments and maturities:
Held to maturity securities 8,200 4,001
Available for sale securities 1,620 3,217
Purchases of held to maturity securities (5,190) (1,960)
Purchases of available for sale securities (12,403) (9,952)
Purchases of Federal Reserve Bank and Federal Home Loan
Bank stock (95) (711)
Loans originated and principal repayments, net (43,930) (31,627)
Proceeds from sales of guaranteed student loans 7,236 12,756
Purchases of premises and equipment (779) (1,665)
Proceeds from sales of premises and equipment 25 --
Proceeds from sales of other real estate owned 21 --
-------- --------
Net cash (used in) provided from investing activities (44,295) (18,522)
-------- --------
Financing activities:
Net increase (decrease) in deposits 44,232 1,359
Net increase (decrease) in short-term borrowings (6,197) (204)
Net proceeds from issuance of common stock 35 5,896
Purchases of treasury stock (606) --
Dividends paid (388) (342)
-------- --------
Net cash (used in) provided from financing activities 37,076 6,709
-------- --------
Net increase (decrease) in cash and cash equivalents (2,625) (9,591)
Cash and cash equivalents,
Beginning of period 26,340 32,339
-------- --------
End of period $ 23,715 $ 22,748
======== ========
See notes to unaudited consolidated financial statements.
5
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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 declared:
Common, $0.10 per share - - - (408) - - (408)
Common stock issued:
Employee Stock Option Plan 30,000 30 353 - - - 383
Employee Stock Purchase Plan 608 1 14 - - - 15
Dividend Reinvestment Plan 323 - 8 - - - 8
Public Offering 250,000 250 5,240 - - - 5,490
Other comprehensive income
(loss), net of tax - - - - (230) - (230)
Net income - - - 2,110 - - 2,110
------------------------------------------------------------------------------------------------
Balance, March 31, 1999 4,079,996 $ 4,080 $ 14,984 $ 45,822 $ 283 - $ 65,169
================================================================================================
Balance, January 1, 2000 4,081,056 $ 4,081 $ 14,855 $ 51,385 $ (1,708) (4,359) $ 64,254
Cash dividends declared:
Common, $0.11 per share - - - (424) - - (424)
Common stock issued:
Employee Stock Option Plan - - (10) - - 23 13
Employee Stock Purchase Plan - - (2) - - 15 13
Dividend Reinvestment Plan - - (1) - - 10 9
Other comprehensive income
(loss), net of tax - - - - (313) - (313)
Treasury shares purchased - - - - - (606) (606)
Net income - - - 2,446 - - 2,446
------------------------------------------------------------------------------------------------
Balance, March 31, 2000 4,081,056 $ 4,081 $ 14,842 $ 53,407 $ (2,021) $ (4,917) $ 65,392
================================================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
For the three months
ended March 31,
2000 1999
-------- --------
Net income $ 2,446 $ 2,110
Other comprehensive income (loss)
Unrealized holding gain (loss) on available
for sale securities (525) (305)
Reclassification adjustment for (gains) losses
arising during the period - (81)
-------- --------
Other comprehensive income (loss), before tax (525) (386)
Tax(expense) benefit related to items
of other comprehensive income (loss) 212 156
-------- --------
Other comprehensive income (loss), net of tax (313) (230)
-------- --------
Comprehensive income $ 2,133 $ 1,880
======== ========
See notes to unaudited consolidated financial statements.
7
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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. The results of operations and cash flows for
the three months ended March 31, 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.
Southwest will adopt SFAS No. 133 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.
For the three For the
months ended year ended
March 31, 2000 December 31, 1999
--------------- -----------------
(Dollars in thousands)
Balance at beginning of period $ 11,190 $ 10,401
Loans charged-off:
Real estate mortgage 338 307
Real estate construction 118 10
Commercial 250 1,229
Installment and consumer 98 802
--------------- -----------------
Total charge-offs 804 2,348
Recoveries:
Real estate mortgage 7 30
Commercial 39 382
Installment and consumer 42 230
--------------- -----------------
Total recoveries 88 642
--------------- -----------------
Net loans charged-off 716 1,706
Provision for loan losses 825 2,495
--------------- -----------------
Balance at end of period $ 11,299 $ 11,190
=============== =================
Loans outstanding:
Average $879,678 $808,142
End of period 888,932 852,808
Net charge-offs to total average loans (annualized) 0.33% 0.21%
Allowance for loan losses to total loans 1.27% 1.31%
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
At At
March 31, 2000 December 31, 1999
-------------- -----------------
(Dollars in thousands)
Nonaccrual loans (1) $5,119 $5,205
Past due 90 days or more 19 194
-------------- -----------------
Total nonperforming loans 5,138 5,399
Other real estate owned 1,775 1,729
-------------- -----------------
Total nonperforming assets $6,913 $7,128
============== =================
Nonperforming loans to loans receivable 0.58% 0.63%
Allowance for loan losses to nonperforming
loans 219.91% 207.26%
Nonperforming assets to loans receivable and
other real estate owned 0.78% 0.83%
(1) The government-guaranteed portion of loans included in these totals was
$610 (2000) and $585 (1999).
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.
9
<PAGE>
In establishing the level of the allowance for March 31, 2000, management
considered a number of factors that tended to indicate a potential need for an
increased allowance level, including: the continued growth in the portfolio; the
increased risk associated with the level of commercial and commercial real
estate loans, which are viewed as entailing greater risk than certain other
categories of loans; and charge-off history. Management also considered other
factors, including the levels of types of credits, such as residential mortgage
loans, deemed to be of relatively low risk, that tended to indicate the
potential need for a lower allowance. Southwest determined the level of the
allowance for loan losses at March 31, 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.
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 March 31, 2000, total nonperforming loans were $5.1 million,
or 0.58% of total loans, compared to $5.4 million, or 0.63% of total loans, at
December 31, 1999. At any time, however, 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
March 31, 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 March 31, 2000, loans to individuals and businesses in the healthcare
industry totaled approximately $122.0 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 $5.1 million at March 31, 2000. During the
first three months of 2000, $5,700 in interest income was received on
nonaccruing loans. If interest on those loans had been accrued, additional total
interest income of $151,500 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.
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. At
March 31, 2000, there were 283,000 antidilutive options to purchase common
shares. At March 31, 1999, there were 180,000 antidilutive options to purchase
shares.
The following is a reconciliation of the shares used in the calculations of
basic and diluted earnings per share:
10
<PAGE>
For the three months
ended March 31,
2000 1999
--------- ---------
Weighted average shares outstanding:
Basic earnings per share 3,866,190 3,843,223
Effect of dilutive securities:
Stock options 59,485 97,994
--------- ---------
Weighted average shares outstanding:
Diluted earnings per share 3,925,675 3,941,217
========= =========
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 $4.5 million. In December
1999, Southwest authorized the repurchase of an additional 5% of its current
outstanding common stock. As of March 31, 2000, Southwest had purchased another
30,000 shares at an average price of $20.21 per share, which reduced
shareholders' equity $606,250 during the first quarter of 2000. Repurchases may
be made from time to time based on market conditions and other factors.
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>
SOUTHWEST BANCORP, INC.
AVERAGEBALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended March 31,
2000 1999
-----------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
-----------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Loans receivable $ 879,678 8.95% $ 813,913 8.60%
Investment securities 215,268 6.05 173,019 5.97
Other interest-earning assets 3,234 5.60 1,027 3.95
------------ ------------
Total interest-earning assets 1,098,180 8.37 987,959 8.13
Noninterest-earning assets 52,680 48,780
------------ ------------
Total assets $1,150,860 $1,036,739
============ ============
Liabilities and shareholders' equity:
Interest-bearing demand $ 47,605 2.35% $ 45,403 1.91%
Money market accounts 97,958 4.29 97,043 3.59
Savings accounts 4,323 2.05 3,528 1.95
Time deposits 640,008 5.49 588,091 5.18
------------ ------------
Total interest-bearing deposits 789,894 5.13 734,065 4.75
Short-term borrowings 154,570 5.70 102,790 4.71
Long-term debt 25,013 9.30 25,013 9.30
------------ ------------
Total interest-bearing liabilities 969,477 5.33 861,868 4.88
Noninterest-bearing demand 101,246 99,063
Other noninterest-bearing liabilities 15,671 16,530
Shareholders' equity 64,466 59,278
------------ ------------
Total liabilities and shareholders' equity $1,150,860 $1,036,739
============ ============
Interest rate spread 3.04% 3.25%
======= ========
Net interest margin (1) 3.66% 3.88%
======= ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.28% 114.63%
============ ============
</TABLE>
(1) Net interest margin = net interest income / total interest-earning assets
SOUTHWEST BANCORP, INC.
12
<PAGE>
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; 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; statements by suppliers of data processing equipment and services
and government agencies; 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 adapted to historical state branching
limitations by developing a marketing and delivery system that 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 $1.163 billion at March 31, 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 $1.163 billion at March 31, 2000, a 4% increase
from $1.120 billion at December 31, 1999.
Loans Receivable
Loans were $888.9 million at March 31, 2000, a 4% increase ($36.1 million) from
December 31, 1999. Southwest experienced increases in the categories of
commercial loans ($13.2 million, or 4%), commercial real estate mortgages ($12.5
million, or 5%), real estate construction loans ($9.0 million, or 11%),
residential mortgages ($1.0 million, or 1%) and student loans ($443,000, or 1%).
The allowance for loan losses increased by $109,000, or 1%, from December 31,
1999 to March 31, 2000. At March 31, 2000, the allowance for loan losses was
$11.3 million, or 1.27% 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 March 31, 2000 is the net result of growth from loan originations and
payoffs.
13
<PAGE>
Deposits
Southwest's deposits increased $44.2 million, or 5%, from $871.2 million at
December 31, 1999 to $915.5 million at March 31, 2000. Increases occurred in
time deposits ($46.7 million, or 8%), NOW accounts ($3.2 million, or 7%), demand
deposits ($1.2 million, or 1%) and savings accounts ($682,000, or 17%). These
increases were offset by a decrease in money market accounts ($7.6 million, or
8%) compared to December 31, 1999.
Shareholders' Equity
Shareholders' equity increased by $1.1 million, or 2%, due primarily to
earnings, net of common stock dividends, for the first three months of 2000.
This increase was offset by a $313,000 decrease attributable to a change in the
net unrealized gains on investment securities available for sale (net of tax)
and a $606,000 decrease attributable to the purchase of treasury stock. On March
31, 2000, Southwest and Stillwater National continued to exceed all applicable
regulatory capital requirements.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
Net Income
For the first quarter of 2000, Southwest recorded net income of $2.4 million.
This was $336,000 more than the $2.1 million in net income recorded for the
first quarter of 1999. Average shares outstanding were 3,866,190 for the first
quarter of 2000 and 3,843,223 for the first quarter of 1999. Basic and diluted
earnings per share increased to $0.63 and $0.62 per share for the first quarter
of 2000 from $0.55 and $0.54 per share for the same period in 1999,
respectively.
Net interest income increased $554,000, or 6%, for the first quarter of 2000
compared to the same period in 1999. This increase in net interest income, as
well as a $228,000, or 13%, increase in other income, was offset by a $186,000,
or 3%, increase in other expense, a $150,000, or 22%, increase in the provision
for loan losses and a $110,000, or 9%, increase in taxes on income. For the
first quarter of 2000, the return on average total equity was 15.26% compared to
a 14.44% return on average total equity for the first quarter of 1999.
Net Interest Income
Net interest income increased to $10.0 million for the first quarter of 2000
from $9.4 million for the same period in 1999 as the $3.0 million, or 15%,
increase in interest income was only partially offset by a $2.4 million, or 24%,
increase in interest expense. Yields on Southwest's interest-earning assets
increased by 24 basis points, and the rates paid on Southwest's interest-bearing
liabilities increased by 45 basis points, resulting in a reduction in the
interest rate spread to 3.04% for the first quarter of 2000 from 3.25% for the
first quarter of 1999. Net interest margin also declined from 3.88% to 3.66%.
The ratio of average interest-earning assets to average interest-bearing
liabilities declined to 113.28% for the first quarter of 2000 from 114.63% for
the first quarter of 1999, primarily due to the increase in short-term
borrowings.
Total interest income for the first quarter of 2000 was $22.9 million, a 15%
increase from $19.8 million during the same period in 1999. The principal factor
in the increase of interest income was the $110.2 million increase in average
interest-earning assets. Southwest's average loans increased $65.8 million, or
8%, and the related yield increased to 8.95% for the first quarter of 2000 from
8.60% in 1999. During the same period, average investment securities increased
$42.2 million, or 24%, and the related yield increased to 6.05% from 5.97%.
Total interest expense for the first quarter of 2000 was $12.9 million, an
increase of 24% from $10.4 million for the same period in 1999. The increase in
total interest expense can be attributed to an increase in the rates paid on
average interest-bearing liabilities, which increased to 5.33% from 4.88%.
During the same period, average interest-bearing liabilities increased $107.6
million, or 12%. Rates paid on deposits increased for all categories.
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Other Income
Other income increased by $228,000 for the first quarter of 2000 compared to the
same period of 1999 primarily as a result of a $431,000 increase in service
charges and fees. Other noninterest income also increased $31,000. These
increases were offset by a $153,000 reduction in gains on sales of loans and an
$81,000 reduction in gains on sales of securities. 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. Southwest operated 216 ATM
machines in nine states at March 31, 2000 compared to 136 machines in seven
states at March 31, 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 $186,000 for the first quarter of 2000
compared to the same period in 1999. This increase was primarily the result of a
$207,000 increase in salaries and employee benefits, a $107,000 increase in
occupancy expense, and an $85,000 increase in other real estate expense. These
increases were offset by a $219,000 reduction in general and administrative
expense. During the first quarter of 1999, $303,000 in offering expenses paid on
behalf of the selling shareholders in Southwest's public offering increased
other expenses, which was the primary factor in the reduction of general and
administrative expense from the first quarter of 1999 to the first quarter of
2000.
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.
Taxes on Income
Southwest's income tax expense was $1.3 million for the first three months of
2000 and $1.2 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.
* * * * * * *
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. Southwest'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 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 Federal Reserve Bank,
and the Student Loan Marketing Association ("SLMA"). Stillwater National carries
interest-bearing demand notes issued by the U.S. Treasury in connection with the
Treasury Tax and Loan note program. Stillwater National has approved federal
funds purchase lines totaling $19.0 million with three other banks. In addition,
Stillwater National has available a $153.6 million line of credit from the FHLB
and a $35.0 million line of credit from the SLMA. Borrowings under the FHLB line
would be 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 and Salomon Smith Barney that total
$260.0 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
15
<PAGE>
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 three 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>
March 31, 2000 March 31, 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 $ 52,352 $ 92,300 $ 37,301 $ 55,350
Weighted average rate paid at end of period 5.33% 5.98% 4.36% 4.90%
Average Balance:
For the three months ended $ 42,838 $110,004 $ 38,906 $ 56,077
Average Rate Paid:
For the three months ended 5.21% 5.90% 4.37% 4.91%
Maximum amount outstanding at any month end $ 52,905 $127,850 $ 40,335 $ 73,000
</TABLE>
During the first three months of 2000, cash and cash equivalents decreased by
$2.6 million. This decline was the net result of cash used in investing
activities of $44.3 million offset in part by cash provided from financing
activities of $37.1 million (primarily from the increase in deposits) and cash
provided from operating activities of $4.6 million.
During the first three months of 1999, cash and cash equivalents decreased by
$9.6 million. This decline was the net result of cash used in investing
activities of $18.5 million offset in part by cash provided from financing
activities of $6.7 million (primarily from the issuance of common stock) and
cash provided from operating activities of $2.2 million.
CAPITAL RESOURCES
In the first three months of 2000, total shareholders' equity increased $1.1
million, or 2%, as a result of earnings, offset in part by dividends, a decrease
in net unrealized gains (losses) on investment securities and the purchase of
treasury stock. Earnings, net of common stock dividends, contributed $2.0
million to shareholders' equity during this three 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
$35,000 to shareholders' equity in the first three months of 2000. Net
unrealized gains (losses) on investment securities available for sale (net of
tax) decreased to $(2.0) million at March 31, 2000 compared to $(1.7) million at
December 31, 1999. Treasury stock purchases totaled $606,000 during the quarter.
Bank holding companies are required to maintain capital ratios in accordance
with guidelines adopted by the Federal Reserve Board ("FRB"). The guidelines are
commonly known as Risk-Based Capital Guidelines. On March 31, 2000, Southwest
exceeded all applicable capital requirements, having a total risk-based capital
ratio of 11.06%, a Tier I risk-based capital ratio of 9.58%, and a leverage
ratio of 7.79%. As of March 31, 2000, Stillwater National 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 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 April 3, 2000
to shareholders of record as of March 20, 2000.
16
<PAGE>
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.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
Description of Common Stock
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
18
<PAGE>
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 May 10, 2000
----------------------------------------- ----------------------------
Rick J. Green Date
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kerby E. Crowell May 10, 2000
----------------------------------------- ----------------------------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,194
<INT-BEARING-DEPOSITS> 1,521
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,223
<INVESTMENTS-CARRYING> 68,789
<INVESTMENTS-MARKET> 67,730
<LOANS> 888,932
<ALLOWANCE> 11,229
<TOTAL-ASSETS> 1,162,761
<DEPOSITS> 915,467
<SHORT-TERM> 145,623
<LIABILITIES-OTHER> 11,266
<LONG-TERM> 25,013
0
0
<COMMON> 4,081
<OTHER-SE> 61,311
<TOTAL-LIABILITIES-AND-EQUITY> 1,162,761
<INTEREST-LOAN> 19,568
<INTEREST-INVEST> 3,244
<INTEREST-OTHER> 39
<INTEREST-TOTAL> 22,851
<INTEREST-DEPOSIT> 10,084
<INTEREST-EXPENSE> 12,857
<INTEREST-INCOME-NET> 9,994
<LOAN-LOSSES> 825
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,432
<INCOME-PRETAX> 3,733
<INCOME-PRE-EXTRAORDINARY> 3,733
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,446
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 3.66
<LOANS-NON> 5,119
<LOANS-PAST> 19
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 33,353
<ALLOWANCE-OPEN> 11,190
<CHARGE-OFFS> 804
<RECOVERIES> 88
<ALLOWANCE-CLOSE> 11,299
<ALLOWANCE-DOMESTIC> 11,299
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,182
</TABLE>
