<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
June 30, 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.
3,805,157
---------
<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
June 30, 2000 and December 31, 1999 3
Unaudited Consolidated Statements of Operations for the
six months ended June 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 5
Unaudited Consolidated Statements of Shareholders' Equity
for the six months ended June 30, 2000 and 1999 6
Unaudited Consolidated Statements of Comprehensive Income
for the six months ended June 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>
June 30, December 31,
2000 1999
-------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 29,816 $ 26,340
Investment securities:
Held to maturity, fair value $68,143 (2000) and $71,087 (1999) 69,094 71,814
Available for sale, amortized cost $147,977 (2000) and $134,223 (1999) 144,698 131,379
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 8,585 8,489
Loans receivable, net of allowance for loan losses
of $11,613 (2000) and $11,190 (1999) 891,566 841,618
Accrued interest receivable 11,124 9,413
Premises and equipment, net 20,690 20,800
Other assets 9,775 10,567
-------------- -------------
Total assets $1,185,348 $1,120,420
============== =============
Liabilities & shareholders' equity
Deposits:
Noninterest-bearing demand $ 115,559 $ 109,754
Interest-bearing demand 53,506 44,782
Money market accounts 89,189 101,302
Savings accounts 4,676 3,984
Time deposits 642,562 611,413
-------------- -------------
Total deposits 905,492 871,235
-------------- -------------
Income taxes payable -- --
Accrued interest payable 7,168 6,004
Other liabilities 3,073 2,094
Short-term borrowings 177,850 151,820
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
-------------- -------------
Total liabilities 1,118,596 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 14,834 14,855
Retained earnings 55,400 51,385
Accumulated other comprehensive loss (1,968) (1,708)
Treasury stock, at cost; 266,900 (2000) and 197,931 (1999) shares (5,595) (4,359)
-------------- -------------
Total shareholders' equity 66,752 64,254
-------------- -------------
Total liabilities & shareholders' equity $1,185,348 $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 six months
ended June 30, ended June 30,
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $20,329 $17,114 $39,897 $34,372
Investment securities:
U.S. Government and agency obligations 1,673 1,747 3,341 3,579
Mortgage-backed securities 1,161 446 2,221 894
State and political subdivisions 366 187 693 343
Other securities 206 131 395 249
Federal funds sold 7 19 46 23
----------- ------------ ----------- ------------
Total interest income 23,742 19,644 46,593 39,460
Interest expense:
Interest-bearing demand 316 205 594 419
Money market accounts 1,040 866 2,084 1,726
Savings accounts 22 18 44 35
Time deposits 9,439 7,301 18,179 14,810
Short-term borrowings 2,367 1,176 4,558 2,370
Long-term debt 581 581 1,163 1,163
----------- ------------ ----------- ------------
Total interest expense 13,765 10,147 26,622 20,523
----------- ------------ ----------- ------------
Net interest income 9,977 9,497 19,971 18,937
Provision for loan losses 975 425 1,800 1,100
----------- ------------ ----------- ------------
Net interest income after provision for loan losses 9,002 9,072 18,171 17,837
Other income:
Service charges and fees 1,508 1,127 2,937 2,125
Other noninterest income 200 565 314 648
Gain on sales of loans receivable 246 398 699 1,004
Gain on sales of investment securities -- 4 -- 85
----------- ------------ ----------- ------------
Total other income 1,954 2,094 3,950 3,862
Other expenses:
Salaries and employee benefits 3,566 3,497 7,132 6,856
Occupancy 1,680 1,321 3,259 2,793
FDIC and other insurance 67 61 133 121
Other real estate 99 148 416 380
General and administrative 1,880 2,311 3,784 4,434
----------- ------------ ----------- ------------
Total other expenses 7,292 7,338 14,724 14,584
----------- ------------ ----------- ------------
Income before taxes 3,664 3,828 7,397 7,115
Taxes on income 1,250 1,373 2,537 2,550
----------- ------------ ----------- ------------
Net income $2,414 $2,455 $4,860 $4,565
=========== ============ =========== ============
Basic earnings per share $ 0.63 $ 0.60 $ 1.26 $ 1.15
=========== ============ =========== ============
Diluted earnings per share $ 0.63 $ 0.59 $ 1.25 $ 1.13
=========== ============ =========== ============
</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 six months
ended June 30,
2000 1999
------------- ------------
<S> <C> <C>
Operating activities:
Net income $ 4,860 $ 4,565
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 1,800 1,100
Depreciation and amortization expense 1,242 1,099
Amortization of premiums and accretion of
discount on securities, net 4 155
Amortization of intangibles 90 141
(Gain) Loss on sales/calls of securities - (85)
(Gain) Loss on sales of loans receivable (699) (1,004)
(Gain) Loss on sales of premises and equipment (4) (409)
(Gain) Loss on other real estate owned, net 214 150
Proceeds from sales of residential mortgage loans 25,081 50,193
Residential mortgage loans originated for resale (23,637) (52,731)
Changes in assets and liabilities:
Accrued interest receivable (1,711) (466)
Other assets (556) (399)
Income taxes payable - (1)
Accrued interest payable 1,164 (329)
Other liabilities 946 312
------------- ------------
Net cash (used in) provided from operating activities 8,794 2,291
------------- ------------
Investing activities:
Proceeds from sales/calls of available for sale securities 1,046 11,415
Proceeds from principal repayments and maturities:
Held to maturity securities 13,400 10,410
Available for sale securities 4,563 4,850
Purchases of held to maturity securities (10,705) (10,310)
Purchases of available for sale securities (19,340) (14,436)
Purchases of Federal Reserve Bank and Federal Home Loan
Bank stock (96) (925)
Loans originated and principal repayments, net (65,929) (8,654)
Proceeds from sales of guaranteed student loans 13,111 17,821
Purchases of premises and equipment (1,176) (2,549)
Proceeds from sales of premises and equipment 48 582
Proceeds from sales of other real estate owned 1,542 -
------------- ------------
Net cash (used in) provided from investing activities (63,536) 8,204
------------- ------------
Financing activities:
Net increase (decrease) in deposits 34,257 (19,975)
Net increase (decrease) in short-term borrowings 26,030 3,662
Net proceeds from issuance of common stock 60 5,844
Purchases of treasury stock (1,317) (337)
Dividends paid (812) (749)
------------- ------------
Net cash (used in) provided from financing activities 58,218 (11,555)
------------- ------------
Net increase (decrease) in cash and cash equivalents 3,476 (1,060)
Cash and cash equivalents,
Beginning of period 26,340 32,339
------------- ------------
End of period $ 29,816 $ 31,279
============= ============
</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 paid:
Common, $0.10 per share - - - (408) - - (408)
Cash dividends declared:
Common, $0.10 per share - - - (406) - - (406)
Common stock issued:
Employee Stock Option Plan 30,000 30 353 - - - 383
Employee Stock Purchase Plan 1,269 1 29 - - - 30
Dividend Reinvestment Plan 722 1 16 - - - 17
Public Offering 250,000 250 5,164 - - - 5,414
Other comprehensive income
(loss), net of tax - - - - (1,119) - (1,119)
Treasury shares purchased - - - - - (337) (337)
Net income - - - 4,565 - - 4,565
----------------------------------------------------------------------------------------
Balance, June 30, 1999 4,081,056 $4,081 $14,931 $47,871 $(606) $(337) $65,940
========================================================================================
Balance, January 1, 2000 4,081,056 $4,081 $14,855 $51,385 $(1,708) (4,359) $64,254
Cash dividends paid:
Common, $0.11 per share - - - (424) - - (424)
Cash dividends declared:
Common, $0.11 per share - - - (421) - - (421)
Common stock issued:
Employee Stock Option Plan - - (10) - - 23 13
Employee Stock Purchase Plan - - (6) - - 31 25
Dividend Reinvestment Plan - - (5) - - 27 22
Other comprehensive income
(loss), net of tax - - - - (260) - (260)
Treasury shares purchased - - - - - (1,317) (1,317)
Net income - - - 4,860 - - 4,860
----------------------------------------------------------------------------------------
Balance, June 30, 2000 4,081,056 $4,081 $14,834 $55,400 $(1,968) $(5,595) $66,752
========================================================================================
</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 six months
ended June 30, ended June 30,
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income $2,414 $2,455 $4,860 $4,565
Other comprehensive income (loss)
Unrealized holding gain (loss) on available
for sale securities 90 (1,477) (435) (1,782)
Reclassification adjustment for (gains) losses
arising during the period - (4) - (85)
------------ ----------- ------------ ------------
Other comprehensive income (loss), before tax 90 (1,481) (435) (1,867)
Tax (expense) benefit related to items
of other comprehensive income (loss) (37) 592 175 748
------------ ----------- ------------ ------------
Other comprehensive income (loss), net of tax 53 (889) (260) (1,119)
------------ ----------- ------------ ------------
Comprehensive income $2,467 $1,566 $4,600 $3,446
============ =========== ============ ============
</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. The results of operations and cash flows for
the six months ended June 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.
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 six For the
months ended year ended
June 30, 2000 December 31, 1999
------------- -----------------
(Dollars in thousands)
Balance at beginning of period $11,190 $10,401
Loans charged-off:
Real estate mortgage 438 307
Real estate construction 574 10
Commercial 548 1,229
Installment and consumer 233 802
------------- ---------------
Total charge-offs 1,793 2,348
Recoveries:
Real estate mortgage 123 30
Commercial 202 382
Installment and consumer 91 230
------------- ---------------
Total recoveries 416 642
------------- ---------------
Net loans charged-off 1,377 1,706
Provision for loan losses 1,800 2,495
------------- ---------------
Balance at end of period $11,613 $11,190
============= ===============
Net charge-offs to total average loans
(annualized) 0.31% 0.21%
Allowance for loan losses to total loans 1.29% 1.31%
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 June 30, 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 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, that tended to indicate the potential need for a
lower allowance. Southwest determined the level of the allowance for loan losses
at June 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
June 30, 2000 December 31, 1999
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans (1) $12,716 $5,205
Past due 90 days or more 81 194
------------------ -----------------
Total nonperforming loans 12,797 5,399
Other real estate owned 298 1,729
------------------ -----------------
Total nonperforming assets $13,095 $7,128
================== =================
Nonperforming loans to loans receivable 1.42% 0.63%
Allowance for loan losses to nonperforming loans 90.75% 207.26%
Nonperforming assets to loans receivable and
other real estate owned 1.45% 0.83%
</TABLE>
(1) The government-guaranteed portion of loans included in these totals was
$339 (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 June 30, 2000, total nonperforming loans were $12.8 million,
or 1.42% 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
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
June 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 June 30, 2000, loans to individuals and businesses in the healthcare industry
totaled approximately $119.9 million, or 13% 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 $12.7 million at June 30, 2000. During the
first six 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 $415,900 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. At June
30, 2000, there were 287,000 antidilutive options to purchase common shares. At
June 30, 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:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding:
Basic earnings per share 3,837,442 4,077,420 3,851,816 3,960,968
Effect of dilutive securities:
Stock options 40,262 76,305 50,531 87,066
------------- ------------- ------------- -------------
Weighted average shares outstanding:
Diluted earnings per share 3,877,704 4,153,725 3,902,347 4,048,034
============= ============= ============= =============
</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 $4.5 million. In December
1999, Southwest authorized the repurchase of an additional 5% of its current
outstanding common stock. During the first six months of 2000, Southwest
purchased another 72,500 shares at an average price of $18.16 per share, which
reduced shareholders' equity $1.3 million. Repurchases may be made from time to
time based on market conditions and other factors. In making a decision
regarding future repurchases, management will continue to balance 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
For the six months ended June 30,
----------------------------------
2000 1999
----------------------------------
(dollars in thousands)
Cash paid for interest $25,458 $20,852
Cash paid for taxes on income 2,674 3,292
Loans transferred to other real estate owned 325 -
Other comprehensive loss, net of tax (260) (1,119)
SOUTHWEST BANCORP, INC.
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
2000 1999
------------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Loans receivable $886,790 9.05% $808,417 8.57%
Investment securities 218,207 6.12 172,359 5.90
Other interest-earning assets 1,979 5.79 1,767 4.68
----------------- ----------------
Total interest-earning assets 1,106,976 8.46 982,543 8.10
Noninterest-earning assets 52,710 49,766
----------------- ----------------
Total assets $1,159,686 $1,032,309
================= ================
Liabilities and shareholders' equity:
Interest-bearing demand $48,070 2.48% $45,445 1.86%
Money market accounts 95,194 4.40 96,652 3.60
Savings accounts 4,470 1.98 3,577 1.97
Time deposits 647,456 5.65 584,349 5.11
----------------- ----------------
Total interest-bearing deposits 795,190 5.29 730,023 4.69
Short-term borrowings 155,854 5.88 100,587 4.75
Long-term debt 25,013 9.30 25,013 9.30
----------------- ----------------
Total interest-bearing liabilities 976,057 5.48 855,623 4.84
Noninterest-bearing demand 103,037 99,235
Other noninterest-bearing liabilities 14,499 15,045
Shareholders' equity 66,093 62,406
----------------- ----------------
Total liabilities and shareholders' equity $1,159,686 $1,032,309
================= ================
Interest rate spread 2.98% 3.26%
================ ===============
Net interest margin (1) 3.63% 3.89%
================ ===============
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.41% 114.83%
================= ================
</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 $1.185 billion at June 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 $1.185 billion at June 30, 2000, a 6% increase
from $1.120 billion at December 31, 1999.
Loans Receivable
Loans were $903.2 million at June 30, 2000, a 6% increase ($50.4 million) from
December 31, 1999. Southwest experienced increases in the categories of
commercial loans ($20.3 million, or 7%), real estate construction loans ($15.9
million, or 19%), commercial real estate mortgages ($9.0 million, or 3%),
student loans ($2.3 million, or 3%), residential mortgages ($2.2 million, or
2%), and consumer loans ($591,000, or 2%). The allowance for loan losses
increased by $423,000, or 4%, from December 31, 1999 to June 30, 2000. At June
30, 2000, the allowance for loan losses was $11.6 million, or 1.29% 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 June 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 $34.3 million, or 4%, from $871.2 million at
December 31, 1999 to $905.5 million at June 30, 2000. Increases occurred in time
deposits ($31.1 million, or 5%), NOW accounts ($8.7 million, or 19%), demand
deposits ($5.8 million, or 5%) and savings accounts ($692,000, or 17%). These
increases were offset by a decrease in money market accounts ($12.1 million, or
12%) compared to December 31, 1999.
Shareholders' Equity
Shareholders' equity increased by $2.5 million, or 4%, due primarily to
earnings, net of common stock dividends, for the first six months of 2000. This
increase, as well as a $260,000 increase attributable to a change in accumulated
other comprehensive loss, was partially offset by a $1.2 million decrease
attributable to treasury stock transactions. On June 30, 2000, Southwest and
Stillwater National continued to exceed all applicable regulatory capital
requirements.
RESULTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
Net Income
For the first six months of 2000, Southwest recorded net income of $4.9 million.
This was $295,000 more than the $4.6 million in net income recorded for the
first six months of 1999. Average shares outstanding were 3,851,816 for the
first six months of 2000 and 3,960,968 for the first six months of 1999. Basic
and diluted earnings per share increased by more than 10% to $1.26 and $1.25 per
share for the first six months of 2000 from $1.15 and $1.13 per share for the
same period in 1999, respectively.
Net interest income increased $1.0 million, or 5%, for the first six months of
2000 compared to the same period in 1999. This increase in net interest income,
as well as an $88,000, or 2%, increase in other income and a $13,000, or 1%,
reduction in taxes on income, was offset by a $700,000, or 64%, increase in the
provision for loan losses and a $140,000, or 1%, increase in other expense. For
the first six months of 2000, the return on average total equity was 14.79%
compared to a 14.75% return on average total equity for the first six months of
1999.
Net Interest Income
Net interest income increased to $20.0 million for the first six months of 2000
from $18.9 million for the same period in 1999 as the $7.1 million, or 18%,
increase in interest income was only partially offset by a $6.1 million, or 30%,
increase in interest expense. Yields on Southwest's interest-earning assets
increased by 36 basis points, and the rates paid on Southwest's interest-bearing
liabilities increased by 64 basis points, resulting in a reduction in the
interest rate spread to 2.98% for the first six months of 2000 from 3.26% for
the first six months of 1999. Net interest margin also declined to 3.63% from
3.89%. The ratio of average interest-earning assets to average interest-bearing
liabilities declined to 113.41% for the first six months of 2000 from 114.83%
for the first six months of 1999.
Total interest income for the first six months of 2000 was $46.6 million, an 18%
increase from $39.5 million during the same period in 1999. The principal factor
in the increase of interest income was the $124.4 million increase in average
interest-earning assets. Southwest's average loans increased $78.4 million, or
10%, and the related yield increased to 9.05% for the first six months of 2000
from 8.57% in 1999. During the same period, average investment securities
increased $45.8 million, or 27%, and the related yield increased to 6.12% from
5.90%.
Total interest expense for the first six months of 2000 was $26.6 million, an
increase of 30% from $20.5 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 5.48% from 4.84%, and
in the average balances outstanding of interest-bearing liabilities. During the
same period, average interest-bearing liabilities increased $120.4 million, or
14%. Rates paid on deposits increased for all categories.
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<PAGE>
Other Income
Other income increased by $88,000 for the first six months of 2000 compared to
the same period of 1999 primarily as a result of an $812,000 increase in service
charges and fees. This increase was offset by a $334,000 reduction in other
noninterest income, a $305,000 reduction in gains on sales of loans and an
$85,000 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 226 ATM
machines in nine states at June 30, 2000 compared to 172 machines in seven
states at June 30, 1999. The reduction in other noninterest income was due to a
$411,000 gain on the sale of a former branch location in Tulsa during the second
quarter of 1999. 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 six months of 2000, $23.6 million in residential mortgage
loans were originated and $25.1 million were sold as compared to $52.8 million
originated and $50.2 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 $140,000 for the first six months of 2000
compared to the same period in 1999. This increase was primarily the result of a
$466,000 increase in occupancy expense and a $276,000 increase in salaries and
employee benefits. These increases were offset by a $650,000 reduction in
general and administrative 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.
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 June 30, 2000, total nonperforming
loans were $12.8 million, or 1.42% 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 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 six to nine 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 $2.5 million for the first six months of 2000
and $2.6 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 JUNE 30, 2000 AND 1999
Net Income
For the second quarter of 2000, Southwest recorded net income of $2.4 million.
This was $41,000 less than the $2.5 million in net income recorded for the
second quarter of 1999. Average shares outstanding were 3,837,442 for the second
quarter of 2000 and 4,077,420 for the second quarter of 1999. Basic and diluted
earnings per share increased to $0.63 and $0.63 per share for the second quarter
of 2000 from $0.60 and $0.59 per share for the same period in 1999,
respectively.
15
<PAGE>
Net interest income increased $480,000, or 5%, for the second quarter of 2000
compared to the same period in 1999. This increase in net interest income, as
well as a $123,000, or 9%, reduction in taxes on income and a $46,000, or 1%,
reduction in other expenses, was offset by a $550,000, or 129% increase in the
provision for loan losses and a $140,000, or 7%, reduction in other income. For
the second quarter of 2000, the return on average total equity was 14.34%
compared to a 15.03% return on average total equity for the second quarter of
1999.
Net Interest Income
Net interest income increased to $10.0 million for the second quarter of 2000
from $9.5 million for the same period in 1999 as the $4.1 million, or 21%,
increase in interest income was only partially offset by a $3.6 million, or 36%,
increase in interest expense. Yields on Southwest's interest-earning assets
increased by 50 basis points, and the rates paid on Southwest's interest-bearing
liabilities increased by 84 basis points, resulting in a reduction in the
interest rate spread to 2.93% for the second quarter of 2000 from 3.27% for the
second quarter of 1999. Net interest margin also declined to 3.60% from 3.90%.
The ratio of average interest-earning assets to average interest-bearing
liabilities declined to 113.51% for the second quarter of 2000 from 115.04% for
the second quarter of 1999.
Total interest income for the second quarter of 2000 was $23.7 million, a 21%
increase from $19.6 million during the same period in 1999. The principal factor
in the increase of interest income was the $138.2 million increase in average
interest-earning assets. Southwest's average loans increased $90.9 million, or
11%, and the related yield increased to 9.15% for the second quarter of 2000
from 8.55% in 1999. During the same period, average investment securities
increased $49.1 million, or 29%, and the related yield increased to 6.20% from
5.84%.
Total interest expense for the second quarter of 2000 was $13.8 million, an
increase of 36% from $10.1 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 5.63% from 4.79%, and
in the average balances outstanding of interest-bearing liabilities. During the
same period, average interest-bearing liabilities increased $133.2 million, or
16%. Rates paid on deposits increased for all categories other than savings
deposits.
Other Income
Other income declined by $140,000 for the second quarter of 2000 compared to the
same period of 1999 primarily as a result of a $365,000 reduction in other
noninterest income and a $152,000 reduction in gains on sales of loans. These
reductions were partially offset by a $381,000 increase in service charges and
fees. The reduction in other noninterest income was due to a $411,000 gain on
the sale of a former branch location in Tulsa during the second quarter of 1999.
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 $46,000 for the second quarter of 2000
compared to the same period in 1999. This reduction was primarily the result of
a $431,000 reduction in general and administrative expense. This reduction was
partially offset by a $359,000 increase in occupancy expense. 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. The increase in
occupancy expense is due primarily to increased depreciation and maintenance
contract costs associated with the expansion of the ATM network and the payment
to cancel a rental agreement for space in Tulsa.
Taxes on Income
Southwest's income tax expense was $1.3 million for the second quarter of 2000
and $1.4 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.
* * * * * * *
16
<PAGE>
LIQUIDITY
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital, or the sale of highly marketable
assets such as residential mortgage loans. 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 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,
$82,500 of which was outstanding at June 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
$1.8 million at June 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 June 30, 2000. In addition, Stillwater National
has available a $153.3 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 $117.6 million at June 30, 2000. The SLMA line expires April 20, 2007; no
amount was outstanding on this line at June 30, 2000. 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, Salomon Smith Barney,
PaineWebber, Inc., and CountryWide Securities that total $415.0 million. Three
of these lines of credit had balances included in total deposits of $146.6
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 six 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>
June 30, 2000 June 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 $58,420 $117,575 $41,238 $55,000
Weighted average rate paid at end of period 5.57% 6.52% 4.36% 4.89%
Average Balance:
For the three months ended $53,751 $101,392 $37,622 $56,730
For the six months ended $48,294 $105,699 $38,261 $56,405
Average Rate Paid:
For the three months ended 5.59% 6.31% 4.36% 5.07%
For the six months ended 5.42% 6.10% 4.37% 4.99%
Maximum amount outstanding at any month end $58,420 $127,850 $41,238 $73,000
</TABLE>
During the first six months of 2000, cash and cash equivalents increased by $3.5
million. This increase was the net result of cash provided from financing
activities of $58.2 million (primarily from increases in deposits and short-term
borrowings) and cash provided from operating activities of $8.8 million offset
in part by cash used in net loan origination and other investing activities of
$63.5 million.
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<PAGE>
During the first six months of 1999, cash and cash equivalents decreased by $1.1
million. This decline was the result of cash used in financing activities of
$11.6 million (primarily from a decrease in total deposits) which was not
entirely offset by cash generated from investing activities of $8.2 million and
$2.3 million in cash provided from operating activities.
CAPITAL RESOURCES
In the first six months of 2000, total shareholders' equity increased $2.5
million, or 4%, 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 $4.0 million to
shareholders' equity during this six 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 $60,000 to
shareholders' equity in the first six months of 2000. Accumulated other
comprehensive loss increased to $2.0 million at June 30, 2000 compared to $1.7
million at December 31, 1999. Treasury stock purchases totaled $1.3 million
during the first six 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 June 30, 2000, Southwest
exceeded all applicable capital requirements, having a total risk-based capital
ratio of 11.19%, a Tier I risk-based capital ratio of 9.75%, and a leverage
ratio of 7.84%. As of June 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 July 3, 2000
to shareholders of record as of June 19, 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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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
At Southwest's annual shareholders' meeting, held on April 27,
2000, the shareholders of Southwest elected four Directors
with terms expiring at the 2003 annual shareholders' meeting.
The Directors elected and the shareholder vote in the election
of each Director was as follows:
For Withheld
--- --------
James E. Berry, II 3,578,292 76,596
Joe Berry Cannon 3,577,292 77,596
Alfred L. Litchenburg 3,617,907 36,981
Robert B. Rodgers 3,579,299 75,589
Other Directors continuing in office following the annual
shareholders' meeting were Rick J. Green, Tom D. Berry, J. Berry
Harrison, Erd M. Johnson, Betty Kerns, David P. Lambert, Linford R.
Pitts, Russell W. Teubner and Stanley R. White.
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.
None
19
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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 August 9, 2000
------------------------------------------ --------------------
Rick J. Green Date
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kerby E. Crowell August 9, 2000
-------------------------------------------- --------------------
Kerby E. Crowell Date
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
20
