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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, 2003
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ x ] YES [ ] NO
There were 5,920,692 shares of registrant's common stock outstanding as of
August 1, 2003 as calculated prior to the stock split in the form of a 2-for-1
stock dividend payable on August 29, 2003. After the stock split, the number of
shares of common stock outstanding would translate to 11,841,384 shares.
1 of 25
SOUTHWEST BANCORP, INC.
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at
June 30, 2003 and December 31, 2002 3
Unaudited Consolidated Statements of Operations for the
three and six months ended June 30, 2003 and 2002 4
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 2003 and 2002 5
Unaudited Consolidated Statements of Shareholders' Equity for the
six months ended June 30, 2003 6
Unaudited Consolidated Statements of Comprehensive Income for the
three and six months ended June 30, 2003 and 2002 6
Notes to Unaudited Consolidated Financial Statements 7
Unaudited 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 19
ITEM 4. CONTROLS AND PROCEDURES 19
PART II. OTHER INFORMATION 20
SIGNATURES 21
2
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
JUNE 30,
2003 DECEMBER 31,
(UNAUDITED) 2002
----------- ------------
ASSETS:
Cash and cash equivalents $ 39,964 $ 34,847
Investment securities:
Held to maturity, fair value $22,730 (2003) and $32,000 (2002) 22,181 31,154
Available for sale, amortized cost $158,893 (2003) and $145,141 (2002) 161,644 148,476
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 10,861 9,059
Loans held for sale 12,462 10,638
Loans receivable, net of allowance for loan losses
of $13,877 (2003) and $11,888 (2002) 1,232,976 1,078,586
Accrued interest receivable 10,330 9,283
Premises and equipment, net 20,553 20,202
Other assets 9,388 7,523
---------- ----------
Total assets $1,520,359 $1,349,768
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand $ 152,629 $ 135,945
Interest-bearing demand 62,954 50,162
Money market accounts 323,373 258,712
Savings accounts 6,389 5,700
Time deposits of $100,000 or more 385,378 309,205
Other time deposits 248,049 262,033
---------- ----------
Total deposits 1,178,772 1,021,757
Accrued interest payable 2,675 4,486
Other liabilities 4,202 2,858
Other borrowings 185,557 199,282
Long-term debt 45,013 25,013
---------- ----------
Total liabilities 1,416,219 1,253,396
Shareholders' equity:
Common stock - $1 par value; 20,000,000 shares authorized; 6,121,521
shares issued and outstanding 6,122 6,122
Capital surplus 12,557 12,317
Retained earnings 86,798 80,724
Accumulated other comprehensive income (loss) 1,648 2,201
Treasury stock, at cost; 204,288 (2003) and 348,142 (2002) shares (2,985) (4,992)
---------- ----------
Total shareholders' equity 104,140 96,372
---------- ----------
Total liabilities & shareholders' equity $1,520,359 $1,349,768
========== ==========
The accompanying notes are an integral part of this statement.
3
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except earnings per share data)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
-------- -------- -------- --------
Interest income:
Interest and fees on loans $19,299 $16,443 $37,021 $32,423
Investment securities:
U.S. Government and agency obligations 1,348 1,616 2,632 3,129
Mortgage-backed securities 281 826 652 1,758
State and political subdivisions 236 343 511 731
Other securities 147 139 290 282
Other interest-earning assets 2 4 6 11
------- -------- -------- --------
Total interest income 21,313 19,371 41,112 38,334
Interest expense:
Interest-bearing demand 115 89 196 171
Money market accounts 1,371 1,078 2,547 1,950
Savings accounts 3 8 7 14
Time deposits of $100,000 or more 2,274 2,313 4,517 4,687
Other time deposits 1,679 2,372 3,502 5,082
Other borrowings 1,253 1,228 2,548 2,503
Long-term debt 595 581 1,177 1,163
------- ------- ------- -------
Total interest expense 7,290 7,669 14,494 15,570
------- ------- ------- -------
Net interest income 14,023 11,702 26,618 22,764
Provision for loan losses 2,000 1,275 3,722 2,525
Other income:
Service charges and fees 2,225 2,003 4,476 3,777
Other noninterest income 268 247 542 475
Gain on sales of loans receivable 1,062 555 1,999 1,199
Gain on sales of investment securities 25 1 27 3
------- ------- ------- -------
Total other income 3,580 2,806 7,044 5,454
Other expenses:
Salaries and employee benefits 4,921 4,296 9,233 8,098
Occupancy 1,938 1,733 3,860 3,450
FDIC and other insurance 78 66 156 138
Other real estate 9 (43) 170 (21)
General and administrative 2,347 2,094 4,768 4,292
------- ------- ------- -------
Total other expenses 9,293 8,146 18,187 15,957
------- ------- ------- -------
Income before taxes 6,310 5,087 11,753 9,736
Taxes on income 2,277 1,684 4,207 3,255
------- ------- ------- -------
Net income $ 4,033 $ 3,403 $ 7,546 $ 6,481
======= ======= ======= =======
Basic earnings per share $ 0.34 $ 0.30 $ 0.64 $ 0.57
======= ======= ======= =======
Diluted earnings per share $ 0.33 $ 0.28 $ 0.62 $ 0.54
======= ======= ======= =======
Cash dividends declared per share $ 0.06 $ 0.06 $ 0.13 $ 0.11
======= ======= ======= =======
The accompanying notes are an integral part of this statement.
4
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS
ENDED JUNE 30,
2003 2002
---- ----
Operating activities:
Net income $ 7,546 $ 6,481
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 3,722 2,525
Depreciation and amortization expense 1,313 1,252
Amortization of premiums and accretion of
discounts on securities, net 95 3
Amortization of intangibles 236 90
Tax benefit from exercise of stock options 706 --
(Gain) Loss on sales/calls of securities (27) (3)
(Gain) Loss on sales of loans receivable (1,999) (1,199)
(Gain) Loss on sales of premises/equipment (57) 16
(Gain) Loss on other real estate owned, net 109 (102)
Proceeds from sales of residential mortgage loans 103,473 46,344
Residential mortgage loans originated for resale (104,041) (43,449)
Changes in assets and liabilities:
Accrued interest receivable (1,047) (82)
Other assets (2,266) (1,233)
Income taxes payable -- 324
Accrued interest payable (1,811) (398)
Other liabilities 1,241 212
--------- ---------
Net cash (used in) provided from operating activities 7,193 10,781
--------- ---------
Investing activities:
Proceeds from sales of available for sale securities 6,540 10
Proceeds from principal repayments, calls and maturities:
Held to maturity securities 8,955 10,735
Available for sale securities 40,969 28,723
Proceeds from redemptions of Federal Home Loan Bank stock -- 1,434
Purchases of Federal Reserve Bank and Federal Home Loan
Bank stock (1,802) (12)
Purchases of held to maturity securities -- (1,022)
Purchases of available for sale securities (61,311) (24,396)
Loans originated and principal repayments, net (264,964) (136,565)
Proceeds from sales of guaranteed student loans 107,164 55,919
Purchases of premises and equipment (1,762) (1,090)
Proceeds from sales of premises and equipment 155 41
Proceeds from sales of other real estate owned 518 922
--------- ---------
Net cash (used in) provided from investing activities (165,538) (65,301)
--------- ---------
Financing activities:
Net increase (decrease) in deposits 157,015 94,441
Net increase (decrease) in other borrowings (13,725) (43,825)
Net proceeds from issuance of common stock 1,541 1,213
Proceeds from issuance of subordinated debentures 20,000 --
Purchases of treasury stock -- (918)
Common stock dividends paid (1,369) (1,085)
--------- ---------
Net cash (used in) provided from financing activities 163,462 49,826
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,117 (4,694)
Cash and cash equivalents,
Beginning of period 34,847 32,406
--------- ---------
End of period $ 39,964 $ 27,712
========= =========
The accompanying notes are an integral part of this statement.
5
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
ACCUMULATED TOTAL
OTHER SHARE-
COMMON STOCK CAPITAL RETAINED COMPREHENSIVE TREASURY HOLDERS'
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) STOCK EQUITY
------ ------ ------- -------- ------------- ----- ------
Balance, January 1, 2003 6,121,521 $6,122 $12,317 $80,724 $2,201 $(4,992) $ 96,372
Cash dividends declared:
Common, $0.50 per share -- -- -- (1,472) -- -- (1,472)
Common stock issued:
Employee Stock Option Plan -- -- (493) -- -- 1,968 1,475
Employee Stock Purchase Plan -- -- 12 -- -- 17 29
Dividend Reinvestment Plan -- -- 15 -- -- 22 37
Tax benefit related to exercise
of stock options -- -- 706 -- -- -- 706
Other comprehensive income
(loss), net of tax -- -- -- -- (553) -- (553)
Net income -- -- -- 7,546 -- -- 7,546
--------- ------ ------- ------- ------ ------- --------
Balance, June 30, 2003 6,121,521 $6,122 $12,557 $86,798 $1,648 $(2,985) $104,140
========= ====== ======= ======= ====== ======== ========
The accompanying notes are an integral part of this statement.
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE, ENDED JUNE,
2003 2002 2003 2002
---- ---- ---- ----
Net income $4,033 $3,403 $7,546 $6,481
Other comprehensive income (loss)
Unrealized holding gain (loss) on available
for sale securities 304 1,525 (557) 191
Reclassification adjustment for (gains) losses
arising during the period
(25) (1) (27) (3)
------ ------ ------ ------
Other comprehensive income (loss), before tax 279 1,524 (584) 188
Tax (expense) benefit related to items
of other comprehensive income (loss) (116) (521) 31 (65)
------ ------ ------ ------
Other comprehensive income (loss), net of tax 163 1,003 (553) 123
------ ------ ------ ------
Comprehensive income $4,196 $4,406 $6,993 $6,604
====== ====== ====== ======
The accompanying notes are an integral part of this statement.
6
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, shareholders' equity, cash flows and
comprehensive income in conformity with accounting principles generally accepted
in the United States of America. However, the unaudited consolidated financial
statements include all adjustments which, in the opinion of management, are
necessary for a fair presentation. Those adjustments consist of normal,
recurring adjustments. The results of operations for the three and six months
ended June 30, 2003 and the cash flows for the six months ended June 30, 2003
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, 2002.
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"), SBI Capital Trust ("SBI Capital"), OKSB Statutory Trust I ("OKSB
Trust") and Business Consulting Group, Inc. ("BCG"). All significant
intercompany transactions and balances have been eliminated in consolidation.
NOTE 3: RECENTLY ADOPTED ACCOUNTING STANDARDS
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards Board Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others - an Interpretation of FASB Statements No.
5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN 45 elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 were effective for
financial statements of interim or annual periods ending after December 15,
2002. Implementation of the provisions of FIN 45 did not have a significant
impact on Southwest's financial statements.
On December 31, 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure. Statement No. 148 amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
Statement 123's fair value method of accounting for stock-based employee
compensation. Statement 148 also amends the disclosure provisions of Statement
123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure
in the summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While the Statement does not amend Statement 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of Statement 148 are applicable to all companies with stock-based
employee compensation, regardless of whether they account for stock options
using the fair value method of Statement 123 or the intrinsic value method of
Opinion 25. Statement 148's amendment of the transition and annual disclosure
requirements of Statement 123 were effective for fiscal years ending after
December 15, 2002. Statement 148's amendment of the disclosure requirements of
Opinion 28 was effective for financial reports containing condensed consolidated
financial statements for interim periods beginning after December 15, 2002. As
allowed by Statement 123, Southwest follows the recognition requirements of
Opinion No. 25, which results in no charge to earnings when options are issued
at fair market value. Therefore, the adoption of this statement did not have any
impact on Southwest's financial position or results of operations.
7
The following table illustrates the effect on net income and earnings per share
as if the fair value based method had been applied to all outstanding and
unvested awards in each period:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
---- ---- ---- ----
(Dollars in thousands,except per share data)
Net earnings, as reported $4,033 $3,403 $7,546 $6,481
Less: Stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (66) (112) (172) (262)
------ ------ ------ ------
Proforma net income $3,967 $3,291 $7,374 $6,219
====== ====== ====== ======
Earnings per share:
Basic -- as reported $ 0.34 $ 0.30 $ 0.63 $ 0.57
Basic -- proforma $ 0.34 $ 0.29 $ 0.63 $ 0.54
Diluted -- as reported $ 0.33 $ 0.28 $ 0.62 $ 0.54
Diluted -- proforma $ 0.33 $ 0.27 $ 0.61 $ 0.52
In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." Statement 150 establishes standards for classifying and
measuring as liabilities certain financial instruments that embody obligations
of the issuer and have characteristics of both liabilities and equity. Statement
150 is effective for all financial instruments entered into or modified after
May 31, 2003, and to all other instruments that exist as of the beginning of the
first interim period after June 15, 2003. The adoption of Statement 150 did not
have a material impact on Southwest's results of operations or financial
position.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." The objective of this interpretation is to provide guidance on how to
identify a variable interest entity ("VIE") and determine when the assets,
liabilities, noncontrolling interests, and results of operations of a VIE need
to be included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity if the
company's interest in the VIE is such that the company will absorb a majority of
the VIE's expected losses and/or receive a majority of the entity's expected
residual returns, if they occur. FIN 46 also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. The
provisions of this interpretation became effective upon issuance for all
subsequent transactions involving variable interest entities, and is required to
be adopted no later than the first interim or annual reporting period beginning
after June 15, 2003 for all VIE transactions that existed as of the issuance
date. Southwest was required to adopt the provisions of FIN 46 as a result of
the issuance of the trust preferred securities in June 2003, as discussed in
Note 7. Southwest has determined that it should consolidate its investment in
OKSB Trust, the subsidiary that issued the trust preferred securities. However,
in its current form, FIN 46 may require Southwest to de-consolidate its
investment in SBI Capital and OKSB Trust in future financial statements. The
potential de-consolidation of subsidiary trusts of bank holding companies formed
in connection with the issuance of trust preferred securities, like the Trusts,
appears to be an unintended consequence of FIN 46. It is currently unknown if,
or when, the FASB will address this issue. However, Southwest believes that if
required to de-consolidate the Trusts, the de-consolidation will not have a
material impact on Southwest's financial position or results of operations.
8
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, 2003 DECEMBER 31, 2002
------------- -----------------
(Dollars in thousands)
Balance at beginning of period $ 11,888 $ 11,492
Loans charged-off:
Real estate mortgage 158 777
Real estate construction 3 --
Commercial 1,564 4,248
Installment and consumer 254 371
---------- ----------
Total charge-offs 1,979 5,396
Recoveries:
Real estate mortgage 77 93
Real estate construction -- --
Commercial 140 107
Installment and consumer 29 149
---------- ----------
Total recoveries 246 349
---------- ----------
Net loans charged-off 1,733 5,047
Provision for loan losses 3,722 5,443
---------- ----------
Balance at end of period $ 13,877 $ 11,888
========== ==========
Loans outstanding:
Average $1,230,262 $1,012,487
End of period 1,259,315 1,101,112
Net charge-offs to total average loans (annualized) 0.28% 0.50%
Allowance for loan losses to total loans 1.10% 1.08%
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
AT AT
JUNE 30, 2003 DECEMBER 31, 2002
------------- -----------------
(Dollars in thousands)
Nonaccrual loans (1) $10,337 $11,455
Past due 90 days or more (2) 2,009 1,452
------- -------
Total nonperforming loans 12,346 12,907
Other real estate owned 551 747
------- -------
Total nonperforming assets $12,897 $13,654
======= =======
Nonperforming loans to loans receivable 0.98% 1.17%
Allowance for loan losses to nonperforming loans 112.40% 92.11%
Nonperforming assets to loans receivable and
other real estate owned 1.02% 1.24%
(1) The government-guaranteed portion of loans included in these totals was
$1.1 million (2003) and $988,000 (2002).
(2) The government-guaranteed portion of loans included in these totals was $0
(2003) and $29,000 (2002).
Southwest makes provisions for loan losses in amounts necessary to maintain the
allowance for loan losses at the level Southwest deems appropriate. The
allowance is based on careful, continuous review and evaluation of the loan
portfolio and ongoing, quarterly assessments of the probable losses inherent in
the loan and lease portfolio and unused commitments to provide financing.
Southwest's systematic methodology for assessing the appropriateness of the
allowance includes determination of a formula allowance, specific allowances and
an
9
unallocated reserve. During the six months ended June 30, 2003, there were no
changes in estimation methods or assumptions that affected the methodology for
assessing the appropriateness of the allowance. The formula allowance is
calculated by applying loss factors to corresponding categories of outstanding
loans and leases. Loss factors generally are based on Southwest's historical
loss experience in the various portfolio categories over the prior six quarters
or four quarters, but may be adjusted for categories where six and four quarter
loss experience is historically unusual. Such an adjustment was made in the
first quarter of 2003 in order to moderate, but not eliminate, the effects of
losses on two credit relationships that had resulted in an historically
anomalous loss factor for non-classified, secured commercial loans. The use of
these loss factors is intended to reduce the differences between estimated
losses inherent in the portfolio and observed losses. Formula allowances also
are established for loans that do not have specific allowances according to the
application of credit risk factors. These factors are set by management to
reflect its assessment of the relative level of risk inherent in each grade.
Specific allowances are established in cases where management has identified
significant conditions or circumstances related to individual loans that
management believes indicate the probability that a loss may be incurred in an
amount different from the amounts determined by application of the formula
allowance. Specific allowances include amounts related to loans that are
identified for evaluation of impairment, which is based on discounted cash flows
using each loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. All of Southwest's nonaccrual
loans are considered to be impaired loans. The unallocated allowance is based
upon management's evaluation of various factors that are not directly measured
in the determination of the formula and specific allowances. These factors may
include general economic and business conditions affecting lending areas, credit
quality trends (including trends in delinquencies and nonperforming loans
expected to result from existing conditions), loan volumes and concentrations,
specific industry conditions within portfolio categories, recent loss experience
in particular loan categories, duration of the current business cycle, bank
regulatory examination results, findings of internal credit examiners, and
management's judgment with respect to various other conditions including credit
administration and management and the quality of risk identification systems.
Management reviews these conditions quarterly.
Management strives to carefully monitor credit quality and to identify loans
that may become nonperforming. At any time, however, there are loans included in
the portfolio that will result in losses to 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 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
states of Oklahoma, Kansas and Texas. Its commercial lending operations are
concentrated in the Stillwater, Tulsa, and Oklahoma City areas of Oklahoma, in
Wichita, Kansas and in Frisco, Texas. As a result, the collectibility of
Southwest's loan portfolio can be affected by changes in the general economic
conditions in these three states and in those metropolitan areas. At June 30,
2003 and December 31, 2002, substantially all of Southwest's loans were
collateralized with real estate, inventory, accounts receivable and/or other
assets, or are guaranteed by agencies of the United States Government.
At June 30, 2003, loans to individuals and businesses in the healthcare industry
totaled approximately $259.7 million, or 21% 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 $10.3 million at June 30, 2003. During the
first six months of 2003, $6,000 in interest income was received on nonaccruing
loans. If interest on those loans had been accrued, additional total interest
income of $418,000 would have been recorded.
NOTE 6: LONG-TERM DEBT
The long-term debt recorded on Southwest's statement of financial condition
represents interests in: (1) 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;
and (2) variable rate
10
subordinated debentures due June 26, 2033, issued by Southwest to its
subsidiary, OKSB Trust, in connection with a private placement of pooled Trust
Preferred Securities (the "Preferred Securities"). The Subordinated Debentures
and related payments are the only assets of SBI Capital and OKSB Trust. The
Preferred Securities meet the regulatory criteria for Tier I capital, subject to
Federal Reserve guidelines that limit the amount of the Preferred Securities and
cumulative perpetual preferred stock to an aggregate of 25% of Tier I capital.
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, 2003 and 2002, there were no antidilutive options to purchase common shares.
Per share amounts in this report have been restated to reflect the 2-for-1 stock
split declared on July 24, 2003.
The following is a reconciliation of the shares used in the calculations of
basic and diluted earnings per share:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
---- ---- ---- ----
Weighted average shares outstanding:
Basic earnings per share 11,792,068 11,465,178 11,723,912 11,435,182
Effect of dilutive securities:
Stock options 407,032 594,726 437,762 535,860
---------- ---------- ---------- ----------
Weighted average shares outstanding:
Diluted earnings per share 12,199,100 12,059,904 12,161,674 11,971,042
========== ========== ========== ==========
NOTE 8: SHAREHOLDERS' EQUITY
SHARE REPURCHASE PROGRAM
In March 2002, Southwest authorized the repurchase of up to 5% of its current
outstanding common stock in the period ending June 30, 2003. As of June 30,
2003, Southwest had purchased 15,000 shares under this program at an average
price of $21.79 per share. These repurchases reduced shareholders' equity by
$327,000 in 2002.
In March 2003, Southwest authorized the repurchase of up to an additional 5% of
its current outstanding common stock. Share repurchases under the current
program are expected to be made primarily on the open market, from time to time,
until March 31, 2004, or earlier termination of the repurchase program by the
Board of Directors. Repurchases under the program will be made at the discretion
of management based upon market, business, legal, accounting and other factors.
As of June 30, 2003, no share repurchases had been made under this program.
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
$73.34. 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
RECENT DEVELOPMENT
On July 24, 2003, Southwest's board of directors declared a common stock split
in the form of a 2-for-1 stock dividend payable on August 29, 2003 to
shareholders of record on August 15, 2003. Per share amounts in this report have
been retroactively restated to reflect the effects of this stock split.
SOUTHWEST BANCORP, INC.
UNAUDITED AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
FOR THE SIX MONTHS ENDED JUNE,
2003 2002
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD/RATE BALANCE YIELD/RATE
--------------- ------------- --------------- -------------
ASSETS:
Loans receivable $1,230,262 6.07% $ 970,120 6.74%
Investment securities 184,944 4.45 217,318 5.47
Other interest-earning assets 1,200 1.01 1,254 1.77
---------- ----------
Total interest-earning assets 1,416,406 5.85 1,188,692 6.50
Noninterest-earning assets 50,132 52,365
---------- ----------
Total assets $1,466,538 $1,241,057
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing demand $ 56,455 0.70% $ 51,247 0.67%
Money market accounts 290,435 1.77 185,085 2.12
Savings accounts 6,246 0.23 5,593 0.50
Time deposits 631,089 2.56 584,895 3.37
---------- ----------
Total interest-bearing deposits 984,225 2.21 826,820 2.90
Other borrowings 213,519 2.41 175,903 2.87
Long-term debt 25,565 9.21 25,013 9.30
---------- ----------
Total interest-bearing liabilities 1,223,309 2.39 1,027,736 3.06
Noninterest-bearing demand 128,069 113,510
Other noninterest-bearing liabilities 15,927 13,142
Shareholders' equity 99,233 86,669
---------- ----------
Total liabilities and shareholders' equity $1,466,538 $1,241,057
========== ==========
Interest rate spread 3.46% 3.44%
==== ====
Net interest margin (1) 3.79% 3.86%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 115.78% 115.66%
====== ======
(1) Net interest margin = annualized net interest income / average
interest-earning assets
12
SOUTHWEST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. This management's discussion and analysis of
financial condition and results of operations and other portions of this report
include forward-looking statements such as: statements of Southwest's goals,
intentions, and expectations; estimates of risks and of future costs and
benefits; assessments of loan quality, and probable loan losses, liquidity, and
market or interest rate risk; 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: the amount and timing of
future changes in 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 financial holding company for the
Stillwater National Bank and Trust Company ("Stillwater National"), SBI Capital
Trust, OKSB Statutory Trust I ("OKSB") and Business Consulting Group, Inc.
Southwest is an independent institution.
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 and Frisco, Texas; loan production offices in
Wichita, Kansas and on the campuses of the University of Oklahoma Health
Sciences Center and Oklahoma State University-Tulsa; a marketing presence in the
Student Union at Oklahoma State University-Stillwater; and on the Internet,
through SNB DirectBanker(R). Southwest was recently notified by the Office of
Thrift Supervision that its application to create a federal savings bank in
Wichita, Kansas has been deemed complete. Application approval is expected by
the end of the third quarter of 2003. The federal savings bank, SNB Bank of
Wichita, is expected to be opened on the site of the Wichita loan production
office during the fourth quarter of 2003. 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 market areas
Southwest has established and pursued a strategy of independent operation for
the benefit of all of its shareholders. Southwest has grown from $434 million in
assets since becoming a public company at year-end 1993, to more than $1.5
billion at June 30, 2003, without acquiring other financial institutions.
Southwest considers acquisitions of other financial institutions and other
companies from time to time, although it does not have any specific agreements
or understandings for any such acquisition at present. Southwest also considers,
from time to time, the establishment of new lending, banking and other offices
in additional geographic markets. Southwest also extends loans to borrowers in
Oklahoma and neighboring states through participations with correspondent banks.
13
FINANCIAL CONDITION
TOTAL ASSETS
Southwest's total assets were $1.5 billion at June 30, 2003 and $1.3 billion at
December 31, 2002.
LOANS
Total loans, including loans held for sale, were $1.3 billion at June 30, 2003,
a 14% increase ($158.2 million) from December 31, 2002. Southwest experienced
increases in the categories of real estate construction loans ($70.8 million, or
54%); commercial and industrial loans ($43.2 million, or 12%);
government-guaranteed student loans ($43.7 million, or 37%); and commercial real
estate mortgages ($8.6 million, or 2%). These increases in loans were offset by
reductions in residential mortgage loans ($7.2 million, or 7%) and other
consumer loans ($891,000, or 3%). Loans held for sale, consisting of certain
residential mortgages and business loans, increased $1.8 million, or 17%, while
portfolio loans increased $156.4 million, or 14%.
Southwest sold participations in loans of approximately $30.0 million during the
second quarter of 2003.
Management determines the appropriate level of the allowance for loan losses
using a systematic methodology. (See Note 4, "Allowance for Loan Losses," in the
Notes to Unaudited Consolidated Financial Statements.) The allowance for loan
losses increased by $2.0 million, or 17%, from December 31, 2002 to June 30,
2003. At June 30, 2003, the allowance for loan losses was $13.9 million, or
1.10% of total loans and 112.40% of nonperforming loans, compared to $11.9
million, or 1.08% of total loans and 92.11% of nonperforming loans, at December
31, 2002. (See "Results of Operations-Provision for Loan Losses.")
DEPOSITS AND OTHER BORROWINGS
Southwest's deposits were $1.2 billion at June 30, 2003, an increase of $157.0
million, or 15%, from $1.0 billion at December 31, 2002. Increases occurred in
all categories of deposits: time deposits increased $62.2 million, or 11%; money
market accounts increased $64.7 million, or 25%; noninterest-bearing demand
accounts increased $16.7 million, or 12%; interest-bearing demand accounts
increased $12.8 million, or 26%; and savings accounts increased $689,000, or
12%.
Stillwater National has 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, Prudential
Securities Inc., PaineWebber Inc., RBC Dain Rauscher Inc., and CountryWide
Securities that total $675.0 million. At June 30, 2003, $239.6 million in these
retail certificates of deposit were included in total deposits. Stillwater
National has other brokered certificates of deposit totaling $51.9 million
included in total deposits at June 30, 2003.
During the same period, other borrowings were reduced $13.7 million, or 7%.
SHAREHOLDERS' EQUITY
Shareholders' equity increased by $7.8 million, or 8%, due primarily to earnings
for the first six months of 2003 and stock option exercises, offset in part by
common stock dividends and a decrease in accumulated other comprehensive income
(net, after tax, unrealized gains on investment securities available for sale).
At June 30, 2003, Southwest and Stillwater National continued to exceed all
applicable regulatory capital requirements.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2003 and 2002
NET INCOME
For the second quarter of 2003, Southwest recorded net income of $4.0 million.
This was $630,000, or 19%, more than the $3.4 million in net income recorded for
the second quarter of 2002. Average shares outstanding were 11,792,068 for the
second quarter of 2003 and 11,465,178 for the same period in 2002. Basic and
diluted
14
earnings per share increased to $0.34 and $0.33 per share for the second quarter
of 2003 from $0.30 and $0.28 per share for the same period in 2002,
respectively.
Net interest income increased $2.3 million, or 20%, for the second quarter of
2003 compared to the same period in 2002. This increase in net interest income
as well as a $774,000, or 28%, increase in other income was partially offset by
a $725,000, or 57%, increase in the provision for loan losses; a $1.1 million,
or 14%, increase in other expense; and a $593,000, or 35%, increase in taxes on
income. For the second quarter of 2003, the return on average total equity was
16.04% compared to a 15.62% return on average total equity for the second
quarter of 2002.
NET INTEREST INCOME
Net interest income increased to $14.0 million for the second quarter of 2003
from $11.7 million for the same period in 2002 due to a $1.9 million, or 10%,
increase in interest income combined with a $379,000, or 5%, reduction in
interest expense. Yields on Southwest's interest-earning assets declined by 62
basis points, and the rates paid on Southwest's interest-bearing liabilities
declined by 64 basis points, resulting in an increase in the interest rate
spread to 3.52% for the second quarter of 2003 from 3.50% for the second quarter
of 2002. During the same periods, annualized net interest margin declined from
3.90% to 3.84%. The ratio of average interest-earning assets to average
interest-bearing liabilities increased to 116.10% for the second quarter of 2003
from 115.69% for the second quarter of 2002.
Total interest income for the second quarter of 2003 was $21.3 million, a 10%
increase from $19.4 million during the same period in 2002. The principal factor
in the increase of interest income was the $259.9 million, or 22%, increase in
average interest-earning assets, which was partially offset by the 62 basis
point reduction in the yield earned on interest-earning assets. Southwest's
average loans increased $287.9 million, or 29%, and the related yield was
reduced to 6.07% for the second quarter of 2003 from 6.68% in 2002. During the
same period, average investment securities declined $28.2 million, or 13%, and
the related yield was reduced to 4.31% from 5.44%.
Total interest expense for the first quarter of 2003 was $7.3 million, a decline
of 5% from $7.7 million for the same period in 2002. The decline in total
interest expense can be attributed to the 64 basis point reduction in the rates
paid on interest-bearing liabilities, which was partially offset by the $220.2
million, or 21%, increase in average interest-bearing liabilities. Rates paid on
deposits decreased for all categories other than interest-bearing demand
accounts, which increased 10 basis points.
OTHER INCOME
Other income increased $774,000, or 28%, for the second quarter of 2003 compared
to the same period of 2002 primarily as a result of a $507,000, or 91%, increase
in gains on sales of loans; a $222,000, or 11%, increase in service charges on
deposit accounts; and a $21,000, or 9%, increase in other noninterest income.
OTHER EXPENSES
Southwest's other expenses increased $1.1 million, or 14%, for the second
quarter of 2003 compared to the same period in 2002. This increase was primarily
the result of a $625,000, or 15%, increase in salaries and employee benefits; a
$253,000, or 12%, increase in general and administrative expenses; a $205,000,
or 12%, increase in occupancy expense; a $52,000, or 121%, increase in other
real estate expense; and a $12,000, or 18%, increase in FDIC and other
insurance.
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 and 2002
NET INCOME
For the first six months of 2003, Southwest recorded net income of $7.5 million.
This was $1.0 million or 16%, more than the $6.5 million in net income recorded
for the first quarter of 2002. Average shares outstanding were 11,723,912 for
the first six months of 2003 and 11,435,182 for the same period in 2002. Basic
and diluted earnings per share increased to $0.63 and $0.62 per share for the
first six months of 2003 from $0.57 and $0.54 per share for the same period in
2002, respectively.
15
Net interest income increased $3.9 million, or 17%, for the first six months of
2003 compared to the same period in 2002. This increase in net interest income
as well as a $1.6 million, or 29%, increase in other income was offset by a $1.2
million, or 47%, increase in the provision for loan losses; a $2.2 million, or
14%, increase in other expense; and a $952,000, or 29%, increase in taxes on
income. For the first six months of 2003, the return on average total equity was
15.33% compared to a 15.08% return on average total equity for the first six
months of 2002.
NET INTEREST INCOME
Net interest income increased to $26.6 million for the first six months of 2003
from $22.8 million for the same period in 2002 due to a $2.8 million, or 7%,
increase in interest income combined with a $1.1 million, or 7%, reduction in
interest expense. Yields on Southwest's interest-earning assets declined by 65
basis points, and the rates paid on Southwest's interest-bearing liabilities
declined by 67 basis points, resulting in an increase in the interest rate
spread to 3.46% for the first six months of 2003 from 3.44% for the first six
months of 2002. During the same periods, annualized net interest margin declined
from 3.86% to 3.79%. The ratio of average interest-earning assets to average
interest-bearing liabilities increased to 115.78% for the first six months of
2003 from 115.66% for the first six months of 2002.
Total interest income for the first six months of 2003 was $41.1 million, a 7%
increase from $38.3 million during the same period in 2002. The principal factor
in the increase in interest income was the $227.7 million, or 19%, increase in
average interest-earning assets, which was partially offset by the 65 basis
point reduction in the yield earned on interest-earning assets. Southwest's
average loans increased $260.1 million, or 27%, and the related yield was
reduced to 6.07% for the first six months of 2003 from 6.74% in 2002. During the
same period, average investment securities declined $32.4 million, or 15%, and
the related yield was reduced to 4.45% from 5.47%.
Total interest expense for the first six months of 2003 was $14.5 million, a
decline of 7% from $15.6 million for the same period in 2002. The decline in
total interest expense can be attributed to the 67 basis point reduction in the
rates paid on interest-bearing liabilities, which was partially offset by the
$195.6 million, or 19%, increase in average interest-bearing liabilities. Rates
paid on deposits decreased for all categories other than interest-bearing demand
accounts, which increased 3 basis points.
OTHER INCOME
Other income increased by $1.6 million, or 29%, for the first six months of 2003
compared to the same period of 2002 primarily as a result of a $699,000, or 19%,
increase in service charges; an $800,000, or 67%, increase in gains on sales of
loans; and a $67,000, or 14%, increase in other noninterest income.
OTHER EXPENSES
Southwest's other expenses increased $2.2 million, or 14%, for the first six
months of 2003 compared to the same period in 2002. This increase was primarily
the result of a $1.1 million, or 14%, increase in salaries and employee
benefits; a $476,000, or 11%, increase in general and administrative expenses; a
$410,000, or 12%, increase in occupancy expense; a $191,000, or 910%, increase
in other real estate expense; and an $18,000, or 13%, increase in FDIC and other
insurance.
* * * * * * *
PROVISION FOR LOAN LOSSES
Southwest makes provisions for loan losses in amounts necessary to maintain the
allowance for loan losses at the level Southwest determines is appropriate based
on a systematic methodology. (See Note 4, "Allowance for Loan Losses," in the
Notes to Unaudited Consolidated Financial Statements.)
The allowance for loan losses of $13.9 million increased $2.0 million, or 17%,
from year-end 2002, and represented 1.10% of total loans, compared with 1.08% of
total loans at December 31, 2002. Loans of $1.3 billion at June 30, 2003 grew
$158.2 million, or 14%, from year-end 2002. A provision of $3.7 million was
recorded in the first six months of 2003, an increase of $1.2 million, or 47%,
from the first six months of 2002. The primary cause of the increase in the
allowance was growth in loans, particularly in real estate construction and
commercial loans.
16
Total nonaccrual loans were reduced $1.1 million, or 10%, from December 31,
2002, while total nonperforming loans were reduced $561,000, or 4%. Total
nonperforming assets of $12.9 million (which includes other real estate owned)
were reduced $757,000, or 6%, and equaled 1.02% of total loans and other real
estate, 22 basis points less than the same percentage at December 31, 2002. As
shown in Note 4, total nonperforming loans at June 30, 2003 represented 0.98% of
total loans, compared to $12.9 million, or 1.17% of total loans, at December 31,
2002.
TAXES ON INCOME
Southwest's income tax expense was $4.2 million and $3.3 million for the first
six months of 2003 and 2002, respectively. 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 and the organization in
July 2001 of a real estate investment trust.
LIQUIDITY
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital, or the sale of highly marketable
assets such as residential mortgage loans and available for sale investments.
Southwest's portfolio of government-guaranteed student loans and 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 purchased, securities sold under agreements to repurchase, and borrowings
from the Federal Reserve Bank ("FRB"), the Student Loan Marketing Association
("SLMA"), the F&M Bank of Tulsa ("F&M"), and the Federal Home Loan Bank of
Topeka ("FHLB"). Stillwater National also 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 $1.7 million at June 30,
2003. Stillwater National has approved federal funds purchase lines totaling
$121.5 million with three other banks and one institutional broker; $13.0
million was outstanding on these lines at June 30, 2003. In addition, Stillwater
National has available a $35.0 million line of credit from the SLMA and a $295.8
million line of credit from the FHLB. Borrowings under the SLMA line would be
secured by student loans. Borrowings under the FHLB line are secured by all
unpledged securities and other loans. The SLMA line expires April 20, 2007; no
amount was outstanding on this line at June 30, 2003. The FHLB line of credit
had an outstanding balance of $123.9 million at June 30, 2003. 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, Prudential
Securities Inc., PaineWebber Inc., RBC Dain Rauscher Inc., and CountryWide
Securities that total $675.0 million. At June 30, 2003, $239.6 million in these
retail certificates of deposit were included in total deposits.
Stillwater National sells securities under agreements to repurchase with
Stillwater National retaining custody of the collateral. Collateral consists of
direct obligations of U.S. Government Agency issues, which are designated as
pledged with Stillwater National's safekeeping agent. These transactions are for
one-to-four day periods.
During the first six months of 2003, the only categories of other borrowings
whose averages exceeded 30% of ending shareholders' equity were repurchase
agreements and funds borrowed from the FHLB.
17
JUNE 30, 2003 JUNE 30, 2002
-------------------------------- -------------------------------
FUNDS FUNDS
REPURCHASE BORROWED REPURCHASE BORROWED
AGREEMENTS FROM THE FHLB AGREEMENTS FROM THE FHLB
-------------- ----------------- -------------- ----------------
(DOLLARS IN THOUSANDS)
Amount outstanding at end of period $46,941 $123,885 $38,070 $110,745
Weighted average rate paid at end of period 0.75% 3.34% 1.21% 3.70%
Average Balance:
For the three months ended $51,629 $144,107 $47,847 $119,434
For the six months ended $51,205 $149,708 $49,819 $124,610
Average Rate Paid:
For the three months ended 0.73% 3.10% 1.21% 3.62%
For the six months ended 0.81% 3.04% 1.21% 3.55%
Maximum amount outstanding at any month end $62,152 $166,500 $57,994 $141,500
During the first six months of 2003, cash and cash equivalents increased by $5.1
million. This increase was the net result of cash provided from financing
activities of $163.4 million (primarily from an increase in deposits) and cash
provided from operating activities of $7.2 million offset in part by cash used
in net loan origination and other investing activities of $165.5 million.
During the first six months of 2002, cash and cash equivalents decreased by $4.7
million. This reduction was the net result of cash used in net loan origination
and other investing activities of $65.3 million offset in part by cash provided
from financing activities of $49.8 million and cash provided from operating
activities of $10.8 million.
CAPITAL RESOURCES
In the first six months of 2003, total shareholders' equity increased $7.8
million, or 8%. Earnings, net of cash dividends declared on common stock,
contributed $6.1 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 $2.2 million to shareholders' equity in the first six months of 2003,
including tax benefits realized by Southwest relating to option exercises.
Accumulated comprehensive income, consisting of net unrealized gains (losses) on
investment securities available for sale (net of tax), declined to $1.6 million
at June 30, 2003 compared to $2.2 million at December 31, 2002.
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. At June 30, 2003, Southwest
exceeded all applicable capital requirements, having a total risk-based capital
ratio of 12.69%, a Tier I risk-based capital ratio of 10.74%, and a leverage
ratio of 9.04%. As of June 30, 2003, 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 $0.0625 per common share payable on July 1,
2003 to shareholders of record as of June 18, 2003.
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 fluctuations in the relative purchasing power of money over time due
to inflation. Unlike most industrial companies, virtually all the assets and
liabilities of a
18
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,
2002.
CONTROLS AND PROCEDURES
Southwest's management, under the supervision and with the participation of its
Chief Executive Officer and the Chief Financial Officer, evaluated, as of the
last day of the period covered by this report, the effectiveness of the design
and operation of Southwest's disclosure controls and procedures, as defined in
Rule 13a-15 under the Securities Exchange Act of 1934. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that
Southwest's disclosure controls and procedures were adequate. There were no
significant changes in Southwest's internal controls over financial reporting
(as defined in Rule 13a-15 under the Securities Exchange Act of 1934) during the
quarter ended June 30, 2003, that have materially affected, or are reasonably
likely to materially affect, Southwest's internal controls over financial
reporting.
NON-GAAP FINANCIAL MEASURES
None of the financial measures used in this report are defined as non-GAAP
financial measures under federal securities regulations. Other banking
organizations, however, may present such non-GAAP financial measures, which
differ from measures based upon accounting principles generally accepted in the
United States. For example, such non-GAAP measures may exclude certain income or
expense items in calculating operating income or efficiency ratios, or may
increase yields and margins to reflect the benefits of tax-exempt
interest-earning assets. Readers of this report should be aware that certain
measures, such as the efficiency ratio, are calculated using accounting
principles generally accepted in the United States.
19
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 24,
2003, the shareholders of Southwest elected three Directors
with terms expiring at the 2006 annual shareholders' meeting.
The Directors elected and the shareholder vote in the election
of each Director were as follows:
For Withheld
--- --------
James E. Berry II 5,414,935 53,243
Joe Berry Cannon 5,407,635 60,543
Robert B. Rodgers 5,349,648 118,530
Other Directors continuing in office following the annual
shareholders' meeting were Thomas D. Berry, Rick Green, J.
Berry Harrison, Erd M. Johnson, Betty B. 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 4.1 Indenture dated as of June 26, 2003, between
Southwest Bancorp, Inc. and U.S. Bank,
National Association, as Trustee*
Exhibit 4.2 Amended and Restated Declaration of Trust
dated as of June 26, 2003, among Southwest
Bancorp, Inc.; U.S. Bank, National
Association, as Institutional Trustee; and
Rick Green, Kerby Crowell and Kay Smith as
Administrators*
Exhibit 4.3 Guarantee Agreement dated as of June 26,
2003, between Southwest Bancorp, Inc. and
U.S. Bank, National Association, as Trustee*
Exhibit 31 Rule 13a-14(a)/15d-14(a)
Certifications Exhibit 32 18 U.S.C. Section
1350 Certifications
(b) Reports on Form 8-K.
Southwest filed a report on Form 8-K, dated June 18, 2003,
announcing, under item 5 of that form, the intention of
Southwest to sell up to $20 million of a new issue of
subordinated debentures to a newly formed subsidiary trust.
Southwest filed a report on Form 8-K, dated March 27, 2003,
announcing, under item 5 of that form: (1) the authorization
by Southwest's Board of Directors of a program for the
repurchase of up to 5% of Southwest's outstanding common
stock, and (2) earnings for the first quarter of 2003.
* Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
Regulation SK. Southwest agrees to provide a copy of these documents to the
Commission upon request.
20
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 Green August 11, 2003
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Rick Green Date
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/Kerby E. Crowell August 11, 2003
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Kerby E. Crowell Date
Executive Vice President, Chief Financial
Officer and Secretary
(Principal Financial Officer)