-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVqJb7lZjPqNGW3TQATQym/9Aobu/cA1E9xoHwrYC3AFrplKTsUz7e4B8GklH8DY SAHDyOuXQ0Otk3W7Q3aM6w== /in/edgar/work/20000810/0000950109-00-003202/0000950109-00-003202.txt : 20000921 0000950109-00-003202.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950109-00-003202 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST BANCORP INC CENTRAL INDEX KEY: 0000914374 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 731136584 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23064 FILM NUMBER: 690534 BUSINESS ADDRESS: STREET 1: 608 SOUTH MAIN STREET CITY: STILLWATER STATE: OK ZIP: 74074 BUSINESS PHONE: 4053722230 MAIL ADDRESS: STREET 1: 608 SOUTH MAIN STREET CITY: STILLWATER STATE: OK ZIP: 74074 10-Q 1 0001.txt FORM 10-Q 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 --------- SOUTHWEST BANCORP, INC. INDEX TO FORM 10-Q
Page No. PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Unaudited Consolidated Statements of Financial Condition at 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
2 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data)
June 30, December 31, 2000 1999 -------------- ------------- 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 ============== =============
See notes to unaudited consolidated financial statements. 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, 2000 1999 2000 1999 ----------- ------------ ----------- ------------ 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 =========== ============ =========== ============
See notes to unaudited consolidated financial statements. 4 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
For the six months ended June 30, 2000 1999 ------------- ------------ 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 ============= ============
See notes to unaudited consolidated financial statements. 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, 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 ========================================================================================
See notes to unaudited consolidated financial statements. 6 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands)
For the three months For the six months ended June 30, ended June 30, 2000 1999 2000 1999 ------------ ----------- ------------ ------------ 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 ============ =========== ============ ============
See notes to unaudited consolidated financial statements. 7 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 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 Nonperforming assets and other risk elements of the loan portfolio are shown below as of the indicated dates.
At At June 30, 2000 December 31, 1999 ------------------ ----------------- (Dollars in thousands) 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%
(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 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:
For the three months For the six months ended June 30, ended June 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
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 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)
For the six months ended June 30, 2000 1999 ------------------------------------------------------------ Average Average Average Average Balance Yield/Rate Balance Yield/Rate ------------------------------------------------------------ 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% ================= ================
(1) Net interest margin = net interest income / total 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 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. 13 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. 14 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 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 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.
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) 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
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. 17 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. 18 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 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 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 28,295 1,521 0 0 153,283 69,094 68,143 903,179 11,613 1,185,348 905,492 177,850 10,241 25,013 0 0 4,081 62,671 1,185,348 39,897 6,650 46 46,593 20,901 26,622 19,971 1,800 0 14,724 7,397 7,397 0 0 4,860 1.26 1.25 8.46 12,716 81 0 26,023 11,190 1,793 1,793 416 11,613 11,613 1,911
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