10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007


o		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 (State or other jurisdiction of incorporation or organization)		73-1136584 (I.R.S. Employer Identification Number)

608 South Main Street Stillwater, Oklahoma (Address of principal executive office)		74074 (Zip Code)

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 12 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 90 days.

þ YES o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o YES þ 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.

14,335,711 (8/3/07)

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	June 30,			December 31,
(Dollars in thousands)	2007			2006

Assets
Cash and due from banks	$	34,754		$	46,618
Federal funds sold		—			11,000

Cash and cash equivalents		34,754			57,618
Investment securities:
Held to maturity, fair value $5,260 (2007) and $1,621 (2006)		5,333			1,630
Available for sale, amortized cost $261,486 (2007) and $258,742 (2006)		259,982			255,904
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost		12,719			12,315
Loans held for sale		73,011			188,464
Loans receivable, net of allowance for loan losses of $28,054 (2007) and $27,293 (2006)		1,741,474			1,575,433
Accrued interest receivable		19,871			24,269
Premises and equipment, net		21,889			21,818
Other real estate		1,508			1,873
Goodwill		1,213			1,213
Other intangible assets, net		2,926			3,069
Other assets		21,325			27,022

Total assets	$	2,196,005		$	2,170,628


Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing demand	$	248,285		$	254,415
Interest-bearing demand		63,758			55,396
Money market accounts		487,096			371,912
Savings accounts		11,017			11,273
Time deposits of $100,000 or more		571,584			648,664
Other time deposits		442,066			423,951

Total deposits		1,823,806			1,765,611
Accrued interest payable		10,424			13,260
Income tax payable		3,066			1,136
Other liabilities		8,570			8,624
Other borrowings		95,561			138,094
Subordinated debentures		46,393			46,393

Total liabilities		1,987,820			1,973,118
Shareholders’ equity:
Common stock — $1 par value; 20,000,000 shares authorized; 14,658,042 shares issued and outstanding		14,658			14,658
Paid in capital		46,329			45,901
Retained earnings		154,089			146,197
Accumulated other comprehensive loss		(957	)		(1,738	)
Treasury stock, at cost; 329,570 (2007) and 417,535 (2006) shares		(5,934	)		(7,508	)

Total shareholders’ equity		208,185			197,510

Total liabilities & shareholders’ equity	$	2,196,005		$	2,170,628

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months						For the six months
	ended June 30,						ended June 30,
(Dollars in thousands, except earnings per share data)	2007			2006			2007			2006

Interest income:
Interest and fees on loans	$	39,578		$	39,047		$	79,864		$	75,765
Investment securities:
U.S. government and agency obligations		2,142			2,192			4,280			4,388
Mortgage-backed securities		334			246			626			491
State and political subdivisions		49			33			92			66
Other securities		322			234			528			430
Other interest-earning assets		115			60			180			80

Total interest income		42,540			41,812			85,570			81,220

Interest expense:
Interest-bearing demand		98			78			179			141
Money market accounts		4,743			4,227			8,705			7,975
Savings accounts		21			6			41			11
Time deposits of $100,000 or more		7,781			7,478			15,913			13,660
Other time deposits		5,250			3,943			10,278			7,350
Other borrowings		1,089			2,275			3,220			5,164
Subordinated debentures		975			944			1,937			1,816

Total interest expense		19,957			18,951			40,273			36,117


Net interest income		22,583			22,861			45,297			45,103

Provision for loan losses		2,107			3,316			3,968			5,992

Other income:
Service charges and fees		2,306			3,009			4,541			5,783
Other noninterest income		429			527			774			1,079
Gain on sales of loans		800			1,040			2,008			1,945
Gain (loss) on securities		1,919			(71	)		1,471			(334	)

Total other income		5,454			4,505			8,794			8,473

Other expense:
Salaries and employee benefits		8,358			7,788			16,483			15,028
Occupancy		2,388			2,430			4,791			4,997
FDIC and other insurance		140			124			263			251
Other real estate (net)		(41	)		26			(110	)		134
General and administrative		3,963			3,484			10,212			6,632

Total other expense		14,808			13,852			31,639			27,042

Income before taxes		11,122			10,198			18,484			20,542
Taxes on income		4,281			3,572			7,143			7,637

Net income	$	6,841		$	6,626		$	11,341		$	12,905


Basic earnings per share	$	0.48		$	0.46		$	0.80		$	0.91
Diluted earnings per share	$	0.47		$	0.45		$	0.78		$	0.89
Cash dividends declared per share	$	0.0925		$	0.0825		$	0.1850		$	0.1650

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the six months
	ended June 30,
(Dollars in thousands)	2007			2006

Operating activities:
Net income	$	11,341		$	12,905
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses		3,968			5,992
Deferred tax benefit		(722	)		(1,337	)
Fixed asset depreciation and amortization		1,436			1,428
Securities premium amortization (discount accretion), net		(14	)		32
Amortization of intangibles		326			188
Stock based compensation expense		582			579
Net (gain) loss on investment securities		(1,471	)		334
Net gain on sales of loans		(2,008	)		(1,945	)
Net (gain) loss on sales of premises/equipment		2			(22	)
Net gain on other real estate owned, net		(11	)		(245	)
Proceeds from sales of residential mortgage loans		27,982			33,280
Residential mortgage loans originated for resale		(25,930	)		(33,270	)
Proceeds from sales of student loans		201,111			450,966
Student loans originated for resale		(86,213	)		(385,403	)
Net change in assets and liabilities:
Accrued interest receivable		4,398			(2,888	)
Other assets		4,703			(2,198	)
Income taxes payable		2,327			1,477
Excess tax benefit from share-based payment arrangements		(397	)		(606	)
Accrued interest payable		(2,836	)		1,662
Other liabilities		(291	)		500

Net cash provided by operating activities		138,283			81,429

Investing activities:
Proceeds from sales of available for sale securities		1,919			—
Proceeds from principal repayments, calls and maturities:
Held to maturity securities		—			1,001
Available for sale securities		5,624			3,084
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock		(404	)		(2,244	)
Purchases of held to maturity securities		(3,700	)		(1,095	)
Purchases of available for sale securities		(8,388	)		(4,472	)
Loans originated and principal repayments, net		(169,494	)		(108,302	)
Purchases of premises and equipment		(1,537	)		(1,470	)
Proceeds from sales of premises and equipment		38			86
Proceeds from sales of other real estate owned		449			5,837

Net cash used in investing activities		(175,493	)		(107,575	)

Financing activities:
Net increase in deposits		58,195			106,954
Net decrease in other borrowings		(42,533	)		(33,604	)
Net proceeds from issuance of common stock		782			1,425
Excess tax benefit from share-based payment arrangements		397			606
Common stock dividends paid		(2,495	)		(2,217	)

Net cash provided from financing activities		14,346			73,164

Net increase (decrease) in cash and cash equivalents		(22,864	)		47,018
Cash and cash equivalents,
Beginning of period		57,618			50,277

End of period	$	34,754		$	97,295

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


											Accumulated
											Other						Total
	Common Stock				Paid in			Retained			Comprehensive			Treasury			Shareholders’
(Dollars in thousands)	Shares		Amount		Capital			Earnings			Loss			Stock			Equity

Balance, January 1, 2007		14,658,042	$	14,658	$	45,901		$	146,197		$	(1,738	)	$	(7,508	)	$	197,510

Cash dividends declared:
Common, $0.185 per share, and other dividends		—		—		—			(2,646	)		—			—			(2,646	)
Common stock issued:
Employee Stock Option Plan		—		—		(585	)		—			—			1,270			685
Employee Stock Purchase Plan		—		—		15			—			—			35			50
Dividend Reinvestment Plan		—		—		15			—			—			32			47
Restricted Stock		—		—		108			—			—			237			345
Adjustment related to adoption of FIN 48		—		—		—			(803	)		—			—			(803	)
Tax benefit related to exercise of stock options		—		—		397			—			—			—			397
Stock Compensation Expense		—		—		478			—			—			—			478
Other comprehensive income (loss), net of tax		—		—		—			—			781			—			781
Net income		—		—		—			11,341			—			—			11,341


Balance, June 30, 2007		14,658,042	$	14,658	$	46,329		$	154,089		$	(957	)	$	(5,934	)	$	208,185

The accompanying notes are an integral part of this statement.

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, 2007, and the cash flows for the six months ended June 30, 2007, 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, 2006.

NOTE 2: PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements include the accounts of Southwest Bancorp, Inc. (“Southwest”), its wholly owned financial institution subsidiaries, the Stillwater National Bank and Trust Company (“Stillwater National”), SNB Bank of Wichita (“SNB Wichita”), and its management consulting subsidiaries, Healthcare Strategic Support, Inc. (“HSSI”), and Business Consulting Group, Inc. (“BCG”). All significant intercompany transactions and balances have been eliminated in consolidation.

NOTE 3: RECLASSIFICATIONS

Certain reclassifications have been made to the prior year amounts to conform to current year presentation.

NOTE 4: INVESTMENT SECURITIES

The following table presents securities with gross unrealized losses and fair value by length of time that the individual securities had been in a continuous unrealized loss position at June 30, 2007. Securities whose market values exceed cost are excluded from this table.


					Continuous Unrealized
					Loss Existing for:
	Number of		Amortized		Less Than			More Than			Fair
(Dollars in thousands)	Securities		Cost		12 Months			12 Months			Value

Held to Maturity:
U.S. government obligations		1		1,000		(2	)		—			998
Obligations of state and political subdivisions		4		4,333		(47	)		(24	)		4,262

Total		5		5,333		(49	)		(24	)		5,260


Available for Sale:
Federal agency securities		90		217,427		—			(2,925	)		214,502
Obligations of state and political subdivisions		1		1,250		—			(27	)		1,223
Mortgage-backed securities		56		25,382		(107	)		(134	)		25,141

Total		147		244,059		(107	)		(3,086	)		240,866

Southwest evaluates securities on an individual basis for other-than-temporary impairment on at least a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost,

the financial condition and near-term prospects of the issuer, and the intent and ability of Southwest to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Because the declines in fair value noted in the table above were attributable to increases in interest rates and not attributable to credit quality, and because Southwest has the ability and intent to hold all of these investments until a market price recovery or maturity, the impairment of these investments is not deemed to be other-than-temporary.

NOTE 5: LOANS AND OTHER REAL ESTATE

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 Oklahoma City, Stillwater, and Tulsa areas of Oklahoma; in the Austin, Dallas, Houston, and San Antonio areas of Texas; and in the Kansas City and Wichita areas of Kansas. As a result, the collectibility of Southwest’s loan portfolio can be affected by changes in the economic conditions in these three states and in those metropolitan areas. At June 30, 2007 and December 31, 2006, substantially all of Southwest’s loans were collateralized with real estate, inventory, accounts receivable, and/or other assets, or were guaranteed by agencies of the United States government or, in the case of private student loans, insured by a private insurer.

As of June 30, 2007, approximately $521.6 million, or 29%, of Southwest’s loan portfolio consisted of loans to individuals and businesses in the healthcare industry. 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.

Nonperforming assets and other risk elements of the loan portfolio are shown below as of the indicated dates. Total nonaccrual loans decreased $4.1 million from December 31, 2006, and total nonperforming loans decreased $5.1 million. The decrease in nonperforming loans is due primarily to one relationship returning to accrual status. Total nonperforming assets of $25.8 million (which includes other real estate owned) decreased $5.5 million from year-end 2006.


	At			At
(Dollars in thousands)	June 30, 2007			December 31, 2006

Nonaccrual loans (1)	$	22,633		$	26,735
Past due 90 days or more		1,625			2,622

Total nonperforming loans		24,258			29,357
Other real estate owned		1,508			1,873

Total nonperforming assets	$	25,766		$	31,230


Nonperforming loans to loans receivable		1.32	%		1.64	%
Allowance for loan losses to nonperforming loans		115.65	%		92.97	%
Nonperforming assets to loans receivable and other real estate owned		1.40	%		1.74	%


(1)		The government-guaranteed portion of loans included in these totals was $1.3 million (2007) and $1.4 million (2006)

All of the nonaccruing assets are subject to regular tests for impairment as part of Southwest’s allowance for loan losses methodology (see Note 6).

During the first six months of 2007, no interest income was received on nonaccruing loans. If interest on those loans had been accrued for the six months ended June 30, 2007, additional total interest income of $865,000 would have been recorded.

NOTE 6: ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED LOAN COMMITMENTS

Activity in the allowance for loan losses is shown below for the indicated periods.


	For the six			For the			For the six
	months ended			year ended			months ended
(Dollars in thousands)	June 30, 2007			December 31, 2006			June 30, 2006

Balance at beginning of period	$	27,293		$	23,812		$	23,812
Loans charged-off:
Real estate mortgage		1,550			708			504
Real estate construction		5			445			204
Commercial		1,870			7,393			2,872
Installment and consumer		178			379			72

Total charge-offs		3,603			8,925			3,652
Recoveries:
Real estate mortgage		24			414			73
Commercial		363			403			104
Installment and consumer		9			24			12

Total recoveries		396			841			189

Net loans charged-off		3,207			8,084			3,463
Provision for loan losses		3,968			11,565			5,992

Balance at end of period	$	28,054		$	27,293		$	26,341

Loans outstanding:
Average	$	1,820,792		$	1,830,996		$	1,817,383
End of period		1,842,539			1,791,190			1,776,182
Net charge-offs to total average loans (annualized)		0.36	%		0.44	%		0.38	%
Allowance for loan losses to total loans (end of period)		1.52	%		1.52	%		1.48	%

The allowance for loan losses is established through a provision for loan losses charged to operations. Loan amounts which are determined to be uncollectible are charged against this allowance, and recoveries, if any, are added to the allowance. The appropriate amount of the allowance is based on continuous review and evaluation of the loan portfolio and ongoing, quarterly assessments of the probable losses inherent in the loan and lease portfolio using a systematic methodology. Southwest’s methodology for assessing the appropriateness of the allowance includes determination of a formula allowance, specific allowances and an unallocated 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 eighteen months or twelve months, but may be adjusted for categories where eighteen and twelve month loss experience is historically unusual. 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 credit 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 losses 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. A loan is considered to be impaired when, based on current information and events, it is probable that Southwest will be unable to collect all amounts due according to the contractual terms of the loan agreement. The allowance for loan losses related to loans that are evaluated for impairment is based either on the discounted cash flows using the loan’s initial effective interest rate or on the fair value of the collateral for certain collateral dependent loans. Smaller balance homogeneous loans, including mortgage, student, and consumer loans, are collectively evaluated for impairment. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. 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 and other conditions including credit administration and management and the quality of risk identification systems. Management reviews these conditions quarterly.

There were no changes in estimation methods or assumptions that affected the methodology for assessing the appropriateness of the allowance during the first six months of 2007. Southwest determined the level of the allowance for loan losses at June 30, 2007 was appropriate, based on that methodology.

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.

The reserve for unfunded loan commitments was $2.0 million, $1.9 million and $1.6 million at June 30, 2007, December 31, 2006, and June 30, 2006, respectively. The reserve, which is included in other liabilities on Southwest’s statement of financial condition, is computed using a methodology similar to that used to determine the allowance for loan losses, modified to take into account the probability of a drawdown on the commitment.

NOTE 7: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Fair Value Hedges

Southwest uses interest rate swaps in order to offset changes in fair value of fixed rate deposits that occur during periods of interest rate volatility. Southwest is able to demonstrate an effective hedging relationship between derivatives and matched items by proving that their changes in fair values substantially offset. Southwest enters into interest rate swap agreements with the objective of converting the fixed interest rate on retail brokered CDs to a variable interest rate. The swap agreements require Southwest to pay a variable rate of interest based on a spread to the one-month London Interbank Offered Rate (“LIBOR”) and to receive a fixed rate of interest equal to that of the retail brokered CD (hedged item). Under the swap agreements, Southwest is to pay variable interest payments on a monthly basis; fixed interest payments are to be received on the maturity date of the swap agreement, except for agreements that pay semi-annually. Amounts to be paid or received under these swap agreements are accounted for on an accrual basis and recorded as an adjustment of interest expense of the hedged item. The net cash flows related to fair value hedges increased interest expense on certificates of deposit by $43,000 for the six months ended June 30, 2007. All of the interest rate swaps outstanding at June 30, 2007 will expire within a twelve month period.

The following table provides information on Southwest’s derivative portfolio as of June 30, 2007 and December 31, 2006. Gross unrealized losses on derivatives are included in other liabilities.


				Gross Unrealized					Estimated
(Dollars in thousands)	Notional Amt			Gains		Losses			Fair Value

At June 30, 2007:

Fair-value hedges
Interest-rate swaps
Pay floating, receive fixed	$	209,958		$	—	$	(273	)	$	(273	)

	$	209,958		$	—	$	(273	)	$	(273	)


Weighted average floating pay rate		5.29	%
Weighted average fixed receive rate		5.34	%
Weighted average maturity in months		7

At December 31, 2006:

Fair-value hedges
Interest-rate swaps
Pay floating, receive fixed	$	239,261		$	—	$	(166	)	$	(166	)

	$	239,261		$	—	$	(166	)	$	(166	)


Weighted average floating pay rate		5.17	%
Weighted average fixed receive rate		5.13	%
Weighted average maturity in months		5

Southwest is exposed to credit risk on derivative instruments if the counterparty should fail to perform under the terms of the contract. Southwest manages credit risk through the use of comprehensive credit approval processes, the selection of only creditworthy counterparties, and effective collateral administration. The amount of credit exposure is limited to the net interest receivable and the fair market value of the derivative contracts in gain positions reduced by the value of any collateral pledged by the counterparty. As of June 30, 2007, the net credit exposure associated with derivative instruments totaled $4.6 million. The maximum net exposure to any one counterparty is $3.6 million. The notional amount of the swap position at June 30, 2007 is with two counterparties.

NOTE 8: SHARE-BASED COMPENSATION

The Southwest Bancorp, Inc. 1994 Stock Option Plan and 1999 Stock Option Plan (the “Stock Plans”) provide directors and selected key employees with the opportunity to acquire common stock through grants of options exercisable for common stock and other stock based awards.

Stock Options

The exercise price of all stock options granted under the Stock Plans is the fair market value on the grant date. Depending upon terms of the stock option agreements, stock options generally become exercisable on an annual basis and expire from five to ten years after the date of grant.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), Southwest recorded $478,000 of share-based compensation expense for the six month period ended June 30, 2007 related to outstanding stock options.

The share-based compensation is calculated using the accrual method, which treats each vesting tranche as a separate award and amortizes expense evenly from grant date to vest date. This charge had no impact on Southwest’s reported cash flows. The deferred tax asset that was recorded related to this compensation expense was approximately $158,000.

For purposes of the disclosure in the following table and for purposes of determining estimated fair value under SFAS No. 123(R), Southwest has computed the estimated fair values of all share-based compensation using the Black-Scholes option pricing model and has applied the assumptions set forth in the table. Southwest will continue to monitor the actual expected term of stock options and will adjust the expected term used in the valuation process when the difference is determined to be significant.


										Expected
	Risk-Free			Expected						Option
	Interest			Dividend			Expected			Term
	Rate			Yield			Volatility			(in years)

Second quarter 2007		4.73	%		1.48	%		29.60	%		2.50
First quarter 2007		4.51	%		1.40	%		29.58	%		2.50
Second quarter 2006		5.00	%		1.39	%		32.88	%		2.50
First quarter 2006		4.75	%		1.49	%		24.48	%		2.50

A summary of option activity under the Stock Plans as of June 30, 2007, and changes during the six month period then ended, is presented below.


						Weighted
				Weighted		Average Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value (dollars
	Options			Price		Life (Years)		in thousands)

Outstanding at December 31, 2006		860,010		$	13.50

Granted		114,931			26.29
Exercised		(72,088	)		9.88
Canceled/expired		(2,666	)		25.46

Outstanding at June 30, 2007		900,187		$	15.39		2.78	$	13,851



Total exercisable at June 30, 2007		673,704		$	14.58		2.46	$	9,824

The weighted average grant date fair value of options granted during the six month period ended June 30, 2007 was $5.53 per share. The total intrinsic value of options exercised during the six month period was $1,124,000; the amount of cash received from those exercises was $685,000. All shares issued upon exercise of options during the six month period ended June 30, 2007 were issued out of treasury shares. The fair value of options that became vested during the six month period was $665,000.

A summary of the status of Southwest’s nonvested stock options as of June 30, 2007 and changes during the six month period then ended is presented below.


	Shares			Weighted
	Issuable			Average
	Upon Exercise			Grant Date
	of Options			Fair Value

Nonvested Balance at December 31, 2006		238,300		$	4.34

Granted		114,931			5.53
Vested		(124,082	)		5.36
Forfeited		(2,666	)		5.59

Nonvested Balance at June 30, 2007		226,483		$	4.37

As of June 30, 2007, there was $504,000 of total unrecognized compensation expense related to stock option arrangements granted under the Stock Plans. This unrecognized expense is expected to be recognized during the next 2.5 years.

Restricted Stock

In March 2005, January 2006, and January 2007, nonemployee directors were awarded shares in restricted common shares (28,110 total shares) at grant date fair values of $19.75, $21.725, and $26.985, respectively. In March 2007, an employee was awarded 4,868 shares in restricted stock at grant date fair value of $26.395. During the first six months of 2007, $64,000 in compensation expense, net of tax, was recorded related to all restricted shares outstanding and is included in the compensation expense amounts for 2007; $54,000 in compensation expense, net of tax, was recorded in the first six months of 2006.

The restricted stock grants vest one-third on the first, second and third annual anniversaries of the date of grant provided the director or employee remains a director or employee of Southwest or a subsidiary on those dates. The restrictions on the shares expire three years after the award date. Southwest will continue to recognize compensation expense over the restricted periods.

NOTE 9: TAXES ON INCOME

FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, was adopted on January 1, 2007. As a result of the implementation of Interpretation No. 48, Southwest recognized a cumulative effect adjustment of approximately $803,000 as a decrease in retained earnings. Including the cumulative effect adjustment, at the beginning of 2007, Southwest had approximately $1.8 million (net of federal benefit on state issues) of total unrecognized tax benefits. The balance of unrecognized tax benefits at June 30, 2007 was $2.2 million (net of federal benefit on state issues), that if recognized, would favorably affect the effective tax rate in any future periods.

Southwest recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of date of adoption, Southwest had accrued $562,000 in interest and penalties. As of second quarter end, an additional $154,000 has been accrued in interest and penalties.

Southwest or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, Southwest is no longer subject to U.S. federal or state tax examinations for years before 2002.

Southwest is currently under audit by the State of Oklahoma for the 2002 tax year. It is likely that the examination phase of the audit will conclude in the next twelve months, and it is possible that a reduction in the unrecognized tax benefits may occur; however, quantification of an estimated range cannot be made at this time.

NOTE 10: 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 method. At June 30, 2007 and 2006, there were 134,765 and 2,500 antidilutive options to purchase common shares, respectively.

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,
	2007		2006		2007		2006

Weighted average common shares outstanding		14,299,111		14,151,442		14,281,502		14,113,929
Effect of dilutive securities		345,752		319,512		361,930		325,475

For calculation of diluted earnings per share		14,644,863		14,470,954		14,643,432		14,439,404

NOTE 11: OPERATING SEGMENTS

Southwest operates four principal segments: Oklahoma Banking, Other States Banking, Secondary Market, and Other Operations. The Oklahoma Banking segment consists of three operating units that provide lending and deposit services to customers in the state of Oklahoma. The Other States Banking segment consists of several operating units that provide lending and deposit services to the customers in the states of Texas and Kansas, and other markets outside Southwest’s primary territory. The Secondary Market segment consists of two operating units: one that provides student lending services to post-secondary students in Oklahoma and several other states and the other that provides residential mortgage lending services to customers in Oklahoma, Texas, and Kansas. Other Operations includes Southwest’s fund management unit.

The primary purpose of the fund management unit is to manage Southwest’s overall liquidity needs and interest rate risk. Each segment borrows funds from and provides funds to the fund management unit as needed to support its operations. The value of funds provided and cost of funds borrowed from the funds management unit by each segment are internally priced at rates that approximate market rates for funds with similar duration.

The Other Operations segment also includes SNB Investor Services and nonbank cash machine operations; these operations are discussed more fully in the 2006 Annual Report.

Southwest identifies reportable segments by type of service provided and geographic location. Operating results are adjusted for intercompany loan participations and borrowings, allocated service costs, and management fees.

The accounting policies of each reportable segment are the same as those of Southwest. Expenses for consolidated back-office operations are allocated to operating segments based on estimated uses of those services. General overhead expenses such as executive administration, accounting, and internal audit are allocated based on the direct expense and/or deposit and loan volumes of the operating segment. Income tax expense for the operating segments is calculated essentially at statutory rates. The Other Operations segment records the tax expense or benefit necessary to reconcile to the consolidated financial statements.

Beginning in the first quarter of 2007, capital is assigned and the credit allocated to each of the segments rather than remaining in the Other Operating Segment. The amounts for the six months ending June 30, 2006 have been restated using the capital pricing methodology as well. The credit for capital is allocated based on the capital assignment methodology applied to each segment. This methodology assigns capital to each segment based on the mix of deposits, loans, securities, other assets or revenue and conceptually follows the Risk Based Capital Guidelines on assets. A ratio is calculated based on Credit Risk, Interest Rate Risk, Market Risk, Operational Risk and Liquidity Risk. This risk based ratio is also applied to the average balances of deposits, loans, securities, other assets or revenue in each segment in order to calculate an assigned capital amount. The credit for capital is then allocated to each segment based on the pro rata share of assigned capital.

By including capital as a funding component, each operating segment’s performance is more accurately reported leaving fewer unallocated dollars in the fund management unit.

The following table summarizes financial results by operating segment:


For the Three Months Ended June 30, 2007
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	13,284	$	9,344	$	319	$	(364	)	$	22,583
Provision for loan losses		486		1,621		—		—			2,107
Other income		3,766		504		834		350			5,454
Other expenses		7,651		5,046		800		1,311			14,808

Income (loss) before taxes		8,913		3,181		353		(1,325	)		11,122
Taxes on income		3,311		1,138		157		(325	)		4,281

Net income (loss)	$	5,602	$	2,043	$	196	$	(1,000	)	$	6,841


For the Three Months Ended June 30, 2006
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	13,234	$	7,082	$	2,569	$	(24	)	$	22,861
Provision for loan losses		2,302		1,014		—		—			3,316
Other income		2,062		157		1,077		1,209			4,505
Other expenses		7,500		3,734		993		1,625			13,852

Income (loss) before taxes		5,494		2,491		2,653		(440	)		10,198
Taxes on income		1,865		873		914		(80	)		3,572

Net income (loss)	$	3,629	$	1,618	$	1,739	$	(360	)	$	6,626


For the Six Months Ended June 30, 2007
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	26,378	$	18,335	$	1,202	$	(618	)	$	45,297
Provision for loan losses		1,182		2,786		—		—			3,968
Other income		5,512		796		2,057		429			8,794
Other expenses		14,829		9,630		1,741		5,439			31,639

Income (loss) before taxes		15,879		6,715		1,518		(5,628	)		18,484
Taxes on income		5,993		2,587		569		(2,006	)		7,143

Net income (loss)	$	9,886	$	4,128	$	949	$	(3,622	)	$	11,341


Fixed asset expenditures	$	717	$	414	$	57	$	349		$	1,537
Total loans at period end		936,305		833,223		73,011		—			1,842,539
Total assets at period end		943,208		835,286		79,506		338,005			2,196,005
Total deposits at period end (1)		1,237,322		159,835		2,160		424,489			1,823,806


(1)		Brokered Deposits are included in the Oklahoma Banking Segment.


For the Six Months Ended June 30, 2006
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	25,974	$	13,891	$	5,506	$	(268	)	$	45,103
Provision for loan losses		3,754		2,238		—		—			5,992
Other income		3,888		444		2,086		2,055			8,473
Other expenses		14,753		6,801		2,232		3,256			27,042

Income (loss) before taxes		11,355		5,296		5,360		(1,469	)		20,542
Taxes on income		4,041		1,904		1,927		(235	)		7,637

Net income (loss)	$	7,314	$	3,392	$	3,433	$	(1,234	)	$	12,905


Fixed asset expenditures	$	100	$	223	$	—	$	1,147		$	1,470
Total loans at period end		844,047		613,658		318,477		—			1,776,182
Total assets at period end		849,377		610,747		335,386		392,592			2,188,102
Total deposits at period end (1)		1,140,820		110,581		2,886		510,487			1,764,774


(1)		Brokered Deposits are included in the Oklahoma Banking Segment.

NOTE 12. ACCOUNTING STANDARD ISSUED BUT NOT YET ADOPTED

In September 2006, the Financial Accounting Standards Board issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair

value in generally accepted accounting principles, and expands disclosures about fair value measurements. Management continues to evaluate the impact and anticipates the adoption of the statement effective January 1, 2008.

In February 2007, the Financial Accounting Standards Board issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, (ii) is irrevocable (unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. Management continues to evaluate the impact and anticipates the adoption of the statement effective January 1, 2008.

NOTE 13. CASH RECEIVABLE

Southwest previously disclosed that in December 2006 an armored transportation company failed to deliver to Stillwater National approximately $1.3 million in cash then due to it from certain ATMs owned by Cash Source, Inc. (“CSI”), a subsidiary of Stillwater National. CSI discovered other cash shortages arising from the same armored transportation company and Stillwater National removed all cash from the other CSI ATMs for which that company provided cash transportation. Earlier this year, Southwest determined that the maximum total potential cash receivable was $2.5 million.

Stillwater National and CSI have filed legal action against the armored transportation company, its owners and others for the recovery of their funds and damages, have notified law enforcement and bank regulatory authorities and their insurers, and continue to investigate the possible locations of the missing cash and other means of recovery, including the extent of insurance coverage. Southwest’s investigations include, among other things, a continuing analysis of the armored transportation company and its affiliate’s records that were first obtained in the last week of March 2007. As a result of that analysis and other factors, including the inability to date of Southwest to locate any significant amount of the missing cash, Southwest estimated the amount of the loss to be the total amount of the receivable. Accordingly, Southwest recorded a complete write-off of that amount as reflected in the financial statements for the first quarter of 2007. This amount does not reflect any potential recoveries or insurance proceeds. The financial statements also reflect related legal expenses incurred by Southwest in the first six months of approximately $500,000. Southwest continues to vigorously pursue its investigation and efforts to recover the missing cash or otherwise mitigate its damages. Southwest filed its proof of loss with the insurer on August 6, 2007.

NOTE 14. PARTIAL DISPOSITION OF EQUITY SECURITY

During the quarter, Stillwater National sold 1,500,000 shares of common stock of a public corporation. This transaction was in response to an unsolicited offer to purchase such shares received in late April 2007. Stillwater National obtained these shares in connection with the restructuring of a problem credit in October 2005. The sale of these shares resulted in a realization of a pre-tax gain of $1.9 million. Stillwater National continues to hold 868,000 shares of the public corporation’s common stock.

NOTE 15. SUBSEQUENT EVENT

On February 2, 2007, Southwest signed an agreement to purchase the Bank of Kansas for a cash price of $15.25 million. Bank of Kansas has total assets of approximately $76 million, loans of approximately $42 million, deposits of approximately $68 million, and two banking offices in the Hutchinson, Kansas market. The acquisition was consummated on July 27, 2007. This acquisition is not expected to have a material effect on Southwest’s earnings or operations for 2007.

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, the notes to Southwest’s unaudited consolidated financial statements, 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; expectations regarding future financial performance of Southwest and its operating segments; assessments of loan quality, probable loan losses, and the amount and timing of loan payoffs; liquidity, contractual obligations, off-balance sheet risk, 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, market behavior, and other economic conditions; future laws, regulations, and accounting principles; 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.

Management’s discussion and analysis of Southwest’s consolidated financial condition and results of operations should be read 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”), SNB Bank of Wichita (“SNB Wichita”), Healthcare Strategic Support, Inc. (“HSSI”), and Business Consulting Group, Inc. (“BCG”). Through its subsidiaries, Southwest offers commercial and consumer lending, deposit and investment services, and specialized cash management, consulting and other financial services from offices in Oklahoma City, Stillwater, Tulsa, and Chickasha, Oklahoma; Austin, Dallas, Houston and San Antonio, Texas; and Kansas City and Wichita, Kansas; and on the Internet, through SNB DirectBanker^®. Southwest acquired Bank of Kansas, with two offices in the Hutchinson, Kansas market, on July 27, 2007. Southwest’s banking philosophy is to provide a high level of customer service, a wide range of financial services, and products responsive to customer needs with a focus on serving healthcare and health professionals, businesses and their managers and owners, and commercial and commercial real estate borrowers. This philosophy has led to the development of a line of deposit, lending, and other financial products that respond to professional and commercial customer needs for speed, efficiency, and information, and complement more traditional banking products. Such specialized financial services include integrated document imaging and cash management services designed to help our customers in the healthcare industry and other record-intensive enterprises operate more efficiently, and management consulting services through Southwest’s management consulting subsidiaries: HSSI, which serves physicians, hospitals, and healthcare groups, and BCG, which serves small and large commercial enterprises. Information regarding Southwest is available on line at www.oksb.com. Information regarding the products and services of Southwest’s financial institution subsidiaries is available on line at www.banksnb.com and www.snbwichita.com. The information on these websites is not a part of this report on form 10-Q.

Southwest’s strategic focus includes expansion in carefully selected geographic markets based upon a tested business model developed in connection with its expansion into Oklahoma City in 1982 and into Tulsa in 1985. This geographic expansion is based on identification of markets with concentrations of customers in Southwest’s traditional areas of expertise (healthcare and health professionals, businesses and their managers and owners, and commercial and commercial real estate lending) and makes use of traditional and specialized financial services.

Southwest’s expansion into the states of Kansas and Texas began in 2002. At June 30, 2007, these offices accounted for $833.2 million in loans (47% of portfolio loans and 45% of total loans, which include loans held for sale). Over $613.5 million (or 35%) of Southwest’s portfolio loans are attributable to Texas. During the first six months of 2007, the offices in Kansas and Texas produced $4.1 million in net income (36% of the consolidated total), and $140.9 million in asset growth. In the second quarter of 2006, Southwest opened a loan production

office in Houston, Texas which it plans to convert into a branch consistent with its established expansion strategy. In July 2006, Southwest completed the acquisition of the McMullen Bank, which added branches in San Antonio and Tilden, Texas. Southwest is actively seeking additional acquisitions consistent with its strategies, although currently it does not have any agreements or understandings to do so.

The Oklahoma Banking segment accounted for $9.9 million, or 87%, of consolidated year-to-date net income, up thirty percentage points from 57% for the first six months of 2006. The increase in the segment’s net income contribution was primarily the result of a decrease in the required provision for loan losses, an increase in net interest income, and an increase in other income, which is attributable to the gain on the sale of shares of common stock acquired in connection with a debt restructuring in 2005, that were held as available for sale securities. Outstanding loans in the Oklahoma Banking Segment totaled $936.3 million at quarter end and increased by $23.4 million, or approximately 3%, from December 31, 2006.

Southwest has a long history of student and residential mortgage lending. These operations comprise the Secondary Market business segment. During the first six months of 2007, this segment produced $949,000 in net income. Assets declined during the first six months of the year because, while originations of student loans totaled $86.2 million during the second quarter, sales proceeds totaled $199.6 million resulting in a 62% reduction in the balance of loans outstanding as of June 30, 2007. The gain on sales of student loans for the second quarter was $1.6 million. Loan volumes in the Secondary Market segment may vary significantly from period to period; however, student lending volume is expected to continue to decrease.

Southwest also conducts general consumer banking operations, and may establish or acquire additional community banking offices in selected markets.

For additional information on Southwest’s operating segments, please see Note 11, Operating Segments, in the Notes to Unaudited Consolidated Financial Statements. The total of net income of the segments discussed above does not equal consolidated net income for the first six months of 2007 due to income and expenses allocated to the Other Operations segment, which provides funding and liquidity services to the rest of the organization

Southwest was organized in 1981 as the holding company for Stillwater National, which was chartered in 1894. Southwest has established and pursued a strategy of independent operation for the benefit of all of its shareholders. Southwest became a public company in late 1993 with assets of approximately $434 million. At June 30, 2007, Southwest had total assets of $2.2 billion, deposits of $1.8 billion, and shareholders’ equity of $208.2 million.

FINANCIAL CONDITION

Total Assets and Investment Securities

Southwest’s total assets were $2.20 billion at June 30, 2007, and $2.17 billion at December 31, 2006.

Southwest’s investment security portfolio increased $8.2 million, or 3%, from $269.8 million at December 31, 2006, to $278.0 million at June 30, 2007. The increase occurred primarily in mortgage backed and tax exempt securities, which increased $4.3 million (18%) and $2.7 million (95%), respectively, during the first six months of 2007.

Loans

Total loans, including loans held for sale, were $1.84 billion at June 30, 2007, a 3% increase from $1.79 billion at December 31, 2006. Real estate construction, commercial and other consumer loans increased, while commercial real estate mortgage, one-to-four family residential, and student loans decreased.

The following table presents the trends in the composition of the loan portfolio at the dates indicated:


	June 30,		December 31,
(Dollars in thousands)	2007		2006		$ Change			% Change

Real estate mortgage
Commercial	$	564,813	$	609,271	$	(44,458	)		(7.30	)%
One-to-four family residential		90,916		91,441		(525	)		(0.57	)
Real estate construction		617,993		453,750		164,243			36.20
Commercial		465,588		424,189		41,399			9.76
Installment and consumer
Student loans		68,117		181,458		(113,341	)		(62.46	)
Other		35,112		31,081		4,031			12.97

Total loans	$	1,842,539	$	1,791,190	$	51,349			2.87	%

The composition of loans held for sale and reconciliation to total loans is shown in the following table.


	June 30,		December 31,
(Dollars in thousands)	2007		2006		$ Change			% Change

Loans held for sale:
Student loans	$	68,117	$	181,458	$	(113,341	)		(62.46	)%
One-to-four family residential		3,382		4,654		(1,272	)		(27.33	)
Other loans held for sale		1,512		2,352		(840	)		(35.71	)

Total loans held for sale		73,011		188,464		(115,453	)		(61.26	)
Portfolio loans		1,769,528		1,602,726		166,802			10.41

Total loans	$	1,842,539	$	1,791,190	$	51,349			2.87	%

Sub prime lending has never been a part of Southwest’s business strategy; therefore, sub prime loan exposure is minimal to none.

Management determines the appropriate level of the allowance for loan losses using a systematic methodology. (See Note 6, “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.) At June 30, 2007, the allowance for loan losses was $28.1 million, an increase of $761,000, or 3%, from the allowance for loan losses at December 31, 2006. This change is a result of growth in performing commercial and commercial real estate loans and an increase in potential problem loans offset in part by decreases in the allowance related to impaired loans and in the general allowance. The allowance was 1.52% of total loans at June 30, 2007 and December 31, 2006. Management believes the amount of the allowance is appropriate, given its systematic methodology of calculation. Changes in the amount of the allowance resulted from the application of that methodology, which is designed to estimate inherent losses on total loans in the portfolio, including those on nonperforming loans.

At June 30, 2007, the allowance for loan losses was $28.1 million, or 115.65% of nonperforming loans, compared to $27.3 million, or 92.97% of nonperforming loans, at December 31, 2006. (See “Results of Operations-Provision for Loan Losses.”)

Performing loans considered potential problem loans (loans that are not included in the past due, nonaccrual or restructured categories, but for which known information about possible credit problems cause management to have concerns as to the ability of the borrowers to comply with the present loan repayment terms and which may become problems in the future) amounted to approximately $69.6 million at June 30, 2007, compared to $50.6 million at December 31, 2006. Loans may be monitored by management and reported as potential problem loans for an extended period of time during which management continues to be uncertain as to the ability of certain borrowers to comply with the present loan repayment terms. These loans are subject to continuing management attention and are considered by management in determining the level of the allowance for loan losses.

At June 30, 2007, the reserve for unfunded loan commitments was $2.0 million, an $86,000, or 4%, increase from the amount at December 31, 2006. This change is due to an increase in the reserve on other loan commitments based on growth, partially offset by a decrease in the reserve on commitments related to potential problem loans.

Deposits and Other Borrowings

Southwest’s deposits were $1.82 billion at June 30, 2007, an increase of $58.2 million, or 3%, from $1.77 billion at December 31, 2006. Increases occurred in interest-bearing demand, money market accounts, and other time deposits.

The following table presents the trends in the composition of deposits at the dates indicated:


	June 30,		December 31,
(Dollars in thousands)	2007		2006		$ Change			% Change

Noninterest-bearing demand	$	248,285	$	254,415	$	(6,130	)		(2.41	)%
Interest-bearing demand		63,758		55,396		8,362			15.09
Money market accounts		487,096		371,912		115,184			30.97
Savings accounts		11,017		11,273		(256	)		(2.27	)
Time deposits of $100,000 or more		571,584		648,664		(77,080	)		(11.88	)
Other time deposits		442,066		423,951		18,115			4.27

Total deposits	$	1,823,806	$	1,765,611	$	58,195			3.30	%

Stillwater National has unsecured brokered certificate of deposit lines of credit in connection with its retail certificate of deposit program from Merrill Lynch & Co., Citigroup Global Markets, Inc., Wachovia Securities LLC, UBS Financial Services, Inc., RBC Dain Rauscher, Morgan Stanley & Co., Inc., and CountryWide Securities that total $1.6 billion. At June 30, 2007, $276.1 million in these retail certificates of deposit were included in time deposits of $100,000 or more, a decrease of $88.7 million, or 24%, from year-end 2006.

As of June 30, 2007, Stillwater National has brokered certificates of deposit issued in amounts under $100,000 totaling $195,000 which are included in other time deposits in the above table. Stillwater National had no brokered certificates of deposit under $100,000 as of year-end 2006.

Other borrowings decreased $42.5 million, or 31%, to $95.6 million during the first six months of 2007 as the company relied more on deposits for funding.

Shareholders’ Equity

Shareholders’ equity increased $10.7 million, or 5%, due primarily to earnings of $11.3 million for the first six months of 2007, offset by dividends declared totaling $2.6 million. Sales of common stock through the dividend reinvestment plan, the employee stock purchase plan, and share based compensation plans, including tax benefits realized, contributed an additional $2.0 million to shareholders’ equity in the first six months of 2007. Implementation of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, reduced shareholders’ equity by $803,000. Net unrealized holding losses on available for sale investment securities (net of tax) decreased to a loss of $957,000 at June 30, 2007, compared to a loss of $1.7 million at December 31, 2006.

At June 30, 2007, Southwest, Stillwater National and SNB Wichita continued to exceed all applicable regulatory capital requirements. See “Capital Resources” on page 33.

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2007 and 2006

Net income for the second quarter of 2007 of $6.8 million represented an increase of $215,000, or 3%, from the $6.6 million earned in the second quarter of 2006. Diluted earnings per share were $0.47 compared to $0.45, a

4% increase. The increase in quarterly net income was the result of a $1.2 million, or 36%, decrease in the provision for loan losses and a $949,000, 21%, increase in other income, offset in part by a $278,000, or 1%, decrease in net interest income, a $709,000, or 20%, increase in income taxes, and a $956,000, or 7%, increase in other expense.

The $278,000 decrease in net interest income for the quarter was primarily the result of increased loan yields and offset by higher rates on interest bearing deposits. Although the provision for loan losses decreased, the allowance for loan losses increased to 1.52% of total loans at quarter end, up from 1.48% at June 30, 2006. The decrease in the provision for loan losses was the result of the calculations of the appropriate allowance at each period end using Southwest’s systematic methodology. This change is a result of growth in performing commercial and commercial real estate loans and an increase in potential problem loans offset in part by decreases in the allowance related to impaired loans and in the general allowance. The required net increase in the allowance for the second quarter 2007 was $326,000 compared to a required net increase of $1.6 million for the second quarter 2006.

The increase in other income was mainly the result of a realization of pre-tax gain of $1.9 million on the sale of 1,500,000 shares of common stock of a public corporation included in available for sale securities. This transaction was in response to an unsolicited offer to purchase such shares. These shares were obtained in connection with the restructuring of problem credits in October 2005. Southwest continues to hold 868,000 shares of the public corporation’s common stock.

On an operating segment basis, the increase in net income was led by a $2.0 million increase from the Oklahoma Banking segment, primarily resulting from the $1.9 million pre-tax gain on the securities sale, and a $425,000 increase from the Other States Banking segment, offset in part by a $1.5 million reduction from the Secondary Market segment, attributable to lower volumes of guaranteed student loans, and a $640,000 decrease from the Other Operations segment. The contribution from the Secondary Market segment is expected to decline further as a result of changes in the student loan market.

Net Interest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2007		2006		$ Change			% Change

Interest income:
Loans	$	39,578	$	39,047	$	531			1.36	%
Investment securities:
U.S. government and agency obligations		2,142		2,192		(50	)		(2.28	)
Mortgage-backed securities		334		246		88			35.77
State and political subdivisions		49		33		16			48.48
Other securities		322		234		88			37.61
Other interest-earning assets		115		60		55			91.67

Total interest income		42,540		41,812		728			1.74

Interest expense:
Interest-bearing demand deposits		98		78		20			25.64
Money market accounts		4,743		4,227		516			12.21
Savings accounts		21		6		15			250.00
Time deposits of $100,000 or more		7,781		7,478		303			4.05
Other time deposits		5,250		3,943		1,307			33.15
Other borrowings		1,089		2,275		(1,186	)		(52.13	)
Subordinated debentures		975		944		31			3.28

Total interest expense		19,957		18,951		1,006			5.31


Net interest income	$	22,583	$	22,861	$	(278	)		(1.22	)%

Net interest income is the difference between the interest income Southwest earns on its loans, investments, and other interest-earning assets, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Because different types of assets and liabilities owned by Southwest may react differently, and at different times, to changes in market interest rates, net interest income is affected by changes in market interest rates. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an increase of market rates of interest could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income.

Yields on Southwest’s interest-earning assets increased 23 basis points, and the rates paid on Southwest’s interest-bearing liabilities increased 45 basis points, resulting in a decrease in the interest rate spread to 3.45% for the second quarter of 2007 from 3.67% for the second quarter of 2006. During the same periods, annualized net interest margin was 4.35% and 4.36%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities increased to 123.48% from 118.96%.

The increase in interest income was the result of the 23 basis point increase in the yield earned on interest-earning assets, which was offset in part by the effects of a $22.9 million, or 1%, decrease in average interest-earning assets. Southwest’s average loans decreased $33.5 million, or 2%; however, the related yield increased to 8.84% for the second quarter of 2007 from 8.57% in 2006. During the same period, average investment securities increased $6.2 million, or 2%, and the related yield increased to 4.13% from 4.01% in 2006.

The increase in total interest expense can be attributed to the 45 basis point increase in the rates paid on interest-bearing liabilities which was offset in part by the effects of an $83.4 million, or 5%, decrease in average interest-bearing liabilities. The increase in interest expense on subordinated debentures is due to rate increases on the two variable rate issuances of subordinated debentures. Rates paid on deposits increased 51 basis points, while average interest-bearing deposits increased $18.7 million, or 1%.

UNAUDITED RATE VOLUME TABLE

The following table analyzes changes in interest income and interest expense of Southwest for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by the prior period’s rate); and (ii) changes in rates (changes in rate multiplied by the prior period’s volume). Changes in rate-volume (changes in rate multiplied by the changes in volume) are allocated between changes in rate and changes in volume in proportion to the relative contribution of each.


	For the three months ended June 30,
(Dollars in thousands)	2007 vs. 2006
	Increase			Due to Change
	Or			In Average:
	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable⁽¹⁾	$	531		$	(723	)	$	1,254
Investment securities		142			63			79
Other interest-earning assets		55			53			2

Total interest income		728			(459	)		1,187
Interest paid on:
Interest-bearing demand		20			9			11
Money market accounts		516			182			334
Savings accounts		15			2			13
Time deposits		1,610			(112	)		1,722
Other borrowings		(1,186	)		(1,169	)		(17	)
Subordinated debentures		31			—			31

Total interest expense		1,006			(922	)		1,928


Net interest income	$	(278	)	$	463		$	(741	)


(1)		Average balances include nonaccrual loans. Fees included in interest income on loans receivable are not considered material. Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

The following table sets forth average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated.


	For the three months ended June 30,
(Dollars in thousands)	2007						2006
	Average			Average			Average			Average
	Balance			Yield/Rate			Balance			Yield/Rate

Assets
Total loans	$	1,795,028			8.84	%	$	1,828,484			8.57	%
Investment securities		276,610			4.13			270,392			4.01
Other interest-earning assets		9,354			4.93			5,050			4.77

Total interest-earning assets		2,080,992			8.20			2,103,926			7.97
Other assets		66,614						87,758

Total assets	$	2,147,606					$	2,191,684


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	63,947			0.61	%	$	57,938			0.54	%
Money market accounts		423,484			4.49			406,476			4.17
Savings accounts		10,993			0.77			8,971			0.27
Time deposits		1,045,334			5.00			1,051,660			4.36

Total interest-bearing deposits		1,543,758			4.65			1,525,045			4.14
Other borrowings		95,143			4.59			197,226			4.63
Subordinated debentures		46,393			8.41			46,393			8.05

Total interest-bearing liabilities		1,685,294			4.75			1,768,664			4.30
Noninterest-bearing demand deposits		236,835						222,594
Other liabilities		18,483						18,240
Shareholders’ equity		206,994						182,186

Total liabilities and shareholders’ equity	$	2,147,606					$	2,191,684


Interest rate spread					3.45	%					3.67	%

Net interest margin (1)					4.35	%					4.36	%

Ratio of average interest-earning assets to average interest-bearing liabilities		123.48	%					118.96	%


(1)		Net interest margin = annualized net interest income / average interest-earning assets

Other Income


	For the three months
	ended June,
(Dollars in thousands)	2007		2006			$ Change			% Change

Other income:
ATM service charges	$	302	$	940		$	(638	)		(67.87	)%
Other service charges		1,593		1,691			(98	)		(5.80	)
Other customer fees		411		378			33			8.73
Other noninterest income		429		527			(98	)		(18.60	)
Gain on sales of loans:
Student loan sales		197		673			(476	)		(70.73	)
Mortgage loan sales		602		254			348			137.01
All other loan sales		1		113			(112	)		(99.12	)
Gain (loss) on sales of securities		1,919		(71	)		1,990			(2,802.82	)

Total other income	$	5,454	$	4,505		$	949			21.07	%

The decline in ATM charges related to the substantially reduced operations of CSI. Although CSI’s ATM fees decreased in the quarter, CSI did not produce a significant contribution to net income in any of the reported periods, and the reduction in its owned ATMs will not have a significant effect on future net income.

The decline in other service charges is the result of decreases in commercial account service charges and overdraft fees, while the decrease in other noninterest income is primarily the result of decreased consulting income.

Gain on sales of loans is a reflection of the activity in the student, mortgage and commercial lending areas discussed elsewhere in this report.

During the second quarter 2007, Southwest recorded a securities gain of $1.9 million due to the sale of 1,500,000 shares of common stock of a public corporation. See further discussion on page 22.

Other Expense


	For the three months
	ended June 30,
(Dollars in thousands)	2007			2006		$ Change			% Change

Other expense:
Salaries and employee benefits	$	8,358		$	7,788	$	570			7.32	%
Occupancy		2,388			2,430		(42	)		(1.73	)
FDIC and other insurance		140			124		16			12.90
Other real estate (net)		(41	)		26		(67	)		(257.69	)
General and administrative		3,963			3,484		479			13.75

Total other expense	$	14,808		$	13,852	$	956			6.90	%

Salaries and employee benefits increased $570,000 primarily as a result of normal compensation increases, an increase in the number of employees, and recruitment expenses in connection with the market expansion. The number of full-time equivalent employees for the quarter increased from 443 at the beginning of the quarter to 457 as of June 30, 2007. For the second quarter of 2006, the number of full-time equivalent employees for the quarter increased from 390 at the beginning of the quarter to 409 as of June 30, 2006.

The occupancy expense decreased due to a decrease in data processing of $88,000, decreased amortization of maintenance contracts of $98,000, a decrease in depreciation of $7,000, offset in part by an increase in building rental expense of $134,000 and a $17,000 increase in utilities and other expenses.

General and administrative expense increased as a result of increases in professional fees of $268,000, supplies and printing of $133,000, increased provision for unfunded loan commitment of $76,000 and increased miscellaneous expense of $141,000, offset in part by decreased postage expense of $135,000.

Under the Deposit Insurance Reform Act of 2005, depository institutions in all risk categories must pay FDIC insurance premiums effective this year, but the payments otherwise due are offset by a one-time assessment credit. Southwest expects that its assessment credit will offset the FDIC insurance premiums otherwise payable for the remainder of 2007, but will be entirely used after the assessment for the second quarter of 2008. Quarterly FDIC insurance premiums have been approximately $275,000 each for the first two quarters of 2007, before offset by the assessment credit.

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2007 AND 2006

Net income for the first six months of 2007 of $11.3 million represented a decrease of $1.6 million or 12%, from the $12.9 million earned in the first six months of 2006. Diluted earnings per share were $0.78 compared to $0.89, a 12% decrease. The decline in net income was primarily the result of a $4.6 million, or 17%, increase in other expense, offset in part by a $194,000, or less than 1% increase in net interest income, a $2.0 million, 34%, decrease in provision for loan losses, an increase in other income of $321,000, or 4%, and a $494,000, 6%, decrease in income taxes.

On an operating segment basis, the decrease in net income was led by a $2.5 million reduction from the Secondary Market segment, attributable to decreased volume in guaranteed student loans, and a $2.4 million decrease from the Other Operations segment, primarily the result of the write-off of the cash receivable (see Note 13: “Cash Receivable” in the Notes to Unaudited Consolidated Financial Statements). These decreases were partially offset by a $2.6 million increase from the Oklahoma Banking segment, which includes the $1.9 million pre-tax gain realized on the securities sale, and a $736,000 increase from the Other States Banking segment.

Net Interest Income


	For the six months
	ended June 30,
(Dollars in thousands)	2007		2006		$ Change			% Change

Interest income:
Loans	$	79,864	$	75,765	$	4,099			5.41	%
Investment securities:
U.S. government and agency obligations		4,280		4,388		(108	)		(2.46	)
Mortgage-backed securities		626		491		135			27.49
State and political subdivisions		92		66		26			39.39
Other securities		528		430		98			22.79
Other interest-earning assets		180		80		100			125.00

Total interest income		85,570		81,220		4,350			5.36

Interest expense:
Interest-bearing demand deposits		179		141		38			26.95
Money market accounts		8,705		7,975		730			9.15
Savings accounts		41		11		30			272.73
Time deposits of $100,000 or more		15,913		13,660		2,253			16.49
Other time deposits		10,278		7,350		2,928			39.84
Other borrowings		3,220		5,164		(1,944	)		(37.65	)
Subordinated debentures		1,937		1,816		121			6.66

Total interest expense		40,273		36,117		4,156			11.51


Net interest income	$	45,297	$	45,103	$	194			0.43	%

Net interest income is the difference between the interest income Southwest earns on its loans, investments and other interest-earning assets, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Because different types of assets and liabilities owned by Southwest may react differently, and at different times, to changes in market interest rates, net interest income is affected by changes in market interest rates. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an increase of market rates of interest could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income.

Yields on Southwest’s interest-earning assets increased 39 basis points, and the rates paid on Southwest’s interest-bearing liabilities increased 62 basis points, resulting in a decrease in the interest rate spread to 3.47% for the first six months of 2007 from 3.70% for the first six months of 2006. During the same periods, annualized net interest margin remained consistent at 4.34%. The ratio of average interest-earning assets to average interest-bearing liabilities increased to 122.65% for the first six months of 2007 from 118.49% for the first six months of 2006.

The principal factor in the increase interest income was the 39 basis point increase in the yield earned on interest-earning assets and the $9.1 million, or less than 1%, increase in average interest-earning assets. Southwest’s average loans increased $3.4 million, or less than 1%, and the related yield increased to 8.85% for the first six months of 2007 from 8.41% in 2006. During the same period, average investment securities increased $3.2 million, or 1%, and the related yield increased to 4.06% from 4.00% in 2006.

The increase in total interest expense can be attributed to the 62 basis point increase in the rates paid on interest-bearing liabilities, which was offset in part by a $52.6 million, or 3% decrease in average interest-bearing liabilities. Rates paid on deposits increased 67 basis points, while average deposits increased $44.8 million, or 3%.

UNAUDITED RATE VOLUME TABLE


	For the six months ended June 30,
(Dollars in thousands)	2007 vs. 2006
	Increase			Due to Change
	Or			In Average:
	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	4,099		$	142		$	3,957
Investment securities		151			63			88
Other interest-earning assets		100			52			48

Total interest income		4,350			353			3,997

Interest paid on:
Interest-bearing demand		38			15			23
Money market accounts		730			(93	)		823
Savings accounts		30			3			27
Time deposits		5,181			885			4,296
Other borrowings		(1,944	)		(2,297	)		353
Subordinated debentures		121			—			121

Total interest expense		4,156			(1,101	)		5,257


Net interest income	$	194		$	1,454		$	(1,260	)


(1)		Average balances include nonaccrual loans. Fees included in interest income on loans receivable are not considered material. Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

The following table sets forth average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated.


	For the six months ended June 30,
(Dollars in thousands)	2007						2006
	Average			Average			Average			Average
	Balance			Yield/Rate			Balance			Yield/Rate

Assets
Total loans	$	1,820,792			8.85	%	$	1,817,383			8.41	%
Investment securities		274,387			4.06			271,235			4.00
Other interest-earning assets		7,293			4.98			4,793			3.37

Total interest-earning assets		2,102,472			8.21			2,093,411			7.82
Other assets		74,130						91,027

Total assets	$	2,176,602					$	2,184,438


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	62,215			0.58	%	$	56,704			0.50	%
Money market accounts		397,634			4.41			402,256			4.00
Savings accounts		11,049			0.75			8,930			0.25
Time deposits		1,061,794			4.97			1,019,992			4.15

Total interest-bearing deposits		1,532,692			4.62			1,487,882			3.95
Other borrowings		135,107			4.81			232,473			4.48
Subordinated debentures		46,393			8.35			46,393			7.83

Total interest-bearing liabilities		1,714,192			4.74			1,766,748			4.12
Noninterest-bearing demand deposits		237,679						220,861
Other liabilities		20,271						17,767
Shareholders’ equity		204,460						179,062

Total liabilities and shareholders’ equity	$	2,176,602					$	2,184,438


Interest rate spread					3.47	%					3.70	%

Net interest margin (1)					4.34	%					4.34	%

Ratio of average interest-earning assets to average interest-bearing liabilities		122.65	%					118.49	%


(1)		Net interest margin = annualized net interest income / average interest-earning assets

Other Income


	For the six months
	ended June 30,
(Dollars in thousands)	2007		2006			$ Change			% Change

Other income:
ATM service charges	$	620	$	1,828		$	(1,208	)		(66.08	)%
Other service charges		3,102		3,198			(96	)		(3.00	)
Other customer fees		819		757			62			8.19
Other noninterest income		774		1,079			(305	)		(28.27	)
Gain on sales of loans:
Student loan sales		1,558		1,360			198			14.56
Mortgage loan sales		357		423			(66	)		(15.60	)
All other loan sales		93		162			(69	)		(42.59	)
Gain (loss) on sales of investment securities		1,471		(334	)		1,805			(540.42	)

Total other income	$	8,794	$	8,473		$	321			3.79	%

ATM service charges decreased $1.2 million mainly due to the previously described decrease in CSI operations. [See three month Other Income discussion on page 26.]

Gain on sales of loans is a reflection of the activity in the student, mortgage and commercial lending areas as discussed elsewhere in this document.

During the second quarter 2007, Southwest recorded a securities gain of $1.9 million due to the sale of 1,500,000 shares of common stock of a public corporation, offset by a securities loss of $448,000 which occurred in the first quarter due to the other than temporary impairment of certain equity securities of one issuer.

Other Expense


	For the six months
	ended June 30,
(Dollars in thousands)	2007			2006		$ Change			% Change

Other expenses:
Salaries and employee benefits	$	16,483		$	15,028	$	1,455			9.68	%
Occupancy		4,791			4,997		(206	)		(4.12	)
FDIC and other insurance		263			251		12			4.78
Other real estate (net)		(110	)		134		(244	)		(182.09	)
General and administrative		10,212			6,632		3,580			53.98

Total other expenses	$	31,639		$	27,042	$	4,597			17.00	%

Salaries and employee benefits increased $1.5 million primarily as a result of normal compensation increases, incentive based accruals, an increase in the number of employees, and recruitment expenses in connection with the market expansion. The number of full-time equivalent employees for the first six months increased from 429 at the beginning of the year to 457 as of June 30, 2007. For the first six months of 2006, the number of full-time equivalent employees increased from 381 at the beginning of 2006 to 409 as of June 30, 2006.

Occupancy expense decreased due to a decrease in data processing of $296,000 and decreased amortization of maintenance contracts of $150,000 offset in part by increases in depreciation of $8,000, building rental expense of $182,000 and utilities and other services of $51,000.

General and administrative increased as a result of increases in professional fees of $696,000, supplies and printing of $199,000, the provision for unfunded loan commitment of $379,000 and miscellaneous expense of $2.5 million, offset in part by decreased postage expense of $218,000. Approximately $3.0 million of the total

increase in general and administrative expenses is the result of the write-off of $2.5 million of the cash receivable and the associated legal fees of approximately $500,000 (see Note 13: “Cash Receivable” in the Notes to Unaudited Consolidated Financial Statements).

Deposit Insurance expense is expected to increase in 2008. See discussion of Other Expense for the quarter on page 27.

* * * * * * *

Provisions for Loan Losses and for Unfunded Loan Commitments

Southwest makes provisions for loan losses in amounts necessary to maintain the allowance for loan losses and the reserve for unfunded loan commitments at the levels Southwest determines are appropriate based on a systematic methodology. (See Note 6, “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

The allowance for loan losses of $28.1 million increased $761,000, or 3%, from year-end 2006. A provision for loan losses of $4.0 million was recorded in the first six months of 2007, a decrease of $2.0 million or 34%, from the first six months of 2006. The decrease in the provision for loan losses was the result of the calculations of the appropriate allowance at each period end using Southwest’s systematic methodology. This change is a result of growth in performing commercial and commercial real estate loans and an increase in potential problem loans offset in part by decreases in the allowance related to impaired loans and in the general allowance. (See Note 6, “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

At June 30, 2007, the reserve for unfunded loan commitments was $2.0 million, an $86,000, or 4%, increase from the amount reported at December 31, 2006. This reserve is included in other liabilities. The related provision for unfunded loan commitments is a component of general and administrative expense. (See Note 6, “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

Taxes on Income

Southwest’s income tax expense was $7.1 million and $7.6 million for the first six months of 2007 and 2006, respectively, a decrease of $494,000, or 6%. The effective tax rate for the first six months of 2007 was 38.64% while the effective tax rate for the first six months of 2006 was 37.18%.

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 student loans, residential mortgage loans, and SBA loans, and available for sale investments. Additional sources of liquidity, including cash flow from the repayment of loans and the sale of participations in outstanding 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, Stillwater National, and SNB Wichita have 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 (“Sallie Mae”), the Federal Home Loan Bank of Topeka (“FHLB”), and an unaffiliated commercial bank.

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 $859,000 at June 30, 2007. Stillwater National has approved federal funds purchase lines totaling $345.0 million with eleven banks; $26.9 million was outstanding on these lines at June 30, 2007. Stillwater National has available a $380.6 million line of credit from the FHLB, while SNB Wichita has a $14.5 million line of credit from the FHLB. Borrowings under the

FHLB lines are secured by investment securities and loans. The Stillwater National FHLB line of credit had an outstanding balance of $26.5 million at June 30, 2007; the SNB Wichita line of credit had no amount outstanding at June 30, 2007. Previously Stillwater National had available a line of credit from Sallie Mae, with borrowings secured by student loans. However, the Sallie Mae line expired April 30, 2007. In conjunction with the Sallie Mae consolidation loan program, a new agreement with a limit of $75 million became effective March 1, 2007. The funds borrowed through this line are exclusively to be used to fund disbursements in the consolidation loan program. As of June 30, 2007, no borrowings had been made under this line of credit.

See also “Deposits and Other Borrowings” on page 21 for funds available on brokered certificate of deposit lines of credit.

Stillwater National sells securities under agreements to repurchase with Stillwater National retaining custody of the collateral. Collateral consists of U.S. government agency obligations, 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 2007, the only categories of other borrowings whose averages exceeded 30% of ending shareholders’ equity were funds borrowed from the FHLB.


	June 30, 2007			June 30, 2006
	Funds			Funds
	Borrowed			Borrowed
(Dollars in thousands)	from the FHLB			from the FHLB

Amount outstanding at end of period	$	26,500		$	121,500
Weighted average rate paid at end of period		4.55	%		4.67	%
Average Balance:
For the three months ended	$	31,458		$	124,221
For the six months ended	$	56,022		$	145,370
Average Rate Paid:
For the three months ended		4.74	%		4.80	%
For the six months ended		4.95	%		4.63	%
Maximum amount outstanding at any month end	$	86,500		$	185,040

During the first six months of 2007, cash and cash equivalents decreased by $22.9 million, or 40%, to $34.8 million. This decrease was the net result of cash used in investing activities of $175.5 million, (primarily from net loans originated and principal repayments and purchases of available for sale and held to maturity securities), offset in part by cash provided from operating activities of $138.3 million, and cash provided by financing activities of $14.3 million.

During the first six months of 2006, cash and cash equivalents increased by $47.0 million, or 94%, to $97.3 million. This increase was the net result of cash provided from financing activities of $73.2 million, (primarily from an increase in deposits, partially offset by a decline in borrowings) and cash provided from operating activities of $81.4 million, offset in part by cash used in net loan origination and other investing activities of $107.6 million.

CAPITAL RESOURCES

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, 2007, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 13.13%, a Tier I risk-based capital ratio of 11.84%, and a leverage ratio of 11.73%. As of June 30, 2007, Stillwater National and SNB Wichita also met the criteria for classification as “well-capitalized” institutions under the prompt corrective action rules of the Federal Deposit Insurance Act. Designation as a well-capitalized institution under these regulations does not constitute a recommendation or endorsement of Southwest, Stillwater National or SNB Wichita by Federal bank or thrift regulators.

On May 24, 2007, Southwest declared a dividend of $.0925 per common share payable on July 2, 2007 to shareholders of record as of June 18, 2007.

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 financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than do the effects of general levels of inflation.

* * * * * * *

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Southwest’s net income is largely dependent on its net interest income. Southwest seeks to maximize its net interest margin within an acceptable level of interest rate risk. Interest rate risk can be defined as the amount of forecasted net interest income that may be gained or lost due to favorable or unfavorable movements in interest rates. Interest rate risk, or sensitivity, arises when the maturity or repricing characteristics of assets differ significantly from the maturity or repricing characteristics of liabilities. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and shareholders’ equity.

Southwest attempts to manage interest rate risk while enhancing net interest margin by adjusting its asset/liability position. At times, depending on the level of general interest rates, the relationship between long-term and other interest rates, market conditions and competitive factors, Southwest may determine to increase its interest rate risk position in order to increase its net interest margin. Southwest monitors interest rate risk and adjusts the composition of its rate-sensitive assets and liabilities in order to limit its exposure to changes in interest rates on net interest income over time. Southwest’s asset/liability committee reviews its interest rate risk position and profitability, and recommends adjustments. The asset/liability committee also reviews the securities portfolio, formulates investment strategies, and oversees the timing and implementation of transactions. Notwithstanding Southwest’s interest rate risk management activities, the actual magnitude, direction, and relationship of future interest rates are uncertain, and can have adverse effects on net income and liquidity.

A principal objective of Southwest’s asset/liability management effort is to balance the various factors that generate interest rate risk, thereby maintaining the interest rate sensitivity of Southwest within acceptable risk levels. To measure its interest rate sensitivity position, Southwest utilizes a simulation model that facilitates the forecasting of net interest income over the next twelve month period under a variety of interest rate and growth scenarios.

The earnings simulation model uses numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows, and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate the effect of rate changes on net interest income or the economic value of equity. Actual results differ from simulated results due to timing, cash flows, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.

The balance sheet is subject to quarterly testing for six alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, and 300 basis points (“bp”), although Southwest may elect not to use particular scenarios that it determines are impractical in a current rate environment. It is management’s goal to structure the balance sheet so that net interest earnings at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.

Estimated Changes in Net Interest Income


Changes in Interest Rates:	+ 300 bp			+200 bp			+100 bp			(100) bp			(200) bp			(300) bp

Policy Limit		(18.00	)%		(10.00	)%		(5.00	)%		(5.00	)%		(10.00	)%		(18.00	)%
June 30, 2007		+ 13.73	%		+ 6.88	%		+ 1.67	%		(2.17	)%		(5.18	)%		(8.85	)%
December 31, 2006		+ 12.02	%		+ 6.15	%		+ 1.96	%		(2.80	)%		(6.56	)%		(11.14	)%

The Net Interest Income at Risk position improved in all decreasing interest rate scenarios when compared to the December 31, 2006 risk position. In a rising interest rate environment, Southwest’s net interest income improves in all interest rate scenarios. When the rising interest rate scenarios are compared to December 31, 2006, the percentage of increase in net interest income improved in the +200 bp and +300 bp scenarios while declining modestly in the +100 bp scenario. All of the above measures of net interest income at risk remain well within prescribed policy limits. Although assumed unlikely by Southwest’s asset/liability committee, Southwest’s largest exposure to changes in interest rate is in the (300 bp) scenario with a measure of (8.85%) at June 30, 2007, an improvement of 2.29 percentage points from the December 31, 2006 level of (11.14%). The reduction in net interest income at risk is a result of Southwest’s asset/liability committee’s desire to reduce the exposure to changes in interest rate given the increased uncertainty in the direction and level of interest rates.

The measures of equity value at risk indicate the ongoing economic value of Southwest by considering the effects of changes in interest rates on all of Southwest’s cash flows, and discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of Southwest’s net assets.

Estimated Changes in Economic Value of Equity (EVE)


Changes in Interest Rates:	+300 bp			+200 bp			+100 bp			(100) bp			(200) bp			(300) bp

Policy Limit		(35.00	)%		(20.00	)%		(10.00	)%		(10.00	)%		(20.00	)%		(35.00	)%
June 30, 2007		(9.43	)%		(6.09	)%		(1.99	)%		+ 1.23	%		+ 1.73	%		+ 1.96	%
December 31, 2006		(7.68	)%		(4.90	)%		(1.52	)%		+ 0.97	%		+ 1.40	%		+ 1.10	%

As of June 30, 2007, the economic value of equity measure improved in all decreasing interest rate scenarios when compared to the December 31, 2006 percentages. In an increasing interest rate environment the economic value of equity decreased in all scenarios. Southwest’s largest economic value of equity exposure is the +300 bp scenario which declined 1.75 percentage points to (9.43%) on June 30, 2007 from the December 31, 2006 value of (7.68%). The economic value of equity ratio in all scenarios remains well within Southwest’s Asset and Liability Management Policy limits. The change from December 31, 2006 to June 30, 2007 is principally due to an increase in the balance of fixed rate loans.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by SEC rules, Southwest’s management evaluated the effectiveness of Southwest’s disclosure controls and procedures as of June 30, 2007. Southwest’s Chief Executive Officer and Chief Financial Officer participated in the evaluation. Based on this evaluation, Southwest’s Chief Executive Officer and Chief Financial Officer concluded that Southwest’s disclosure controls and procedures were effective as of June 30, 2007.

First Six Months 2007 Changes in Internal Control over Financial Reporting

No change occurred during the first six months of 2007 that has materially affected, or is reasonably likely to materially affect, Southwest’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.		Legal proceedings

		None

Item 1A.		Risk Factors

		In our annual report on Form 10-K we stated that we may be unable to recover $2.5 million in cash that an armored transportation company failed to deliver, and that failure to recover this cash could result in a loss to us that was not reflected in our 2006 financial statements. Due to our investigation, we recorded that loss in our results for the quarter ended March 31, 2007. We have not recorded an estimate of potential recoveries or insurance proceeds, however. Our investigation is continuing. We cannot yet reasonably estimate the amount of any such recoveries or proceeds that may ultimately result from our efforts.

		There were no other material changes in risk factors during the first six months of 2007 from those disclosed in Southwest’s Form 10-K for the year ended December 31, 2006.

Item 2.		Unregistered sales of equity securities and use of proceeds

		There were no unregistered sales of equity securities by Southwest during the quarter ended June 30, 2007.

		There were no purchases of Southwest’s common stock by or on behalf of Southwest or any affiliated purchasers of Southwest (as defined in Securities and Exchange Commission Rule 10b-18) during the six months ended June 30, 2007.

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 26, 2007, the shareholders of Southwest re-elected four Directors each for a term expiring at the 2010 annual shareholders’ meeting or such later time as his successor is elected and qualified. The Directors elected and the shareholder vote in the election of each Director were as follows:


	For		Withheld
Tom D. Berry		13,238,033		453,641
Rick Green		13,238,485		453,189
David P. Lambert		13,236,321		455,353
Linford R. Pitts		12,877,479		814,195


		Other Directors continuing in office following the annual shareholders’ meeting were James E. Berry II, Joe Berry Cannon, John Cohlmia, David Crockett, J. Berry Harrison, James Johnson, Robert B. Rodgers and Russell W. Teubner.

		There were 14,658,052 shares of common stock outstanding and entitled to vote at the meeting. A total of 13,691,674 shares of common stock were represented at the meeting in person or by proxy, representing 93.41% of the shares outstanding and entitled to vote at the meeting.

		A vote on the proposal to amend the Southwest Bancorp, Inc. 1999 Stock Option Plan to increase the number of shares authorized for issuance under the Plan from 1,760,000 to 1,960,000 was also held at the annual shareholders’ meeting. The shareholder vote was as follows:


PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Financial Condition at June 30, 2007 and December 31, 2006			3

Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006			4

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006			5

Unaudited Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2007			6

Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2007 and 2006			7

Notes to Unaudited Consolidated Financial Statements			8

ITEM 2. MANGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			35

ITEM 4. CONTROLS AND PROCEDURES			36

PART II. OTHER INFORMATION			38

SIGNATURES			40
EX-10: 1999 STOCK OPTION PLAN
EX-31.A: CERTIFICATION
EX-31.B: CERTIFICATION
EX-32.A: CERTIFICATION
EX-32.B: CERTIFICATION


	For the three months						For the six months
	ended June 30,						ended June 30,
(Dollars in thousands)	2007			2006			2007			2006

Net income	$	6,841		$	6,626		$	11,341		$	12,905

Other comprehensive income:
Unrealized holding gain (loss) on available for sale securities		1,764			(958	)		2,805			(2,052	)
Reclassification adjustment for (gains) losses arising during the period		(1,919	)		71			(1,471	)		334

Other comprehensive income (loss), before tax		(155	)		(887	)		1,334			(1,718	)
Tax (expense) benefit related to items of other comprehensive income (loss)		24			343			(553	)		667

Other comprehensive income (loss), net of tax		(131	)		(544	)		781			(1,051	)

Comprehensive income	$	6,710		$	6,082		$	12,122		$	11,854


For	Against	Abstain
9,399,994	1,691,684	371,922


Item 5.		Other information

		None

Item 6.		Exhibits


		Exhibit 10		Southwest Bancorp, Inc. 1999 Stock Option Plan, as amended (Compensatory Plan)

		Exhibit 31(a),(b)		Rule 13a-14(a)/15d-14(a) Certifications

		Exhibit 32(a),(b)		18 U.S.C. Section 1350 Certifications

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SOUTHWEST BANCORP, INC. (Registrant)

By:	/s/ Rick Green Rick Green President and Chief Executive Officer (Principal Executive Officer)	August 7, 2007 Date

By:	/s/ Kerby Crowell	August 7, 2007

	Kerby Crowell Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)	Date