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 March 31, 2008


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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

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.

14,527,309 (05/8/08)

SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	March 31,			December 31,
(Dollars in thousands)	2008			2007

Assets
Cash and due from banks	$	37,569		$	45,678
Investment securities:
Held to maturity, fair value $8,411 (2008) and $5,838 (2007)		8,339			5,838
Available for sale, amortized cost $212,937 (2008) and $236,707 (2007)		214,208			237,358
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost		13,216			13,116
Loans held for sale		66,364			66,275
Loans receivable, net of allowance for loan losses of $29,950 (2008) and $29,584 (2007)		2,257,656			2,115,973
Accrued interest receivable		15,631			23,117
Premises and equipment, net		24,006			24,323
Other real estate		3,328			2,679
Goodwill		7,071			7,064
Other intangible assets, net		4,205			4,580
Other assets		18,987			18,297

Total assets	$	2,670,580		$	2,564,298


Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing demand	$	248,315		$	257,067
Interest-bearing demand		71,450			63,323
Money market accounts		553,850			541,950
Savings accounts		13,808			13,032
Time deposits of $100,000 or more		690,421			690,985
Other time deposits		517,083			492,222

Total deposits		2,094,927			2,058,579
Accrued interest payable		8,520			11,441
Income tax payable		4,647			1,766
Other liabilities		9,425			10,154
Other borrowings		282,513			218,356
Subordinated debentures		46,393			46,393

Total liabilities		2,446,425			2,346,689
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		45,784			46,478
Retained earnings		165,318			161,482
Accumulated other comprehensive income		802			408
Treasury stock, at cost; 133,605 (2008) and 300,833 (2007) shares		(2,407	)		(5,417	)

Total shareholders’ equity		224,155			217,609

Total liabilities & shareholders’ equity	$	2,670,580		$	2,564,298

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months
	ended March 31,
(Dollars in thousands, except earnings per share data)	2008		2007

Interest income:
Interest and fees on loans	$	40,610	$	40,286
Investment securities:
U.S. government and agency obligations		1,168		2,138
Mortgage-backed securities		937		292
State and political subdivisions		90		43
Other securities		141		206
Other interest-earning assets		28		65

Total interest income		42,974		43,030

Interest expense:
Interest-bearing demand		141		81
Money market accounts		4,528		3,962
Savings accounts		22		20
Time deposits of $100,000 or more		7,865		8,132
Other time deposits		5,698		5,028
Other borrowings		2,029		2,131
Subordinated debentures		884		962

Total interest expense		21,167		20,316


Net interest income		21,807		22,714

Provision for loan losses		2,236		1,861

Net interest income after provision for loan losses		19,571		20,853


Noninterest income:
Service charges and fees		2,457		2,235
Other noninterest income		172		345
Gain on sales of loans		840		1,208
Gain (loss) on securities		1,245		(448	)

Total noninterest income		4,714		3,340

Noninterest expense:
Salaries and employee benefits		9,222		8,125
Occupancy		2,458		2,403
FDIC and other insurance		453		123
Other real estate, net		10		(69	)
General and administrative		3,687		6,249

Total noninterest expense		15,830		16,831

Income before taxes		8,455		7,362
Taxes on income		3,247		2,862

Net income	$	5,208	$	4,500


Basic earnings per share	$	0.36	$	0.32
Diluted earnings per share	$	0.36	$	0.31
Cash dividends declared per share	$	0.0950	$	0.0925

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the three months
	ended March 31,
(Dollars in thousands)	2008			2007

Operating activities:
Net income	$	5,208		$	4,500
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,236			1,861
Deferred tax expense (benefit)		103			(121	)
Asset depreciation		697			728
Securities premium amortization (discount accretion), net		5			—
Amortization of intangibles		517			162
Stock based compensation		189			377
Net (gain) loss on sale/call of investment securities		(1,245	)		448
Net gain on sales of loans		(840	)		(1,208	)
Net (gain) loss on sales of premises/equipment		243			(4	)
Proceeds from sales of residential mortgage loans		13,573			14,911
Residential mortgage loans originated for resale		(10,879	)		(12,112	)
Proceeds from sales of student loans		31,400			137,069
Student loans originated for resale		(33,252	)		(56,561	)
Net change in assets and liabilities:
Accrued interest receivable		7,486			2,495
Other assets		(909	)		1,984
Income taxes payable		3,180			(996	)
Excess tax benefit from share-based payment arrangements		(306	)		(140	)
Accrued interest payable		(2,921	)		(1,496	)
Other liabilities		(919	)		(853	)

Net cash provided by operating activities		13,566			91,044

Investing activities:
Proceeds from sales of available for sale securities		7,787			—
Proceeds from principal repayments, calls and maturities:
Available for sale securities		132,939			1,879
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock		(100	)		(130	)
Purchases of held to maturity securities		(2,500	)		(2,700	)
Purchases of available for sale securities		(115,716	)		(1,815	)
Loans originated and principal repayments, net		(144,520	)		(67,620	)
Purchases of premises and equipment		(668	)		(861	)
Proceeds from sales of premises and equipment		52			14

Net cash used in investing activities		(122,726	)		(71,233	)

Financing activities:
Net increase in deposits		36,348			37,570
Net increase (decrease) in other borrowings		64,157			(14,882	)
Net proceeds from issuance of common stock		1,568			160
Excess tax benefit from share-based payment arrangements		306			140
Common stock dividends paid		(1,328	)		(1,175	)

Net cash provided from financing activities		101,051			21,813

Net change in cash and cash equivalents		(8,109	)		41,624
Cash and cash equivalents:
Beginning of period		45,678			57,618

End of period	$	37,569		$	99,242

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			Income		Stock			Equity


Balance, December 31, 2007		14,658,042	$	14,658	$	46,478		$	161,482		$	408	$	(5,417	)	$	217,609

Cash dividends declared:
Common, $0.095 per share, and other dividends		—		—		—			(1,372	)		—		—			(1,372	)
Common stock issued:
Employee Stock Option Plan		—		—		(1,096	)		—			—		2,618			1,522
Employee Stock Purchase Plan		—		—		(1	)		—			—		24			23
Dividend Reinvestment Plan		—		—		1			—			—		22			23
Restricted Stock		—		—		(21	)		—			—		346			325
Tax benefit related to exercise of stock options		—		—		306			—			—		—			306
Stock Compensation Expense		—		—		117			—			—		—			117
Other comprehensive income, net of tax		—		—		—			—			394		—			394
Net income		—		—		—			5,208			—		—			5,208


Balance, March 31, 2008		14,658,042	$	14,658	$	45,784		$	165,318		$	802	$	(2,407	)	$	224,155

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 months ended March 31, 2008, and the cash flows for the three months ended March 31, 2008, 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, 2007.

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, Stillwater National Bank and Trust Company (“Stillwater National”), SNB Bank of Wichita (“SNB Wichita”), Bank of Kansas (“SNB Kansas”), 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: 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 March 31, 2008. 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:
Obligations of state and political subdivisions		2	$	2,500	$	(18	)	$	—		$	2,482

Total		2	$	2,500	$	(18	)	$	—		$	2,482


Available for Sale:
Mortgage-backed securities		26	$	63,329	$	(797	)	$	(1	)	$	62,531

Total		26	$	63,329	$	(797	)	$	(1	)	$	62,531

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.

The declines in fair value noted in the table above were attributable to increases in market interest rates over the yields available at the time the underlying securities were purchased. Management does not believe any of the securities are impaired due to reasons of 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 4: LOANS AND OTHER REAL ESTATE

Southwest extends commercial and consumer credit primarily to customers in the states of Oklahoma, Texas, and Kansas. 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 Hutchinson, 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 March 31, 2008 and December 31, 2007, 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 March 31, 2008, approximately $634.5 million, or 28%, 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 10% or more of total loans.

Nonperforming assets and other risk elements of the loan portfolio are shown below as of the indicated dates.


	At			At
(Dollars in thousands)	March 31, 2008			December 31, 2007


Nonaccrual loans (1)	$	26,134		$	19,534
Past due 90 days or more		2,807			10,037

Total nonperforming loans		28,941			29,571
Other real estate owned		3,328			2,679

Total nonperforming assets	$	32,269		$	32,250


Nonperforming loans to portfolio loans receivable		1.27	%		1.38	%
Allowance for loan losses to nonperforming loans		103.49	%		100.04	%
Nonperforming assets to portfolio loans receivable and other real estate owned		1.41	%		1.50	%


(1)		The government-guaranteed portion of loans included in these totals was $1.3 million, for each period presented.

All of the nonaccruing assets are subject to regular tests for impairment as part of Southwest’s allowance for loan losses methodology (see Note 5).

During the first three months of 2008, $6,000 of interest income was received on nonaccruing loans. If interest on those loans had been accrued for the three months ended March 31, 2008, additional total interest income of $471,000 would have been recorded.

NOTE 5: 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 three			For the			For the three
	months ended			year ended			months ended
(Dollars in thousands)	March 31, 2008			December 31, 2007			March 31, 2007


Balance at beginning of period	$	29,584		$	27,293		$	27,293
Loans charged-off:
Real estate mortgage		557			1,877			21
Real estate construction		35			129			5
Commercial		1,388			4,579			1,685
Installment and consumer		64			414			17

Total charge-offs		2,044			6,999			1,728
Recoveries:
Real estate mortgage		3			32			24
Commercial		138			606			272
Installment and consumer		33			71			6

Total recoveries		174			709			302

Net loans charged-off		1,870			6,290			1,426
Provision for loan losses		2,236			8,581			1,861

Balance at end of period	$	29,950		$	29,584		$	27,728

Loans outstanding:
Average	$	2,304,966		$	1,922,867		$	1,846,844
End of period		2,353,970			2,211,832			1,775,220
Portfolio loans outstanding (end of period)		2,287,606			2,145,557			1,667,195
Net charge-offs to total average loans (annualized)		0.33	%		0.33	%		0.31	%
Allowance for loan losses to portfolio loans (end of period)		1.31	%		1.38	%		1.66	%

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.

Management believes the level of the allowance is adequate to absorb probable losses inherent in the loan portfolio. The allowance for loan and lease losses is determined in accordance with regulatory guidelines and generally accepted accounting principles and is comprised of two primary components. Loans deemed to be impaired (all loans on nonaccrual) are evaluated on an individual basis consistent with the Statement of Financial Accounting Standards No. 114, Accounting for Impairment of a Loan (“SFAS No. 114”). The remaining portion of the allowance is calculated based on the Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (“SFAS No. 5”). Loans not evaluated for FAS 114 allowance are segmented into homogeneous loan pools. Estimated allowances are based on historical loss trends with adjustments factored in based on qualitative risk factors both internal and external to the Company. These factors include but are not limited to, economy and business conditions, changes in lending staff, lending policies and procedures, quality of loan review, changes in the nature and volume of the portfolios, loss and recovery trends, asset quality trends, and legal and regulatory considerations.

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 $3.2 million, $3.1 million and $1.9 million at March 31, 2008, December 31, 2007, and March 31, 2007, 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 6: FAIR VALUE MEASUREMENTS

Effective January 1, 2008, Southwest adopted Statement of Financial Accounting Standards 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. This statement applies only to fair value measurements that are already required or permitted by other generally accepted accounting principles. The adoption of SFAS No. 157 had no impact on Southwest’s financial statements, but it did result in additional required disclosures.

Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category includes U.S. Government and agency mortgage-backed debt securities, municipal obligation securities, and loans held for sale.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes certain private equity investments, and mortgage loan servicing rights.

Assets measured at fair value on a recurring basis are summarized below:


			Fair Value Measurement at Reporting Date Using
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(Dollars in thousands)	Total		(Level 1)		(Level 2)		(Level 3)


Loans held for sale	$	66,364	$	—	$	66,364	$	—
Available for sale securities		214,208		486 20		8,940		4,782
Mortgage loan servicing rights		1,278		—		—		1,278
Derivative contracts		20		—		20		—
Other assets		296		—		—		296

Total	$	282,166	$	486	$	275,324	$	6,356

For the three months ended March 31, 2008, the table below presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). It also summarizes gains and losses due to changes in fair value, including both realized and unrealized, recorded for Level 3 assets and liabilities.


	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Available for Sale			Mortgage Loan
(Dollars in thousands)	Securities			Servicing Rights			Other Assets		Total


Balance at December 31, 2007	$	4,809		$	1,489		$	296	$	6,594
Total gains or losses (realized/unrealized) Included in earnings
interest income		2			—			—		2
noninterest income		(57	)		(353	)		—		(410	)
Included in other comprehensive income		28			—			—		28
Purchases, issuances, and settlements		—			142			—		142
Transfers in and/or out of Level 3		—			—			—		—

Balance at March 31, 2008	$	4,782		$	1,278		$	296	$	6,356


	Changes in Unrealized Gains or Losses
	Available for		Mortgage Loan
(Dollars in thousands)	Sale Securities		Servicing Rights		Other Assets		Total

Changes in unrealized gains or losses relating to assets still held at reporting date for the three months ended March 31, 2008	$	28	$	—	$	—	$	28

Total	$	28	$	—	$	—	$	28

Certain financial assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets measured on a nonrecurring basis include other real estate owned, goodwill, core deposit premiums and mortgage loan servicing rights.

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 selected 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. 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 decreased interest expense on certificates of deposit by $279,000 for the three months ended March 31, 2008. All of the interest rate swaps outstanding at March 31, 2008 expired on or before April 18, 2008.

The following table provides information on Southwest’s derivative portfolio as of March 31, 2008 and December 31, 2007. Gross unrealized gains and losses on derivatives are included in other liabilities.


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

At March 31, 2008:

Fair-value hedges
Interest-rate swaps
Pay floating, receive fixed	$	30,000		$	20	$	—	$	20

	$	30,000		$	20	$	—	$	20


Weighted average floating pay rate		2.91	%
Weighted average fixed receive rate		5.28	%
Weighted average maturity in months		—

At December 31, 2007:

Fair-value hedges
Interest-rate swaps
Pay floating, receive fixed	$	149,975		$	64	$	—	$	64

	$	149,975		$	64	$	—	$	64


Weighted average floating pay rate		5.04	%
Weighted average fixed receive rate		5.32	%
Weighted average maturity in months		2

Southwest is exposed to credit risk on derivative instruments based upon the counterparties’ ability to perform under the terms of the contracts. Southwest manages credit risk through the use of comprehensive credit approval processes, and the selection of only creditworthy counterparties. 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 March 31, 2008, the net credit exposure associated with derivative instruments totaled $1.5 million. The maximum net exposure to any counterparty was $1.0 million. The notional amount of the swap position at March 31, 2008 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 $117,000 of share-based compensation expense for the three month period ended March 31, 2008 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 cumulative deferred tax asset that was recorded related to compensation expense was approximately $177,000.

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)


First quarter 2008		2.30	%		2.24	%		34.36	%		3.00
First quarter 2007		4.51	%		1.40	%		29.58	%		2.50

A summary of options outstanding under the Stock Plans as of March 31, 2008, and changes during the three 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, 2007		883,770		$	15.56

Granted		5,000			16.93
Exercised		(145,458	)		10.46

Outstanding at March 31, 2008		743,312		$	16.56		2.36	$	2,952


Total exercisable at March 31, 2008		632,138		$	16.49		2.20	$	2,414

The weighted average grant date fair value of options granted during the three month period ended March 31, 2008 was $3.71 per share. The total intrinsic value of options exercised during the three month period was $952,000; the amount of cash received from those exercises was $1.5 million. All shares issued upon exercise of options during the three month period ended March 31, 2008 were issued out of treasury shares. The fair value of options that became vested during the three month period was $382,000.

A summary of the status of Southwest’s nonvested stock options as of March 31, 2008 and changes during the three month period then ended is presented below.


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



Nonvested Balance at December 31, 2007		178,100		$	4.56

Granted		5,000			3.71
Vested		(71,926	)		5.31
Forfeited		—			—

Nonvested Balance at March 31, 2008		111,174		$	4.04

As of March 31, 2008, there was $154,000 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 two years.

Restricted Stock

For the three months ended March 31, 2008, nonemployee directors were awarded 14,900 shares in restricted common stock at a grant date fair value of $16.93 per share and employees were awarded 4,314 shares in restricted common stock at a grant date fair value of $16.85 per share.

Restricted shares granted as of March 31, 2008 and 2007 were 52,192 and 32,978, respectively. For the three months ended March 31, 2008, Southwest recognized $44,000 in compensation expense, net of tax, related to all restricted shares outstanding; $27,000 in compensation expense, net of tax, was recorded in the first three months of 2007.

The restricted stock grants vest one-third on the first, second and third 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

In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, the balance of unrecognized tax benefits at March 31, 2008 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. For the first quarter of the year, an additional $167,000 has been accrued in interest and penalties. Southwest had approximately $1.5 million accrued for interest and penalties at March 31, 2008.

Southwest and its subsidiaries file 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 2003.

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 during the year, 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 are 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 March 31, 2008 and 2007, there were 403,950 and 128,431 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
	ended March 31,
	2008		2007

Weighted average common shares outstanding		14,413,686		14,263,698
Effect of dilutive securities		194,504		379,215

For calculation of diluted earnings per share		14,608,190		14,642,913

NOTE 11: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business, Southwest makes use of a number of different financial instruments to help meet the financial needs of its customers. In accordance with generally accepted accounting principles, these transactions are not presented in the accompanying consolidated financial statements and are referred to as off-balance sheet instruments. These transactions and activities include commitments to extend lines of commercial and real estate mortgage credit, and standby and commercial letters of credit.

The following table provides a summary of Southwest’s off-balance sheet financial instruments:


	For the three		For the
	months ended		year ended
(Dollars in thousands)	March 31, 2008		December 31, 2007

Commitments to extend commercial and real estate mortgage credit	$	855,570	$	861,851
Standby and commercial letters of credit		12,582		18,580

Total	$	868,152	$	880,431

A loan commitment is a binding contract to lend up to a maximum amount for a specified period of time provided there is no violation of any financial, economic, or other terms of the contract. A standby letter of credit obligates Southwest to honor a financial commitment to a third party should Southwest’s customer fail to perform. Many loan commitments and most standby letters of credit expire unfunded, and, therefore, commitments do not necessarily represent future outstanding loans or payments. Loan commitments and letters of credit are made under normal credit terms, including interest rates and collateral prevailing at the time, and usually require the payment of a fee by the customer. Commercial letters of credit are commitments generally issued to finance the movement of goods between buyers and sellers. Southwest’s exposure to credit loss, assuming commitments are funded, in the event of nonperformance by the other party to the financial instrument is represented by the contractual amount of those instruments. Please see Note 5, “Allowance for Loans Losses and Reserve for Unfunded Loan Commitments”.

NOTE 12: OPERATING SEGMENTS

Southwest operates six principal segments: Oklahoma Banking, Texas Banking, Kansas Banking, Other States Banking, Secondary Market, and Other Operations. The Oklahoma Banking segment and the Texas Banking segment each consists of three operating units that provide lending and deposit services to customers in the states of Oklahoma and Texas, respectively. The Kansas Banking segment consists of two operating units that provide lending and deposit services to customers in the state of Kansas. The Other States Banking segment provides lending services to customers outside Oklahoma, Texas, and Kansas. 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 the 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, corporate investments, consulting subsidiaries, and nonbank cash machine operations; these operations are discussed more fully in the 2007 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 at statutory rates. The Other Operations segment records the tax expense or benefit necessary to reconcile to the consolidated financial statements.

Capital is assigned to each of the segments using a risk-based capital pricing methodology that assigns capital ratios by asset, deposit, or revenue category based on Credit Risk, Interest Rate Risk, Market Risk, Operational Risk and Liquidity Risk. 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.

In the first quarter of 2008, Southwest changed its segment disclosures to report Texas, Kansas and Other States separately. Portfolio loans are allocated based upon the state of the borrower, or the location of the real estate in the case of real estate loans. Loans included in the “Other States Banking” segment are portfolio loans attributable to thirty-three states other than Oklahoma, Texas, or Kansas, and primarily consist of healthcare and commercial real estate credits. These out of state loans are administered by offices in Oklahoma, Texas, or Kansas. The amounts for first quarter 2007 have been revised using the same geographical locations.

The following table summarizes financial results by operating segment:


For the Three Months Ended March 31, 2008
	Oklahoma		Texas		Kansas		Other States			Secondary			Other			Total
(Dollars in thousands)	Banking		Banking		Banking		Banking			Market			Operations			Company

Net interest income	$	11,371	$	8,039	$	2,892	$	2,066		$	367		$	(2,928	)	$	21,807
Provision for loan losses		1,611		292		376		(43	)		—			—			2,236
Noninterest income		2,332		391		134		47			14			1,796			4,714
Noninterest expenses		8,034		4,217		1,912		612			662			393			15,830

Income (loss) before taxes		4,058		3,921		738		1,544			(281	)		(1,525	)		8,455
Taxes on income		1,555		1,515		280		575			(107	)		(571	)		3,247

Net income (loss)	$	2,503	$	2,406	$	458	$	969		$	(174	)	$	(954	)	$	5,208


Fixed asset expenditures	$	358	$	83	$	—	$	—		$	—		$	227		$	668
Total loans at period end		943,331		797,700		287,339		259,236			66,364			—			2,353,970
Total assets at period end		950,964		796,789		301,250		257,346			74,856			289,375			2,670,580
Total deposits at period end (1)		1,292,528		134,638		125,941		—			1,690			540,130			2,094,927


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


For the Three Months Ended March 31, 2007
	Oklahoma		Texas		Kansas			Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Banking			Banking		Market		Operations			Company


Net interest income	$	12,155	$	6,102	$	2,150		$	1,678	$	883	$	(254	)	$	22,714
Provision for loan losses		696		1,022		143			—		—		—			1,861
Noninterest income		1,735		346		(66	)		23		1,223		79			3,340
Noninterest expenses		6,237		2,761		1,463			1,301		941		4,128			16,831

Income (loss) before taxes		6,957		2,665		478			400		1,165		(4,303	)		7,362
Taxes on income		2,679		1,022		270			160		412		(1,681	)		2,862

Net income (loss)	$	4,278	$	1,643	$	208		$	240	$	753	$	(2,622	)	$	4,500


Fixed asset expenditures	$	619	$	21	$	48		$	—	$	57	$	116		$	861
Total loans at period end		766,990		507,384		206,405			186,416		108,025		—			1,775,220
Total assets at period end		773,198		509,808		207,341			186,416		117,675		399,741			2,194,179
Total deposits at period end (1)		1,206,833		101,994		54,233			—		2,377		437,744			1,803,181


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

NOTE 13: ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

In December 2007, the Financial Accounting Standards Board revised Statement No. 141, Business Combinations (Revised 2007) (“SFAS No. 141(R)”). SFAS No. 141(R) replaces SFAS No. 141, Business Combinations, and applies to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS No. 141(R) requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. The fair value approach replaces the cost-allocation process required under SFAS No. 141 whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS No. 141(R) requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS No. 141. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of SFAS No. 5, Accounting for Contingencies. SFAS No. 141(R) is expected to have an impact on Southwest’s accounting for future business combinations closing on or after January 1, 2009, if any.

In December 2007, the Financial Accounting Standards Board issued Statement No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51 “SFAS No. 160”). SFAS No. 160 amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 is effective for Southwest on January 1, 2009 and is not expected to have a significant impact on Southwest’s financial statements.

In March 2008, the Financial Accounting Standards Board issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires entities to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. SFAS No. 161 is effective for Southwest on January 1, 2009 and is not expected to have a significant impact on Southwest’s financial statements.

NOTE 14: COMMITMENTS AND CONTINGENCIES

In the first quarter of 2007, Southwest recorded a charge of approximately $2.5 million representing cash due from certain ATMs owned by Cash Source, Inc. (“CSI”), a subsidiary of Stillwater National, that an armored transportation company failed to deliver. Stillwater National and CSI have filed legal actions 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 pursue means of recovery. The 2008 financial statements reflect related legal expenses incurred by Southwest in the first three months of approximately $61,000. 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, which the insurer denied in April 2008. Stillwater National and CSI are considering their response to the insurer’s denial.

NOTE 15: VISA USA SHARES

Stillwater National and other VISA USA member banks are obligated to share in costs resulting from litigation against VISA USA, including the costs of the November 9, 2007, settlement of an antitrust lawsuit brought by American Express and potential costs of certain other pending litigation. In the fourth quarter of 2007, Southwest recorded approximately $713,000 as its estimated share of the settlement and other pending litigation expenses relating to these obligations. In March 2008, Visa, Inc. (Visa) completed an initial public offering. This transaction allowed Visa to place part of the cash proceeds into an escrow account that will be utilized to pay litigation and settlement expenses. Southwest’s portion of this escrow is approximately $566,000, which is reflected in the first quarter 2008 financial statements as a reduction in general and administrative expense and in the related payable established in the fourth quarter 2007. These amounts are an estimate and further adjustments may be required.

As a result of Visa’s public offering, Stillwater National recorded a gain of $1.2 million before tax expense for the redemption for cash of 29,212 shares of VISA USA shares owned by Stillwater National carried at a zero dollar basis. Stillwater National owns an additional 46,348 shares of Class B Visa stock carried at a zero dollar basis. These remaining shares will be held in escrow by Visa until the later of the third anniversary of the public offering date or the final resolution of the litigation discussed above.

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 growth, performing and problem loan payoffs and loan losses; 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. These other matters, include, among other things, the direct and indirect effects of the recent subprime and consumer lending issues on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. 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 Stillwater National Bank and Trust Company (“Stillwater National”), SNB Bank of Wichita (“SNB Wichita”), Bank of Kansas (“SNB Kansas”), 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, San Antonio, and Tilden, Texas; and Hutchinson, South Hutchinson, Kansas City, and Wichita, Kansas; and on the Internet, through SNB DirectBanker®.

Southwest’s banking 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, www.snbwichita.com, and www.bankofkansas.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. 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 outside Oklahoma began in 2002. At March 31, 2008, the Texas Banking segment accounted for $797.7 million in loans, the Kansas Banking segment accounted for $287.3 million in loans and the Other States Banking Segment accounted for $259.2 million in loans. In total, these offices accounted for 59% of portfolio loans and 57% of total loans, which include loans held for sale. During the first three months of 2008, these segments produced $3.8 million in net income (74% of the consolidated total), $74.8 million in loan growth, and $73.2 million in asset growth.

The Oklahoma Banking segment accounted for $2.5 million, or 48%, of consolidated year-to-date net income. Outstanding loans in the Oklahoma Banking Segment totaled $943.3 million at quarter end and increased by $67.2 million, or 8%, from December 31, 2007.

Southwest has a long history of student and residential mortgage lending. These operations comprise the Secondary Market business segment. During the first three months of 2008, this segment incurred a net loss of $174,000 as a result of decreased noninterest income and reduced margin. Secondary Market loans and assets increased slightly during the first three months of the year, but were down significantly from March 31, 2007, as a result of a reduction in student loans.

For additional information on Southwest’s operating segments, please see Note 12, “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 three months of 2008 due to losses from the Secondary Market segment and 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 March 31, 2008, Southwest had total assets of $2.7 billion, deposits of $2.1 billion, and shareholders’ equity of $224.2 million.

FINANCIAL CONDITION

Total Assets and Investment Securities

Southwest’s total assets were $2.7 billion at March 31, 2008, and $2.6 billion at December 31, 2007.

Southwest’s investment security portfolio decreased $20.5 million, or 8%, from $256.3 million at December 31, 2007, to $235.8 million at March 31, 2008. The decrease is primarily the result of a $102.0 million (54%) decrease in U.S. government and agency securities, resulting from increased early redemption of callable agency securities in reaction to a significant decline in market interest rates, offset in part by a $79.1 million (206%) increase in mortgage backed securities, and a $2.5 million (27%) increase in tax-exempt securities during the first three months of 2008.

Loans

Total loans, including loans held for sale, were $2.4 billion at March 31, 2008, a 6% increase from $2.2 billion at December 31, 2007. Commercial real estate mortgage, real estate construction, commercial, student loans, and other consumer loans increased, while one-to-four family residential mortgage loans decreased.

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


	March 31,		December 31,
(Dollars in thousands)	2008		2007		$ Change			% Change


Real estate mortgage
Commercial	$	846,757	$	750,047	$	96,710			12.89	%
One-to-four family residential		110,938		111,085		(147	)		(0.13	)
Real estate construction		744,090		724,929		19,161			2.64
Commercial		544,183		521,501		22,682			4.35
Installment and consumer
Student loans		63,706		61,555		2,151			3.49
Other		44,296		42,715		1,581			3.70

Total loans	$	2,353,970	$	2,211,832	$	142,138

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


	March 31,		December 31,
(Dollars in thousands)	2008		2007		$ Change			% Change

Loans held for sale:
Student loans	$	63,706	$	61,555	$	2,151			3.49	%
One-to-four family residential		1,417		3,442		(2,025	)		(58.83	)
Other loans held for sale		1,241		1,278		(37	)		(2.90	)

Total loans held for sale		66,364		66,275		89
Portfolio loans		2,287,606		2,145,557		142,049			6.62

Total loans	$	2,353,970	$	2,211,832	$	142,138

Subprime and indirect lending have never been a part of Southwest’s business strategy and its exposure to subprime and indirect loans and subprime lenders is minimal. One-to-four family mortgages account for less than 5% of total loans. Southwest monitors credits to verify the exposure to indirect subprime lending on an ongoing basis.

Management determines the appropriate level of the allowance for loan losses. (See Note 5: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.) At March 31, 2008, the allowance for loan losses was $30.0 million, an increase of $366,000, or 1%, from the allowance for loan losses at December 31, 2007. 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. The allowance was 1.31% and 1.38% of total portfolio loans at March 31, 2008 and December 31, 2007, respectively. Management believes the amount of the allowance is appropriate. 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 March 31, 2008, the allowance for loan losses was $30.0 million, or 103.49% of nonperforming loans, compared to $29.6 million, or 100.04% of nonperforming loans, at December 31, 2007. (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 March 31, 2008, compared to $61.6 million at December 31, 2007. 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 March 31, 2008, the reserve for unfunded loan commitments was $3.2 million, a $145,000, or 5%, increase from the amount at December 31, 2007. This change is due to an increase in commitments and the reserve on commitments related to potential problem loans.

Deposits and Other Borrowings

Southwest’s deposits were $2.1 billion at March 31, 2008 and December 31, 2007. Increases occurred in interest-bearing demand, money market accounts, savings accounts, and time deposits, offset by decreased noninterest-bearing demand deposits.

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


	March 31,		December 31,
(Dollars in thousands)	2008		2007		$ Change			% Change

Noninterest-bearing demand	$	248,315	$	257,067	$	(8,752	)		(3.40	)%
Interest-bearing demand		71,450		63,323		8,127			12.83
Money market accounts		553,850		541,950		11,900			2.20
Savings accounts		13,808		13,032		776			5.95
Time deposits of $100,000 or more		690,421		690,985		(564	)		(0.08	)
Other time deposits		517,083		492,222		24,861			5.05

Total deposits	$	2,094,927	$	2,058,579	$	36,348

Stillwater National has substantial unused borrowing availability in the form of unsecured brokered certificate of deposits 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 in connection with its retail certificate of deposit program. At March 31, 2008, $325.0 million in these retail certificates of deposit were included in time deposits of $100,000 or more, a decrease of $10.0 million, or 3%, from year-end 2007.

Included in time deposits of $100,000 or more in the above table, Stillwater National has brokered certificates of deposit totaling $1.2 million as of March 31, 2008. In addition, Stillwater National has brokered certificates of deposit issued in amounts under $100,000 totaling $12.4 million and $681,000 as of March 31, 2008, and December 31, 2007, respectively, included in other time deposits in the above table,.

Other borrowings increased $64.2 million, or 29%, to $282.5 million during the first three months of 2008. The increase reflects the changes in the need for funding based on loan and deposit activities for the period.

Shareholders’ Equity

Shareholders’ equity increased $6.5 million, or 3%, due primarily to earnings of $5.2 million for the first three months of 2008, offset by dividends declared totaling $1.4 million. Issuance 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 $1.9 million to shareholders’ equity in the first three months of 2008. Net unrealized holding gains and losses on available for sale investment securities (net of tax) increased to $802,000 at March 31, 2008, compared to $408,000 at December 31, 2007.

At March 31, 2008, Southwest, Stillwater National, SNB Wichita, and SNB Kansas continued to exceed all applicable regulatory capital requirements. See “Capital Resources” on page 29.

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2008 and 2007

Net income for the first quarter of 2008 of $5.2 million represented an increase of $708,000, or 16%, from the $4.5 million earned in the first quarter of 2007. Diluted earnings per share were $0.36 compared to $0.31, a 16% increase. The increase in quarterly net income was the result of a $1.4 million, or 41%, increase in noninterest income and a $1.0 million, or 6%, decrease in noninterest expense offset in part by a $907,000, or 4%, decrease in net interest income, a $375,000, or 20%, increase in the provision for loan losses and a $385,000, or 13%, increase in income taxes.

The $907,000 decrease in net interest income for the quarter was primarily due to the effects of decreased loan yields, which more than offset the favorable effects of increased loan volume. Provisions for loan losses are booked in the amounts necessary to increase the allowance for loan losses to an appropriate level at period end after charge-offs for the period. The necessary provision for first quarter of 2008 was $375,000 more than the provision required for first quarter of 2007. (See Note 5: “Allowance for Loan Losses and Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

The increase in noninterest income was mainly the result of higher gains on securities of $1.7 million and increased service charges and fees of $222,000, offset in part by $368,000 decreased gains on the sale of loans. The decrease in noninterest expense consists of a $2.8 million decrease in other general and administrative expense offset in part by a $1.1 million increase in salaries and employee benefits, a $210,000 increase in the provision for unfunded loan commitments, a $330,000 increase in FDIC and other insurance, and a $79,000 increase in other real estate expense.

On an operating segment basis, the increase in net income was the result of a $1.7 million reduction in the loss from the Other Operations segment, primarily attributable to the $1.2 million gain generated from the redemption of certain VISA USA common shares during the quarter and the $566,000 reduction of general and administrative expenses associated with the VISA USA escrow account established for litigation. Additionally, there was a $763,000 increase from the Texas Banking segment, a $729,000 increase from the Other States Banking segment, and a $250,000 increase from the Kansas Banking segment, offset by a $1.8 million decrease in net income from the Oklahoma Banking segment and a $927,000 decrease from the Secondary Market segment.

Net Interest Income


	For the three months
	ended March 31,
(Dollars in thousands)	2008		2007		$ Change			% Change


Interest income:
Loans	$	40,610	$	40,286	$	324			0.80	%
Investment securities:
U.S. government and agency obligations		1,168		2,138		(970	)		(45.37	)
Mortgage-backed securities		937		292		645			220.89
State and political subdivisions		90		43		47			109.30
Other securities		141		206		(65	)		(31.55	)
Other interest-earning assets		28		65		(37	)		(56.92	)

Total interest income		42,974		43,030		(56	)		(0.13	)

Interest expense:
Interest-bearing demand deposits		141		81		60			74.07
Money market accounts		4,528		3,962		566			14.29
Savings accounts		22		20		2			10.00
Time deposits of $100,000 or more		7,865		8,132		(267	)		(3.28	)
Other time deposits		5,698		5,028		670			13.33
Other borrowings		2,029		2,131		(102	)		(4.79	)
Subordinated debentures		884		962		(78	)		(8.11	)

Total interest expense		21,167		20,316		851			4.19


Net interest income	$	21,807	$	22,714	$	(907	)		(3.99	)%

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 owned and liabilities issued 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-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income. Similarly, 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.

Yields on Southwest’s interest-earning assets decreased 143 basis points, while the rates paid on Southwest’s interest-bearing liabilities decreased only 73 basis points, resulting in a decrease in the interest rate spread to 2.79% for the first quarter of 2008 from 3.49% for the first quarter of 2007. During the same periods, annualized net interest margin was 3.45% and 4.34%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities decreased to 119.66% from 121.84%.

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 March 31,
(Dollars in thousands)	2008 vs. 2007
	Increase			Due to Change
	Or			In Average:
	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	324		$	8,911		$	(8,587	)
Investment securities		(343	)		(351	)		8
Other interest-earning assets		(37	)		(26	)		(11	)

Total interest income		(56	)		7,741			(7,797	)
Interest paid on:
Interest-bearing demand		60			19			41
Money market accounts		566			1,580			(1,014	)
Savings accounts		2			4			(2	)
Time deposits		403			1,508			(1,105	)
Other borrowings		(102	)		643			(745	)
Subordinated debentures		(78	)		—			(78	)

Total interest expense		851			4,070			(3,219	)

Net interest income	$	(907	)	$	3,671		$	(4,578	)


(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 March 31,
(Dollars in thousands)	2008						2007
	Average			Average			Average			Average
	Balance			Yield/Rate			Balance			Yield/Rate

Assets
Total loans	$	2,304,966			7.09	%	$	1,846,844			8.85	%
Investment securities		236,552			3.97			272,139			3.99
Other interest-earning assets		2,763			4.08			5,210			5.06

Total interest-earning assets		2,544,281			6.79			2,124,193			8.22
Other assets		73,175						81,727
Total assets	$	2,617,456					$	2,205,920


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	72,734			0.78	%	$	60,462			0.54	%
Money market accounts		546,034			3.34			371,496			4.33
Savings accounts		13,463			0.66			11,106			0.73
Time deposits		1,208,782			4.51			1,078,439			4.95

Total interest-bearing deposits		1,841,013			3.99			1,521,503			4.59
Other borrowings		238,811			3.42			175,514			4.92
Subordinated debentures		46,393			7.54			46,393			8.29

Total interest-bearing liabilities		2,126,217			4.00			1,743,410			4.73
Noninterest-bearing demand deposits		247,241						238,532
Other liabilities		21,756						22,080
Shareholders’ equity		222,242						201,898

Total liabilities and shareholders’ equity	$	2,617,456					$	2,205,920

Interest rate spread					2.79	%					3.49	%

Net interest margin (1)					3.45	%					4.34	%

Ratio of average interest-earning assets to average interest-bearing liabilities		119.66	%					121.84	%


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

Noninterest Income


	For the three months
	ended March 31,
(Dollars in thousands)	2008		2007			$ Change			% Change


Noninterest income:
ATM service charges	$	353	$	318		$	35			11.01	%
Other service charges		1,885		1,509			376			24.92
Other fees		219		408			(189	)		(46.32	)
Other noninterest income		172		345			(173	)		(50.14	)
Gain on sales of loans:
Student loan sales		298		956			(658	)		(68.83	)
Mortgage loan sales		193		160			33			20.63
All other loan sales		349		92			257			279.35
Gain (loss) on investment securities		1,245		(448	)		1,693			(377.90	)

Total noninterest income	$	4,714	$	3,340		$	1,374			41.14	%

The increase in other service charges is the result of increases in commercial account service charges due to a reduction in earnings credits on balances caused by decreases in interest rates, while the decrease in other noninterest income is primarily the result of losses incurred on the sale of fixed assets offset in part by increased consulting income.

The decrease in other fees is the result of a $260,000 impairment charge on loan servicing rights recognized during the quarter offset in part by $76,000 in increased brokerage fees.

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

Gain on investment securities includes a $1.2 million gain due to the redemption of certain VISA USA common shares during the first quarter.

Noninterest Expense


	For the three months
	ended March 31,
(Dollars in thousands)	2008		2007			$ Change			% Change


Noninterest expense:
Salaries and employee benefits	$	9,222	$	8,125		$	1,097			13.50	%
Occupancy		2,458		2,403			55			2.29
FDIC and other insurance		453		123			330			268.29
Other real estate (net)		10		(69	)		79			(114.49	)
Unfunded loan commitment reserve		145		(65	)		210			(323.08	)
Other general and administrative		3,542		6,314			(2,772	)		(43.90	)

Total noninterest expense	$	15,830	$	16,831		$	(1,001	)		(5.95	)%

Salaries and employee benefits increased $1.1 million primarily as a result of annual compensation increases, an increase in the number of employees, and a $212,000 increase in accrued bonus expense. The number of full-time equivalent employees for the quarter decreased from 489 at the beginning of the quarter to 467 as of March 31, 2008. For the first quarter of 2007, the number of full-time equivalent employees for the quarter increased from 429 at the beginning of the quarter to 443 as of March 31, 2007.

Effective in 2007, under the Deposit Insurance Reform Act of 2005, depository institutions in all risk categories must pay FDIC insurance premiums. In conjunction with the premiums paid in 2007, Southwest utilized an assessment credit to substantially offset the FDIC insurance premiums. Current quarterly premiums are approximately $315,000.

The unfunded loan commitment reserve increased $210,000 due to an increase both in commitments and the reserve on commitments related to potential problem loans.

Current period other general and administrative expenses includes increased accounting fees of $135,000, increased advertising fees of $99,000, and increased intangible amortization expense of $96,000, offset in part by the $566,000 reversal of prior year’s Visa litigation accrual. The net decrease in general and administrative expenses is the result of the $2.5 million cash receivable write-off and the $300,000 in related legal expenses that occurred in first quarter 2007. (See Note 14: “Commitments and Contingencies” in the Notes to Unaudited Consolidated Financial Statements.)

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. (See Note 5: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

The allowance for loan losses of $30.0 million increased $366,000, or 1%, from year-end 2007. A provision for loan losses of $2.2 million was recorded in the first three months of 2008, an increase of $375,000 or 20%, from the first three months of 2007. The increase in the provision for loan losses was the result of the calculations of the appropriate allowance at each period end. This change in the period end allowance is the 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. (See Note 5: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

At March 31, 2008, the reserve for unfunded loan commitments was $3.2 million, a $145,000, or 5%, increase from the amount reported at December 31, 2007. This reserve is included in other liabilities. The related provision for unfunded loan commitments is a component of general and administrative expense. (See Note 5: “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 $3.2 million and $2.9 million for the first three months of 2008 and 2007, respectively, an increase of $385,000, or 13%. The effective tax rate for the first three months of 2008 was 38.40% while the effective tax rate for the first three months of 2007 was 38.88%.

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 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, reductions in liquid assets, and accessibility to capital and money markets. These funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans, and operate the organization.

Southwest, Stillwater National, SNB Wichita, and SNB Kansas 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 $1.4 million at March 31, 2008. Stillwater National has approved federal funds purchase lines totaling $375.0 million with twelve banks; $129.5 million was outstanding on these lines at March 31, 2008. Stillwater National has available a $458.0 million line of credit, SNB Wichita has a $24.8 million line of credit, and SNB Kansas has an $18.5 million line of credit from the FHLB. Borrowings under the FHLB lines are secured by investment securities and loans. At March 31, 2008, the Stillwater National FHLB line of credit had an outstanding balance of $96.5 million, the SNB Wichita line of credit had an outstanding balance of $5.0 million, and the SNB Kansas line of credit has no amount outstanding. In addition, Southwest has available two lines of credit from Sallie Mae, one for $200 million and one for $75 million. Borrowings under the $200 million line would be secured by student loans and borrowings under the $75 million line are used exclusively to fund disbursements under the consolidation loan

program which Sallie Mae began in 2007. Southwest had no amount outstanding on the $200 million line and had $46,000 outstanding on the $75 million line as of March 31, 2008.

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. Outstanding balances under this program were $35.0 million and $45.2 million as of March 31, 2008 and 2007, respectively.

During the first three months of 2008, the only categories of other borrowings whose averages exceeded 30% of ending shareholders’ equity were federal funds purchased and funds borrowed from the FHLB.


	March 31, 2008						March 31, 2007
	Federal			Funds			Federal			Funds
	Funds			Borrowed			Funds			Borrowed
(Dollars in thousands)	Purchased			from the FHLB			Purchased			from the FHLB


Amount outstanding at end of period	$	129,500		$	101,500		$	1,500		$	76,500
Weighted average rate paid at end of period		2.52	%		3.16	%		5.31	%		5.05	%
Average Balance:
For the three months ended	$	111,800		$	88,807		$	53,136		$	80,859
Average Rate Paid:
For the three months ended		3.39	%		3.64	%		5.35	%		5.03	%
Maximum amount outstanding at any month end	$	149,300		$	101,500		$	67,500		$	86,500

During the first three months of 2008, cash and cash equivalents decreased by $8.1 million, or 18%, to $37.6 million. This decrease was the net result of cash used in investing activities of $122.7 million, (primarily net loans originated net of principal repayments), offset in part by cash provided from financing activities of $101.1 million (primarily from increased other borrowings and deposits), and cash provided by operating activities of $13.6 million.

During the first three months of 2007, cash and cash equivalents increased by $41.6 million, or 72%, to $99.2 million. This increase was the net result of cash provided from operating activities of $91.0 million and cash provided from financing activities of $21.8 million (primarily from an increase in deposits, partially offset by a decline in borrowings), offset in part by cash used in net loan origination and other investing activities of $71.2 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 March 31, 2008, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 10.69%, a Tier I risk-based capital ratio of 9.47%, and a leverage ratio of 9.91%. As of March 31, 2008, Stillwater National, SNB Wichita, and SNB Kansas 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, SNB Wichita, or SNB Kansas by bank or thrift regulators.

On March 3, 2008, Southwest declared a dividend of $.0950 per common share payable on April 1, 2008 to shareholders of record as of March 18, 2008.

CORRECTION OF INVESTMENT SECURITIES VALUATION

The accompanying unaudited statements and related portions of management’s discussion and analysis reflect a correction in the valuation of certain VISA USA Class B stock from that used in the earnings release issued on April 17, 2008. These shares, held in escrow by VISA, were originally reported at a value of $2.1 million and are currently reported at their historical cost of zero as described in Note 15 to the financial statements.

The changes, all of which are listed below, had no effect on net income or earnings per share, and had an immaterial effect on assets, shareholders’ equity, regulatory capital ratios or classification, book value, related measures, and financial condition. The items in the “As Currently Reported” column shown below also reflect several immaterial reclassifications made to conform with presentation used in regulatory reports completed after the date of the earnings release


				At March 31, 2008 or for three months then ended
	As Currently			As Originally						Percentage
(dollars in thousands except per share)	Reported			Reported			Difference			Difference


Investment securities available for sale:
Estimated fair value	$	214,208		$	216,272		$	(2,064	)		(0.95	)%
Other Assets		18,987			18,185			802			4.41	%
Total Assets		2,670,580			2,671,842			(1,262	)		(0.05	)%
Accumulated other comprehensive income		802			2,064			(1,262	)		(61.14	)%
Total shareholders’ equity		224,155			225,417			(1,262	)		(0.56	)%
Total liabilities and shareholders’ equity		2,670,580			2,671,842			(1,262	)		(0.05	)%
Book value per share		15.43			15.52			(0.09	)		(0.58	)%
Tangible book value per share		14.95			15.03			(0.08	)		(0.53	)%
Regulatory capital data:
Total capital		291,638			292,567			(929	)		(0.32	)%
Total risk adjusted assets		2,727,853			2,728,622			(769	)		(0.03	)%
Total capital to risk-weighted assets		10.69	%		10.72	%		(0.03	)%
Other ratios:
Shareholders’ equity to total assets		8.39	%		8.44	%		(0.05	)%
Return on average equity		9.43	%		9.42	%		0.01	%

The percentage differences of average assets and shareholders’ equity balances were less than 10 basis points.

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


Policy Limit		(18.00	)%		(10.00	)%		(5.00	)%		(5.00	)%		(10.00	)%
March 31, 2008		+ 0.82	%		(0.15	)%		(1.03	)%		(2.68	)%		(5.80	)%
December 31, 2007		+ 9.59	%		+ 3.87	%		+ 2.10	%		(2.97	)%		(5.68	)%

As of May 1, 2008, the overnight federal funds rate is 2.00%. Southwest believes a down 300 bp rate scenario is impractical since it would result in rates of 0%. As a result, a down 300 bp scenario has not been included. The net interest income at risk position improved in one of the two decreasing interest rate scenarios when compared to the December 31, 2007 risk position. In a rising interest rate environment, Southwest’s net interest income declines in two of the three interest rate scenarios. When the rising interest rate scenarios are compared to December 31, 2007, the percentage of increase in net interest income declined in all three interest rate scenarios. Although assumed unlikely by Southwest’s asset/liability committee, Southwest’s largest exposure to changes in interest rate is in the (200 bp) scenario with a measure of (5.80%) at March 31, 2008, a decline of 12 percentage points from the December 31, 2007 level of (5.68%). All of the above measures of net interest income at risk remain well within prescribed policy limits.

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


Policy Limit		(35.00	)%		(20.00	)%		(10.00	)%		(10.00	)%		(20.00	)%
March 31, 2008		(15.45	)%		(9.14	)%		(2.59	)%		(0.92	)%		(1.17	)%
December 31, 2007		(9.68	)%		(4.31	)%		(0.57	)%		+ 0.04	%		+ 0.91	%

As of March 31, 2008, the economic value of equity measure declined in all interest rate scenarios when compared to the December 31, 2007 percentages. Southwest’s largest economic value of equity exposure is the +300 bp scenario which

declined 5.77 percentage points to (15.45%) on March 31, 2008 from the December 31, 2007 value of (9.68%). The economic value of equity ratio in all scenarios remains well within Southwest’s Asset and Liability Management Policy limits.

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 March 31, 2008. 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 March 31, 2008.

First Three Months 2008 Changes in Internal Control over Financial Reporting

No change occurred during the first three months of 2008 that has materially affected, or is reasonably likely to materially affect, Southwest’s internal control over financial reporting.

NON-GAAP FINANCIAL MEASURES

None of the financial measures used in this report are defined as non-GAAP financial measures under federal securities regulations. Other banking organizations, however, may present such non-GAAP financial measures, which differ from measures based upon accounting principles generally accepted in the United States. For example, such non-GAAP measures may exclude certain income or expense items in calculating operating income or efficiency ratios, or may increase yields and margins to reflect the benefits of tax-exempt interest-earning assets. Readers of this report should be aware that non-GAAP ratios and other measures presented by some banking organizations or financial analysts may not be directly comparable to similarly named ratios or other measures used by Southwest or other banking organizations.

PART II: OTHER INFORMATION


Item 1:		Legal proceedings

		None

Item 1A:		Risk Factors

		There were no material changes in risk factors during the first three months of 2008 from those disclosed in Southwest’s Form 10-K for the year ended December 31, 2007.

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 March 31, 2008.

		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 three months ended March 31, 2008.

Item 3:		Defaults upon senior securities

		None

Item 4:		Submission of matters to a vote of security holders

		None

Item 5:		Other information

		None

Item 6:		Exhibits

		Exhibit 31(a), (b) Rule 13a-14(a)/15d-14(a) Certifications
		Exhibit 32(a), (b) 18 U.S.C. Section 1350 Certifications


PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Financial Condition at March 31, 2008 and December 31, 2007 .			3

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007			4

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007			5

Unaudited Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2008			6

Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2008 and 2007			7

Notes to Unaudited Consolidated Financial Statements			8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			19

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			30

ITEM 4. CONTROLS AND PROCEDURES			32

PART II. OTHER INFORMATION			33

SIGNATURES			34
EX-31.A: CERTIFICATION
EX-31.B: CERTIFICATION
EX-32.A: CERTIFICATION
EX-32.B: CERTIFICATION


SOUTHWEST BANCORP, INC. (Registrant)
By:	/s/ Rick Green	May 8, 2008
	Rick Green	Date
	President and Chief Executive Officer (Principal Executive Officer)


By:	/s/ Kerby Crowell	May 8, 2008
	Kerby Crowell	Date
	Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)

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