10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 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) 742-1800

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
(Do not check if a smaller reporting company)

Smaller reporting company o

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

o YES þ NO

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

14,527,940 (08/07/08)

SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	June 30,			December 31,
(Dollars in thousands)	2008			2007

Assets
Cash and due from banks	$	51,462		$	45,678
Investment securities:
Held to maturity, fair value $8,282 (2008) and $5,838 (2007)		8,340			5,838
Available for sale, amortized cost $214,547 (2008) and $236,707 (2007)		212,466			237,358
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost		13,327			13,116
Loans held for sale		62,892			66,275
Loans receivable, net of allowance for loan losses of $31,341 (2008) and $29,584 (2007)		2,350,552			2,115,973
Accrued interest receivable		12,624			23,117
Premises and equipment, net		23,607			24,323
Other real estate		2,523			2,679
Goodwill		7,071			7,064
Other intangible assets, net		4,157			4,580
Other assets		23,992			18,297

Total assets	$	2,773,013		$	2,564,298


Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing demand	$	299,699		$	257,067
Interest-bearing demand		81,415			63,323
Money market accounts		548,099			541,950
Savings accounts		13,809			13,032
Time deposits of $100,000 or more		740,174			690,985
Other time deposits		527,805			492,222

Total deposits		2,211,001			2,058,579
Accrued interest payable		9,680			11,441
Income tax payable		3,924			1,766
Other liabilities		11,452			10,154
Other borrowings		265,614			218,356
Subordinated debentures		46,393			46,393

Total liabilities		2,548,064			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		45,818			46,478
Retained earnings		168,099			161,482
Accumulated other comprehensive income (loss)		(1,256	)		408
Treasury stock, at cost; 131,566 (2008) and 300,833 (2007) shares		(2,370	)		(5,417	)

Total shareholders’ equity		224,949			217,609

Total liabilities & shareholders’ equity	$	2,773,013		$	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					For the six months
	ended June 30,					ended June 30,
(Dollars in thousands, except earnings per share data)	2008		2007			2008		2007

Interest income:
Interest and fees on loans	$	37,485	$	39,578		$	78,095	$	79,864
Investment securities:
U.S. government and agency obligations		747		2,142			1,915		4,280
Mortgage-backed securities		1,407		334			2,344		626
State and political subdivisions		100		49			190		92
Other securities		172		322			313		528
Other interest-earning assets		20		115			48		180

Total interest income		39,931		42,540			82,905		85,570

Interest expense:
Interest-bearing demand		166		98			307		179
Money market accounts		3,062		4,743			7,590		8,705
Savings accounts		19		21			41		41
Time deposits of $100,000 or more		7,051		7,781			14,916		15,913
Other time deposits		4,809		5,250			10,507		10,278
Other borrowings		1,887		1,089			3,916		3,220
Subordinated debentures		653		946			1,511		1,879

Total interest expense		17,647		19,928			38,788		40,215


Net interest income		22,284		22,612			44,117		45,355

Provision for loan losses		3,190		2,107			5,426		3,968

Net interest income after provision for loan losses		19,094		20,505			38,691		41,387


Noninterest income:
Service charges and fees		2,812		2,306			5,269		4,541
Other noninterest income		541		400			687		716
Gain on sales of loans		603		800			1,443		2,008
Gain on securities		3		1,919			1,248		1,471

Total noninterest income		3,959		5,425			8,647		8,736

Noninterest expense:
Salaries and employee benefits		8,856		8,358			18,078		16,483
Occupancy		2,602		2,388			5,060		4,791
FDIC and other insurance		521		140			974		263
Other real estate, net		197		(41	)		207		(110	)
General and administrative		4,156		3,963			7,843		10,212

Total noninterest expense		16,332		14,808			32,162		31,639

Income before taxes		6,721		11,122			15,176		18,484
Taxes on income		2,559		4,281			5,806		7,143

Net income	$	4,162	$	6,841		$	9,370	$	11,341


Basic earnings per share	$	0.29	$	0.48		$	0.65	$	0.79
Diluted earnings per share	$	0.28	$	0.47		$	0.64	$	0.77
Cash dividends declared per share	$	0.0950	$	0.0925		$	0.1900	$	0.1850

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the six months
	ended June 30,
(Dollars in thousands)	2008			2007

Operating activities:
Net income	$	9,370		$	11,341
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		5,426			3,968
Deferred tax benefit		(680	)		(722	)
Asset depreciation		1,411			1,436
Securities premium amortization (discount accretion), net		49			(14	)
Amortization of intangibles		733			326
Stock based compensation		306			582
Net gain on sale/call of investment securities		(1,248	)		(1,471	)
Net gain on sales of available for sale loans		(1,443	)		(2,008	)
Net loss on sales of premises/equipment		223			2
Net gain on other real estate owned		(369	)		(11	)
Proceeds from sales of residential mortgage loans		32,506			27,982
Residential mortgage loans originated for resale		(32,345	)		(25,930	)
Proceeds from sales of student loans		56,270			201,111
Student loans originated for resale		(51,545	)		(86,213	)
Net change in assets and liabilities:
Accrued interest receivable		10,493			4,398
Other assets		(4,078	)		4,703
Income taxes payable		2,457			2,327
Excess tax benefit from share-based payment arrangements		(306	)		(397	)
Accrued interest payable		(1,761	)		(2,836	)
Other liabilities		1,083			(291	)

Net cash provided by operating activities		26,552			138,283

Investing activities:
Proceeds from sales of available for sale securities		7,787			1,919
Proceeds from principal repayments, calls and maturities:
Available for sale securities		159,662			5,624
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock		(211	)		(404	)
Purchases of held to maturity securities		(2,500	)		(3,700	)
Purchases of available for sale securities		(144,090	)		(8,388	)
Loans originated and principal repayments, net		(249,913	)		(169,494	)
Purchases of premises and equipment		(1,055	)		(1,537	)
Proceeds from sales of premises and equipment		155			38
Proceeds from sales of other real estate owned		10,515			449

Net cash used in investing activities		(219,650	)		(175,493	)

Financing activities:
Net increase in deposits		152,422			58,195
Net increase (decrease) in other borrowings		47,258			(42,533	)
Net proceeds from issuance of common stock		1,594			782
Excess tax benefit from share-based payment arrangements		306			397
Common stock dividends paid		(2,698	)		(2,495	)

Net cash provided from financing activities		198,882			14,346

Net change in cash and cash equivalents		5,784			(22,864	)
Cash and cash equivalents:
Beginning of period		45,678			57,618

End of period	$	51,462		$	34,754

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY


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

Balance, December 31, 2007		14,658,042	$	14,658	$	46,478		$	161,482		$	408		$	(5,417	)	$	217,609
Cash dividends declared:
Common, $0.19 per share, and other dividends		—		—		—			(2,753	)		—			—			(2,753	)
Common stock issued:
Employee Stock Option Plan		—		—		(1,103	)		—			—			2,629			1,526
Employee Stock Purchase Plan		—		—		(2	)		—			—			47			45
Dividend Reinvestment Plan		—		—		(2	)		—			—			25			23
Restricted Stock		—		—		(21	)		—			—			346			325
Tax benefit related to exercise of stock options		—		—		306			—			—			—			306
Stock Compensation Expense		—		—		162			—			—			—			162
Other comprehensive income, net of tax		—		—		—			—			(1,664	)		—			(1,664	)
Net income		—		—		—			9,370			—			—			9,370

Balance, June 30, 2008		14,658,042	$	14,658	$	45,818		$	168,099		$	(1,256	)	$	(2,370	)	$	224,949

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 six months ended June 30, 2008, and the cash flows for the six months ended June 30, 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: RECLASSIFICATIONS

Certain reclassifications have been made to prior year amounts of income statement accounts to conform to current year presentation. These reclassifications had no impact on previously reported net income.

NOTE 4: INVESTMENT SECURITIES

The following table presents securities with gross unrealized losses and fair value by length of time that the individual securities had been in a continuous unrealized loss position at June 30, 2008. Securities whose market values exceed cost are excluded from this table.


					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		13	$	3,970	$	(74	)	$	—	$	3,896

Total		13	$	3,970	$	(74	)	$	—	$	3,896


Available for Sale:
Federal agency securities		10	$	43,002	$	(630	)	$	—	$	42,372
Obligations of state and political subdivisions		1		1,250		(1	)		—		1,249
Mortgage-backed securities		34		90,998		(2,786	)		—		88,212

Total		45	$	135,250	$	(3,417	)	$	—	$	131,833

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 5: 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 Oklahoma City, Dallas, Tulsa, and its other metropolitan markets in Texas, Kansas, and Oklahoma. As a result, the collectibility of Southwest’s loan portfolio can be affected by changes in the economic conditions in those states and markets. At June 30, 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 June 30, 2008, approximately $638.0 million, or 27%, 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)	June 30, 2008			December 31, 2007


Nonaccrual loans (1)	$	30,861		$	19,534
Past due 90 days or more		1,242			10,037

Total nonperforming loans		32,103			29,571
Other real estate owned		2,523			2,679

Total nonperforming assets	$	34,626		$	32,250


Nonperforming loans to portfolio loans receivable		1.35	%		1.38	%
Allowance for loan losses to nonperforming loans		97.63	%		100.04	%
Nonperforming assets to portfolio loans receivable and other real estate owned		1.45	%		1.50	%


(1)		The government-guaranteed portion of loans included in these totals was $1.2 million and $1.3 million, respectively.

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

During the first six months of 2008, $21,000 of interest income was received on nonaccruing loans. If interest on those loans had been accrued for the six months ended June 30, 2008, additional total interest income of $948,000 would have been recorded.

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

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


	For the six			For the			For the six
	months ended			year ended			months ended
(Dollars in thousands)	June 30, 2008			December 31, 2007			June 30, 2007


Balance at beginning of period	$	29,584		$	27,293		$	27,293
Loans charged-off:
Real estate mortgage		1,151			1,877			1,550
Real estate construction		760			129			5
Commercial		1,861			4,579			1,870
Installment and consumer		164			414			178

Total charge-offs		3,936			6,999			3,603
Recoveries:
Real estate mortgage		7			32			24
Commercial		203			606			363
Installment and consumer		57			71			9

Total recoveries		267			709			396

Net loans charged-off		3,669			6,290			3,207
Provision for loan losses		5,426			8,581			3,968

Balance at end of period	$	31,341		$	29,584		$	28,054

Loans outstanding:
Average	$	2,359,489		$	1,922,867		$	1,820,792
End of period		2,444,785			2,211,832			1,842,539
Portfolio loans outstanding (end of period)		2,381,893			2,145,557			1,769,528
Net charge-offs to total average loans (annualized)		0.31	%		0.33	%		0.36	%
Allowance for loan losses to portfolio loans (end of period)		1.32	%		1.38	%		1.59	%

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, economic 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 $2.0 million at June 30, 2008, December 31, 2007, and June 30, 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 7: 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. On February 12, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP No. 157-2”). FSP No. 157-2 amends SFAS No. 157 to delay the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, FSP No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.

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.

As of June 30, 2008, assets measured at fair value on a recurring basis are summarized below:


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


Loans held for sale	$	62,892	$	—	$	62,892	$	—
Available for sale securities		208,640		611		207,126		903

Total	$	271,532	$	611	$	270,018	$	903

For the six months ended June 30, 2008, the following table presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). It also summarizes changes in unrealized gains and losses recorded in earnings for the period for Level 3 assets and liabilities.


	Available for Sale
(Dollars in thousands)	Securities


Balance at December 31, 2007	$	982
Total gains or losses (realized/unrealized)
Included in earnings
interest income		(12	)
noninterest income		(60	)
Included in other comprehensive income		(7	)
Purchases, issuances, and settlements		—
Transfers in and/or out of Level 3		—

Balance at June 30, 2008	$	903


Changes in unrealized gains or losses included in earnings related to assets still held at reporting date for the six months ended June 30, 2008	$	(53	)

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. These assets are recorded at the lower of cost or fair value. During first quarter 2008, mortgage loan servicing rights were written down $260,000 to a fair value of $1.3 million.

NOTE 8: 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 $284,000 for the six months ended June 30, 2008. There are no interest rate swaps outstanding at June 30, 2008.

As of December 31, 2007, Southwest’s derivative portfolio consisted of gross unrealized gains of $64,000, which were included in other liabilities, a weighted average floating pay rate of 5.04%, a weighted average fixed receive rate of 5.32%, and a weighted average maturity of 2 months.

NOTE 9: 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.

The Southwest Bancorp, Inc. 2008 Stock Based Award Plan (the “2008 Stock Plan”) was approved at the annual shareholders’ meeting held April 24, 2008. The 2008 Stock Plan replaces the Southwest Bancorp, Inc. 1999 Stock Option Plan, as amended (the “1999 Plan”). Options issued under the 1999 Plan and Southwest’s 1994 Stock Option Plan will continue in effect and will be subject to the requirements of those plans, but no new options will be granted under them. The 2008 Stock Plan authorizes awards for up to 800,000 shares of Southwest common stock over its ten-year term.

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 $162,000 of share-based compensation expense for the six month period ended June 30, 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.

Share-based employee compensation expense under the fair value method was measured using the following quarterly assumptions for options granted during the respective quarters. No options were granted in second quarter of 2008.


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


Second quarter 2008		N/A			N/A			N/A			N/A
First quarter 2008		2.30	%		2.24	%		34.36	%		3.00
Second quarter 2007		4.73	%		1.48	%		29.60	%		2.50
First quarter 2007		4.51	%		1.40	%		29.58	%		2.50

A summary of options outstanding under the Stock Plans as of June 30, 2008, and changes during the six month period then ended, is presented below.


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



Outstanding at December 31, 2007		883,770		$	15.56

Granted		5,000			16.93
Exercised		(146,058	)		10.45
Canceled/expired		(900	)		5.88

Outstanding at June 30, 2008		741,812		$	16.59		2.11	$	1,366


Total exercisable at June 30, 2008		644,702		$	16.61		1.98	$	1,105

The weighted average grant date fair value of options granted during the six month period ended June 30, 2008 was $3.71 per share. The total intrinsic value of options exercised during the six month period was $959,000; the amount of cash received from those exercises was $1.5 million. All shares issued upon exercise of options during the six month period ended June 30, 2008 were issued out of treasury shares. The fair value of options that became vested during the six month period was $449,000.

A summary of the status of Southwest’s nonvested stock options as of June 30, 2008 and changes during the six month period then ended is presented below.


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



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

Granted		5,000			3.71
Vested		(85,090	)		5.28
Forfeited		(900	)		2.12

Nonvested Balance at June 30, 2008		97,110		$	3.91

As of June 30, 2008, there was $108,000 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

Restricted shares granted as of June 30, 2008 and 2007 were 52,192 and 32,978, respectively. For the six months ended June 30, 2008, Southwest recognized $88,000 in compensation expense, net of tax, related to all restricted shares outstanding; $64,000 in compensation expense, net of tax, was recorded in the first six months of 2007. As of June 30, 2008, there was $513,000 of total unrecognized compensation expense related to restricted shares granted under the Stock Plans. This unrecognized expense is expected to be recognized during the next three years.

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 provided that all restrictions will end, and the awards will be fully vested, upon a change in control of Southwest or the permanent and total disability or death of the participant. Southwest will continue to recognize compensation expense over the restricted periods.

NOTE 10: TAXES ON INCOME

In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, the balance of unrecognized tax benefits at June 30, 2008 was $2.4 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 second quarter of the year, an additional $159,000 has been accrued in interest and penalties. Southwest had approximately $1.6 million accrued for interest and penalties at June 30, 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 11: EARNINGS PER SHARE

Basic earnings per share is computed based upon net income divided by the weighted average number of shares outstanding during each period. Diluted earnings per share is computed based upon net income divided by the weighted average number of shares outstanding during each period adjusted for the effect of dilutive potential shares calculated using the treasury method. At June 30, 2008 and 2007, there were 472,942 and 134,765 antidilutive options to purchase common shares, respectively.

The following is a reconciliation of the shares used in the calculations of basic and diluted earnings per share:


	For the three months				For the six months
	ended June 30,				ended June 30,
	2008		2007		2008		2007

Weighted average common shares outstanding		14,526,038		14,299,111		14,469,862		14,281,502
Effect of dilutive securities		154,224		345,752		174,250		361,930

For calculation of diluted earnings per share		14,680,262		14,644,863		14,644,112		14,643,432

NOTE 12: 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:


	At		At
(Dollars in thousands)	June 30, 2008		December 31, 2007

Commitments to extend commercial and real estate mortgage credit	$	767,517	$	861,851
Standby and commercial letters of credit		11,066		18,580

Total	$	778,583	$	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 6, “Allowance for Loans Losses and Reserve for Unfunded Loan Commitments”.

NOTE 13: 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 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-one 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. For comparability, the amounts for second quarter 2007 and for the six months ended June 30, 2007 have been restated using the same geographical allocation method.

The following table summarizes financial results by operating segment:


For the Three Months Ended June 30, 2008
	Oklahoma		Texas		Kansas			Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Banking			Banking		Market		Operations			Company


Net interest income	$	11,588	$	8,262	$	2,173		$	2,612	$	375	$	(2,726	)	$	22,284
Provision for loan losses		557		1,871		647			115		—		—			3,190
Noninterest income		1,895		378		76			26		743		841			3,959
Noninterest expenses		8,174		3,869		1,662			811		1,055		761			16,332

Income (loss) before taxes		4,752		2,900		(60	)		1,712		63		(2,646	)		6,721
Taxes on income		1,829		1,123		(20	)		684		23		(1,080	)		2,559

Net income (loss)	$	2,923	$	1,777	$	(40	)	$	1,028	$	40	$	(1,566	)	$	4,162


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


Net interest income	$	12,216	$	6,484	$	2,314	$	1,612		$	320	$	(334	)	$	22,612
Provision for loan losses		486		1,022		299		300			—		—			2,107
Noninterest income		3,777		317		173		4			834		320			5,425
Noninterest expenses		7,885		3,290		1,738		(216	)		800		1,311			14,808

Income (loss) before taxes		7,622		2,489		450		1,532			354		(1,325	)		11,122
Taxes on income		2,802		921		124		602			157		(325	)		4,281

Net income (loss)	$	4,820	$	1,568	$	326	$	930		$	197	$	(1,000	)	$	6,841


For the Six Months Ended June 30, 2008
	Oklahoma		Texas		Kansas		Other States		Secondary			Other			Total
(Dollars in thousands)	Banking		Banking		Banking		Banking		Market			Operations			Company


Net interest income	$	22,959	$	16,300	$	5,065	$	4,678	$	742		$	(5,627	)	$	44,117
Provision for loan losses		2,168		2,163		1,023		72		—			—			5,426
Noninterest income		4,227		770		210		73		757			2,610			8,647
Noninterest expenses		16,208		8,086		3,574		1,423		1,717			1,154			32,162

Income (loss) before taxes		8,810		6,821		678		3,256		(218	)		(4,171	)		15,176
Taxes on income		3,384		2,638		260		1,259		(84	)		(1,651	)		5,806

Net income (loss)	$	5,426	$	4,183	$	418	$	1,997	$	(134	)	$	(2,520	)	$	9,370


Fixed asset expenditures	$	499	$	111	$	39	$	30	$	—		$	376		$	1,055
Total loans at period end		965,952		857,160		277,887		280,894		62,892			—			2,444,785
Total assets at period end		968,624		858,262		288,416		283,577		68,184			305,950			2,773,013
Total deposits at period end		1,364,339		149,154		139,097		—		2,121			556,290			2,211,001


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


Net interest income	$	24,371	$	12,586	$	4,464	$	3,290	$	1,203	$	(559	)	$	45,355
Provision for loan losses		1,182		2,044		442		300		—		—			3,968
Noninterest income		5,512		663		106		28		2,057		370			8,736
Noninterest expenses		14,122		6,051		3,201		1,085		1,741		5,439			31,639

Income (loss) before taxes		14,579		5,154		927		1,933		1,519		(5,628	)		18,484
Taxes on income		5,481		1,943		394		762		569		(2,006	)		7,143

Net income (loss)	$	9,098	$	3,211	$	533	$	1,171	$	950	$	(3,622	)	$	11,341


Fixed asset expenditures	$	717	$	173	$	241	$	—	$	57	$	349		$	1,537
Total loans at period end		804,890		567,132		198,229		199,277		73,011		—			1,842,539
Total assets at period end		809,109		568,657		198,088		202,640		79,506		338,005			2,196,005
Total deposits at period end		1,237,322		109,648		50,187		—		2,160		424,489			1,823,806

NOTE 14: 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.

In May 2008, the Financial Accounting Standards Board issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.

NOTE 15: 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 six months of approximately $193,000 and approximately $785,000 during the year 2007 of which $500,000 was incurred in the first six months of 2007. 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 16: 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.

NOTE 17: SUBSEQUENT EVENT

On July 2, 2008, Southwest’s subsidiary, Southwest Capital Trust II, a statutory trust formed under the laws of the State of Delaware (the “Trust”) sold and issued $30.0 million aggregate liquidation amount of 10.50% Trust Preferred Securities

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 was organized in 1981 as the holding company for Stillwater National, which was chartered in 1894. Southwest has established and pursued a strategy of independent operation for the benefit of all of its shareholders. Southwest became a public company in late 1993 with assets of approximately $434 million. At June 30, 2008, Southwest had total assets of $2.8 billion, deposits of $2.2 billion, and shareholders’ equity of $224.9 million.

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 June 30, 2008, the Texas Banking segment accounted for $857.2 million in loans, the Kansas Banking segment accounted for $277.9 million in loans and the Other States Banking Segment accounted for $280.9 million in loans. In total, these offices accounted for 59% of portfolio loans and 58% of total loans, which include loans held for sale. During the first six months of 2008, these segments produced $6.6 million in net income (70% of the consolidated total), $146.5 million in loan growth, and $148.0 million in asset growth.

The Oklahoma Banking segment accounted for $5.4 million, or 58%, of consolidated year-to-date net income. Outstanding loans in the Oklahoma Banking Segment totaled $966.0 million at quarter end and increased by $89.9 million, or 10%, from December 31, 2007.

Southwest offers products to the student and residential mortgage lending markets. These operations comprise the Secondary Market business segment. During the first six months of 2008, this segment incurred a net loss of $134,000 as a result of decreased noninterest income and reduced margin. Secondary Market loans and assets decreased slightly during the first six months of the year, and were down significantly from June 30, 2007, as a result of a reduction in student loans. Southwest engages in residential mortgage lending, but residential mortgages have not been a significant element of Southwest’s strategy. Please see “Financial Condition: Loans” below for additional information.

For additional information on Southwest’s operating segments, please see Note 13, “Operating Segments”, in the Notes to Unaudited Consolidated Financial Statements. The total of net income of the segments discussed above does not equal consolidated net income for the first six months of 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.

FINANCIAL CONDITION

Total Assets and Investment Securities

Southwest’s total assets were $2.8 billion at June 30, 2008, and $2.2 billion at June 30, 2007.

Southwest’s investment security portfolio decreased $22.2 million, or 9%, from $256.3 million at December 31, 2007, to $234.1 million at June 30, 2008. The decrease is primarily the result of a $108.8 million (57%) 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 $84.1 million (219%) increase in mortgage backed securities, and a $2.5 million (27%) increase in tax-exempt securities during the first six months of 2008.

Loans

Total loans, including loans held for sale, were $2.4 billion at June 30, 2008, an 11% increase from $2.2 billion at December 31, 2007. Commercial real estate mortgage, one-to-four family residential mortgage, commercial, and other consumer loans increased, while real estate construction and student loans decreased.

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


	June 30,		December 31,
(Dollars in thousands)	2008		2007		$ Change			% Change

Real estate mortgage
Commercial	$	991,679	$	750,047	$	241,632			32.22	%
One-to-four family residential		118,056		111,085		6,971			6.28
Real estate construction		666,756		724,929		(58,173	)		(8.02	)
Commercial		566,830		521,501		45,329			8.69
Installment and consumer
Student loans		57,413		61,555		(4,142	)		(6.73	)
Other		44,051		42,715		1,336			3.13

Total loans	$	2,444,785	$	2,211,832	$	232,953

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


	June 30,		December 31,
(Dollars in thousands)	2008		2007		$ Change			% Change

Loans held for sale:
Student loans	$	57,413	$	61,555	$	(4,142	)		(6.73	)%
One-to-four family residential		4,283		3,442		841			24.43
Other loans held for sale		1,196		1,278		(82	)		(6.42	)

Total loans held for sale		62,892		66,275		(3,383	)
Portfolio loans		2,381,893		2,145,557		236,336			11.02

Total loans	$	2,444,785	$	2,211,832	$	232,953

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 and one-to-four family construction loans account for less than 4% 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 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.) At June 30, 2008, the allowance for loan losses was $31.3 million, an increase of $1.8 million, or 6%, 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 1.32% and 1.38% of total portfolio loans at June 30, 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 June 30, 2008, the allowance for loan losses was $31.3 million, or 97.63% 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 $71.1 million at June 30, 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 June 30, 2008, the reserve for unfunded loan commitments was $3.2 million, a $159,000, or 5%, increase from the amount at December 31, 2007. This change is due to an increase in commitments related to potential problem loans.

Deposits and Other Borrowings

Southwest’s deposits were $2.2 billion at June 30, 2008 and $2.1 billion at December 31, 2007. Increases occurred in all deposit accounts.

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


	June 30,		December 31,
(Dollars in thousands)	2008		2007		$ Change		% Change

Noninterest-bearing demand	$	299,699	$	257,067	$	42,632		16.58	%
Interest-bearing demand		81,415		63,323		18,092		28.57
Money market accounts		548,099		541,950		6,149		1.13
Savings accounts		13,809		13,032		777		5.96
Time deposits of $100,000 or more		740,174		690,985		49,189		7.12
Other time deposits		527,805		492,222		35,583		7.23

Total deposits	$	2,211,001	$	2,058,579	$	152,422

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, and Morgan Stanley & Co., Inc., in connection with its retail certificate of deposit program. At June 30, 2008, $359.2 million in these retail certificates of deposit were included in time deposits of $100,000 or more, an increase of $24.2 million, or 7%, 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 $602,000 as of June 30, 2008.

In addition, Stillwater National has brokered certificates of deposit issued in amounts under $100,000 totaling $10.8 million and $681,000 as of June 30, 2008, and December 31, 2007, respectively, included in other time deposits in the above table.

Other borrowings increased $47.3 million, or 22%, to $265.6 million during the first six 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 $7.3 million, or 3%, due primarily to earnings of $9.4 million for the first six months of 2008, offset by dividends declared totaling $2.8 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 $2.4 million to shareholders’ equity in the first six months of 2008. Net unrealized holding gains and losses on available for sale investment securities (net of tax) decreased to a loss of $1.3 million at June 30, 2008, compared to a gain of $408,000 at December 31, 2007.

At June 30, 2008, Southwest, Stillwater National, SNB Wichita, and SNB Kansas continued to exceed all applicable regulatory capital requirements. See “Capital Resources” on page 34.

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2008 and 2007

Net income for the second quarter of 2008 of $4.2 million represented a decrease of $2.7 million, or 39%, from the $6.8 million earned in the second quarter of 2007. Diluted earnings per share were $0.28 compared to $0.47, a 40% decrease. The decrease in quarterly net income was the result of a $328,000, or 1%, decrease in net interest income, a $1.1 million, or 51%, increase in the provision for loans losses, a $1.5 million, or 27%, decrease in noninterest income and a $1.5 million, or 10%, increase in noninterest expense offset by a $1.7 million, or 40%, decrease in income taxes.

The $328,000 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 second quarter of 2008 was $1.1 million more than the provision required for second quarter of 2007. (See Note 6: “Allowance for Loan Losses and Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

The decrease in noninterest income was mainly the result of lower gains on securities of $1.9 million offset in part by increased service charges and fees of $506,000. The increase in noninterest expense consists of a $498,000 increase in salaries and employee benefits, a $381,000 increase in FDIC and other insurance, a $329,000 increase in other general and administrative expense, a $238,000 increase in other real estate expense, and a $214,000 increase in occupancy expense, offset by a $136,000 decrease in the provision for unfunded loan commitments.

On an operating segment basis, the decrease in net income was the result of a $1.9 million reduction in net income from the Oklahoma Banking segment, a $566,000 increased loss from the Other Operations segment, a $366,000 reduction in net income from the Kansas Banking segment, and a $157,000 reduction in net income from the Secondary Market segment, offset by a $209,000 increase from the Texas Banking segment and a $98,000 increase from the Other States Banking segment.

Net Interest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2008		2007		$ Change			% Change


Interest income:
Loans	$	37,485	$	39,578	$	(2,093	)		(5.29	)%
Investment securities:
U.S. government and agency obligations		747		2,142		(1,395	)		(65.13	)
Mortgage-backed securities		1,407		334		1,073			321.26
State and political subdivisions		100		49		51			104.08
Other securities		172		322		(150	)		(46.58	)
Other interest-earning assets		20		115		(95	)		(82.61	)

Total interest income		39,931		42,540		(2,609	)		(6.13	)

Interest expense:
Interest-bearing demand deposits		166		98		68			69.39
Money market accounts		3,062		4,743		(1,681	)		(35.44	)
Savings accounts		19		21		(2	)		(9.52	)
Time deposits of $100,000 or more		7,051		7,781		(730	)		(9.38	)
Other time deposits		4,809		5,250		(441	)		(8.40	)
Other borrowings		1,887		1,089		798			73.28
Subordinated debentures		653		946		(293	)		(30.97	)

Total interest expense		17,647		19,928		(2,281	)		(11.45	)


Net interest income	$	22,284	$	22,612	$	(328	)		(1.45	)%

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 214 basis points, while the rates paid on Southwest’s interest-bearing liabilities decreased only 152 basis points, resulting in a decrease in the interest rate spread to 2.84% for the second quarter of 2008 from 3.46% for the second quarter of 2007. During the same periods, annualized net interest margin was 3.38% and 4.36%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities decreased to 120.33% from 123.48%.

The decrease in interest income was the result of a decrease in the yield earned on interest-earning assets, which was offset in part by the effects of a $569.2 million, or 27%, increase in average interest-earning assets. Southwest’s average loans increased $619.0 million, or 34%; however, the related yield decreased to 6.25% for the second quarter of 2008 from 8.84% in 2007. During the same period, average investment securities decreased $43.8 million, or 16%, and the related yield increased slightly to 4.19% from 4.13% in 2007.

The decrease in total interest expense can be attributed to the decrease in rates paid on interest-bearing liabilities, offset in part by a $517.1 million, or 31%, increase in average interest-bearing liabilities.

UNAUDITED RATE VOLUME TABLE

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


	For the three months ended June 30,
(Dollars in thousands)	2008 vs. 2007
	Increase			Due to Change
	Or			In Average:
	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	(2,093	)	$	11,475		$	(13,568	)
Investment securities		(421	)		(456	)		35
Other interest-earning assets		(95	)		(52	)		(43	)

Total interest income		(2,609	)		10,076			(12,685	)

Interest paid on:
Interest-bearing demand		68			27			41
Money market accounts		(1,681	)		1,136			(2,817	)
Savings accounts		(2	)		4			(6	)
Time deposits		(1,171	)		2,068			(3,239	)
Other borrowings		798			1,416			(618	)
Subordinated debentures		(293	)		—			(293	)

Total interest expense		(2,281	)		5,161			(7,450	)


Net interest income	$	(328	)	$	4,915		$	(5,235	)


(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 beacause it is not considered material.

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

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


	For the three months ended June 30,
(Dollars in thousands)	2008								2007
	Average					Average			Average					Average
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate

Assets
Total loans	$	2,414,012		$	37,485		6.25	%	$	1,795,028		$	39,578		8.84	%
Investment securities		232,805			2,426		4.19			276,610			2,847		4.13
Other interest-earning assets		3,406			20		2.36			9,354			115		4.93

Total interest-earning assets		2,650,223			39,931		6.06			2,080,992			42,540		8.20
Other assets		66,681								66,614

Total assets	$	2,716,904							$	2,147,606


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	79,273		$	166		0.84	%	$	63,947		$	98		0.61	%
Money market accounts		548,020			3,062		2.25			423,484			4,743		4.49
Savings accounts		13,586			19		0.56			10,993			21		0.77
Time deposits		1,230,327			11,860		3.88			1,045,334			13,031		5.00

Total interest-bearing deposits		1,871,206			15,107		3.25			1,543,758			17,893		4.65
Other borrowings		284,828			1,887		2.66			95,143			1,089		4.59
Subordinated debentures		46,393			653		5.63			46,393			946		8.14

Total interest-bearing liabilities		2,202,427			17,647		3.22			1,685,294			19,928		4.74

Noninterest-bearing demand deposits		267,026								236,835
Other liabilities		20,687								18,483
Shareholders’ equity		226,764								206,994

Total liabilities and shareholders’ equity	$	2,716,904							$	2,147,606

Interest rate spread				$	22,284		2.84	%				$	22,612		3.46	%

Net interest margin (1)							3.38	%							4.36	%

Ratio of average interest-earning assets to average interest-bearing liabilities		120.33	%							123.48	%


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

Noninterest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2008		2007		$ Change			% Change


Noninterest income:
ATM service charges	$	353	$	302	$	51			16.89	%
Other service charges		2,031		1,593		438			27.50
Other fees		428		411		17			4.14
Other noninterest income		541		400		141			35.25
Gain on sales of loans:
Student loan sales		284		197		87			44.16
Mortgage loan sales		257		602		(345	)		(57.31	)
All other loan sales		62		1		61		NA
Gain on investment securities		3		1,919		(1,916	)		(99.84	)

Total noninterest income	$	3,959	$	5,425	$	(1,466	)		(27.02	)%

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 increase in other noninterest income is primarily the result of increased consulting income offset in part by increased losses incurred on the sale of fixed assets.

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

The decreased gain on investment securities is the result of recording a $1.9 million gain due to the sale of shares of common stock of a public corporation in the second quarter of 2007.

Noninterest Expense


	For the three months
	ended June 30,
(Dollars in thousands)	2008		2007			$ Change			% Change


Noninterest expense:
Salaries and employee benefits	$	8,856	$	8,358		$	498			5.96	%
Occupancy		2,602		2,388			214			8.96
FDIC and other insurance		521		140			381			272.14
Other real estate (net)		197		(41	)		238			580.49
Unfunded loan commitment reserve		15		151			(136	)		(90.07	)
Other general and administrative		4,141		3,812			329			8.63

Total noninterest expense	$	16,332	$	14,808		$	1,524			10.29	%

Salaries and employee benefits increased $498,000 primarily as a result of annual compensation increases and an increase in the number of employees. The number of full-time equivalent employees for the quarter decreased from 467 at the beginning of the quarter to 463 as of June 30, 2008. For the second quarter of 2007, the number of full-time equivalent employees for the quarter increased from 443 at the beginning of the quarter to 457 as of June 30, 2007.

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 $355,000.

Current period other general and administrative expenses includes increased charitable contributions of $340,000, increased marketing fees of $98,000, increased fees to governmental guarantee agencies of $74,000, and increased travel expenses of $41,000, offset in part by decreased supplies and printing fees of $140,000 and decreased consulting fees of $100,000.

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007

Net income for the six months ended June 30, 2008 of $9.4 million represented a decrease of $1.9 million, or 17%, from the $11.3 million earned in for the six months ended June 30, 2007. Diluted earnings per share were $0.64 compared to $0.77, a 17% decrease. The decline in net income was primarily the result of a $1.2 million, or 3%, decrease in net interest income, a $1.4 million, or 37%, increase in the provision for loan losses, and a $523,000, or 2%, increase in noninterest expense offset in part by a $1.3 million, or 19%, decrease in income taxes.

The $1.2 million decrease in net interest income 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 2008 was $1.4 million more than the provision required for 2007. (See Note 6: “Allowance for Loan Losses and Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

On an operating segment basis, the decrease in net income was the result of a $3.7 million decrease from the Oklahoma Banking segment, a $1.1 million decrease from the Secondary Market segment, and a $115,000 decrease from the Kansas Banking Segment offset by a $1.1 reduction in the loss from the Other Operations segment, a $972,000 increase from the Texas Banking segment, and an $826,000 increase from the Other States Banking segment.

Net Interest Income


	For the six months
	ended June 30,
(Dollars in thousands)	2008		2007		$ Change			% Change


Interest income:
Loans	$	78,095	$	79,864	$	(1,769	)		(2.22	)%
Investment securities:
U.S. government and agency obligations		1,915		4,280		(2,365	)		(55.26	)
Mortgage-backed securities		2,344		626		1,718			274.44
State and political subdivisions		190		92		98			106.52
Other securities		313		528		(215	)		(40.72	)
Other interest-earning assets		48		180		(132	)		(73.33	)

Total interest income		82,905		85,570		(2,665	)		(3.11	)

Interest expense:
Interest-bearing demand deposits		307		179		128			71.51
Money market accounts		7,590		8,705		(1,115	)		(12.81	)
Savings accounts		41		41		—			—
Time deposits of $100,000 or more		14,916		15,913		(997	)		(6.27	)
Other time deposits		10,507		10,278		229			2.23
Other borrowings		3,916		3,220		696			21.61
Subordinated debentures		1,511		1,879		(368	)		(19.58	)

Total interest expense		38,788		40,215		(1,427	)		(3.55	)


Net interest income	$	44,117	$	45,355	$	(1,238	)		(2.73	)%

Yields on Southwest’s interest-earning assets decreased 179 basis points, while the rates paid on Southwest’s interest-bearing liabilities decreased only 113 basis points, resulting in a decrease in the interest rate spread to 2.82% for the first six months of 2008 from 3.48% for the first six months of 2007. During the same periods, annualized net interest margin was 3.42% and 4.35%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities decreased to 120.00% from 122.65%.

The decrease in interest income was the result of a decrease in the yield earned on interest-earning assets, which was offset in part by the effects of a $494.8 million, or 24%, increase in average interest-earning assets. Southwest’s average loans increased $538.7 million, or 30%; however, the related yield decreased to 6.66% for the first six months of 2008 from 8.85% in 2007. During the same period, average investment securities decreased $39.7 million, or 14%, and the related yield increased slightly to 4.08% from 4.06% in 2007.

The decrease in total interest expense can be attributed to the decrease in the rates paid on interest-bearing liabilities, offset in part by a $450.1 million, or 26%, increase in average interest-bearing liabilities.

UNAUDITED RATE VOLUME TABLE


		For the six months ended June 30,
(Dollars in thousands)	2008 vs. 2007
		Increase			Due to Change
		Or			In Average:
		(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾		$	(1,769	)	$	20,459		$	(22,228	)
Investment securities			(764	)		(805	)		41
Other interest-earning assets			(132	)		(80	)		(52	)

Total interest income			(2,665	)		17,871			(20,536	)

Interest paid on:
Interest-bearing demand			128			45			83
Money market accounts			(1,115	)		2,664			(3,779	)
Savings accounts			—			8			(8	)
Time deposits			(768	)		3,571			(4,339	)
Other borrowings			696			2,215			(1,519	)
Subordinated debentures			(368	)		—			(368	)

Total interest expense			(1,427	)		9,260			(10,698	)


Net interest income		$	(1,238	)	$	8,611		$	(9,838	)


(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 beacause it is not considered material.

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

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


	For the six months ended June 30,
(Dollars in thousands)	2008								2007
	Average					Average			Average					Average
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate

Assets
Total loans	$	2,359,489		$	78,095		6.66	%	$	1,820,792		$	79,864		8.85	%
Investment securities		234,678			4,762		4.08			274,387			5,526		4.06
Other interest-earning assets		3,084			48		3.13			7,293			180		4.98

Total interest-earning assets		2,597,251			82,905		6.42			2,102,472			85,570		8.21
Other assets		69,885								74,130

Total assets	$	2,667,136							$	2,176,602


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	76,003		$	307		0.81	%	$	62,215		$	179		0.58	%
Money market accounts		547,027			7,590		2.79			397,634			8,705		4.41
Savings accounts		13,525			41		0.61			11,049			41		0.75
Time deposits		1,219,554			25,423		4.19			1,061,794			26,191		4.97

Total interest-bearing deposits		1,856,109			33,361		3.61			1,532,692			35,116		4.62
Other borrowings		261,819			3,916		3.01			135,107			3,220		4.81
Subordinated debentures		46,393			1,511		6.51			46,393			1,879		8.10

Total interest-bearing liabilities		2,164,321			38,788		3.60			1,714,192			40,215		4.73

Noninterest-bearing demand deposits		257,133								237,679
Other liabilities		21,181								20,271
Shareholders’ equity		224,501								204,460

Total liabilities and shareholders’ equity	$	2,667,136							$	2,176,602


Interest rate spread				$	44,117		2.82	%				$	45,355		3.48	%

Net interest margin (1)							3.42	%							4.35	%

Ratio of average interest-earning assets to average interest-bearing liabilities		120.00	%							122.65	%


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

Noninterest Income


	For the six months
	ended June 30,
(Dollars in thousands)	2008		2007		$ Change			% Change


Noninterest income:
ATM service charges	$	706	$	620	$	86			13.87	%
Other service charges		3,916		3,102		814			26.24
Other fees		647		819		(172	)		(21.00	)
Other noninterest income		687		716		(29	)		(4.05	)
Gain on sales of loans:
Student loan sales		582		1,558		(976	)		(62.64	)
Mortgage loan sales		450		357		93			26.05
All other loan sales		411		93		318			341.94
Gain on investment securities		1,248		1,471		(223	)		(15.16	)

Total noninterest income	$	8,647	$	8,736	$	(89	)		(1.02	)%

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 fees is the result of a $260,000 impairment charge on loan servicing rights recognized during the first quarter offset in part by $114,000 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 of 2008. During the second quarter of 2007, Southwest recorded a securities gain of $1.9 million due to the sale of 1,500,000 shares of common stock of a public corporation, offset by a securities loss of $448,000 which occurred in the first quarter of 2007 due to the other than temporary impairment of certain equity securities of one issuer.

Noninterest Expense


	For the six months
	ended June 30,
(Dollars in thousands)	2008		2007			$ Change			% Change

Noninterest expense:
Salaries and employee benefits	$	18,078	$	16,483		$	1,595			9.68	%
Occupancy		5,060		4,791			269			5.61
FDIC and other insurance		974		263			711			270.34
Other real estate (net)		207		(110	)		317			288.18
Unfunded loan commitment reserve		160		86			74			86.05
Other general and administrative		7,683		10,126			(2,443	)		(24.13	)

Total noninterest expense	$	32,162	$	31,639		$	523			1.65	%

Salaries and employee benefits increased $1.6 million primarily as a result of annual compensation increases, an increase in the number of employees, and a $270,000 increase in accrued bonus expense. The number of full-time equivalent employees for the first six months decreased from 489 at the beginning of the year to 463 as of June 30, 2008. For the first six months of 2007, the number of full-time equivalent employees increased from 429 at the beginning of the year to 457 as of June 30, 2007.

Year-to-date other general and administrative expenses includes increased charitable contributions of $332,000, increased marketing fees of $157,000, increased accounting fees of $109,000, and increased intangible amortization expense of $132,000, 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 15: “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 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

The allowance for loan losses of $31.3 million increased $1.8 million, or 6%, from year-end 2007. A provision for loan losses of $5.4 million was recorded in the first six months of 2008, an increase of $1.4 million, or 37%, from the first six 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 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

At June 30, 2008, the reserve for unfunded loan commitments was $3.2 million, a $159,000, 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 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

Taxes on Income

Southwest’s income tax expense was $5.8 million and $7.1 million for the first six months of 2008 and 2007, respectively, a decrease of $1.3 million, or 19%. The effective tax rate for the first six months of 2008 was 38.26% while the effective tax rate for the first six months of 2007 was 38.64%.

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 June 30, 2008. Stillwater National has approved federal funds purchase lines totaling $391.0 million with fourteen banks; $137.2 million was outstanding on these lines at June 30, 2008. Stillwater National is qualified to borrow funds from the FRB through their Borrower-In-Custody (“BIC”) program. Collateral under this program consists of pledged selected commercial and industrial loans. Currently the collateral will allow Stillwater National to borrow up to $76.4 million. As of June 30, 2008, no borrowings were made through the BIC program. In addition, Stillwater National has available a $453.6 million line of credit, SNB Wichita has a $25.7 million line of credit, and SNB Kansas has an $17.7 million line of credit from the FHLB. Borrowings under the FHLB lines are secured by investment securities and loans. At June 30, 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, Stillwater National 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 June 30, 2008.

See also “Deposits and Other Borrowings” on page 22 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 $41.2 million and $48.0 million as of June 30, 2008 and 2007, respectively.

During the first six 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.


	June 30, 2008						June 30, 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	$	106,500		$	101,500		$	20,200		$	26,500
Weighted average rate paid at end of period		2.44	%		3.22	%		5.33	%		4.55	%
Average Balance:
For the three months ended	$	79,486		$	148,586		$	18,093		$	31,458
For the six months ended	$	95,643		$	118,696		$	35,517		$	56,022
Average Rate Paid:
For the three months ended		2.27	%		2.93	%		5.36	%		4.74	%
For the six months ended		2.93	%		3.20	%		5.36	%		4.95	%
Maximum amount outstanding at any month end	$	149,300		$	156,600		$	67,500		$	86,500

During the first six months of 2008, cash and cash equivalents increased by $5.8 million, or 13%, to $51.5 million. This increase was the net result of cash provided from financing activities of $198.9 million (primarily from increased deposits and other borrowings), and cash provided by operating activities of $26.6 million offset by cash used in investing activities of $219.7 million, (primarily net loans originated net of principal repayments).

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

CAPITAL RESOURCES

Bank holding companies are required to maintain capital ratios in accordance with guidelines adopted by the Federal Reserve Board (“FRB”). The guidelines are commonly known as Risk-Based Capital Guidelines. At June 30, 2008, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 10.65%, a Tier I risk-based capital ratio of 9.40%, and a leverage ratio of 9.66%. As of June 30, 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. Capital ratios of Southwest and its bank subsidiaries at June 30, 2008 do not reflect the sale and issuance of $34.5 million in Trust Preferred Securities in early July 2008. Please see Note 17: “Subsequent Events”, in the Notes to Unaudited Consolidated Financial Statements for additional information.

On May 23, 2008, Southwest declared a dividend of $.0950 per common share payable on July 1, 2008 to shareholders of record as of June 17, 2008.

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 net income. In addition, Southwest’s model does not include fees on loans in its forecast of net interest income, although Southwest believes their omission does not have a significant effect on the model results. 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	)%
June 30, 2008		(0.81	)%		(1.05	)%		(1.26	)%		(1.24	)%		(2.89	)%
December 31, 2007		+ 9.59	%		+ 3.87	%		+ 2.10	%		(2.97	)%		(5.68	)%

The current overnight rate is 2.00%. Southwest believes that 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 both of the 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 each interest rate scenario. When the rising interest rate scenarios are compared to December 31, 2007, the net interest income position declined from increases to slight decreases in all three rising 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 (2.89%) at June 30, 2008, an improvement of 2.79 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	)%
June 30, 2008		(20.25	)%		(13.23	)%		(6.08	)%		+ 1.18	%		+ 2.57	%
December 31, 2007		(9.68	)%		(4.31	)%		(0.57	)%		+ 0.04	%		+ 0.91	%

As of June 30, 2008, the economic value of equity measure improved in each of the decreasing interest rate scenarios and declined in each of the increasing 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 10.57 percentage points to (20.25%) on June 30, 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 June 30, 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 June 30, 2008.

First Six Months 2008 Changes in Internal Control over Financial Reporting

No change occurred during the first six 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

PART II: OTHER INFORMATION


Item 1:		Legal proceedings

		None

Item 1A:		Risk Factors

		There were no material changes in risk factors during the first six 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 June 30, 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 six months ended June 30, 2008.

Item 3:		Defaults upon senior securities

		None

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

		Election of Directors: At Southwest’s annual shareholders’ meeting, held April 24, 2008, the shareholders of Southwest re-elected four Directors each for a term expiring at the 2011 annual shareholders’ meeting or such later time as his successor is elected and qualified. The Directors elected and the shareholders’ vote in the election of each Director were as follows:


	For		Withheld
David S. Crockett Jr.		12,376,948		926,234
J. Berry Harrison		12,894,564		408,618
James M. Johnson		12,670,476		632,705
Russell W. Teubner		12,366,042		937,139


		Other Directors continuing in office following the annual shareholders’ meeting were James E. Berry II, Tom Berry, Joe Berry Cannon, John Cohlmia, Rick Green, David P. Lambert, Linford R. Pitts and Robert B. Rodgers.

		There were 14,433.419 shares of common stock outstanding and entitled to vote at the meeting. A total of 13,303,181 shares of common stock were represented at the meeting in person or by proxy, representing 92.17% of the shares outstanding and entitled to vote at the meeting.

		Stock Based Award Plan: At the annual meeting, shareholders also approved the Southwest Bancorp, Inc. 2008 Stock Based Award Plan (the “2008 Stock Plan”). The 2008 Stock Plan replaces the Southwest, Inc. 1999 Stock Option Plan, as amended. The 2008 Stock Plan authorizes awards for up to 800,000 shares of Southwest common stock over its ten-year term. The shareholder vote was as follows:


For	Against		Abstain
7,116,902		4,433,466		520,290


		Amendment to Certificate of Incorporation: At the annual meeting, the shareholders also approved the proposal to amend the Certificate of Incorporation to provide for the election of directors for one-year terms rather than three-year terms as now provided, beginning with the 2009 annual meeting. The amendment results in the directors elected at the 2009 annual meeting and thereafter being elected to one-year terms, but does not shorten the existing term of any director elected prior to the 2009 annual meeting. The shareholder vote was as follows:


PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at June 30, 2008 and December 31, 2007			3
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007			4
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007			5
Unaudited Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2008			6
Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 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			20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			34
ITEM 4. CONTROLS AND PROCEDURES			35
PART II. OTHER INFORMATION			37
SIGNATURES			39
EX-3.1: AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
EX-10.1: 2008 STOCK BASED AWARD PLAN
EX-10.2: FORM OF RESTRICTED STOCK AGREEMENT AMENDMENTS
EX-31.A: CERTIFICATION
EX-31.B: CERTIFICATION
EX-32.A: CERTIFICATION
EX-32.B: CERTIFICATION


	For the three months						For the six months
	ended June 30,						ended June 30,
(Dollars in thousands)	2008			2007			2008			2007


Net income	$	4,162		$	6,841		$	9,370		$	11,341

Other comprehensive income:
Unrealized holding gain (loss) on available for sale securities		(3,349	)		1,764			(1,484	)		2,805
Reclassification adjustment for gains arising during the period		(3	)		(1,919	)		(1,248	)		(1,471	)

Other comprehensive income (loss), before tax		(3,352	)		(155	)		(2,732	)		1,334
Tax (expense) benefit related to items of other comprehensive income		1,294			24			1,068			(553	)

Other comprehensive income (loss), net of tax		(2,058	)		(131	)		(1,664	)		781

Comprehensive income	$	2,104		$	6,710		$	7,706		$	12,122


Item 5:		Other information

		None

Item 6:		Exhibits


Exhibit 3.1		Amended and Restated Certificate of Incorporation of Southwest Bancorp., Inc.
Exhibit 10.1		Southwest Bancorp., Inc. 2008 Stock Based Award Plan
Exhibit 10.2		Form of Restricted Stock Agreement Amendments for Non-Officer Directors
Exhibit 31(a), (b)		Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 32(a), (b)		18 U.S.C. Section 1350 Certifications


SOUTHWEST BANCORP, INC. (Registrant)

By:	/s/ Rick Green	August 7, 2008
	Rick Green President and Chief Executive Officer (Principal Executive Officer)	Date

By:	/s/ Kerby Crowell	August 7, 2008
	Kerby Crowell Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)	Date

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