e10vq

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

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, 2009


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		74074 (Zip Code)
(Address of principal executive office)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o 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):

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.

14,652,726 (08/06/09)

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	June 30,			December 31,
(Dollars in thousands)	2009			2008

Assets
Cash and due from banks	$	33,724		$	27,287
Federal funds sold		809			—

Cash and cash equivalents		34,533			27,287
Investment securities:
Held to maturity, fair value $6,834 (2009) and $7,293 (2008)		6,795			7,343
Available for sale, amortized cost $214,944 (2009) and $233,293 (2008)		216,293			238,037
Other investments at cost		19,989			18,786
Loans held for sale		26,006			56,941
Loans receivable		2,704,326			2,494,506
Less: Allowance for loan losses		(51,753	)		(39,773	)

Net loans receivable		2,652,573			2,454,733
Accrued interest receivable		10,753			11,512
Premises and equipment, net		24,743			24,580
Other real estate		8,941			6,092
Goodwill		6,811			7,071
Other intangible assets, net		5,974			3,764
Other assets		25,574			23,616

Total assets	$	3,038,985		$	2,879,762


Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing demand	$	291,014		$	261,940
Interest-bearing demand		94,060			76,027
Money market accounts		483,162			454,250
Savings accounts		25,660			14,135
Time deposits of $100,000 or more		905,202			802,244
Other time deposits		653,197			571,526

Total deposits		2,452,295			2,180,122
Accrued interest payable		5,953			7,018
Income tax payable		5,752			3,651
Other liabilities		11,238			9,667
Other borrowings		176,368			295,138
Subordinated debentures		81,963			81,963

Total liabilities		2,733,569			2,577,559
Shareholders’ equity:
Preferred stock, Series B — $1,000 par value; 1,250,000 shares authorized; 70,000 shares issued		66,710			66,392
Common stock — $1 par value; 20,000,000 shares authorized; 14,658,042 shares issued		14,658			14,658
Paid in capital		48,387			49,101
Retained earnings		175,089			170,579
Accumulated other comprehensive income		853			2,921
Treasury stock, at cost; 15,602 (2009) and 80,383 (2008) shares		(281	)		(1,448	)

Total shareholders’ equity		305,416			302,203

Total liabilities & shareholders’ equity	$	3,038,985		$	2,879,762

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)	2009			2008		2009		2008

Interest income:
Interest and fees on loans	$	36,009		$	37,485	$	69,277	$	78,095
Investment securities:
U.S. government and agency obligations		298			747		973		1,915
Mortgage-backed securities		1,561			1,407		3,154		2,344
State and political subdivisions		141			100		300		190
Other securities		79			172		164		313
Other interest-earning assets		3			20		9		48

Total interest income		38,091			39,931		73,877		82,905

Interest expense:
Interest-bearing demand		150			166		303		307
Money market accounts		1,211			3,062		2,564		7,590
Savings accounts		14			19		23		41
Time deposits of $100,000 or more		5,552			7,051		11,702		14,916
Other time deposits		4,145			4,809		8,540		10,507
Other borrowings		1,180			1,887		2,464		3,916
Subordinated debentures		1,383			653		2,787		1,511

Total interest expense		13,635			17,647		28,383		38,788


Net interest income		24,456			22,284		45,494		44,117

Provision for loan losses		7,477			3,190		18,359		5,426

Net interest income after provision for loan losses		16,979			19,094		27,135		38,691


Noninterest income:
Service charges and fees		2,817			2,812		5,417		5,269
Other noninterest income		246			541		484		687
Gain on acquisition		3,281			—		3,281		—
Gain on sales of loans		926			603		1,644		1,443
Gain (loss) on sale/call of securities		(9	)		3		2,912		1,248

Total noninterest income		7,261			3,959		13,738		8,647

Noninterest expense:
Salaries and employee benefits		6,887			8,856		14,126		18,078
Occupancy		2,789			2,602		5,520		5,060
FDIC and other insurance		2,319			521		3,310		974
Other real estate, net		103			197		1		207
General and administrative		2,592			4,156		6,332		7,843

Total noninterest expense		14,690			16,332		29,289		32,162

Income before taxes		9,550			6,721		11,584		15,176
Taxes on income		3,605			2,559		4,310		5,806

Net income	$	5,945		$	4,162	$	7,274	$	9,370

Net income available to common shareholders	$	4,910		$	4,162	$	5,206	$	9,370


Basic earnings per common share	$	0.34		$	0.29	$	0.36	$	0.65
Diluted earnings per common share	$	0.33		$	0.28	$	0.35	$	0.64
Cash dividends declared per share	$	0.0238		$	0.0950	$	0.0476	$	0.1900

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)	2009			2008

Operating activities:
Net income	$	7,274		$	9,370
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		18,359			5,426
Deferred tax benefit		(2,820	)		(680	)
Asset depreciation		1,487			1,411
Securities premium amortization (discount accretion), net		740			49
Amortization of intangibles		919			733
Stock based compensation		175			306
Net gain on sale/call of investment securities		(2,912	)		(1,248	)
Net gain on sales of available for sale loans		(1,644	)		(1,443	)
Net loss on sales of premises/equipment		15			223
Net gain on other real estate owned		(336	)		(369	)
Gain on acquisition		3,281			—
Proceeds from sales of residential mortgage loans		97,580			32,506
Residential mortgage loans originated for resale		(100,920	)		(32,345	)
Proceeds from sales of student loans		72,342			56,270
Student loans originated for resale		(36,586	)		(51,545	)
Net change in assets and liabilities:
Accrued interest receivable		759			10,493
Other assets		(600	)		(4,078	)
Income taxes payable		2,046			2,457
Excess tax benefit (expense) from share-based payment arrangements		55			(306	)
Accrued interest payable		(1,065	)		(1,761	)
Other liabilities		(570	)		1,083

Net cash provided by operating activities		57,579			26,552

Investing activities:
Proceeds from sales of available for sale securities		123,458			7,787
Proceeds from principal repayments, calls and maturities:
Held to maturity securities		550			—
Available for sale securities		43,935			159,662
Purchases of other investments		(1,203	)		(211	)
Purchases of held to maturity securities		—			(2,500	)
Purchases of available for sale securities		(146,874	)		(144,090	)
Loans originated and principal repayments, net		(221,598	)		(249,913	)
Purchases of premises and equipment		(1,729	)		(1,055	)
Proceeds from sales of premises and equipment		89			155
Proceeds from sales of other real estate owned		2,726			10,515

Net cash used in investing activities		(200,646	)		(219,650	)

Financing activities:
Net increase in deposits		272,173			152,422
Net increase (decrease) in other borrowings		(118,770	)		47,258
Net proceeds from issuance of common stock		253			1,594
Excess tax benefit (expense) from share-based payment arrangements		(55	)		306
Preferred stock dividends paid		(1,556	)		—
Common stock dividends paid		(1,732	)		(2,698	)

Net cash provided from financing activities		150,313			198,882

Net change in cash and cash equivalents		7,246			5,784
Cash and cash equivalents:
Beginning of period		27,287			45,678

End of period	$	34,533		$	51,462

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY


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

Balance, December 31, 2008	$	66,392		14,658,042	$	14,658	$	49,101		$	170,579		$	2,921		$	(1,448	)	$	302,203

Cash dividends:
Preferred		—		—		—		—			(1,750	)		—			—			(1,750	)
Common, $0.0476 per share, and other dividends		—		—		—		—			(696	)		—			—			(696	)
Warrant amortization		318		—		—		—			(318	)		—			—			—
Common stock issued:
Employee Stock Option Plan		—		—		—		(411	)		—			—			622			211
Employee Stock Purchase Plan		—		—		—		(36	)		—			—			78			42
Restricted Stock		—		—		—		(240	)		—			—			467			227
Tax expense related to exercise of stock options		—		—		—		(55	)		—			—			—			(55	)
Stock Compensation Expense		—		—		—		28			—			—			—			28
Other comprehensive loss, net of tax		—		—		—		—			—			(2,068	)		—			(2,068	)
Net income		—		—		—		—			7,274			—			—			7,274


Balance, June 30, 2009	$	66,710		14,658,042	$	14,658	$	48,387		$	175,089		$	853		$	(281	)	$	305,416

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. However, the unaudited consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation. Those adjustments consist of normal recurring adjustments. The results of operations for the three and six months ended June 30, 2009, and the cash flows for the six months ended June 30, 2009, 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, 2008.

NOTE 2: BASIS OF PRESENTATION

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”), and Bank of Kansas, and its management consulting subsidiaries, Healthcare Strategic Support, Inc. (“HSSI”), and Business Consulting Group, Inc. (“BCG”), and SNB Capital Corporation, a lending and loan workout subsidiary. SNB Bank of Wichita (“SNB Wichita”), a wholly owned subsidiary of Southwest, was merged into Bank of Kansas on January 23, 2009. All significant intercompany transactions and balances have been eliminated in consolidation.

Effective June 30, 2009, Southwest adopted Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events, (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. SFAS No. 165 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. In accordance with SFAS No. 165, Southwest has evaluated subsequent events for potential recognitions and disclosure through August 6, 2009, the date the consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

NOTE 3: ACQUISITIONS

On June 19, 2009, Bank of Kansas entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire substantially all deposits and loans as well as certain other liabilities and assets of First National Bank of Anthony, Anthony, Kansas (“FNBA”), in an FDIC-assisted transaction. FNBA was a full service commercial bank that had been placed in receivership with the FDIC. In this transaction, Bank of Kansas acquired the following assets and liabilities at their respective fair values:


(Dollars in thousands)	Amount

Cash and cash equivalents	$	6,039
Loans		117,096
Investment securities		20,644
Core deposit intangibles		1,983
Other real estate owned		2,938
Other assets		1,141

Total assets acquired	$	149,841

Deposits		135,007
Borrowings		21,672
Other liabilities		1,003

Net assets acquired	$	(7,841	)
Plus: cash received from FDIC		11,122

Gain on acquisition	$	3,281

The acquisition of these assets and liabilities constitute a business as defined by SFAS No. 141(R), Business Combinations, (“SFAS
No 141(R)”) because they are capable of being operated as a business. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. The resulting gain of $3.3 million on the acquisition is included in noninterest income in the June 30, 2009 Consolidated Statement of Operations.

Bank of Kansas and the FDIC entered into loss sharing agreements that provide Bank of Kansas with significant protection against credit losses from loans and related assets acquired in the transaction. Under these agreements, the FDIC will reimburse Bank of Kansas 80% of net losses up to $35.0 million on covered assets, primarily acquired loans and other real estate, and 95% of any net losses above $35.0 million. Bank of Kansas will service the covered assets. The loss sharing agreements have terms of ten years for one-to-four family residential loans and eight years for all other loan types. The expected payments from the FDIC under the loss sharing agreements were recorded as part of the loans acquired at a fair value of $33.1 million.

It is expected that, based upon the analysis performed by the outside valuation firm, Bank of Kansas will accrete additional discounts into income as Bank of Kansas collects on the assets covered by the loss share agreements.

Bank of Kansas is evaluating buying branch offices that were owned by FNBA from the FDIC. Acquisition costs of the branch buildings will be based on current appraisals and determined at a later date.

AICPA Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, (“SOP-03-3”) applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. SOP 03-3 prohibits carrying over or creating an allowance for loan losses upon initial recognition. Substantially all of the loans we acquired will be accounted for under SOP 03-3.

The estimated value at the acquisition date of the contractually required payments receivable for loans was $123.2 million, the cash flows expected to be collected were $87.5 million including interest, and the estimated fair value of the loans was $84.0 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effect of estimated prepayments. At June 30, 2009, these loans were valued based on the estimated expected cash flows which included liquidation of underlying collateral and the time and amount of the cash flows using a discount rate commensurate with the related risks of the loan portfolio. Certain amounts related to the loans are preliminary estimates; however, changes in the carrying amounts, if any, are not expected to be material. Interest income from the acquisition date to June 30, 2009 was not material. The estimated loss reimbursement from the FDIC was valued using the timing of the loss estimate from the related loans at a discount rate commensurate with the risk of this receivable.

Acquired assets are categorized as follows:


(Dollars in thousands)	Loans		Other		Total

Commercial real estate	$	31,128	$	—	$	31,128
1-4 family residential		11,457		—		11,457
Real Estate Construction		19,022		—		19,022
Commercial		19,603		—		19,603
Consumer		2,767		—		2,767
Other real estate owned		—		2,938		2,938
Estimated loss reimbursement from the FDIC		33,119		—		33,119

Total covered assets	$	117,096	$	2,938	$	120,034

During the current quarter, we discovered an error in the entries made to record a prior acquisition in 2007 and recorded the correction in the current period. The adjustment was recorded to reduce goodwill by $260,000 to properly record other asset balances that were established at the time of the acquisition. This adjustment is not material to previous fiscal years, nor is it expected to be material to anticipated results for the full fiscal year and accordingly, Southwest has included the correction in the period identified.

NOTE 4: INVESTMENT SECURITIES AND OTHER INVESTMENTS

Effective April 1, 2009, Southwest adopted Financial Staff Position (“FSP”) SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. FSP SFAS No. 115-2 and SFAS No. 124-2 (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FSP SFAS No. 115-2 and SFAS No. 124-2, declines in fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income.

A summary of the amortized cost and fair values of investment securities at June 30, 2009 and December 31, 2008 follows:


	Amortized		Gross Unrealized					Fair
(Dollars in thousands)	Cost		Gains		Losses			Value

At June 30, 2009:
Held to Maturity:
Obligations of state and political subdivisions	$	6,795	$	47	$	(8	)	$	6,834

Total	$	6,795	$	47	$	(8	)	$	6,834


Available for Sale:
U.S. Government obligations	$	997	$	3	$	—		$	1,000
Federal agency securities		43,936		489		(128	)		44,297
Obligations of state and political subdivisions		1,623		21		(1	)		1,643
Mortgage-backed securities		167,472		1,687		(808	)		168,351
Equity securities		916		87		(1	)		1,002

Total	$	214,944	$	2,287	$	(938	)	$	216,293


	Amortized		Gross Unrealized					Fair
(Dollars in thousands)	Cost		Gains		Losses			Value

At December 31, 2008:
Held to Maturity:
Obligations of state and political subdivisions	$	7,343	$	10	$	(60	)	$	7,293

Total	$	7,343	$	10	$	(60	)	$	7,293


Available for Sale:
U.S. Government obligations	$	986	$	13	$	—		$	999
Federal agency securities		77,543		1,663		(9	)		79,197
Obligations of state and political subdivisions		2,736		19		—			2,755
Mortgage-backed securities		151,130		2,897		(14	)		154,013
Equity securities		898		175		—			1,073

Total	$	233,293	$	4,767	$	(23	)	$	238,037

Federal Reserve Bank stock, Federal Home Loan Bank stock, and certain other investments are not readily marketable and are carried at cost. Total investments carried at cost were $20.0 million and $18.8 million at June 30, 2009 and December 31, 2008, respectively. There are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of these investments carried at cost; therefore, the fair value is not estimated.

Gain or loss on sale of investments is based upon the specific identification method. Sales of securities available for sale were as follows:


	For the three months				For the six months
	ended June 30,				ended June 30,
(Dollars in thousands)	2009		2008		2009		2008

Proceeds from sales	$	—	$	—	$	122,694	$	7,790
Gross realized gains		—		—		2,911		1,290
Gross realized losses		—		—		—		—

The following tables present 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, 2009 and December 31, 2008. Securities whose market values exceed cost are excluded from this table.


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

At June 30, 2009:
Held to Maturity:
Obligations of state and political subdivisions		2	$	2,500	$	(8	)	$	—	$	2,492

Total		2	$	2,500	$	(8	)	$	—	$	2,492


Available for Sale:
Federal agency securities		4	$	12,163	$	(128	)	$	—	$	12,035
Obligations of state and political subdivisions		3		121		(1	)		—		120
Mortgage-backed securities		26		92,312		(808	)		—		91,504
Other equity securities		1		10		(1	)		—		9

Total		34	$	104,606	$	(938	)	$	—	$	103,668


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

At December 31, 2008:
Held to Maturity:
Obligations of state and political subdivisions		5	$	2,875	$	(60	)	$	—	$	2,815

Total		5	$	2,875	$	(60	)	$	—	$	2,815


Available for Sale:
Federal agency securities		2	$	5,962	$	(9	)	$	—	$	5,953
Obligations of state and political subdivisions		1		1,250		—			—		1,250
Mortgage-backed securities		8		3,608		(14	)		—		3,594

Total		11	$	10,820	$	(23	)	$	—	$	10,797

Mortgage-backed securities consist of agency securities underwritten and guaranteed by Government National Mortgage Association (“Ginnie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), and Federal National Mortgage Association (“Fannie Mae”).

Southwest evaluates all 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.

Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time Southwest will receive full value for the securities. Furthermore, as of June 30, 2009, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that Southwest will not have to sell any such securities before a recovery of cost. The declines in fair value were

attributable to increases in market interest rates over the yields available at the time the underlying securities were purchased or increases in spreads over market interest rates. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30 2009, management believes the impairment of these investments is not deemed to be other-than-temporary.

A comparison of the amortized cost and approximate fair value of Southwest’s debt securities by maturity date at June 30, 2009 follows in the next table.


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value

One year or less	$	17,626	$	17,879	$	125	$	126
More than one year through five years		98,250		99,203		6,670		6,708
More than five years through ten years		84,066		84,219		—		—
More than ten years		15,002		14,992		—		—

Total	$	214,944	$	216,293	$	6,795	$	6,834

The foregoing analysis assumes that Southwest’s mortgage-backed securities mature during the period in which they are estimated to prepay. No other prepayment or repricing assumptions have been applied to Southwest’s debt securities for this analysis.

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 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, 2009 and December 31, 2008, 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, 2009, approximately $689.7 million, or 26%, 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.


	June 30,				December 31,
(Dollars in thousands)	2009			2008

Nonaccrual loans:
Commercial real estate	$	22,164			$	9,881
One-to-four family residential		8,838				474
Real estate construction		40,820				37,346
Commercial		10,978				11,598
Other consumer		12				11

Total nonaccrual loans (1)	$	82,812			$	59,310

Past due 90 days or more:
Commercial real estate		8,089				9
One-to-four family residential		1,482				39
Real estate construction		2,157				4,005
Commercial		44				547
Other consumer		295				73

Total past due 90 days or more		12,067				4,673

Total nonperforming loans		94,879				63,983
Other real estate owned		8,941				6,092

Total nonperforming assets	$	103,820			$	70,075


Nonperforming loans to portfolio loans receivable		3.51	%			2.56	%
Allowance for loan losses to nonperforming loans		54.55	%			62.16	%
Nonperforming assets to portfolio loans receivable and other real estate owned		3.83	%			2.80	%


(1)		The government-guaranteed portion of loans included in these totals was $859,000 and $1.1 million, respectively.

Included above are $15.6 million of nonperforming assets acquired from FNBA, which are subject to protection under the existing loss share agreements.

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 2009, $1.9 million of interest income was received on nonaccruing loans, primarily from a one-time recovery from a successful resolution of a nonperforming loan. If interest on those loans had been accrued for the six months ended June 30, 2009, additional total interest income of $2.6 million would have been recorded.

Included in nonaccrual loans as of June 30, 2009, are three collateral dependent lending relationships with aggregate principal balances of approximately $42.3 million and related impairment reserves of $5.3 million which were established based on recent appraisal values obtained for the respective properties. All three of these lending relationships are in the real estate industry and include a residential condominium construction project with three loans outstanding, an apartment complex rehabilitation project with three loans outstanding, and a lending relationship consisting of three loans that include a residential land development and two retail commercial real estate buildings for lease.

Included in nonaccrual loans as of December 31, 2008, are two collateral dependent lending relationships with aggregate principal balances of approximately $27.9 million and related impairment reserves of $1.9 million which were established base on recent appraisal values obtained for the respective properties. Both of these lending relationships are in the real estate industry and include a residential condominium construction project with two loans outstanding and an apartment complex rehabilitation project with two loans outstanding.

Under generally accepted accounting standards and instructions to reports of condition and income of federal banking regulators, a nonaccrual loan may be returned to accrual status when none of its principal and interest is due and unpaid, repayment is expected and there has been a sustained period (at least six months) of repayment performance, when the loan is not brought current, but there is a sustained period of performance and repayment within a reasonable period is reasonably assured, or when the loan otherwise becomes well secured and in process of collection. Purchased impaired loans also may be returned to accrual status without becoming fully current. Loans that have been restructured because of weakened

financial positions of the borrowers also may be returned to accrual status if repayment is reasonably assured under the revised terms and there has been a sustained period of repayment performance.

(Please see Note 3 for information regarding loans acquired in the FDIC-assisted FNBA transaction.)

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, 2009			December 31, 2008			June 30, 2008

Balance at beginning of period	$	39,773		$	29,584		$	29,584
Loans charged-off:
Real estate mortgage		1,640			2,125			1,151
Real estate construction		3,083			2,209			760
Commercial		2,306			4,552			1,861
Installment and consumer		756			1,056			164

Total charge-offs		7,785			9,942			3,936
Recoveries:
Real estate mortgage		245			57			7
Real estate construction		343			2			—
Commercial		577			962			203
Installment and consumer		241			131			57

Total recoveries		1,406			1,152			267

Net loans charged-off		6,379			8,790			3,669
Provision for loan losses		18,359			18,979			5,426

Balance at end of period	$	51,753		$	39,773		$	31,341

Portfolio loans outstanding:
Average	$	2,546,354		$	2,359,471		$	2,283,377
End of period		2,704,326			2,494,506			2,381,893
Net charge-offs to average portfolio loans (annualized)		0.51	%		0.37	%		0.32	%
Allowance for loan losses to portfolio loans (end of period)		1.91	%		1.59	%		1.32	%

The allowance for loan losses is a reserve 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 appropriate 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. Each loan deemed to be impaired (all loans on nonaccrual) is evaluated on an individual basis using the discounted present value of expected cash flows, the fair value of collateral, or the market value of the loan, and a specific allowance is recorded based on the result consistent with the SFAS No. 114, Accounting for Impairment of a Loan. Collateral dependent loans are evaluated for impairment based upon the fair value of the collateral. Charge-offs against the allowance of impaired loans are made when and to the extent the loan is deemed uncollectible. Any portion of a collateral dependent impaired loan in excess of the fair value of the collateral that is determined to be uncollectible is charged off. The remaining portion of the allowance is calculated based on SFAS No. 5, Accounting for Contingencies. Loans not evaluated for SFAS No. 114 allowance are segmented into loan pools by type of loan. Estimated allowances are based on historical loss trends with adjustments factored in based on qualitative risk factors both internal and external to Southwest. 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.

Independent appraisals on real estate collateral securing loans are obtained at origination. New appraisals are obtained periodically and upon discovery of factors that may significantly affect the value of the collateral. Appraisals usually are received within 30 days of request. Results of appraisals on nonperforming and potential problem loans are reviewed monthly and considered in the determination of the allowance for loan losses.

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 $3.4 million, $3.7 million and $3.2 million at June 30, 2009, December 31, 2008, and June 30, 2008, 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

Fair value is defined under SFAS No. 157, Fair Value Measurement, 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. In estimating fair value, Southwest utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. SFAS No. 157 establishes a fair value hierarchy for a valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:


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 are 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, other real estate owned, goodwill, and other intangible assets.

Effective April 1, 2009, Southwest adopted FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP SFAS No. 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. FSP SFAS No. 157-4 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. FSP SFAS No. 157-4 also amended SFAS No. 157, Fair Value Measurements, to expand certain disclosure requirements. The provision of FSP SFAS No. 157-4 did not have a material impact on our financial condition and results of operations.

As of June 30, 2009, assets measured at fair value on a recurring basis are summarized below:


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

Loans held for sale	$	26,006	$	—	$	26,006	$	—
Available for sale securities		216,293		68		215,291		934

Total	$	242,299	$	68	$	241,297	$	934

For the six months ended June 30, 2009, the following table presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). There were no changes in unrealized gains and losses recorded in earnings for the period for Level 3 assets and liabilities.


	Available for
(Dollars in thousands)	Sale Securities

Balance at December 31, 2008	$	888
Total gains or losses (realized/unrealized)
Included in earnings
interest income		27
noninterest income		(9	)
Included in other comprehensive income		28
Purchases, issuances, and settlements		—
Transfers in and/or out of Level 3		—

Balance at June 30, 2009	$	934

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 impaired loans, other real estate owned, goodwill, core deposit premiums, and mortgage loan servicing rights. At June 30, 2009, assets measured at fair value on a nonrecurring basis are summarized below:


			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs		Total
(Dollars in thousands)	2009		(Level 1)		(Level 2)		(Level 3)		Losses

Acquired investment securities	$	20,644	$	—	$	20,644	$	—	$	—
Acquired loans		117,096						117,096
Impaired loans at fair value		75,402		—		75,402		—		(9,079	)
Mortgage loan servicing rights		1,575		—		—		1,575		(329	)
Acquired deposits		135,007		—		—		135,007
Acquired borrowings		21,672		—		21,672

Total	$	371,396	$	—	$	117,718	$	253,678	$	(9,408	)

In accordance with the SFAS No. 141(R), acquired assets and liabilities were measured at fair value on the date of acquisition. For more information, please see Note 3.

In accordance with the provisions of SFAS No. 114, impaired loans measured at fair value with a carrying amount of $89.9 million were written down to their fair value of $75.4 million, resulting in a life-to-date impairment of $14.5 million, of which $9.1 million was included in the provision for loan losses for the six months ended June 30, 2009.

In accordance with SFAS No. 156, Accounting for Servicing of Financial Assets, mortgage loan servicing rights were written down to their fair value, resulting in an impairment charge of $329,000, which was included in noninterest income for the six

months ended June 30, 2009. There is no active trading market for mortgage loan servicing rights. The fair value is estimated by calculating the present value of net servicing revenue over the anticipated life of each loan. A cash flow model is used to determine fair value. Key assumptions and estimates, including projected prepayment speeds and assumed servicing costs, earnings on escrow deposits, ancillary income, and discount rates used by this model are based on current market sources. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults, and other relevant factors. The prepayment model is updated for changes in market conditions.

Effective June 30, 2009, Southwest adopted FSP SFAS No. 107-1 and Accounting Principles Board Opinion (“APB”) No. 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about fair value of financial instruments in interim financial information and amends APB No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Therefore, the following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FSP SFAS No. 107-1 and APB No. 28-1.

The estimated fair value amounts have been determined by Southwest using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts Southwest could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and cash equivalents — For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Investment securities — The fair value of U.S. Government and federal agency obligations, other securities, and mortgage-backed securities is estimated based on quoted market prices or dealer quotes. The fair value for other investments such as obligations of state and political subdivisions is estimated based on quoted market prices.

Loans — Fair values are estimated for certain homogeneous categories of loans adjusted for differences in loan characteristics. Southwest’s loans have been aggregated by categories consisting of commercial, real estate, student, and other consumer. The fair value of loans is estimated by discounting the cash flows using risks inherent in the loan category and interest rates currently offered for loans with similar terms and credit risks.

Accrued interest receivable — The carrying amount is a reasonable estimate of fair value for accrued interest receivable.

Deposits — The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the statement of financial condition date. The fair value of fixed maturity certificates of deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

Other borrowings — The fair values of other borrowings are the amounts payable at the statement of financial condition date, as the carrying amount is a reasonable estimate of fair value due to the short-term maturity rates. Included in other borrowings are federal funds purchased, securities sold under agreements to repurchase, and treasury tax and loan demand notes.

Subordinated debentures — Two subordinated debentures have floating rates that reset quarterly and the third subordinated debenture has a fixed rate. The fair value of the floating rate subordinated debentures is based on current book value. The fixed rate subordinated debenture is based on market price.

Other liabilities and accrued interest payable — The estimated fair value of other liabilities, which primarily includes trade accounts payable, and accrued interest payable approximates their carrying value.

Commitments — Commitments to extend credit, standby letters of credit, and financial guarantees written or other items have short maturities and therefore have no significant fair values.

The carrying values and estimated fair values of Southwest’s financial instruments follow:


	At June 30, 2009				At December 31, 2008
	Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Values		Values		Values		Values

Cash and cash equivalents	$	33,724	$	33,724	$	27,287	$	27,287
Investment securities:
Held to maturity		6,795		6,834		7,343		7,293
Available for sale		216,293		216,293		238,037		238,037
Other investments		19,989		19,989		18,786		18,786
Total loans		2,678,579		2,708,766		2,511,674		2,541,424
Accrued interest receivable		10,753		10,753		11,512		11,512
Deposits		2,452,295		2,459,746		2,180,122		2,190,988
Accrued interest payable		5,953		5,953		7,018		7,018
Other liabilities		11,238		11,238		9,667		9,667
Other borrowings		176,368		176,368		295,138		295,138
Subordinated debentures		81,963		82,032		81,963		82,653

NOTE 8: SHARE-BASED COMPENSATION

The Southwest Bancorp, Inc. 1994 Stock Option Plan and 1999 Stock Option Plan (the “Stock Plans”) provided 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”) replaced 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 continue in effect and are 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 and the 2008 Stock Plan 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 SFAS No. 123(R), Share-Based Payment, Southwest recorded $28,000 of share-based compensation expense for the six month period ended June 30, 2009 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 for stock options under the fair value method was measured using the following quarterly assumptions for options granted during the respective quarters. No options have been granted in 2009.

Expected

Risk-Free

Expected

Option

Interest

Dividend

Expected

Term

Rate

Yield

Volatility

(in years)

Second quarter 2009

N/A

First quarter 2009

N/A

Second quarter 2008

N/A

First quarter 2008

2.30

2.24

34.36

3.00

A summary of options outstanding under the Stock Plans and the 2008 Stock Plan as of June 30, 2009, 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, 2008		691,111		$	17.10

Granted		—			—
Exercised		(34,544	)		6.11
Canceled/expired		(124,858	)		17.02

Outstanding at June 30, 2009		531,709		$	17.83		1.47	$	535


Total exercisable at June 30, 2009		515,025		$	18.11		1.45	$	483

A summary of the status of Southwest’s nonvested stock options as of June 30, 2009 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, 2008		56,660		$	4.36

Granted		—			—
Vested		(39,976	)		5.22
Forfeited		—			—

Nonvested Balance at June 30, 2009		16,684		$	2.31

The fair value of options that became vested during the six month period was $209,000.

As of June 30, 2009, there was $4,000 of total unrecognized compensation expense related to stock option arrangements granted under the Stock Plans and the 2008 Stock Plan. This unrecognized expense is expected to be recognized during the next year.

Restricted Stock

Restricted shares granted as of June 30, 2009 and 2008 were 78,095 and 52,192, respectively. For the six months ended June 30, 2009, Southwest recognized $90,000 in compensation expense, net of tax, related to all restricted shares outstanding, compared to $88,000 in compensation expense, net of tax, that was recorded in the first six months of 2008. As of June 30, 2009, there was $446,000 of total unrecognized compensation expense related to restricted shares granted under the Stock Plans and the 2008 Stock Plan. 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 (subject to the prohibition on parachute payments imposed by the American Reinvestment and Recovery Act) or the permanent and total disability or death of the participant. Southwest will continue to recognize compensation expense over the restricted periods.

NOTE 9: TAXES ON INCOME

In accordance with Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, the balance of unrecognized tax benefits at June 30, 2009 was $2.8 million (net of federal benefit on state issues), that if recognized, would favorably affect the effective tax rate in any future periods.

Southwest recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of June 30, 2009, an additional $230,000 has been accrued in interest and penalties. Southwest had approximately $1.5 million accrued for interest and penalties at June 30, 2009.

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 through 2006 tax years. During 2008, Southwest received a Notice of Assessment from the Oklahoma Tax Commission and filed a formal Notice of Protest. It is possible that a reduction in the unrecognized tax benefits may occur; however, quantification of an estimated range cannot be made at this time.

NOTE 10: EARNINGS PER SHARE

Effective January 1, 2009, Southwest adopted Financial Staff Position (“FSP”) Emerging Issues Task Force No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“EITF No. 03-6-1”). FSP EITF No. 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Southwest has determined that its unvested restricted stock awards are participating securities. Accordingly, effective January 1, 2009, earnings per common share is computed using the two-class method prescribed by SFAS No. 128, Earnings Per Share. All previously reported earnings per share data has been retrospectively adjusted to conform to the new computation method and no previously reported earnings per share amounts changed as a result of adoption.

Using the two-class method, basic earnings per common share is computed based upon net income available to common shareholders divided by the weighted average number of common shares outstanding during each period, which exclude the outstanding unvested restricted stock. Diluted earnings per share is computed using the weighted average number of common shares determined for the basic earnings per common share computation plus the dilutive effect of stock options using the treasury stock method. Stock options and warrants, where the exercise price was greater than the average market price of common shares, were not included in the computation of earnings per diluted share as they would have been antidilutive. On June 30, 2009 and 2008, there were 375,083 and 472,942 antidilutive stock options to purchase common shares, respectively. An antidilutive warrant to purchase 703,753 shares of common stock was also outstanding on June 30, 2009.

The following table sets forth the computation of basic and diluted earnings per common share:


	For the three months						For the six months
	ended June 30,						ended June 30,
(Dollars in thousands, except earnings per share data)	2009			2008			2009			2008

Numerator:
Net income	$	5,945		$	4,162		$	7,274		$	9,370
Preferred dividend		(875	)		—			(1,750	)		—
Warrant amortization		(160	)		—			(318	)		—

Net income available to common shareholders	$	4,910		$	4,162		$	5,206		$	9,370
Earnings allocated to participating securities		(15	)		(9	)		(16	)		(20	)

Numerator for basic earnings per common share	$	4,895		$	4,153		$	5,190		$	9,350
Effect of reallocating undistributed earnings of participating securities		(14	)		(6	)		(14	)		(14	)

Numerator for diluted earnings per common share	$	4,881		$	4,147		$	5,176		$	9,336

Denominator:
Denominator for basic earnings per common share — Weighted average common shares outstanding		14,586,025			14,495,016			14,570,564			14,438,840
Effect of dilutive securities:
Stock options		44,263			154,224			57,569			174,250
Warrant		—			—			—			—

Denominator for diluted earnings per common share		14,630,288			14,649,240			14,628,133			14,613,090

Earnings per common share:
Basic	$	0.34		$	0.29		$	0.36		$	0.65

Diluted	$	0.33		$	0.28		$	0.35		$	0.64

NOTE 11: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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


	June 30,		December 31,
(Dollars in thousands)	2009		2008

Commitments to extend commercial and real estate mortgage credit	$	523,430	$	649,830
Standby and commercial letters of credit		5,205		7,752

Total	$	528,635	$	657,582

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 12: OPERATING SEGMENTS

Southwest operates six principal segments: Oklahoma Banking, Texas Banking, Kansas Banking, Other States Banking, Secondary Market, and Other Operations. The Oklahoma Banking segment, the Texas Banking segment, and the Kansas

Banking segment provide deposit and lending services to customers in the states of Oklahoma, Texas, and 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 funds management unit.

The primary purpose of the funds management unit is to manage Southwest’s overall internal liquidity needs and interest rate risk. Each segment borrows funds from and provides funds to the funds management unit as needed to support its operations. The value of funds provided to 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 yield used in the funds transfer pricing curve is a blend of rates based on the volume usage of retail and brokered certificates of deposit, capital market certificates of deposit, and Federal Home Loan Bank advances.

The Other Operations segment also includes SNB Wealth Management, corporate investments, consulting subsidiaries, and nonbank cash machine operations; these operations are discussed more fully in the 2008 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. 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-eight states other than Oklahoma, Texas, or Kansas, and primarily consist of healthcare and commercial real estate credits. These out of state loans are administered by offices in Oklahoma, Texas, or Kansas.

The 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.

The following table summarizes financial results by operating segment:


For the Three Months Ended June 30, 2009
	Oklahoma		Texas		Kansas		Other States			Secondary		Other			Total
*(Dollars in thousands)*	Banking		Banking		Banking**		Banking			Market		Operations			Company

Net interest income	$	11,354	$	11,935	$	2,567	$	2,345		$	309	$	(4,054	)	$	24,456
Provision for loan losses		1,998		3,147		260		2,072			—		—			7,477
Noninterest income		2,328		489		4,214		50			706		(526	)		7,261
Noninterest expenses		6,565		3,386		2,670		295			820		954			14,690

Income (loss) before taxes		5,119		5,891		3,851		28			195		(5,534	)		9,550
Taxes on income		1,835		2,229		1,446		106			78		(2,089	)		3,605

Net income (loss)	$	3,284	$	3,662	$	2,405	$	(78	)	$	117	$	(3,445	)	$	5,945


**		Noninterest income includes the $3.3 million gain on acquisition previously described.


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 Six Months Ended June 30, 2009
	Oklahoma		Texas		Kansas		Other States			Secondary		Other			Total
*(Dollars in thousands)*	Banking		Banking		Banking**		Banking			Market		Operations*			Company

Net interest income	$	22,734	$	21,039	$	5,151	$	4,863		$	736	$	(9,029	)	$	45,494
Provision for loan losses		3,491		7,158		423		7,287			—		—			18,359
Noninterest income		4,507		945		4,362		112			1,145		2,667			13,738
Noninterest expenses		13,197		7,037		4,175		1,036			1,790		2,054			29,289

Income (loss) before taxes		10,553		7,789		4,915		(3,348	)		91		(8,416	)		11,584
Taxes on income		4,059		3,008		1,912		(1,296	)		35		(3,408	)		4,310

Net income (loss)	$	6,494	$	4,781	$	3,003	$	(2,052	)	$	56	$	(5,008	)	$	7,274


*		Includes externally generated revenue of $5.8 million, primarily from investing services, and an internally generated loss of $9.9 million from the funds management unit

**		Noninterest income includes the $3.3 million gain on acquisition previously described.


Fixed asset expenditures	$	1,391	$	3	$	115	$	—	$	—	$	220	$	1,729
Total loans at period end		967,981		1,037,694		412,314		286,337		26,006		—		2,730,332
Total assets at period end		983,698		1,026,731		432,593		283,528		29,554		282,881		3,038,985
Total deposits at period end		1,489,241		148,463		301,450		—		4,268		508,873		2,452,295


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


*		Includes externally generated revenue of $4.8 million, primarily from investing services, and an internally generated loss of $7.8 million from the funds management unit


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

NOTE 13: ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

In June 2009, the Financial Accounting Standards Board issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of SFAS No. 140 (“SFAS No. 166”). SFAS No. 166 removes the concept of a qualifying special-purpose entity (“SPE”) from SFAS No. 140 and eliminates the exception for qualifying SPEs from the consolidation guidance of FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”). SFAS No. 166 also

requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. SFAS No. 166 is effective for Southwest on January 1, 2010 and is not expected to have a significant impact on Southwest’s financial statements.

In June 2009, the Financial Accounting Standards Board issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”). SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purposes and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS No. 167 requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. SFAS No. 167 is effective for Southwest on January 1, 2010 and is not expected to have a significant impact on Southwest’s financial statements.

In June 2009, the Financial Accounting Standards Board issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 168”). SFAS No. 168 established the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive release of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. SFAS No. 168 is effective for Southwest for periods ending after September 15, 2009 and is not expected to have a significant impact on Southwest’s financial statements.

NOTE 14: 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 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. Stillwater National previously estimated the settlement costs of such litigation and recorded its proportionate share of that estimated liability, reduced by its proportionate share of the escrow account established by Visa. In the second quarter of 2009, Visa announced another deposit into the litigation escrow account. As a result of this funding, Stillwater National reduced their estimated settlement costs by approximately $340,000. As of June 30, 2009, Stillwater National has a payable of $6,000 recorded on the books based on our review of the outstanding litigation. This amount is an estimate and further adjustments may be required.

As a result of Visa’s public offering, in March 2008, 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 and 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 latter of the third anniversary of the public offering date or the final resolution of the litigation discussed above.

SOUTHWEST BANCORP, INC.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations

Forward-Looking Statements. This management’s discussion and analysis of financial condition and results of operations, the notes to Southwest’s unaudited consolidated financial statements, and other portions of this report include forward-looking statements such as: statements of Southwest’s goals, intentions, and expectations; estimates of risks and of future costs and benefits; expectations regarding future financial performance of Southwest and its operating segments; assessments of loan quality, probable loan losses, and the amount and timing of loan payoffs; liquidity, contractual obligations, off-balance sheet risk, and market or interest rate risk; estimates of value of acquired assets, deposits, and other liabilities; 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 continuing, unsettled national and international economic conditions 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.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The accounting and reporting policies followed by Southwest conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While Southwest bases estimates on historical experience, current information, and other factors deemed to be relevant, actual results could differ from those estimates.

Southwest considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonable likely to occur from period to period, could have a material impact on Southwest’s financial statements. Accounting policies related to the allowance for loan losses are considered to be critical, as these policies involve considerable subjective judgment and estimation by management.

For additional information regarding critical accounting policies, refer to Note 1: “Summary of Significant Accounting and Reporting Policies” in the notes to the consolidated financial statements and the sections captioned “Critical Accounting Policies” and “Provision and Allowance for Loan Losses” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2008 Form 10-K. There have been no significant changes in Southwest’s application of critical accounting policies related to the allowance for loan losses since December 31, 2008.

Southwest considers that the determination of the initial fair value of loans and other real estate acquired in the June 19, 2009, FDIC-assisted transaction and the initial fair value of the related FDIC indemnification asset involve a high degree of judgment and complexity. The carrying value of the acquired loans and other real estate and the FDIC indemnification asset reflect management’s best estimate of the amount to be realized on each of these assets. Southwest determined current fair value accounting estimates of the assumed assets and liabilities in accordance with Statement of Financial Accounting Standards No. 141(R), Business Combinations. However, the amount that Southwest realizes on these assets could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods. Southwest’s losses on these assets will be mitigated by payments under the loss-sharing agreements with the FDIC. To the extent that actual values realized for the acquired loans are different from the estimate, the indemnification asset will generally be affected in an offsetting manner due to the loss-sharing support from the FDIC.

GENERAL

Southwest Bancorp, Inc. (“Southwest”) is a financial holding company for Stillwater National Bank and Trust Company (“Stillwater National”), Bank of Kansas, Healthcare Strategic Support, Inc. (“HSSI”), Business Consulting Group, Inc. (“BCG”), and SNB Capital Corporation. 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, Tulsa, Stillwater, Edmond, and Chickasha, Oklahoma; Dallas, Austin, San Antonio, Houston, and Tilden, Texas; and Anthony, Harper, Hutchinson, Mayfield, Olathe, Overland Park, South Hutchinson, and Wichita, Kansas; and on the Internet, through SNB DirectBanker^®. SNB Bank of Wichita (“SNB Wichita”), a wholly owned subsidiary of Southwest, was merged into Bank of Kansas on January 23, 2009.

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, 2009, Southwest had total assets of $3.0 billion, deposits of $2.5 billion, and shareholders’ equity of $305.4 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 commercial enterprises. Information regarding Southwest is available on line at www.oksb.com. Information regarding the products and services of Southwest’s financial institution subsidiaries is available on line at www.banksnb.com, and www.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 providing the opportunity for gathering deposits or 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, 2009, the Texas Banking segment accounted for $1.0 billion in loans, the Kansas Banking segment accounted for $412.3 million in loans and the Other States Banking Segment accounted for $286.3 million in loans. In total, these offices accounted for 64% of portfolio loans and total loans, which include loans held for sale. During the first six months of 2009, these segments recorded net income of $5.7 million, loan growth of $208.1 million, and asset growth of $213.8 million.

The Oklahoma Banking segment accounted for $6.5 million of consolidated year-to-date net income. Outstanding loans in the Oklahoma Banking Segment totaled $968.0 million at period-end.

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 2009, this segment recorded net income of $56,000. Secondary Market loans decreased $30.9 million, or 54% to $26.0 million. 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 12: “Operating Segments”, in the Notes to Unaudited Consolidated Financial Statements. The total of net income of the segments discussed above does not equal consolidated net income for the first six months of 2009 due to losses from the Other Operations segment, which provides funding and liquidity services to the rest of the organization.

FINANCIAL CONDITION

FDIC-Assisted Acquisition of Certain Assets and Liabilities of First National Bank of Anthony

On June 19, 2009, Bank of Kansas entered into a purchase and assumption agreement with loss share with the Federal Deposits Insurance Corporation (“FDIC”) to acquire deposits, loans, and certain other liabilities and assets of First National Bank of Anthony, Anthony, Kansas (“FNBA”), in an FDIC-assisted transaction. FNBA was a full service commercial bank that had been placed in receivership with the FDIC. Bank of Kansas acquired assets with a fair value of approximately

$149.8 million, including $84.0 million of loans, $20.6 million of investment securities, $6.0 million of cash and cash equivalents, $2.9 million in other real estate owned (“OREO”), and $157.7 million in liabilities, including $135.0 million of deposits and $21.7 million of FHLB advances. Bank of Kansas recorded a core deposit intangible asset of $2.0 million and received a cash payment from the FDIC of approximately $11.1 million. Bank of Kansas entered into loss share agreements with the FDIC and recorded a loss share receivable of $33.1 million, which is classified as loans in the accompanying statement of financial condition. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. The transaction resulted in a gain on acquisition of $3.3 million, which is included in noninterest income in the June 30, 2009 Consolidated Statement of Operations.

This transaction provides Southwest with six additional banking offices in Kansas. This expansion in our Kansas market is consistent with our established consumer banking strategy.

Please see Note 3: “Acquisitions”, in the Notes to Unaudited Consolidated Financial Statements for additional information related to the details of the transaction.

Investment Securities

Southwest’s investment security portfolio decreased $21.1 million, or 8%, from $264.2 million at December 31, 2008, to $243.1 million at June 30, 2009. The decrease is primarily the result of a $34.9 million (44%) decrease in U.S. government and agency securities offset by a $14.3 million (9%) increase in mortgage backed securities during the first six months of 2009.

Loans

Total loans, including loans held for sale, were $2.7 billion at June 30, 2009 a 7% increase from December 31, 2008. Real estate mortgage, commercial real estate construction, commercial, and other consumer loans increased, while one-to-four family residential 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)	2009		2008		$ Change			% Change

Real estate mortgage
Commercial	$	1,249,230	$	1,118,828	$	130,402			11.66	%
One-to-four family residential		133,957		113,665		20,292			17.85
Real estate construction
Commercial		636,575		579,795		56,780			9.79
One-to-four family residential		64,939		79,565		(14,626	)		(18.38	)
Commercial		581,937		564,670		17,267			3.06
Installment and consumer
Student loans		18,477		54,057		(35,580	)		(65.82	)
Other		45,217		40,867		4,350			10.64

Total loans	$	2,730,332	$	2,551,447	$	178,885			7.01

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)	2009		2008		$ Change			% Change

Loans held for sale:
Student loans	$	18,477	$	54,057	$	(35,580	)		(65.82	)%
One-to-four family residential		6,599		1,790		4,809			268.66
Other loans held for sale		930		1,094		(164	)		(14.99	)

Total loans held for sale		26,006		56,941		(30,935	)		(54.33	)
Portfolio loans		2,704,326		2,494,506		209,820			8.41

Total loans	$	2,730,332	$	2,551,447	$	178,885			7.01

Management determines the appropriate level of the allowance for loan losses using an established methodology. (See Note 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.) The allowance for loan losses is comprised of two primary components. Loans deemed to be impaired (all loans on nonaccrual) are evaluated on an individual basis using the discounted present value of expected cash flows, the fair value of collateral, or the market value of the loan and a specific allowance is recorded based upon the result. Collateral dependent loans are evaluated for impairment based upon the fair value of the collateral. Any portion of a collateral dependent impaired loan in excess of the fair value of the collateral that is determined to be uncollectible is charged off. Loans other than impaired loans are segmented into loan pools by type of loan. The allowance on these other loans is determined by use of historical loss ratios adjusted for qualitative internal and external risk factors.

At June 30, 2009, the allowance for loan losses was $51.8 million, an increase of $12.0 million, or 30%, from the allowance for loan losses at December 31, 2008. Changes in the amount of the allowance resulted from the application of the methodology, which is designed to estimate inherent losses on total loans in the portfolio, including those on nonperforming loans. At June 30, 2009, the allowance on the $74.2 million in impaired loans was $10.5 million (14.1%), compared with an allowance on $59.3 million in impaired loans at December 31, 2008 of $5.4 million (9.1%). At June 30, 2009, the allowance for other loans was $41.3 million (1.57%), compared to $34.4 million (1.41%) at December 31, 2008. The increase in the allowance related to these other loans mainly resulted from increases in adjusted loss rates made due to increase net loss ratios, management’s assessment of increase economic risk (particularly with respect to commercial and commercial real estate loans), asset quality trend, including increased levels of potential nonperforming loans, loan concentrations, and loan growth. The total allowance was 1.91% and 1.59% of total portfolio loans at June 30, 2009 and December 31, 2008, respectively. Management believes the amount of the allowance is appropriate. Portfolio loans include $117.1 million of loans acquired in the FNBA transaction, but based upon applicable accounting rules no allowance has been established for them. (See Note 3: “Acquisitions”, in the Notes to Unaudited Consolidated Financial Statements.)

The amount of the loan loss provision for a period is based solely upon the amount needed to cause the allowance to reach the level deemed appropriate, after the effects of net charge-offs for the period. Net charge-offs for the first half of 2009 were $6.4 million, an increase of $2.7 million (74%) over the $3.7 million recorded in the first half of 2008. The provision for loan losses for the first half of 2009 was $18.4 million, representing an increase of $12.9 million (238%) over the $5.4 million recorded in the first half of 2008.

At June 30, 2009, the allowance for loan losses was 54.55% of nonperforming loans, compared to 62.16% of nonperforming loans, at December 31, 2008 (see “Results of Operations-Provision for Loan Losses”). Nonaccrual loans, which comprise the majority of nonperforming assets, were $82.8 million as of June 30, 2009, an increase of $23.5 million or 40% from year end. All nonaccrual loans are considered impaired, and are carried at their estimated collectible amounts. Loans 90 days or more past due, another component of nonperforming assets, increased $7.4 million, or 158%, from December 31, 2008. These loans are believed to have sufficient collateral and are in the process of being collected. Included are $15.6 million of nonperforming assets acquired from FNBA, which is subject to protection under the existing loss share agreements. At June 30, 2009 and December 31, 2008, six credit relationships represented 66% and 82% of nonperforming loans and 60% and 75% of nonperforming assets, respectively. As of June 30, 2009, these credit relationships include three collateral dependent real estate lending relationships with aggregate principal balances of $42.3 million. The associated loss reserves for these three relationships of $5.3 million were established based on the estimated fair value of the supporting collateral. All three of these lending relationships are in the real estate industry and include a residential condominium construction project, an apartment complex rehabilitation project, and a lending relationship that includes a residential land development. A table showing the composition of nonperforming loans by category is included in Note 5: “Loans and Other Real Estate”, in the Notes to Unaudited Consolidated Financial Statements.

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 $184.1 million at June 30, 2009, compared to $131.5 million at December 31, 2008. Included are $6.0 million of potential problem loans acquired from FNBA, which are subject to protection under the existing loss share agreements. 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, 2009, the reserve for unfunded loan commitments was $3.4 million, a $297,000, or 8%, decrease from the amount at December 31, 2008. Management believes the amount of the reserve is appropriate and the decreased amount is

the result of application of our methodology. (See Note 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

Deposits and Other Borrowings

Southwest’s deposits were $2.5 billion at June 30, 2009 and $2.2 billion at December 31, 2008. Increases occurred in all deposit categories.

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


	June 30,		December 31,
(Dollars in thousands)	2009		2008		$ Change		% Change

Noninterest-bearing demand	$	291,014	$	261,940	$	29,074		11.10	%
Interest-bearing demand		94,060		76,027		18,033		23.72
Money market accounts		483,162		454,250		28,912		6.36
Savings accounts		25,660		14,135		11,525		81.54
Time deposits of $100,000 or more		905,202		802,244		102,958		12.83
Other time deposits		653,197		571,526		81,671		14.29

Total deposits	$	2,452,295	$	2,180,122	$	272,173		12.48

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 Bank NA, UBS Securities LLC, RBC Capital Markets Corp., and Morgan Stanley & Co., Inc., in connection with its retail certificate of deposit program. At June 30, 2009, $334.9 million in these retail certificates of deposit were included in time deposits of $100,000 or more, a decrease of $21.8 million, or 6%, from year-end 2008.

Stillwater National has other brokered certificates of deposit totaling $2.1 million and $4.1 million as of June 30, 2009 and December 31, 2008, respectively, included in time deposits of $100,000 or more in the above table. In addition, Stillwater National has brokered certificates of deposit issued in amounts under $100,000 totaling $295,000 and $3.4 million as of June 30, 2009 and December 31, 2008, respectively, included in other time deposits in the above table.

Other borrowings, which includes federal funds purchased, FHLB borrowings, and repurchase agreements, decreased $119.6 million, or 43%, to $159.4 million during the first six months of 2009. The decrease reflects the changes in the need for funding based on deposit activities for the period.

Shareholders’ Equity

Shareholders’ equity increased $3.2 million, or 1%, due primarily to earnings of $7.3 million, offset in part by a reduction in net unrealized holding gains on available for sale investment securities (net of tax) of $2.1 million and dividends declared totaling $2.4 million for the first six months of 2009. Issuance of common stock through the employee stock purchase plan and share based compensation plans, including tax benefits realized, contributed an additional $453,000 to shareholders’ equity in the first six months of 2009.

At June 30, 2009, Southwest, Stillwater National, and Bank of Kansas continued to exceed all applicable regulatory capital requirements. See “Capital Resources” on page 42.

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2009 and 2008

Net income available to common shareholders for the second quarter of 2009 of $4.9 million represented an increase of $748,000, or 18%, from the $4.2 million earned in the second quarter of 2008. Diluted earnings per share were $0.33 compared to $0.28, an 18% increase. The increase in quarterly net income available to common shareholders was the result of a $3.3 million, or 83%, increase in noninterest income, a $2.2 million, or 10%, increase in net interest income and a $1.6 million, or 10%, decrease in noninterest expense, offset in part by a $4.3 million, or 134%, increase in the provision for loan losses, a $1.0 million, or 41%, increase in income taxes, and $1.0 million in quarterly dividends on preferred stock.

The $2.2 million increase in net interest income for the quarter includes a one-time recovery of $1.9 million in interest from the successful resolution of a nonperforming loan. 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 2009 was $4.3 million more than the provision required for second quarter of 2008. (See Note 6: “Allowance for Loan Losses and Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements and “Provision for Loan Losses and for Unfunded Loan Commitments” on page 35.)

The increase in noninterest income is primarily the result of the $3.3 million gain recognized on the current quarter FDIC-assisted acquisition.

The decrease in noninterest expense consists of a $2.0 million decrease in salaries and employee benefits and a $1.6 million decrease in general and administrative expenses, offset by a $1.8 million increase in FDIC and other insurance.

On an operating segment basis, the increase in net income was the result of a $2.4 million increase in net income from the Kansas Banking segment, which includes the $3.3 million gain on acquisition previously described, a $1.9 million increase in net income from the Texas Banking segment, and a $361,000 increase in net income from the Oklahoma Banking segment, offset in part by a $1.1 million reduction in income from the Other States Banking segment and a $1.9 million increased loss from the Other Operations segment.

Net Interest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2009		2008		$ Change			% Change

Interest income:
Loans	$	36,009	$	37,485	$	(1,476	)		(3.94	)%
Investment securities:
U.S. government and agency obligations		298		747		(449	)		(60.11	)
Mortgage-backed securities		1,561		1,407		154			10.95
State and political subdivisions		141		100		41			41.00
Other securities		79		172		(93	)		(54.07	)
Other interest-earning assets		3		20		(17	)		(85.00	)

Total interest income		38,091		39,931		(1,840	)		(4.61	)

Interest expense:
Interest-bearing demand deposits		150		166		(16	)		(9.64	)
Money market accounts		1,211		3,062		(1,851	)		(60.45	)
Savings accounts		14		19		(5	)		(26.32	)
Time deposits of $100,000 or more		5,552		7,051		(1,499	)		(21.26	)
Other time deposits		4,145		4,809		(664	)		(13.81	)
Other borrowings		1,180		1,887		(707	)		(37.47	)
Subordinated debentures		1,383		653		730			111.79

Total interest expense		13,635		17,647		(4,012	)		(22.73	)


Net interest income	$	24,456	$	22,284	$	2,172			9.75	%

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. Net interest income is affected by changes in market interest rates because different types of assets owned and liabilities issued by Southwest may react differently, and at different times, to 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 75 basis points, while the rates paid on Southwest’s interest-bearing liabilities decreased 90 basis points, resulting in an increase in the interest rate spread to 2.99% for the second quarter of 2009 from 2.84% for the second quarter of 2008. During the same periods, annualized net interest margin was 3.41% and 3.38%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities increased to 122.33% from 120.33%. Included in net interest income is a one-time recovery of $1.9 million in interest as a nonperforming loan was resolved. Net interest margin would have been 26 basis points lower without this recovery.

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 $228.6 million, or 9%, increase in average interest-earning assets. Southwest’s average loans increased $235.1 million, or 10%; however, the related yield decreased to 5.45% for the second quarter of 2009 from 6.25% in 2008. During the same period, average investment securities decreased $7.5 million, or 3%, and the related yield decreased to 3.70% from 4.19% in 2008.

The decrease in total interest expense can be attributed to the decrease in rates paid on interest-bearing liabilities, offset in part by a $151.0 million, or 7%, increase in average interest-bearing liabilities. Southwest’s average total interest-bearing deposits increased $201.3 million, or 11%; however, the related yield decreased to 2.14% for the second quarter of 2009 from 3.25% in 2008.

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,
	2009 vs. 2008
	Increase			Due to Change
	Or			In Average:
(Dollars in thousands)	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	(1,476	)	$	3,451		$	(4,927	)
Investment securities		(347	)		(79	)		(268	)
Other interest-earning assets		(17	)		4			(21	)

Total interest income		(1,840	)		3,266			(5,106	)

Interest paid on:
Interest-bearing demand		(16	)		15			(31	)
Money market accounts		(1,851	)		(385	)		(1,466	)
Savings accounts		(5	)		4			(9	)
Time deposits		(2,163	)		2,236			(4,399	)
Other borrowings		(707	)		(525	)		(182	)
Subordinated debentures		730			580			150

Total interest expense		(4,012	)		1,143			(5,155	)


Net interest income	$	2,172		$	2,123		$	49


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

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

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


				For the three months ended June 30,
	2009								2008
	Average					Average			Average					Average
(Dollars in thousands)	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate

Assets
Total loans	$	2,649,140		$	36,009		5.45	%	$	2,414,012		$	37,485		6.25	%
Investment securities		225,353			2,079		3.70			232,805			2,426		4.19
Other interest-earning assets		4,321			3		0.28			3,406			20		2.36

Total interest-earning assets		2,878,814			38,091		5.31			2,650,223			39,931		6.06
Other assets		67,725								66,681

Total assets	$	2,946,539							$	2,716,904


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	87,036		$	150		0.69	%	$	79,273		$	166		0.84	%
Money market accounts		470,506			1,211		1.03			548,020			3,062		2.25
Savings accounts		17,309			14		0.32			13,586			19		0.56
Time deposits		1,497,651			9,697		2.60			1,230,327			11,860		3.88

Total interest-bearing deposits		2,072,502			11,072		2.14			1,871,206			15,107		3.25
Other borrowings		198,936			1,180		2.38			284,828			1,887		2.66
Subordinated debentures		81,963			1,383		6.75			46,393			653		5.63

Total interest-bearing liabilities		2,353,401			13,635		2.32			2,202,427			17,647		3.22

Noninterest-bearing demand deposits		267,406								267,026
Other liabilities		20,827								20,687
Shareholders’ equity		304,905								226,764

Total liabilities and shareholders’ equity	$	2,946,539							$	2,716,904


Net interest income and interest rate spread				$	24,456		2.99	%				$	22,284		2.84	%

Net interest margin (1)							3.41	%							3.38	%

Ratio of average interest-earning assets to average interest-bearing liabilities		122.33	%							120.33	%


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

Noninterest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2009			2008		$ Change			% Change

Noninterest income:
ATM and bank card service charges	$	357		$	353	$	4			1.13	%
Other service charges		2,300			2,031		269			13.24
Other fees		160			428		(268	)		(62.62	)
Other noninterest income		246			541		(295	)		(54.53	)
Gain on acquisition		3,281			—		3,281			N/A
Gain on sales of loans:
Student loan sales		122			284		(162	)		(57.04	)
Mortgage loan sales		804			257		547			212.84
All other loan sales		—			62		(62	)		(100.00	)
Gain on investment securities		(9	)		3		(12	)		(400.00	)

Total noninterest income	$	7,261		$	3,959	$	3,302			83.40	%

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, offset in part by decreased overdraft service charges. Other fees decreased primarily as a result of decreased brokerage fees and increased amortization of mortgage servicing rights.

The decrease in other noninterest income is the result decreased consulting fee income. The gain on acquisition is the result of the previously described FDIC-assisted transaction which resulted in a gain of $3.3 million.

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

Noninterest Expense


	For the three months
	ended June 30,
(Dollars in thousands)	2009			2008		$ Change			% Change

Noninterest expense:
Salaries and employee benefits	$	6,887		$	8,856	$	(1,969	)		(22.23	)%
Occupancy		2,789			2,602		187			7.19
FDIC and other insurance		2,319			521		1,798			345.11
Other real estate (net)		103			197		(94	)		(47.72	)
Unfunded loan commitment reserve		(388	)		15		(403	)		(2,686.67	)
Other general and administrative		2,980			4,141		(1,161	)		(28.04	)

Total noninterest expense	$	14,690		$	16,332	$	(1,642	)		(10.05	)%

Salaries and employee benefits decreased primarily as a result of a decrease in the profit sharing contribution, a decrease in salaries expense, a decrease in accrued bonus expense, and an increase in deferred expense recognition related to loan origination costs. As of result of the acquisition of FNBA at the end of the second quarter, the number of full-time equivalent employees for the quarter increased from 425 at the beginning of the quarter to 478 as of June 30, 2009, including 49 full-time equivalent employees from FNBA. For the second quarter of 2008, 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.

Occupancy expense increased primarily due to increased building rental expense, increased data processing expense, increased security service expense, increased building maintenance and repair expense, and increased depreciation expense.

Southwest’s bank subsidiaries pay deposit insurance premiums to the FDIC based on assessment rates. The increase from prior year is primarily due to a special assessment of 5 basis points, resulting in an additional $1.4 million. The FDIC raised the current assessment rates uniformly by 7 basis points for the second quarter of 2009 assessment, and an additional 10

basis point assessment is paid on covered transaction accounts exceeding $250,000 under the Temporary Liquidity Guaranty Program.

In February 2009, the FDIC issued final rules that changed the risk-based assessment system and set assessment rates to begin in the second quarter of 2009. Four risk categories (I-IV), each subject to different premium rates, were established, based upon an institution’s status as well capitalized, adequately capitalized or undercapitalized, and the institution’s supervisory rating. Until April 1, 2009, insured depository institutions paid deposit insurance premiums that ranged from 5 to 7 basis points on an institution’s assessment base for institutions in Risk Category I (well capitalized institutions perceived as posing the least risk to the insurance fund), and 10, 28, and 43 basis points for institutions in Risk Categories II, III, and IV. Stillwater National and Bank of Kansas are in Risk Category I. Beginning on April 1, 2009, three new factors can result in adjustments to an institution’s initial base assessment rate: (1) a potential decrease for long-term unsecured debt, including senior and subordinated debt and, for small institutions, a portion of Tier I capital; (2) a potential increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I institutions, a potential increase for brokered deposits above a threshold amount, other than those received through a deposit placement network on a reciprocal basis. Beginning April 1, 2009, the adjusted premium rates increased to range from 7 to 24 basis points for Risk Category I and from 17 to 77.5 for Risk Categories II through IV.

On May 22, 2009, the FDIC adopted a final rule levying a special assessment on insured institutions as part of the agency’s efforts to rebuild the Deposit Insurance Fund and help maintain public confidence in the banking system. The final rule establishes a special assessment of 5 basis points on each FDIC-insured depository institution. The assessment is to be collected on September 30, 2009 and was accrued as of June 30, 2009.

The unfunded loan commitment reserve expense decreased due to a decline in the growth of commitments when compared to the same period of prior year.

The decrease in other general and administrative expenses is the result of an increase in deferred expense recognition related to loan origination costs, decreased charitable contributions, and decreased miscellaneous expense, which includes a $340,000 reversal of prior year’s Visa litigation accrual, offset in part by an increase in other loan costs.

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2009 AND 2008

Net income available to common shareholders for the six months ended June 30, 2009 of $5.2 million represented a decrease of $4.2 million, or 44%, from the $9.4 million earned in the six months ended June 30, 2008. Diluted earnings per share were $0.35 compared to $0.64, a 45% decrease. The decline in net income available to common shareholders was primarily the result of a $12.9 million, or 238%, increase in the provision for loan losses and $2.1 million in dividends on preferred stock, offset in part by a $5.1 million, or 59%, increase in noninterest income, a $2.9 million, or 9%, decrease in noninterest expense, a $1.5 million, or 26%, decrease in income taxes, and a $1.4 million, or 3%, increase in net interest income.

The $1.3 million increase in net interest income includes a one-time recovery of $1.9 million from the successful resolution of a nonperforming loan. 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 2009 was $12.9 million more than the provision required for 2008. (See Note 6: “Allowance for Loan Losses and Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.)

The increase in noninterest income was mainly the result of a $3.3 million gain on the FDIC-assisted acquisition and increased gains on securities of $1.7 million. The decrease in noninterest expense consists of a $4.0 million decrease in salaries and employee benefits, a $1.5 million decrease in general and administrative expenses, and a $206,000 decrease in other real estate, offset by a $2.3 million increase in FDIC and other insurance and a $460,000 increase in occupancy expense.

On an operating segment basis, the decrease in net income was the result of a $4.0 million decrease from the Other States Banking segment and a $2.5 million increased loss from the Other Operations segment, offset by a $2.6 million increase in net income from the Kansas Banking segment, which includes the $3.3 million gain on acquisition previously described, a $1.1 million increase in net income from the Oklahoma Banking segment, a $598,000 increase in net income from the Texas Banking segment, and a $190,000 increase in net income from the Secondary Market segment.

Net Interest Income


	For the six months
	ended June 30,
(Dollars in thousands)	2009		2008		$ Change			% Change

Interest income:
Loans	$	69,277	$	78,095	$	(8,818	)		(11.29	)%
Investment securities:
U.S. government and agency obligations		973		1,915		(942	)		(49.19	)
Mortgage-backed securities		3,154		2,344		810			34.56
State and political subdivisions		300		190		110			57.89
Other securities		164		313		(149	)		(47.60	)
Other interest-earning assets		9		48		(39	)		(81.25	)

Total interest income		73,877		82,905		(9,028	)		(10.89	)

Interest expense:
Interest-bearing demand deposits		303		307		(4	)		(1.30	)
Money market accounts		2,564		7,590		(5,026	)		(66.22	)
Savings accounts		23		41		(18	)		(43.90	)
Time deposits of $100,000 or more		11,702		14,916		(3,214	)		(21.55	)
Other time deposits		8,540		10,507		(1,967	)		(18.72	)
Other borrowings		2,464		3,916		(1,452	)		(37.08	)
Subordinated debentures		2,787		1,511		1,276			84.45

Total interest expense		28,383		38,788		(10,405	)		(26.83	)


Net interest income	$	45,494	$	44,117	$	1,377			3.12	%

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 122 basis points, while the rates paid on Southwest’s interest-bearing liabilities decreased only 116 basis points, resulting in a decrease in the interest rate spread to 2.76% for the first six months of 2009 from 2.82% for the first six months of 2008. During the same periods, annualized net interest margin was 3.20% and 3.42%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities increased to 122.14% from 120.00%. Included in net interest income is a one-time recovery of $1.9 million in interest as a nonperforming loan was resolved. Net interest margin would have been 13 basis points lower without this recovery.

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 $265.5 million, or 10%, increase in average interest-earning assets. Southwest’s average loans increased $262.8 million, or 11%; however, the related yield decreased to 5.33% for the first six months of 2009 from 6.66% in 2008. During the same period, average investment securities increased $2.2 million, or 1%, and the related yield decreased to 3.91% from 4.08% in 2008.

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 $179.5 million, or 8%, increase in average interest-bearing liabilities.

UNAUDITED RATE VOLUME TABLE


	For the six months ended June 30,
	2009 vs. 2008
	Increase			Due to Change
	Or			In Average:
(Dollars in thousands)	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	(8,818	)	$	8,074		$	(16,892	)
Investment securities		(171	)		38			(209	)
Other interest-earning assets		(39	)		6			(45	)

Total interest income		(9,028	)		7,899			(16,927	)

Interest paid on:
Interest-bearing demand		(4	)		44			(48	)
Money market accounts		(5,026	)		(947	)		(4,079	)
Savings accounts		(18	)		7			(25	)
Time deposits		(5,181	)		4,548			(9,729	)
Other borrowings		(1,452	)		(596	)		(856	)
Subordinated debentures		1,276			1,207			69

Total interest expense		(10,405	)		3,005			(13,410	)


Net interest income	$	1,377		$	4,894		$	(3,517	)


(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,
	2009								2008
	Average					Average			Average					Average
(Dollars in thousands)	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate

Assets
Total loans	$	2,622,282		$	69,277		5.33	%	$	2,359,489		$	78,095		6.66	%
Investment securities		236,862			4,591		3.91			234,678			4,762		4.08
Other interest-earning assets		3,557			9		0.51			3,084			48		3.13

Total interest-earning assets		2,862,701			73,877		5.20			2,597,251			82,905		6.42
Other assets		68,333								69,885

Total assets	$	2,931,034							$	2,667,136


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	87,870		$	303		0.70	%	$	76,003		$	307		0.81	%
Money market accounts		469,970			2,564		1.10			547,027			7,590		2.79
Savings accounts		16,198			23		0.29			13,525			41		0.61
Time deposits		1,470,271			20,242		2.78			1,219,554			25,423		4.19

Total interest-bearing deposits		2,044,309			23,132		2.28			1,856,109			33,361		3.61
Other borrowings		217,597			2,464		2.28			261,819			3,916		3.01
Subordinated debentures		81,963			2,787		6.80			46,393			1,511		6.51

Total interest-bearing liabilities		2,343,869			28,383		2.44			2,164,321			38,788		3.60

Noninterest-bearing demand deposits		261,980								257,133
Other liabilities		20,119								21,181
Shareholders’ equity		305,066								224,501

Total liabilities and shareholders’ equity	$	2,931,034							$	2,667,136


Net interest income and interest rate spread				$	45,494		2.76	%				$	44,117		2.82	%

Net interest margin (1)							3.20	%							3.42	%

Ratio of average interest-earning assets to average interest-bearing liabilities		122.14	%							120.00	%


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

Noninterest Income


	For the six months
	ended June 30,
(Dollars in thousands)	2009		2008		$ Change			% Change

Noninterest income:
ATM service charges	$	708	$	706	$	2			0.28	%
Other service charges		4,463		3,916		547			13.97
Other fees		246		647		(401	)		(61.98	)
Other noninterest income		484		687		(203	)		(29.55	)
Gain on acquisition		3,281		—		3,281			N/A
Gain on sales of loans:
Student loan sales		176		582		(406	)		(69.76	)
Mortgage loan sales		1,468		450		1,018			226.22
All other loan sales		—		411		(411	)		(100.00	)
Gain on investment securities		2,912		1,248		1,664			133.33

Total noninterest income	$	13,738	$	8,647	$	5,091			58.88	%

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, offset in part by decreased overdraft service charges. Other fees decreased as a result of decreased brokerage fees and increased amortization of mortgage servicing rights.

The decrease in other noninterest income is the result of decreased consulting fee income. The gain on acquisition is the result of the previously described FDIC-assisted transaction which resulted in a gain of $3.3 million.

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 $2.9 million gain recognized as the result of the sale of investment securities during the first quarter of 2009, while the $1.2 million gain in 2008 is the result of the redemption of certain VISA USA common shares during the first quarter of 2008.

Noninterest Expense


	For the six months
	ended June 30,
(Dollars in thousands)	2009			2008		$ Change			% Change

Noninterest expense:
Salaries and employee benefits	$	14,126		$	18,078	$	(3,952	)		(21.86	)%
Occupancy		5,520			5,060		460			9.09
FDIC and other insurance		3,310			974		2,336			239.84
Other real estate (net)		1			207		(206	)		(99.52	)
Unfunded loan commitment reserve		(298	)		160		(458	)		(286.25	)
Other general and administrative		6,630			7,683		(1,053	)		(13.71	)

Total noninterest expense	$	29,289		$	32,162	$	(2,873	)		(8.93	)%

Salaries and employee benefits decreased primarily as a result of a decrease in the profit sharing contribution, a decrease in salaries expense, a decrease in accrued bonus expense, and an increase in deferred expense recognition related to loan origination costs. As a result of the acquisition of FNBA at the end of the second quarter, the number of full-time equivalent employees for the first six months increased from 442 at the beginning of the year to 478 as of June 30, 2009, including 49 full-time equivalent employees from FNBA. For the first six months of 2008, the number of full-time equivalent employees decreased from 489 at the beginning of the year to 463 as of June 30, 2008.

Occupancy expense increased primarily due to increased building rental expense, increased depreciation expense, increased ad valorem tax expense, increased amortization of maintenance contracts, increased security service expense, and increased janitorial service expense.

Southwest’s bank subsidiaries pay deposit insurance premiums to the FDIC based on assessment rates. The increase from prior year is due to a special assessment of 5 basis points, resulting in an additional $1.4 million. The FDIC raised the current assessment rates uniformly by 7 basis points for the 2009 assessment, and an additional 10 basis point assessment is paid on covered transaction accounts exceeding $250,000 under the Temporary Liquidity Guaranty Program.

The unfunded loan commitment reserve expense decreased due to a decline in the growth of commitments when compared to the same period of prior year.

The decrease in other general and administrative expenses is the result of an increase in deferred expense recognition related to loan origination costs, decreased charitable contributions, decreased deposit losses, and decreased accounting fees, offset in part by increased other loan costs, and increased miscellaneous expense.

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 $51.8 million increased $12.0 million, or 30%, from year-end 2008. A provision for loan losses of $18.4 million was recorded in the first six months of 2009, an increase of $12.9 million, or 238%, from the first six months of 2008. The increase in the provision for loan losses was the result of the calculations of the appropriate allowance at each period end. (See Note 6: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements and “Loans” on page 26 of this report.)

At June 30, 2009, the reserve for unfunded loan commitments was $3.4 million, a $297,000, or 8%, decrease from the amount reported at December 31, 2008. 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 $4.3 million and $5.8 million for the first six months of 2009 and 2008, respectively, a decrease of $1.5 million, or 26%. The effective tax rate for the first six months of 2009 was 37.21% while the effective tax rate for the first six months of 2008 was 38.26%.

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, and Bank of 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”).

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 $1.9 million at June 30, 2009. Stillwater National has approved federal funds purchase lines totaling $310.0 million with ten banks; $5.1 million was outstanding on these lines at June 30, 2009. 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 $78.6 million. As of June 30, 2009, no borrowings were made through the BIC program. In addition, Stillwater National has available a $443.5 million line of credit and Bank of Kansas has a $57.2 million line of credit from the FHLB. Borrowings under the FHLB lines are secured by investment securities and loans. At June 30, 2009, the Stillwater National FHLB line of credit had an outstanding balance of $96.5 million and the Bank of Kansas lines of credit had an outstanding balance of $22.0 million. Stillwater National also has available a line of credit from Sallie Mae for $200 million, with advances limited to outstanding student loans and borrowings secured by student loans. Southwest had no outstanding balance on the Sallie Mae line as of June 30, 2009.

See also “Deposits and Other Borrowings” on page 29 for funds available on brokered certificate of deposit lines of credit.

Stillwater National sells securities under agreements to repurchase with Stillwater National retaining custody of the collateral. Collateral consists of U.S. government agency obligations, which are designated as pledged with Stillwater National’s safekeeping agent. These transactions are for one to four day periods. Outstanding balances under this program were $35.7 million and $41.2 million as of June 30, 2009 and 2008, respectively.

During the first six months of 2009, the only category of other borrowings whose average exceeded 30% of ending shareholders’ equity was funds borrowed from the FHLB.


	June 30, 2009			June 30, 2008
	Funds			Funds
	Borrowed			Borrowed
(Dollars in thousands)	from the FHLB			from the FHLB

Amount outstanding at end of period	$	118,667		$	101,500
Weighted average rate paid at end of period		3.66	%		3.22	%
Average Balance:
For the three months ended	$	107,445		$	148,586
For the six months ended	$	129,362		$	118,696
Average Rate Paid:
For the three months ended		3.49	%		2.93	%
For the six months ended		2.99	%		3.20	%
Maximum amount outstanding at any month end	$	151,500		$	156,600

During the first six months of 2009, cash and cash equivalents increased by $7.2 million, or 27%, to $34.5 million. This increase was the net result of cash provided from financing activities of $150.3 million (primarily from increased deposits offset by decreases in other borrowings), and cash provided by operating activities of $57.3 million, offset by cash used in investing activities of $200.4 million (primarily from purchases of available for sale securities and loan originations and repayments offset by proceeds from sales of available for sale securities).

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 net loans originated net of principal repayments), 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).

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, 2009, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 13.92%, a Tier I risk-based capital ratio of 12.67%, and a leverage ratio of 12.70%. As of June 30, 2009, Stillwater National and Bank of Kansas met the criteria for classification as “well-capitalized” institutions under the prompt corrective action rules of the Federal Deposit Insurance Act. Designation as a well-capitalized institution under these regulations does not constitute a recommendation or endorsement of Southwest, Stillwater National, or Bank of Kansas by bank regulators.

On May 29, 2009, Southwest declared a dividend of $0.0238 per common share payable on July 1, 2009 to shareholders of record as of June 17, 2009. This represents a decrease from the $0.095 dividend paid for each quarter of 2008 and equals the dividend paid on April 1, 2009. The dividend amount is established by the Board of Directors each quarter. In making its decision on dividends, the Board considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns and other factors.

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. Actual results differ from simulated results due to timing, cash flows, magnitude, and frequency of interest rate changes, 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.


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

Policy Limit		(18.00	)%		(10.00	)%		(5.00	)%
June 30, 2009		(2.81	)%		(5.76	)%		(4.82	)%
December 31, 2008		(2.26	)%		(4.08	)%		(3.81	)%

On December 16, 2008, the Federal Open Market Committee established the overnight rate as a range of 0% to 0.25%. Southwest believes that all down rate scenarios are impractical since they would result in rates of less than 0%. As a result, the down 100 bp, down 200 bp and down 300 bp scenarios have been excluded. The Net Interest Income at Risk position declined in the rising interest rate environment when compared to the December 31, 2008 risk position. Southwest’s largest exposure to changes in interest rate is in the +200 bp scenario with a measure of (5.76%) at June 30, 2009, a decline of 1.68 percentage points from the December 31, 2008 level of (4.08%). 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.


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

Policy Limit		(35.00	)%		(20.00	)%		(10.00	)%
June 30, 2009		(7.71	)%		(2.93	)%		0.02	%
December 31, 2008		(8.48	)%		(4.03	)%		(0.82	)%

As of June 30, 2009, the economic value of equity measure improved in each of the increasing interest rate scenario when compared to the December 31, 2008 percentages. Southwest’s largest economic value of equity exposure is the +300 bp scenario which improved 0.77 percentage points to (7.71%) on June 30, 2009 from the December 31, 2008 value of (8.48%). 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, 2009. 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, 2009.

PART II: OTHER INFORMATION

Item 1: Legal proceedings

None

Item 1A: Risk Factors

Below we supplement and amend the risk factors disclosed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008.

Such risks could materially affect our business, financial condition or future results, and are not the only risks we face. Additional risks and uncertainties not currently known to us or that we have deemed to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

(1) The following is added as our eighth risk factor:

Our decisions regarding the fair value of assets acquired could be inaccurate and our estimated loss share receivable in
FDIC-assisted acquisitions may be inadequate, which could materially and adversely affect our business, financial condition, results of operations, and future prospects.

Management makes various assumptions and judgments about the collectibility of acquired loan portfolios, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. In FDIC-assisted acquisitions that include loss share agreements, we may record a loss share receivable that we consider adequate to absorb future losses which may occur in the acquired loan portfolio. In determining the size of the loss share receivable, we analyze the loan portfolio based on historical loss experience, volume and classification of loans, volume and trends in delinquencies and nonaccruals, local economic conditions, and other pertinent information.

If our assumptions are incorrect, our current receivable may be insufficient to cover future loan losses, and increased loss reserves may be needed to respond to different economic conditions or adverse developments in the acquired loan portfolio. Any increase in future loan losses could have a negative effect on our operating results.

(2) The following risk factor replaces the prior risk factor of the same title.

Government regulation significantly affects our business.

The banking industry is heavily regulated. Banking regulations are primarily intended to protect the federal deposit insurance funds and depositors, not shareholders. Stillwater National is subject to regulation and supervision by the Office of the Comptroller of the Currency. Bank of Kansas is subject to regulation and supervision by the Federal Deposit Insurance Corporation and Kansas Banking authorities. Southwest is subject to regulation and supervision by the Board of Governors of the Federal Reserve System. The burden imposed by federal and state regulations puts banks at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking companies and leasing companies. Changes in the laws, regulations, and regulatory practices affecting the banking industry may limit our ability to increase or assess fees for services provided, increase our costs of doing business or otherwise adversely affect us and create competitive advantages for others. Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition. Federal economic and monetary policy may also affect our ability to attract deposits and other funding sources, make loans and investments, and achieve satisfactory interest spreads. The FDIC may continue to raise our deposit insurance costs by increasing regular assessment rates and levying special assessments, which may in the future significantly and adversely affect our net income.

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, 2009.

There were no purchases of Southwest’s common stock by or on behalf of Southwest or any affiliated purchasers of Southwest (as defined in Securities and Exchange Commission Rule 10b-18) during the three months ended June 30, 2009.

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 23, 2009, the shareholders of Southwest re-elected four Directors each for a term expiring at the 2010 annual shareholders’ meeting or such later time as his successor is elected and qualified. The Directors elected and the shareholders’ vote in the election of each Director were as follows:


	For		Withheld
James E. Berry II		11,358,206		911,104
Joe Berry Cannon		11,336,562		932,748
Robert B. Rodgers		11,374,088		895,222
John Cohlmia		11,781,964		487,346

Other Directors continuing in office following the annual shareholders’ meeting were Tom D. Berry, David S. Crockett, Jr., Rick Green, J. Berry Harrison, James M. Johnson, David P. Lambert, Linford R. Pitts, and Russell W. Teubner.

There were 14,637,773 shares of common stock outstanding and entitled to vote at the meeting. A total of 12,269,310 shares of common stock were represented at the meeting in person or by proxy, representing 83.82% of the shares outstanding and entitled to vote at the meeting.

Ratification of Appointment of Independent Registered Public Accounting Firm for 2009: At the annual meeting, shareholders also approved the engagement of Ernst & Young LLP as Southwest’s independent registered public accounting firm for 2009. The shareholder vote was as follows:

Advisory Vote on Executive Compensation: At the annual meeting, the shareholders also approved the compensation of Southwest’s Chief Executive Officer, Chief Financial Officer, and three most highly compensated other executive officers. The shareholder vote was as follows:

Item 5: Other information

None

Item 6: Exhibits

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

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


PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Financial Condition at June 30, 2009 and December 31, 2008			3

Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008			4

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008			5

Unaudited Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2009			6

Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2009 and 2008			7

Notes to Unaudited Consolidated Financial Statements			8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			42

ITEM 4. CONTROLS AND PROCEDURES			43

PART II. OTHER INFORMATION			45

SIGNATURES			47
EX-31.A
EX-31.B
EX-31.A
EX-32.B


	For the three months						For the six months
	ended June 30,						ended June 30,
(Dollars in thousands)	2009			2008			2009			2008

Net income	$	5,945		$	4,162		$	7,274		$	9,370

Other comprehensive income (loss):
Unrealized holding gain (loss) on available for sale securities		200			(3,349	)		(474	)		(1,484	)
Reclassification adjustment for gains (losses) arising during the period		9			(3	)		(2,921	)		(1,248	)

Other comprehensive income (loss), before tax		209			(3,352	)		(3,395	)		(2,732	)
Tax benefit (expense) related to items of other comprehensive income (loss)		(76	)		1,294			1,327			1,068

Other comprehensive income (loss), net of tax		133			(2,058	)		(2,068	)		(1,664	)

Comprehensive income	$	6,078		$	2,104		$	5,206		$	7,706


By:	/s/ Rick Green	August 7, 2009

	Rick Green	Date
	President and Chief Executive Officer
	(Principal Executive Officer)

By:	/s/ Kerby Crowell	August 7, 2009

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