10-K 1 form10k.txt FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 2002 Commission File Number 0-23064 SOUTHWEST BANCORP, INC. (Exact name of registrant as specified in its charter) Oklahoma 73-1136584 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 608 South Main Street, Stillwater, Oklahoma 74074 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (405) 372-2230. Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.00 per share --------------------------------------- (Title of Class) 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. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by a check mark if the registrant is an accelerated filer. YES X NO ----- ----- The registrant's Common Stock is traded on the NASDAQ National Market under the symbol OKSB. The aggregate market value of approximately 4,468,000 shares of Common Stock of the registrant issued and outstanding held by nonaffiliates on June 30, 2002, the last day of the registrant's most recently completed second fiscal quarter, was approximately $121,7 million based on the closing sales price of $27.231 per share of the registrant's Common Stock on that date. Solely for purposes of this calculation, it is assumed that directors, officers and 5% stockholders of the registrant are affiliates. As of the close of business on March 7, 2003, 5,862,861 shares of the registrant's Common Stock were outstanding. Documents Incorporated by Reference Parts I and II: Portions of the Annual Report to Shareholders for the year ended December 31, 2002 (the "Annual Report"). Part III: Portions of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 24, 2003 (the "Proxy Statement"). CAUTION ABOUT FORWARD-LOOKING STATEMENTS Southwest Bancorp, Inc. ("Southwest") makes forward-looking statements in this Form 10-K that are subject to risks and uncertainties. These forward-looking statements include: o Statements of goals, intentions, and expectations; o Estimates of risks and of future costs and benefits; o Assessments of loan quality and of probable loan losses; and o 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 or are affected by: o Management's estimates and projections of future interest rates and other economic conditions; o Future laws and regulations; and o A variety of other matters. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward-looking statements. In addition, Southwest's past results of operations do not necessarily indicate its future results. PART I ITEM 1. BUSINESS General Southwest is a financial holding company headquartered in Stillwater, Oklahoma. Southwest provides commercial and consumer banking services through its banking subsidiary, Stillwater National Bank & Trust Company ("Stillwater National" or the "Bank") and management consulting services through Business Consulting Group, Inc. Southwest was organized in 1981 as the holding company for Stillwater National, which was chartered in 1894. Southwest is registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). As such, Southwest is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). Southwest became a financial holding company during 2000 pursuant to the Holding Company Act. The Bank is a national bank subject to supervision and regulation by the Office of the Comptroller of the Currency (the "OCC"). The Bank's deposit accounts are insured by the Bank Insurance Fund (the "BIF") administered by the Federal Deposit Insurance Corporation (the "FDIC") to the maximum permitted by law. Southwest has filed applications to establish a new federal savings bank, SNB Bank of Wichita, to be headquartered in Wichita, Kansas. SNB Bank of Wichita will be subject to supervision and regulation by the Office of Thrift Supervision ("OTS"). Products and Services Southwest offers a wide variety of commercial and consumer lending and deposit services. Southwest has developed internet banking services, called SNB DirectBanker(R), for consumer and commercial customers, a highly automated lockbox, imaging and information service for commercial customers called "Business Mail Processing," and a deposit product that automatically sweeps excess funds from commercial demand deposit accounts and invests them in short-term borrowings ("Sweep Repurchase Agreements"). The commercial loans offered by Southwest include (i) commercial real estate loans, (ii) working capital and other commercial loans, (iii) construction loans, and (iv) Small Business Administration ("SBA") guaranteed loans. Consumer lending services include (i) government-guaranteed student loans, (ii) residential real estate loans and mortgage banking services, and (iii) personal lines of credit and other installment loans. Southwest also offers deposit and personal banking services, including (i) commercial deposit services such as Business Mail Processing, commercial checking, money market, and other deposit accounts, and (ii) retail deposit services such as certificates of deposit, money market accounts, checking accounts, NOW accounts, savings accounts and automatic teller machine ("ATM") access. Trust services, personal brokerage and credit cards are offered through independent institutions. 1 Strategic Focus Southwest's banking philosophy is to provide a high level of customer service, a wide range of financial services, and products responsive to customer needs. This philosophy has led to the development of a line of deposit and lending products that responds to customer needs for speed, efficiency and information. These include Southwest's Sweep Repurchase Agreements, Business Mail Processing, and Southwest's SNB DirectBanker(R) and other internet banking products, which complement Southwest's more traditional banking products. Southwest also emphasizes marketing to highly educated, professional and business persons in its markets. Southwest seeks to build close relationships with businesses, professionals and their principals and to service their banking needs throughout their business development and professional lives. Organization Southwest's business operations are conducted through five regional divisions that offer commercial, consumer, and real estate lending services and, where authorized, retail and commercial deposit products in their market areas, and a home office that provides technology driven products, residential mortgages, and government-guaranteed student loans. Southwest's support and control functions are centralized, although each region includes support and control staff. The organizational structure is designed to facilitate high customer service, prompt response, efficiency, and appropriate, uniform credit standards and other controls. Regional Divisions. The five regional divisions are the Stillwater division, the Central Oklahoma division, based in Oklahoma City; the Tulsa and Eastern Oklahoma division; the Texas division, based in metropolitan Dallas; and the Kansas Division, based in Wichita. The Stillwater division serves the Stillwater market as a full-service community bank emphasizing both commercial and consumer lending. The other four divisions pursue a more focused marketing strategy, targeting managers, professionals and businesses for lending, and offering more specialized services. All of the regional divisions focus on commercial and consumer financial services to local businesses and their senior employees and to other managers and professionals living and working in Southwest's market areas. Southwest has a high-service philosophy. Loan officers often meet at the customer's home or place of business to close loans. Third-party courier services often are used to collect commercial deposits. Home Office Business Operations. Southwest manages and offers products that are technology based, or that otherwise are more efficiently offered centrally, through its home office. These include products that are marketed through the regional offices, such as Southwest's internet banking product for commercial and retail customers (SNB DirectBanker(R)), commercial information and item processing services (Business Mail Processing), residential mortgage loans, and products marketed and managed directly by central staff, such as student lending and cash dispensing machines. Southwest's technology products are marketed both to existing customers and to help develop new customer relationships. Use of these products by customers enables Southwest to serve its customers more effectively, use its resources more efficiently, and increase fee income. Southwest also manages its mortgage and student lending operations through its home office. Southwest markets its student lending program directly to financial aid directors at colleges and universities throughout the United States. These loans are generally sold as they enter repayment. Southwest also originates first mortgage loans for sale to the Federal National Mortgage Association ("FNMA") or private investors. Servicing on these loans may be released in connection with the sale. Support and Control Functions. Support and control functions are centralized, although each regional division has support and control personnel. Southwest's philosophy of customer service extends to its support and control functions. Senior managers headquartered in the Stillwater offices travel to Oklahoma City, Tulsa, Dallas, and Wichita to help in marketing and management. Southwest's Chief Executive Officer, Chief Lending Officer, and others meet in committee in the regional offices to consider credit proposals in order to ensure customers are given prompt decisions while maintaining uniform credit standards. Banking Offices Banking Offices. Southwest has seven full-service banking offices, two of which are located in each of Stillwater and Tulsa, Oklahoma, and one each in Oklahoma City and Chickasha, Oklahoma, and Frisco, Texas; loan production offices in Wichita, Kansas and on the campuses of the University of Oklahoma 2 Health Sciences Center and Oklahoma State University-Tulsa; a marketing presence in the Student Union at Oklahoma State University-Stillwater; and on the Internet, through SNB DirectBanker(R). See "Item 2. Properties." Before 1999, laws of the State of Oklahoma limited the number and location of de novo branches that a bank could establish. Southwest has developed and continues to pursue a business strategy that does not rely on an extensive branch network. National banks in Oklahoma now have broad ability to establish de novo branches anywhere in the state. Southwest established its offices in Frisco, Texas and Wichita, Kansas in 2002. Regulation, Supervision, and Governmental Policy Following is a brief summary of certain statutes and regulations that significantly affect Southwest and Stillwater National. A number of other statutes and regulations affect Southwest and Stillwater National but are not summarized below. Bank Holding Company Regulation. Southwest is registered as a bank holding company under the Holding Company Act and, as such, is subject to supervision and regulation by the Federal Reserve. As a bank holding company, Southwest is required to furnish to the Federal Reserve annual and quarterly reports of its operations and additional information and reports. Southwest is also subject to regular examination by the Federal Reserve. Under the Holding Company Act, a bank holding company must obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the bank holding company would directly or indirectly own or control more than 5% of the class; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company. Under the Holding Company Act, any company must obtain approval of the Federal Reserve prior to acquiring control of Southwest or Stillwater National. For purposes of the Holding Company Act, "control" is defined as ownership of more than 25% of any class of voting securities of Southwest or Stillwater National, the ability to control the election of a majority of the directors, or the exercise of a controlling influence over management or policies of Southwest or Stillwater National. The federal Change in Bank Control Act and the related regulations of the Federal Reserve require any person or persons acting in concert (except for companies required to make application under the Holding Company Act), to file a written notice with the Federal Reserve before the person or persons acquire control of Southwest or Stillwater National. The Change in Bank Control Act defines "control" as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank. The Holding Company Act also limits the investments and activities of bank holding companies. In general, a bank holding company is prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, non-bank activities that are closely related to banking, and other financially related activities. However, bank holding companies such as Southwest that qualify as financial holding companies under the Holding Company Act also may engage in a broad range of additional non-bank activities. Southwest qualified as a financial holding company in 2000. The activities of Southwest are subject to these legal and regulatory limitations under the Holding Company Act and Federal Reserve regulations. Non-bank and financially related activities of bank holding companies, including companies that become financial holding companies, also may be subject to regulation and oversight by regulators other than the Federal Reserve. The Federal Reserve also has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that holding company. The Federal Reserve has adopted guidelines regarding the capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See "Regulatory Capital Requirements." 3 The Federal Reserve has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company's capital needs, asset quality, and overall financial condition. Bank Regulation. As a national bank, Stillwater National is subject to the primary supervision of the OCC under the National Bank Act. The prior approval of the OCC is required for a national bank to establish or relocate an additional branch office or to engage in any merger, consolidation, or significant purchase or sale of assets. Before 1999, laws of the State of Oklahoma severely limited the number and location of de novo branches that a bank could establish. National banks in Oklahoma now have broad ability to establish de novo branches anywhere in the state as a result of changes in state laws enacted in 1999, and interpretations of those laws by the OCC. The OCC regularly examines the operations and condition of Stillwater National, including but not limited to its capital adequacy, reserves, loans, investments, and management practices. These examinations are for the protection of Stillwater National's depositors and the BIF. In addition, Stillwater National is required to furnish quarterly and annual reports to the OCC. The OCC's enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business. The OCC has adopted regulations regarding the capital adequacy of national banks, which require national banks to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See "Regulatory Capital Requirements." No national bank may pay dividends from its paid-in capital. All dividends must be paid out of current or retained net profits, after deducting reserves for losses and bad debts. The National Bank Act further restricts the payment of dividends out of net profits by prohibiting a national bank from declaring a dividend on its shares of common stock until the surplus fund equals the amount of capital stock or, if the surplus fund does not equal the amount of capital stock, until one-tenth of a bank's net profits for the preceding half year in the case of quarterly or semi-annual dividends, or the preceding two half-year periods in the case of annual dividends, are transferred to the surplus fund. The approval of the OCC is required prior to the payment of a dividend if the total of all dividends declared by a national bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock. In addition, Stillwater National is prohibited by federal statute from paying dividends or making any other capital distribution that would cause Stillwater National to fail to meet its regulatory capital requirements. Further, the OCC also has authority to prohibit the payment of dividends by a national bank when it determines that their payment would be an unsafe and unsound banking practice. Stillwater National is a member of the Federal Reserve System and its deposits are insured by the FDIC to the legal maximum of $100,000 for each insured depositor. Some of the aspects of the lending and deposit business of Stillwater National that are subject to regulation by the Federal Reserve and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and deposit accounts. In addition, Stillwater National is subject to numerous federal and state laws and regulations that include specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms, and discrimination in credit transactions. Stillwater National is subject to restrictions imposed by federal law on extensions of credit to, and certain other transactions with, Southwest and other affiliates, and on investments in their stock or other securities. These restrictions prevent Southwest and Stillwater National's other affiliates from borrowing from Stillwater National unless the loans are secured by specified collateral, and require those transactions to have terms comparable to terms of arms-length transactions with third persons. In addition, secured loans and other transactions and investments by Stillwater National are generally limited in amount as to Southwest and as to any other affiliate to 10% of Stillwater National's capital and surplus and as to Southwest and all other affiliates together to an aggregate of 20% of Stillwater National's capital and surplus. Certain exemptions to these limitations apply to extensions of credit by, and other transactions between, Stillwater National and its subsidiaries. These 4 regulations and restrictions may limit Southwest's ability to obtain funds from Stillwater National for its cash needs, including funds for acquisitions and for payment of dividends, interest, and operating expenses. Under OCC regulations, national banks must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards; prudent underwriting standards, including loan-to-value limits, that are clear and measurable; loan administration procedures; and documentation, approval, and reporting requirements. A bank's real estate lending policy must reflect consideration of the Guidelines for Real Estate Lending Policies (the "Guidelines") adopted by the federal bank regulators. The Guidelines, among other things, call for internal loan-to-value limits for real estate loans that are not in excess of the limits specified in the Guidelines. The Guidelines state, however, that it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits. The FDIC has established a risk-based deposit insurance premium assessment system for insured depository institutions. Under the system, the assessment rate for an insured depository institution depends on the assessment risk classification assigned to the institution by the FDIC, based upon the institution's capital level and supervisory evaluations. Institutions are assigned to one of three capital groups -- well-capitalized, adequately capitalized, or undercapitalized -- based on the data reported to regulators. Well-capitalized institutions are institutions satisfying the following capital ratio standards: (i) total risk-based capital ratio of 10.0% or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized institutions are institutions that do not meet the standards for well-capitalized institutions but that satisfy the following capital ratio standards: (i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or greater. Institutions that do not qualify as either well-capitalized or adequately capitalized are deemed to be undercapitalized. Within each capital group, institutions are assigned to one of three subgroups on the basis of supervisory evaluations by the institution's primary supervisory authority and such other information as the FDIC determines to be relevant to the institution's financial condition and the risk it poses to the deposit insurance fund. Subgroup A consists of financially sound institutions with only a few minor weaknesses. Subgroup B consists of institutions with demonstrated weaknesses that, if not corrected, could result in significant deterioration of the institution and increased risk of loss to the deposit insurance fund. Subgroup C consists of institutions that pose a substantial probability of loss to the deposit insurance fund unless effective corrective action is taken. Stillwater National has been informed that it is in the lowest-cost/best risk assessment category for the first assessment period of 2003. Regulatory Capital Requirements. The Federal Reserve and the OCC have established guidelines for maintenance of appropriate levels of capital by bank holding companies and national banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to "risk-weighted" assets. The regulations of the Federal Reserve and the OCC require bank holding companies and national banks, respectively, to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in the risk-based capital guidelines discussed in the following paragraphs) to total assets of 3.0%. The capital regulations state, however, that only the strongest bank holding companies and banks, with composite examination ratings of 1 under the rating system used by the federal bank regulators, would be permitted to operate at or near this minimum level of capital. All other bank holding companies and banks are expected to maintain a leverage ratio of at least 1% to 2% above the minimum ratio, depending on the assessment of an individual organization's capital adequacy by its primary regulator. A bank or bank holding company experiencing or anticipating significant growth is expected to maintain capital well above the minimum levels. In addition, the Federal Reserve has indicated that it also may consider the level of an organization's ratio of tangible Tier 1 capital (after deducting all intangibles) to total assets in making an overall assessment of capital. The risk-based capital rules of the Federal Reserve and the OCC require bank holding companies and national banks to maintain minimum regulatory capital levels based upon a weighting of their assets and off-balance sheet obligations according to risk. The risk-based capital rules have two basic components: a core capital (Tier 1) requirement and a supplementary capital (Tier 2) requirement. Core capital consists primarily of common stockholders' equity, certain perpetual preferred stock (noncumulative perpetual preferred stock with respect to banks), and minority interests in the equity accounts of consolidated subsidiaries; less all intangible assets, except for certain mortgage servicing rights and purchased credit card relationships. Supplementary capital elements include, subject to certain limitations, the allowance for losses on loans and leases; perpetual preferred stock that does not qualify as Tier 1 capital; long-term preferred stock with an original maturity of at least 20 years from issuance; hybrid capital instruments, including perpetual debt and mandatory 5 convertible securities; subordinated debt, intermediate-term preferred stock, and up to 45% of pre-tax net unrealized gains on available for sale equity securities. The risk-based capital regulations assign balance sheet assets and credit equivalent amounts of off-balance sheet obligations to one of four broad risk categories based principally on the degree of credit risk associated with the obligor. The assets and off-balance sheet items in the four risk categories are weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-weighted assets. The risk-based capital regulations require all banks and bank holding companies to maintain a minimum ratio of total capital to total risk-weighted assets of 8%, with at least 4% as core capital. For the purpose of calculating these ratios: (i) supplementary capital is limited to no more than 100% of core capital; and (ii) the aggregate amount of certain types of supplementary capital is limited. In addition, the risk-based capital regulations limit the allowance for loan losses that may be included in capital to 1.25% of total risk-weighted assets. The federal bank regulatory agencies, including the OCC, have established a joint policy regarding the evaluation of commercial banks' capital adequacy for interest rate risk. Under the policy, the OCC's assessment of a bank's capital adequacy includes an assessment of Stillwater National's exposure to adverse changes in interest rates. The OCC has determined to rely on its examination process for such evaluations rather than on standardized measurement systems or formulas. The OCC may require banks that are found to have a high level of interest rate risk exposure or weak interest rate risk management systems to take corrective actions. Management believes its interest rate risk management systems and its capital relative to its interest rate risk are adequate. Federal banking regulations also require banks with significant trading assets or liabilities to maintain supplemental risk-based capital based upon their levels of market risk. Stillwater National did not have any trading assets or liabilities during 2002, 2001 or 2000, and was not required to maintain such supplemental capital. The OCC has established regulations that classify national banks by capital levels and provide for the OCC to take various "prompt corrective actions" to resolve the problems of any bank that fails to satisfy the capital standards. Under these regulations, a well-capitalized bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based capital ratio of 6% or more, and a leverage ratio of 5% or more. An adequately capitalized bank is one that does not qualify as well-capitalized but meets or exceeds the following capital requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if Stillwater National has the highest composite examination rating. A bank that does not meet these standards is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized, depending on its capital levels. A national bank that falls within any of the three undercapitalized categories established by the prompt corrective action regulation is subject to severe regulatory sanctions. As of December 31, 2002, Stillwater National was well-capitalized as defined in the OCC's regulations. For information regarding Southwest's and Stillwater National's compliance with their respective regulatory capital requirements, see "Management's Discussion and Analysis -- Capital Resources" on page 12 of the Annual Report, and, in the Notes to Consolidated Financial Statements in the Annual Report "Note 6-Long-Term Debt" on page 33 and "Note 9- Capital Requirements" on pages 35 and 36. Supervision and Regulation of Mortgage Banking Operations Southwest's mortgage banking business is subject to the rules and regulations of the U.S. Department of Housing and Urban Development ("HUD"), the Federal Housing Administration ("FHA"), the Veterans' Administration ("VA"), and FNMA with respect to originating, processing, selling and servicing mortgage loans. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers, and fix maximum loan amounts. Lenders such as Southwest are required annually to submit to FNMA, FHA and VA financial statements, and each regulatory entity has its own financial requirements. Southwest's affairs are also subject to examination by the Federal Reserve, FNMA, FHA and VA at all times to assure compliance with the applicable regulations, policies and procedures. Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, Federal Truth-in-Lending Act, Fair Housing Act, Fair Credit Reporting Act, the National Flood Insurance Act, and the Real Estate Settlement Procedures Act and related regulations that prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. 6 Southwest's mortgage banking operations also are affected by various state and local laws and regulations and the requirements of various private mortgage investors. Competition Stillwater National encounters competition in seeking deposits and in obtaining loan, cash management, investment and other customers. The level of competition for deposits is high. Stillwater National's principal competitors for deposits are other financial institutions, including other banks, credit unions, and savings institutions. Competition among these institutions is based primarily on interest rates and other terms offered, service charges imposed on deposit accounts, the quality of services rendered, and the convenience of banking facilities. Additional competition for depositors' funds comes from U.S. Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors, such as securities firms. Competition from credit unions has intensified in recent years as historic federal limits on membership have been relaxed. Because federal law subsidizes credit unions by giving them a general exemption from federal income taxes, credit unions have a significant cost advantage over banks and savings associations, which are fully subject to federal income taxes. Credit unions may use this advantage to offer rates that are highly competitive with those offered by banks and thrifts. Stillwater National also competes in its lending activities with other financial institutions such as securities firms, insurance companies, savings institutions, credit unions, small loan companies, finance companies, mortgage companies and other sources of funds. Many of Stillwater National's nonbank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally-insured banks. As a result, such nonbank competitors have advantages over Stillwater National in providing certain services. A number of the financial institutions with which Stillwater National competes in lending, deposit, investment, cash management and other activities are larger than Stillwater National or have a significantly larger market share. The new offices in Dallas and Wichita compete for loans, deposits and other services against local and nationally based financial institutions, many of who have much larger market shares and widespread office networks. In recent periods, competition has increased in Stillwater National's Oklahoma market areas as new entrants and existing competitors have sought to more aggressively expand their loan and deposit market share. The business of mortgage banking is highly competitive. Southwest competes for loan originations with other financial institutions, such as mortgage bankers, state and national commercial banks, savings and loan associations, credit unions and insurance companies. Many of Southwest's competitors have financial resources that are substantially greater than those available to Southwest. Southwest competes principally by providing competitive pricing, by motivating its sales force through the payment of commissions on loans originated, and by providing high quality service to builders, borrowers, and realtors. The Holding Company Act permits the Federal Reserve to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than that holding company's home state. The Federal Reserve may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Holding Company Act also prohibits the Federal Reserve from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. The Holding Company Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. The State of Oklahoma allows out-of-state financial institutions to establish branches in Oklahoma, subject to certain limitations. Financial holding companies may engage in banking as well as types of securities, insurance, and other financial activities that had been prohibited for bank holding companies under prior law. Banks with or without holding companies also are authorized to establish and operate financial subsidiaries that may engage in most financial activities in which financial holding companies may engage. Competition may increase as bank holding companies and other large financial service companies take advantage of the new activities and provide a wider array of products. Employees As of December 31, 2002, Southwest and Stillwater National employed 324 persons on a full-time equivalent basis, including executive officers, loan and other banking officers, branch personnel, and others. None of Southwest's or Stillwater National's employees is represented by a union or covered under a 7 collective bargaining agreement. Management of Southwest and Stillwater National consider their employee relations to be excellent. Executive Officers The following table sets forth information regarding the executive officers of Southwest and Stillwater National who are not directors. [
Name Age Position ---- --- --------- Kerby E. Crowell......................... 53 Executive Vice President, Chief Financial Officer and Secretary of Southwest and the Bank John M. Frazee........................... 46 President, Kansas LPO Steve Gobel.............................. 50 Executive Vice President Rex E. Horning........................... 51 President, Stillwater Division of the Bank Jerry L. Lanier.......................... 54 Executive Vice President and Chief Lending Officer of the Bank Len McLaughlin........................... 50 President, Texas Division of the Bank Joseph P. Root........................... 38 President, Central Oklahoma Division of the Bank Kimberly G. Sinclair..................... 47 Executive Vice President and Chief Administrative Officer of the Bank Richard E. Webb.......................... 47 Executive Vice President of the Bank, President of Business Consulting Group, Inc. Charles H. Westerheide................... 54 Executive Vice President and Treasurer of the Bank
The principal occupations and business experience of each executive officer of Southwest are shown below. Kerby E. Crowell has served as Executive Vice President, Treasurer and Chief Financial Officer of Southwest and the Bank since 1986, and became Secretary of Southwest and the Bank in 2000. Mr. Crowell joined the Bank in 1969. He is a Past President and Board member of the Oklahoma City Chapter of the Financial Executives Institute, and a member of the Payments and Technology Committee of the Independent Community Bankers of America and the Federal Reserve's Industry Advisory Group on Electronic Check Presentment. He is past President and Director of the Oklahoma 4-H Foundation, Inc., Director and past President of the Payne County Affiliate of the American Diabetes Association, past President of the Stillwater Breakfast Kiwanis Club, the Bank Administration Institute's Northern Oklahoma Chapter, and the North Central Chapter of Certified Public Accountants, and past Vice Chairman of the Independent Community Bankers of America's Bank Services Committee. Mr. Crowell is also a graduate of the Leadership Stillwater Class XI. John M. Frazee serves as President of the Kansas Loan Production Office of Stillwater National. Prior to joining Stillwater National in April 2002, Mr. Frazee served as Senior Vice President-Commercial Lending and in other positions with Commerce Bank, Wichita, Kansas from 1996. Previously Mr. Frazee served in a variety of credit and operational capacities with Bank of America (formerly BANK IV) from 1983 to 1996. Mr. Frazee currently serves as Vice President of Rainbows United, secretary treasurer of the Wichita Public Building Commission, President of the Maize USD 266 Board of Education, and serves on the boards of the YMCA, Wichita Area Builders Association and the Certified Commercial Investment Member (CCIM) Institute. He is a member of the Wichita Area Chamber of Commerce. Steven M. Gobel serves as Executive Vice President and Associate Chief Financial Officer of Stillwater National. From 1990 until joining Stillwater National in September 2000, Mr. Gobel served as a Senior Vice President Finance and in other positions with Bank of America and predecessor institutions in Oklahoma and Kansas (previous institutions included NationsBank, Boatmen's Bank of St. Louis, Bank IV of Wichita, Kansas and Fourth National Bank of Tulsa). Mr. Gobel is a past member of the Board of Directors of the YMCA of Greater Tulsa 8 and a past member and Chairman of the Board of Managers for the Downtown Branch of the YMCA of Greater Tulsa. From 1987 to 1990, Mr. Gobel served as a Vice President and Manager of Financial Reporting and Financial Planning for Sooner Federal Savings and Loan of Oklahoma. He is a Certified Public Accountant and prior to 1987 spent twelve years working for International Public Accounting Firms (previously Touche Ross and Coopers & Lybrand) in Tulsa, Oklahoma, New York City, New York, and Milwaukee, Wisconsin. Rex E. Horning was appointed President of the Stillwater Division of the Bank in May 2001. Mr. Horning previously served as Senior Vice President of Central National Bank and Commerce Bank in Wichita, Kansas from 1998 to May 2001, and as President and Chief Executive Officer of First State Bank and Trust Company, Pittsburg, Kansas, from 1991 to 1998. Mr. Horning currently serves on the Board of Directors of the Oklahoma State University Alumni Association, the Executive Committee of the Stillwater Chamber of Commerce and is president-elect of the Oklahoma State University College of Business Associates. Jerry L. Lanier was appointed Executive Vice President and Chief Lending Officer in 2001. Mr. Lanier previously served as Executive Vice President-Credit Administration beginning in December 1999, supervising this area Company-wide, and from January 1998 to December 1999, served as Senior Vice President in Credit Administration. From 1992 until joining the Bank in 1998, Mr. Lanier was a consultant specializing in loan review. During this same period he also served as court-appointed receiver for a number of Oklahoma-based insurance companies. From 1982-1992, Mr. Lanier served as President of American National Bank and Trust Co. of Shawnee, Oklahoma including service as Chief Executive Officer from 1987-92. From 1970-1981, he was a National Bank Examiner for the OCC in Oklahoma City, Oklahoma and Dallas, Texas, and, while an examiner, served as Regional Director of Special Surveillance from 1979 to 1981. Mr. Lanier has served as United Way Drive Chairman and President; Chairman of the Shawnee Advisory Board of Oklahoma Baptist University; Director of the Shawnee Chamber of Commerce; Director and Chairman of the Youth and Family Resource Center; and President and Trustee of the Shawnee Educational Foundation. Len McLaughlin was appointed as President of SNB Bank of Dallas, the Dallas Division of the Bank, in May, 2002. Mr. McLaughlin previously served as President and CEO of First Independent National Bank in Plano, Texas, and as President/CEO of Preston National Bank in Dallas, Texas. From 1989 to 1998, Mr. McLaughlin was with Compass Bancshares, serving as President of a subsidiary bank, Central Bank N.A. in Anniston, Alabama; and later as Chief Retail Executive for Compass Bank in Dallas, Texas. Mr. McLaughlin began his banking career with First National Bank of Boston's Dallas, Texas office. He has served as Chairman of the March of Dimes fund drive, United Way Fund Drive Chairman, President of the local chapter of the American Cancer Society, Director of the Little Light House, and is Honorary Co-Chairman of the Business Advisory Council of the National Republican Congressional Committee. Joseph P. Root was appointed President of the Central Oklahoma Division of the Bank in 1997. Previously, Mr. Root was Senior Vice President in the Central Oklahoma division. Prior to joining the Bank in 1992, Mr. Root served as Credit Analyst from November 1987 to April 1989 and Private Banking Officer from May 1989 to July 1992 with Comerica Bank in Dallas, Texas. He is a member of the Advisory Board of the Greater Oklahoma City Chamber of Commerce, a member of the State Chamber of Commerce of Oklahoma and the Oklahoma City Men's Dinner Club and is a Director and President Elect of Infant Crisis, Services, Inc., a local charitable organization that provides basic necessities to underprivileged children. Kimberly G. Sinclair was appointed Chief Administrative Officer in 1995 and has been Executive Vice President of the Bank since 1991. Prior to 1991, she had been Senior Vice President and Chief Operations Officer of the Bank since 1985. Ms. Sinclair joined the Bank in 1975. She is a member of the Stillwater Junior Service Sustainers, and serves on the Board of Directors for the Stillwater United Way. She is past Treasurer of the Board of Trustees of the Stillwater Public Education Foundation, and a graduate of the Leadership Stillwater Class IX. She has been an Ambassador with the Stillwater Chamber of Commerce and active with the Pioneer Booster Club and Stillwater PTA. Richard E. Webb was appointed Executive Vice President of the Bank in October 2001 and President of Business Consulting Group, Inc., a subsidiary of Southwest, in January 2002. Previously, Mr. Webb was Chief Executive Officer of the Webb Group, LLC, a management consulting firm, beginning in 1998, and Director of Research and Product development of the Institute for Retail Excellence, from 1998 until 2000. From 1996 until organizing the Webb Group, LLC., Mr. Webb was a National Partner, Retail Operations for KPMG Consulting. Mr. Webb is a Registered Professional Engineer, is an Association Member of the National Retail Association, and is a member of Downtown Main Street, Stillwater, and of the Stillwater Chamber of Commerce. He is a graduate of Leadership Tulsa, Class VII. 9 Charles H. Westerheide was appointed Executive Vice President and Treasurer of the Bank in 2000. Prior to that he served as Senior Vice President and Treasury Manager. He joined the Bank in 1997 coming from Bank of America (previously NationsBank), Wichita, Kansas (previously BankIV), where he served as Treasury/Funding Manager. Prior to joining BankIV, Mr. Westerheide served as Executive Vice President and Chief Financial Officer of Security Bank and Trust Co., Ponca City, Oklahoma. Mr. Westerheide has held a number of community leadership positions including Chairman of the Ponca City Chamber of Commerce, President of the Ponca City Foundation for Progress, Inc., and a director and officer of numerous community foundations and clubs. Mr. Westerheide is a graduate of Leadership Oklahoma, Class II. Tabular Financial Information The following tabular financial information should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included in the Annual Report and incorporated by reference in Items 7 and 8 of this Form 10-K. 10 Rate/Volume Analysis 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.
Year ended Year ended December 31, 2002 December 31, 2001 Compared to Compared to December 31, 2001 December 31, 2000 -------------------------------- ------------------------------ Increase (decrease) attributable to change in: Yield/ Net Yield/ Net Volume Rate Change Volume Rate Change -------------------------------- ------------------------------ (dollars in thousands) Interest earned on: Loans receivable (1) $ 5,759 $(17,106) $ (11,347) $ 3,284 $ (9,914) $(6,630) Investment securities (1,366) (1,195) (2,561) 704 (850) (146) Other interest-earning assets 33 (30) 3 (50) (48) (98) -------------------------------- ------------------------------ Total interest income 4,426 (18,331) (13,905) 3,938 (10,812) (6,874) Interest paid on: NOW accounts 50 (487) (437) 31 (485) (454) Money market accounts 2,062 (2,143) (81) 1,366 (1,670) (304) Savings accounts 5 (59) (54) 12 (27) (15) Time deposits (1,481) (13,267) (14,748) (1,867) (3,841) (5,708) Short-term borrowings (784) (2,157) (2,941) 1,547 (3,354) (1,807) Long-term debt -- -- -- -- -- -- -------------------------------- ------------------------------ Total interest expense (148) (18,113) (18,261) 1,089 (9,377) (8,288) -------------------------------- ------------------------------ Net interest income $ 4,574 $ (218) $4,356 $ 2,849 $ (1,435) $ 1,414 ================================ ==============================
(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. 11 Investment Portfolio Composition
At December 31, -------------------------------- 2002 2001 2000 -------- -------- -------- (Dollars in thousands) U.S. Government and agency obligations $104,409 $105,423 $106,210 Obligations of states and political subdivisions 27,679 36,842 41,026 Mortgage-backed securities 41,751 70,657 70,567 Other securities 14,850 14,424 11,989 -------- -------- -------- Total investment securities $188,689 $227,346 $229,792 ======== ======== ======== Available for sale (fair value) $148,476 $167,545 $156,947 Held to maturity (amortized cost) 31,154 49,893 64,406 Federal Reserve Bank and Federal Home Loan Bank Stock 9,059 9,908 8,439 -------- -------- -------- Total investment securities $188,689 $227,346 $229,792 ======== ======== ========
Southwest does not have any material amounts of investment securities or other interest-earning assets, other than loans, that would have been classified as nonperforming if such assets were loans, or which were recognized by management as potential problem assets based upon known information about possible credit problems of the borrower or issuer. 12 Investment Portfolio Maturity The following table shows the maturities, carrying value (amortized cost for investment securities being held to maturity or estimated fair value for investment securities available for sale), estimated fair market values and average yields for Southwest's investment portfolio at December 31, 2002. Yields are not presented on a tax-equivalent basis. Maturities of mortgage-backed securities are based on expected maturities. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers on the underlying mortgages may have the right to call or prepay obligations with or without prepayment penalties. The securities of no single issuer (other than the United States or its agencies), or in the case of securities issued by state and political subdivisions, no source or group of sources of repayment, accounted for more than 10% of shareholders' equity of Southwest at December 31, 2002.
One Year or Less Two through Five Years Five through Ten Years -------------------- ---------------------- ---------------------- Amortized Average Amortized Average Amortized Average Cost Yield Cost Yield Cost Yield --------- ------- --------- ------- --------- ------- (Dollars in thousands) Held to Maturity: U.S. government and agency obligations $ 3,005 4.53% $ 5,063 5.37% $ -- --% Obligations of states and political subdivisions 12,215 4.22 10,871 4.43 -- -- -------- -------- -------- Total 15,220 4.28 15,934 4.73 -- -- -------- -------- -------- Available for Sale: U.S. government and agency obligations 42,034 5.07 49,512 4.81 2,500 4.04 Obligations of states and political subdivisions 940 4.86 3,400 4.42 -- -- Mortgage-backed securities 22,157 5.30 15,455 5.10 737 4.09 Other securities -- -- 11,612 3.74 -- -- -------- -------- -------- Total 65,131 5.15 79,979 4.69 3,237 4.05 -------- -------- -------- Total investment securities $ 80,351 $ 95,913 $ 3,237 ======== ======== ======== More than Ten Years Total Investment Securities -------------------- ------------------------------ Amortized Average Amortized Market Average Cost Yield Cost Value Yield --------- ------- --------- ------- ------- (Dollars in thousands) Held to Maturity: U.S. government and agency obligations $ -- --% $ 8,068 $ 8,335 5.06% Obligations of states and political subdivisions -- -- 23,086 23,665 4.32 -------- -------- -------- Total -- -- 31,154 32,000 4.51 -------- -------- -------- Available for Sale: U.S. government and agency obligations -- -- 94,046 96,341 4.90 Obligations of states and political subdivisions -- -- 4,340 4,593 4.52 Mortgage-backed securities 2,567 4.18 40,916 41,751 5.13 Other securities 3,286 4.55 14,898 14,850 3.92 -------- -------- -------- Total 5,853 4.39 154,200 157,535 4.86 -------- -------- -------- Total investment securities $ 5,853 $185,354 $189,535 ======== ======== ========
13 Loan Portfolio The following table presents the composition of Southwest's loan portfolio, net of unearned interest:
At December 31, 2002 2001 2000 --------------------- --------------------- --------------------- Amount % Amount % Amount % ----------- ------ ----------- ------ ----------- ------ (Dollars in thousands) Real estate mortgage - Commercial $ 374,999 34.06% $ 301,578 32.39% $ 276,525 30.30% One to four family residential 102,423 9.30 106,206 11.41 107,360 11.76 Real estate construction 130,001 11.81 91,897 9.87 103,951 11.39 Commercial 348,879 31.68 312,577 33.58 311,953 34.19 Installment and consumer - Government-guaranteed student loans 119,064 10.81 91,841 9.86 77,846 8.53 Other 25,746 2.34 26,947 2.89 34,915 3.83 ----------- ------ ----------- ------ ----------- ------ 1,101,112 100.00% 931,046 100.00% 912,550 100.00% ====== ====== ====== Less: Allowance for loan loss (11,888) (11,492) (12,125) ----------- ----------- ----------- Total $ 1,089,224 $ 919,554 $ 900,425 =========== =========== =========== At December 31, 1999 1998 --------------------- --------------------- Amount % Amount % ----------- ------ ----------- ------ (Dollars in thousands) Real estate mortgage - Commercial $ 263,216 30.86% $ 275,729 34.75% One to four family residential 102,973 12.07 83,657 10.55 Real estate construction 85,511 10.03 76,544 9.65 Commercial 296,415 34.77 252,341 31.81 Installment and consumer - Government-guaranteed student loans 69,873 8.19 65,242 8.22 Other 34,820 4.08 39,806 5.02 ----------- ------ ----------- ------ 852,808 100.00% 793,319 100.00% ====== ====== Less: Allowance for loan loss (11,190) (10,401) ----------- ----------- Total $ 841,618 $ 782,918 =========== ===========
Potential Nonperforming Loans. Those performing loans considered potential nonperforming loans, loans which are not included in the past due, nonaccrual or restructured categories, but for which known information about possible credit problems cause management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms over the next six months, amounted to approximately $28.9 million at December 31, 2002, compared to $55.8 million at December 31, 2001, and $53.1 million at December 31, 2000. Loans may be monitored by management and reported as potential nonperforming 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. 14 Allocation of the Allowance for Loan Losses Southwest's methodology for assessing the appropriateness of the allowance includes determination of a formula allowance, specific allowances and an unallocated allowance. Additional information regarding this methodology, the allowance for loan losses, and the related provision for loan losses is included in the Annual Report on pages 8 and 9 under the caption "Provision for Loan Losses," and in Note 1 on page 25 and Note 3 on page 31 . The following table presents a five-year history for the allocation of the allowance for loan losses along with the percentage of total loans and leases in each category (dollars in thousands).When measured against the total allowance, general reserves increased to 11.3% at December 31, 2002 from 4.9% at December 31, 2001, and decreased from 25.0% at December 31, 2000.
At December 31, -------------------------------------------------------------------------- 2002 2001 2000 ---------------------- ---------------------- ---------------------- Percent of Percent of Percent of Loans in Loans in Loans in Each Each Each Category to Category to Category to Amount Total Loans Amount Total Loans Amount Total Loans ------- ----------- ------- ----------- ------- ----------- (Dollars in thousands) Real estate mortgage - Commercial $ 4,076 34.06% $ 2,277 32.39% $ 916 30.30% One to four family residential 509 9.30 557 11.41 546 11.76 Real estate construction 1,405 11.81 750 9.87 3,003 11.39 Commercial 4,271 31.68 6,680 33.58 4,286 34.19 Installment and consumer - Government-guaranteed student loans 59 10.81 46 9.86 -- 8.53 Other 225 2.34 298 2.89 347 3.83 Unallocated 1,343 884 3,027 ------- ------ ------- ------ ------- ------ Total $11,888 100.00% $11,492 100.00% $12,125 100.00% ======= ====== ======= ====== ======= ====== At December 31, ------------------------------------------------- 1999 1998 ---------------------- ----------------------- Percent of Percent of Loans in Loans in Each Each Category to Category to Amount Total Loans Amount Total Loans ------- ----------- ------- ------------ (Dollars in thousands) Real estate mortgage - Commercial $ 1,128 30.86% $ 851 34.75% One to four family residential 602 12.07 321 10.55 Real estate construction 1,893 10.03 912 9.65 Commercial 4,028 34.77 5,353 31.81 Installment and consumer - Government-guaranteed student loans 56 8.19 -- 8.22 Other 491 4.08 510 5.02 Unallocated 2,992 2,454 ------- ------ ------- ------ Total $11,190 100.00% $10,401 100.00% ======= ====== ======= ======
15 Management believes that the allowance for loan losses is adequate. However, the determination of the allowance requires significant judgment, and estimates of probable losses inherent in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize probable losses, future additions to the allowance may be necessary based on changes in the assets comprising the loan and lease portfolio and changes in the financial condition of borrowers that may result from changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, and independent consultants engaged by Stillwater National, periodically review the Bank's loan portfolio and allowance for loan losses. Such review may result in recognition of additions to the allowance based on their judgments of information available to them at the time of their examination Certificates of Deposit of $100,000 or More The following table indicates the amount of Southwest's certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2002: Maturity Period Amount --------------------------------- -------- (Dollars in thousands) Three months or less (1) $109,669 Over three through six months (1) 97,146 Over six through 12 months (1) 55,477 Over 12 months 46,913 -------- Total $309,205 ======== (1) The amount of certificates of deposit that mature within 12 months is $262.3 million. The Company does not have any liquidity concerns as a result of the volume of these maturities. Other Material The Letter to Shareholders from the CEO on page 2 of the Annual Report, the information set forth on pages 4 through 15 and page 17 of the Annual Report, Note 1-"Summary of Significant Accounting and Reporting Policies" on pages 24 through 27 of the Annual Report, Note 3-"Loans" on pages 29 through 31 of the Annual Report, and Note 5-"Other Borrowed Funds" on pages 32 and 33 of the Annual Report are incorporated herein by reference. Availability of filings through Southwest's Website Southwest provides internet access to annual reports on form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, through its Investor Relations website, at www.oksb.com (This site also is accessible through the Bank's website at www.banksnb.com.). Access to these reports is provided by means of a link to a third party vendor that maintains a database of such filings. In general, Southwest intends that these reports be available a soon as reasonably practicable after they are filed with or furnished to the SEC. However, technical and other operational obstacles or delays caused by the vendor may delay their availability. The SEC maintains a website (www.sec.gov) where these filings also are available through the SEC's EDGAR system. There is no charge for access to these filings through either Southwest's site or the SEC's site, although users should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that they may bear. ITEM 2. PROPERTIES Page 44 of the Annual Report (listing executive and other offices) is hereby incorporated by reference. The Corporate Headquarters, Drive-in and Mortgage Lending, Chickasha Branch, and Tulsa Utica Branch are owned. Other facilities are held under lease or similar arrangement. 16 ITEM 3. LEGAL PROCEEDINGS Note 14--"Commitments and Contingencies" on pages 38 and 39 of the Annual Report is hereby incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 2002, through solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table presents disclosure regarding equity compensation plans in existence at December 31, 2002, consisting only of the 1994 stock option plan (expired but having outstanding options that may still be exercised) and the 1999 stock option plan, both of which were approved by the shareholders (described further under the caption "Stock Option Plan" in Note 1 to the consolidated financial statements).
Equity Compensation Plan Information -------------------------------------------------------------------------------------------------------------------- Plan category Number of securities to be Weighted average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and future issuance under warrants and rights rights equity compensation plans (a) (b) excluding securities reflected in column (a) (c) -------------------------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 653,324 $14.25 182,328 ----------------------------------------------------------- ---------------------------- --------------------------- Equity compensation plans not approved by security holders 0 0 0 ----------------------------------------------------------- ---------------------------- --------------------------- Total 653,324 $14.25 182,328 ----------------------------------------------------------- ---------------------------- ---------------------------
As of March 7, 2003, there were approximately 2,200 holders of record of Southwest's Common Stock. The section titled "Stock Information" on page 44 of the Annual Report is hereby incorporated by reference. For information regarding regulatory restrictions on Stillwater National's and, therefore, Southwest's payment of dividends, see Note 9 -- "Capital Requirements" on pages 35 and 36 of the Annual Report, which is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA The table titled "Selected Consolidated Financial Data" on pages 3 and 4 of the Annual Report is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pages 4 through 15 of the Annual Report are hereby incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The section titled "Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk" on pages 13 through 14 of the Annual Report is hereby incorporated by reference. 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 18 through 23 of the Annual Report are hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. During the past two years or any subsequent period there has been no change in or reportable disagreement with the certifying accountants for Southwest or any of its subsidiaries. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and nominees for directors of Southwest and compliance with Section 16(a) of the Securities Exchange Act of 1934 is included under the captions titled "Proposal I--Election of Directors" on pages 2 through 6 of the Proxy Statement, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 15 of the Proxy Statement, and is hereby incorporated by reference. Information concerning the executive officers of Southwest is included under the caption titled "Item 1. Business -- Executive Officers" of this report and is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding the compensation of Southwest's directors and executive officers is included under the captions "Director Compensation," on page 7 and "Executive Compensation and Other Benefits," and "Stock Performance Comparisons" on pages 10 through 14 of the Proxy Statement, and is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding beneficial ownership of Southwest's common stock by certain beneficial owners and directors and executive officers of Southwest is included under the caption "Common Stock Owned by Directors and Executive Officers" on pages 8 and 9 of the Proxy Statement and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions with management is included under the caption "Certain Transactions" on page 14 of the Proxy Statement and is hereby incorporated by reference. ITEM 14. CONTROLS AND PROCEDURES Within the ninety days prior to the filing of this report, Southwest's management, under the supervision and with the participation of Southwest's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of Southwest's disclosure controls and procedures, as defined in Rule 13a-14 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Southwest's disclosure controls and procedures were adequate. There were no significant changes (including corrective actions with regard to significant or material weaknesses) in Southwest's internal controls or in other factors subsequent to the date of the evaluation that could significantly affect those controls. 18 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents Filed as Part of this Report (1) Financial Statements. The consolidated financial statements of Southwest included in the Annual Report to Shareholders for the year ended December 31, 2002, are incorporated herein by reference in Item 8 of this Report. The remaining information appearing in the Annual Report to Shareholders is not deemed to be filed as part of this Report, except as expressly provided herein. The following financial statements are filed as a part of this report: Independent Auditors' Report for the Years Ended December 31, 2002 and 2001 Consolidated Statements of Financial Condition at December 31, 2002 and 2001 Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001, and 2000 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002, 2001, and 2000 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2002, 2001, and 2000 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001, and 2000 Notes to Consolidated Financial Statements for the Years Ended December 31, 2002, 2001, and 2000 (2) Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto. (3) Exhibits. The following is a list of exhibits filed as part of this Annual Report on Form 10-K. No. Exhibit --- ------- 3.1 Amended and Restated Certificate of Incorporation of Southwest Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1996) 3.2 Bylaws of Southwest Bancorp, Inc. (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (File No. 33-71168)) 4.1 Rights Agreement, dated as of April 22, 1999, between Southwest Bancorp, Inc. and Harris Trust & Savings Bank, as rights agent and Form of Certificate of Designations setting forth terms of Class B, Series 1 Preferred Stock of Southwest Bancorp, Inc. referred to in the rights agreement (incorporated by reference to Exhibits 1 and 2 to Current Report on Form 8-K dated April 22, 1999) *10.1 Southwest Bancorp, Inc. Employee Stock Purchase Plan (incorporated by reference from Exhibit 4.1 to Registration Statement on Form S-8 (File No. 33-97850)) *10.2 Severance Compensation Plan (incorporated by reference as Exhibit 10.2 to Registration Statement on Form S-1 (File No. 33-71168)) *10.3 Southwest Bancorp, Inc. 1994 Stock Option Plan (incorporated by reference from Exhibit 10.3 to Annual Report on Form 10-K for the fiscal year ended December 31, 1993) *10.4 Southwest Bancorp, Inc. 1999 Stock Option Plan (incorporated by reference from Exhibit 4 to Registration Statement on Form S-8 (File No. 333-92143)) *10.5 Stillwater National Bank and Trust Company 2002 and 2003 Deferred Compensation Plans. *10.6 Stillwater National Bank and Trust Company Supplemental Profit Sharing Plan and Agreement dated December 19, 2002. 13 Annual Report to Shareholders for the Year Ended December 31, 2002 21 Subsidiaries of the Registrant 23 Independent Auditors' Consent 19 24 Power of Attorney 99 Certifications pursuant to 18 U.S.C. Section 1350 * Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K. Southwest filed no Reports on Form 8-K during the quarter ended December 31, 2002. (c) Exhibits. See (a)(3) above for all exhibits filed herewith and the Exhibit Index. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOUTHWEST BANCORP, INC. March 27, 2003 By: /s/ Rick Green ----------------------- Rick Green Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Rick Green March 27, 2003 --------------------------------------- Rick Green Director and Chief Executive Officer (Principal Executive Officer) /s/ Kerby E. Crowell March 27, 2003 --------------------------------------- Kerby E. Crowell Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) A majority of the directors of Southwest executed a power of attorney appointing Rick Green as their attorney-in-fact, empowering him to sign this report on their behalf. This power of attorney has been filed with the Securities and Exchange Commission under Part IV, Exhibit 24 of this Form 10-K for the year ended December 31, 2002. This report has been signed below by such attorney-in-fact as of March 27, 2003. By: /s/ Rick Green ------------------------------------ Rick Green Attorney-in-Fact for Majority of the Directors of Southwest 21 CERTIFICATIONS I, Rick Green, President and Chief Executive Officer of Southwest Bancorp, Inc. ("Southwest"), certify that: 1. I have reviewed this annual report on Form 10-K of Southwest; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/ Rick Green ----------------------- Rick Green President and Chief Executive Officer 22 I, Kerby E. Crowell, Executive Vice President and Chief Financial Officer of Southwest Bancorp, Inc. ("Southwest"), certify that: 1. I have reviewed this annual report on Form 10-K of Southwest; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/ Kerby E. Crowell ---------------------------- Kerby E. Crowell Executive Vice President and Chief Financial Officer 23