10-Q 1 form10q.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-Q [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 OR [ ] 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 73-1136584 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 608 South Main Street Stillwater, Oklahoma 74074 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (405) 372-2230 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 ninety days. [ x ] YES [ ] NO Indicate by check mark whether the issuer is an accelerated filer (as defined in Rule 12b-2 of the Exchange At). [ x ] YES [ ] 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. 5,907,601 --------- 1 of 24 SOUTHWEST BANCORP, INC. INDEX TO FORM 10-Q
Page No. -------- PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Unaudited Consolidated Statements of Financial Condition at March 31, 2003 and December 31, 2002 3 Unaudited Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 4 Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 5 Unaudited Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2003 6 Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2003 and 2002 6 Notes to Unaudited Consolidated Financial Statements 7 Average Balances, Yields and Rates 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18 ITEM 4. CONTROLS AND PROCEDURES 18 PART II. OTHER INFORMATION 19 SIGNATURES 20
2 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data)
MARCH 31, DECEMBER 31, 2003 2002 ---- ---- ASSETS: Cash and cash equivalents $ 40,272 $ 34,847 Federal funds sold 7,300 -- Investment securities: Held to maturity, fair value $27,030 (2003) and $32,000 (2002) 26,357 31,154 Available for sale, amortized cost $142,735 (2003) and $145,141 (2002) 145,207 148,476 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 10,861 9,059 Loans held for sale 9,408 10,638 Loans receivable, net of allowance for loan losses of $13,152 (2003) and $11,888 (2002) 1,207,162 1,078,586 Accrued interest receivable 10,148 9,283 Premises and equipment, net 20,663 20,202 Other assets 8,671 7,523 ----------- ----------- Total assets $ 1,486,049 $ 1,349,768 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Noninterest-bearing demand $ 145,790 $ 135,945 Interest-bearing demand 55,553 50,162 Money market accounts 282,941 258,712 Savings accounts 6,246 5,700 Time deposits of $100,000 or more 398,416 309,205 Other time deposits 262,686 262,033 ----------- ----------- Total deposits 1,151,632 1,021,757 Accrued interest payable 3,914 4,486 Income tax payable 1,987 -- Other liabilities 3,305 2,858 Other borrowings 200,401 199,282 Long-term debt: Guaranteed preferred beneficial interests in the Company's subordinated debentures 25,013 25,013 ----------- ----------- Total liabilities 1,386,252 1,253,396 Shareholders' equity: Common stock - $1 par value; 20,000,000 shares authorized; 6,121,521 shares issued and outstanding 6,122 6,122 Capital surplus 12,397 12,317 Retained earnings 83,504 80,724 Accumulated other comprehensive income (loss) 1,485 2,201 Treasury stock, at cost; 258,660 (2003) and 348,142 (2002) shares (3,711) (4,992) ----------- ----------- Total shareholders' equity 99,797 96,372 ----------- ----------- Total liabilities & shareholders' equity $ 1,486,049 $ 1,349,768 =========== =========== The accompanying notes are an integral part of this statement.
3 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except earnings per share data) FOR THE THREE MONTHS ENDED MARCH 31, 2003 2002 ------- ------- Interest income: Interest and fees on loans $17,722 $15,980 Investment securities: U.S. Government and agency obligations 1,284 1,513 Mortgage-backed securities 371 932 State and political subdivisions 266 388 Other securities 152 143 Other interest-earning assets 4 7 ------- ------- Total interest income 19,799 18,963 Interest expense: Interest-bearing demand 81 82 Money market accounts 1,176 872 Savings accounts 4 6 Time deposits of $100,000 or more 2,243 2,374 Other time deposits 1,823 2,710 Other borrowings 1,295 1,275 Long-term debt 582 582 ------- ------- Total interest expense 7,204 7,901 ------- ------- Net interest income 12,595 11,062 Provision for loan losses 1,722 1,250 Other income: Service charges and fees 2,251 1,774 Other noninterest income 274 228 Gain on sales of loans receivable 937 644 Gain on sales of investment securities 2 2 ------- ------- Total other income 3,464 2,648 Other expenses: Salaries and employee benefits 4,312 3,802 Occupancy 1,922 1,717 FDIC and other insurance 78 72 Other real estate 161 22 General and administrative 2,421 2,198 ------- ------- Total other expenses 8,894 7,811 ------- ------- Income before taxes 5,443 4,649 Taxes on income 1,930 1,571 ------- ------- Net income $ 3,513 $ 3,078 ======= ======= Basic earnings per share $ 0.60 $ 0.54 ======= ======= Diluted earnings per share $ 0.58 $ 0.52 ======= ======= Cash dividends declared per share $ 0.13 $ 0.11 ======= ======= The accompanying notes are an integral part of this statement. 4 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 2002 ---- ---- Operating activities: Net income $ 3,513 $ 3,078 Adjustments to reconcile net income to net cash (used in) provided from operating activities: Provision for loan losses 1,722 1,250 Depreciation and amortization expense 648 634 Amortization of premiums and accretion of discounts on securities, net 44 915 Amortization of intangibles 67 46 Tax benefit from exercise of stock options 470 -- (Gain) Loss on sales/calls of securities (2) (2) (Gain) Loss on sales of loans receivable (937) (644) (Gain) Loss on sales of premises/equipment (7) 6 (Gain) Loss on other real estate owned, net 109 (2) Proceeds from sales of residential mortgage loans 47,083 22,718 Residential mortgage loans originated for resale (43,998) (18,555) Changes in assets and liabilities: Accrued interest receivable (865) 337 Other assets (1,230) (35) Income taxes payable 1,987 1,151 Accrued interest payable (572) (337) Other liabilities 349 396 --------- --------- Net cash (used in) provided from operating activities 8,381 10,956 --------- --------- Investing activities: Proceeds from principal repayments, calls and maturities: Held to maturity securities 4,785 4,400 Available for sale securities 25,978 16,210 Proceeds from redemptions of Federal Home Loan Bank stock -- 562 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock (1,802) -- Purchases of held to maturity securities -- (1,022) Purchases of available for sale securities (23,602) (6,100) Loans originated and principal repayments, net (178,776) (60,148) Proceeds from sales of guaranteed student loans 47,560 30,460 Purchases of premises and equipment (1,116) (638) Proceeds from sales of premises and equipment 14 34 Proceeds from sales of other real estate owned 53 259 --------- --------- Net cash (used in) provided from investing activities (126,906) (15,983) --------- --------- Financing activities: Net increase (decrease) in deposits 129,875 30,818 Net increase (decrease) in other borrowings 1,119 (30,835) Net proceeds from issuance of common stock 891 605 Purchases of treasury stock -- (918) Common stock dividends paid (635) (456) --------- --------- Net cash (used in) provided from financing activities 131,250 (786) --------- --------- Net increase (decrease) in cash and cash equivalents 12,725 (5,813) Cash and cash equivalents, Beginning of period 34,847 32,406 --------- --------- End of period $ 47,572 $ 26,593 ========= =========
The accompanying notes are an integral part of this statement. 5 SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share data)
ACCUMULATED TOTAL OTHER SHARE- COMMON STOCK CAPITAL RETAINED COMPREHENSIVE TREASURY HOLDERS' SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) STOCK EQUITY ---------------------------------------------------------------------------------------- Balance, January 1, 2003 6,121,521 $ 6,122 $ 12,317 $ 80,724 $ 2,201 $ (4,992) $ 96,372 Cash dividends declared: Common, $0.125 per share -- -- -- (733) -- -- (733) Common stock issued: Employee Stock Option Plan -- -- (404) -- -- 1,263 859 Employee Stock Purchase Plan -- -- 6 -- -- 8 14 Dividend Reinvestment Plan -- -- 8 -- -- 10 18 Tax benefit related to exercise of stock options -- -- 470 -- -- -- 470 Other comprehensive income (loss), net of tax -- -- -- -- (716) -- (716) Net income -- -- -- 3,513 -- -- 3,513 --------- --------- --------- --------- --------- --------- --------- Balance, March 31, 2003 6,121,521 $ 6,122 $ 12,397 $ 83,504 $ 1,485 $ (3,711) $ 99,797 ========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of this statement. SOUTHWEST BANCORP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) FOR THE THREE MONTHS ENDED MARCH, 2003 2002 ---- ---- Net income $ 3,513 $ 3,078 Other comprehensive income (loss) Unrealized holding gain (loss) on available for sale securities (862) (1,334) Reclassification adjustment for (gains) losses arising during the period (2) (2) ------- ------- Other comprehensive income (loss), before tax (864) (1,336) Tax (expense) benefit related to items of other comprehensive income (loss) 148 456 ------- ------- Other comprehensive income (loss), net of tax (716) (880) ------- ------- Comprehensive income $ 2,797 $ 2,198 ======= ======= The accompanying notes are an integral part of this statement. 6 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, changes in shareholders' equity, cash flows and comprehensive income in conformity with accounting principles generally accepted in the United States of America. However, the unaudited consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation. Those adjustments consist of normal, recurring adjustments. The results of operations for the three months ended March 31, 2003 and 2002 and the cash flows for the three months ended March 31, 2003 and 2002 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, 2002. NOTE 2: PRINCIPLES OF CONSOLIDATION The accompanying unaudited consolidated financial statements include the accounts of Southwest Bancorp, Inc. ("Southwest") and its wholly owned subsidiaries, the Stillwater National Bank and Trust Company ("Stillwater National"), SBI Capital Trust ("SBI Capital") and Business Consulting Group, Inc. ("BCG"). All significant intercompany transactions and balances have been eliminated in consolidation. NOTE 3: RECENTLY ADOPTED ACCOUNTING STANDARD In November 2002, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standards Board Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - an Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. Implementation of the provisions of FIN 45 did not have a significant impact on Southwest's financial statements. On December 31, 2002, the Financial Accounting Standards Board issued FASB Statement No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. Statement No. 148 amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for Statement 123's fair value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of Statement 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While the Statement does not amend Statement 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of Statement 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for stock options using the fair value method of Statement 123 or the intrinsic value method of Opinion 25. Statement 148's amendment of the transition and annual disclosure requirements of Statement 123 are effective for fiscal years ending after December 15, 2002. Statement 148's amendment of the disclosure requirements of Opinion 28 is effective for financial reports containing condensed consolidated financial statements for interim periods beginning after December 15, 2002. As allowed by Statement 123, Southwest follows the recognition requirements of Opinion No. 25, which results in no charge to earnings when options are issued at fair market value. Therefore, the adoption of this statement did not have any impact on Southwest's financial position or results of operations. 7 The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period:
FOR THE THREE MONTHS ENDED MARCH 31, 2003 2002 ---- ---- Net earnings, as reported $3,513 $3,078 Less: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (106) (150) ------ ------ Proforma net income $3,407 $2,928 ====== ====== Earnings per share: Basic -- as reported $0.60 $0.54 Basic -- proforma $0.58 $0.51 Diluted -- as reported $0.58 $0.52 Diluted -- proforma $0.56 $0.49
NOTE 4: ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses is shown below for the indicated periods.
FOR THE THREE FOR THE MONTHS ENDED YEAR ENDED MARCH 31, 2003 DECEMBER 31, 2002 -------------- ----------------- (Dollars in thousands) Balance at beginning of period $ 11,888 $ 11,492 Loans charged-off: Real estate mortgage 62 777 Real estate construction 3 -- Commercial 373 4,248 Installment and consumer 211 371 ---------- ---------- Total charge-offs 649 5,396 Recoveries: Real estate mortgage 46 93 Real estate construction -- -- Commercial 128 107 Installment and consumer 17 149 ---------- ---------- Total recoveries 191 349 ---------- ---------- Net loans charged-off 458 5,047 Provision for loan losses 1,722 5,443 ---------- ---------- Balance at end of period $ 13,152 $ 11,888 ========== ========== Loans outstanding: Average $1,184,985 $1,012,487 End of period 1,229,722 1,101,112 Net charge-offs to total average loans (annualized) 0.16% 0.50% Allowance for loan losses to total loans 1.07% 1.08%
8 Nonperforming assets and other risk elements of the loan portfolio are shown below as of the indicated dates.
AT AT MARCH 31, 2003 DECEMBER 31, 2002 -------------- ----------------- (Dollars in thousands) Nonaccrual loans (1) $11,990 $11,455 Past due 90 days or more (2) 2,657 1,452 ------- ------- Total nonperforming loans 14,647 12,907 Other real estate owned 585 747 ------- ------- Total nonperforming assets $15,232 $13,654 ======= ======= Nonperforming loans to loans receivable 1.19% 1.17% Allowance for loan losses to nonperforming loans 89.79% 92.11% Nonperforming assets to loans receivable and other real estate owned 1.24% 1.24%
(1) The government-guaranteed portion of loans included in these totals was $1.4 million (2003) and $988,000 (2002). (2) The government-guaranteed portion of loans included in these totals was $96,000 (2003) and $29,000 (2002). Southwest makes provisions for loan losses in amounts necessary to maintain the allowance for loan losses at the level Southwest deems appropriate. The allowance is based on careful, continuous review and evaluation of the loan portfolio and ongoing, quarterly assessments of the probable losses inherent in the loan and lease portfolio and unused commitments to provide financing. Southwest's systematic methodology for assessing the appropriateness of the allowance includes determination of a formula allowance, specific allowances and an unallocated reserve. During the quarter ended March 31, 2003, there were no changes in estimation methods or assumptions that affected the methodology for assessing the appropriateness of the allowance. The formula allowance is calculated by applying loss factors to corresponding categories of outstanding loans and leases. Loss factors generally are based on Southwest's historical loss experience in the various portfolio categories over the prior six quarters or four quarters, but may be adjusted for categories where six and four quarter loss experience is historically unusual. Such an adjustment was made in the first quarter of 2003 in order to moderate, but not eliminate, the effects of losses on two credit relationships that had resulted in an historically anomalous loss factor for non-classified, secured commercial loans. The use of these loss factors is intended to reduce the differences between estimated losses inherent in the portfolio and observed losses. Formula allowances also are established for loans that do not have specific allowances according to the application of credit risk factors. These factors are set by management to reflect its assessment of the relative level of risk inherent in each grade. Specific allowances are established in cases where management has identified significant conditions or circumstances related to individual loans that management believes indicate the probability that a loss may be incurred in an amount different from the amounts determined by application of the formula allowance. Specific allowances include amounts related to loans that are identified for evaluation of impairment, which is based on discounted cash flows using each loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. All of Southwest's nonaccrual loans are considered to be impaired loans. The unallocated allowance is based upon management's evaluation of various factors that are not directly measured in the determination of the formula and specific allowances. These factors may include general economic and business conditions affecting lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examination results, findings of internal credit examiners, and management's judgment with respect to various other conditions including credit administration and management and the quality of risk identification systems. Management reviews these conditions quarterly. 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. 9 NOTE 5: LOANS RECEIVABLE Southwest extends commercial and consumer credit primarily to customers in the states of Oklahoma, Kansas and Texas. Its commercial lending operations are concentrated in the Stillwater, Tulsa, and Oklahoma City areas of Oklahoma, in Wichita, Kansas and in Frisco, Texas. As a result, the collectibility of Southwest's loan portfolio can be affected by changes in the general economic conditions in these three states and in those metropolitan areas. At March 31, 2003 and December 31, 2002, substantially all of Southwest's loans are collateralized with real estate, inventory, accounts receivable and/or other assets, or are guaranteed by agencies of the United States Government. At March 31, 2003, loans to individuals and businesses in the healthcare industry totaled approximately $243.9 million, or 20% of total loans. Southwest does not have any other concentrations of loans to individuals or businesses involved in a single industry totaling 5% or more of total loans. The principal balance of loans for which accrual of interest has been discontinued totaled approximately $12.0 million at March 31, 2003. During the first three months of 2002, $5,000 in interest income was received on nonaccruing loans. If interest on those loans had been accrued, additional total interest income of $218,000 would have been recorded. NOTE 6: LONG-TERM DEBT The guaranteed preferred beneficial interests in Southwest's subordinated debentures represent interests in 9.30% subordinated debentures ("Subordinated Debentures"), due July 31, 2027, issued by Southwest to its subsidiary, SBI Capital, in connection with SBI Capital's Cumulative Trust Preferred Securities (the "Preferred Securities"). The Subordinated Debentures and related payments are SBI Capital's only assets. The Preferred Securities meet the regulatory criteria for Tier I capital, subject to Federal Reserve guidelines that limit the amount of the Preferred Securities and cumulative perpetual preferred stock to an aggregate of 25% of Tier I capital. NOTE 7: EARNINGS PER SHARE Basic earnings per share is computed based upon net income divided by the weighted average number of shares outstanding during each period. Diluted earnings per share is computed based upon net income divided by the weighted average number of shares outstanding during each period adjusted for the effect of dilutive potential shares calculated using the treasury stock method. At March 31, 2003 and 2002, there were 110,794 and 5,000 antidilutive options to purchase common shares, respectively. The following is a reconciliation of the shares used in the calculations of basic and diluted earnings per share: FOR THE THREE MONTHS ENDED MARCH 31, 2003 2002 --------- --------- Weighted average shares outstanding: Basic earnings per share 5,827,499 5,702,426 Effect of dilutive securities: Stock options 234,987 230,088 --------- --------- Weighted average shares outstanding: Diluted earnings per share 6,062,486 5,932,514 ========= ========= NOTE 8: SHAREHOLDERS' EQUITY SHARE REPURCHASE PROGRAM In March 2002, Southwest authorized the repurchase of up to 5% of its current outstanding common stock in the period ending March 31, 2003. As of March 31, 2003, Southwest had purchased 15,000 shares under this program at an average price of $21.79 per share. These repurchases reduced shareholders' equity by $327,000 in 2002. 10 In March 2003, Southwest authorized the repurchase of up to an additional 5% of its current outstanding common stock. Share repurchases under the current program are expected to be made primarily on the open market, from time to time, until March 31, 2004, or earlier termination of the repurchase program by the Board of Directors. Repurchases under the program will be made at the discretion of management based upon market, business, legal, accounting and other factors. As of March 31, 2003, no share repurchases had been made under this program. SHAREHOLDER RIGHTS PLAN On April 22, 1999, Southwest adopted a Rights Plan designed to protect its shareholders against acquisitions that the Board of Directors believes are unfair or otherwise not in the best interests of Southwest and its shareholders. Under the Rights Plan, each holder of record of Southwest's common stock, as of the close of business on April 22, 1999, received one right per common share. The rights generally become exercisable if an acquiring party accumulates, or announces an offer to acquire, 10% or more of Southwest's voting stock. The rights will expire on April 22, 2009. Each right will entitle the holder (other than the acquiring party) to buy, at the right's then current exercise price, Southwest's common stock or equivalent securities having a value of twice the right's exercise price. The exercise price of each right was initially set at $73.34. In addition, upon the occurrence of certain events, holders of the rights would be entitled to purchase, at the then current exercise price, common stock or equivalent securities of an acquiring entity worth twice the exercise price. Under the Rights Plan, Southwest also may exchange each right, other than rights owned by an acquiring party, for a share of its common stock or equivalent securities. 11 SOUTHWEST BANCORP, INC. AVERAGE BALANCES, YIELDS AND RATES (Dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 2002 ------------------------------------------------------------ AVERAGE AVERAGE AVERAGE AVERAGE BALANCE YIELD/RATE BALANCE YIELD/RATE ------------------------------------------------------------ ASSETS: Loans receivable $1,184,985 6.07% $ 952,909 6.80% Investment securities 182,557 4.61 219,125 5.51 Other interest-earning assets 1,434 1.13 1,748 1.62 ---------- ---------- Total interest-earning assets 1,368,976 5.87 1,173,782 6.55 Noninterest-earning assets 53,508 53,384 ---------- ---------- Total assets $1,422,484 $1,227,166 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing demand $ 54,226 0.61% $ 50,710 0.66% Money market accounts 271,671 1.76 169,851 2.08 Savings accounts 6,147 0.26 5,659 0.43 Time deposits 612,908 2.69 580,236 3.55 ---------- ---------- Total interest-bearing deposits 944,952 2.29 806,456 3.04 Other borrowings 215,796 2.43 183,596 2.82 Long-term debt 25,013 9.30 25,013 9.30 ---------- ---------- Total interest-bearing liabilities 1,185,761 2.46 1,015,065 3.16 Noninterest-bearing demand 124,022 113,211 Other noninterest-bearing liabilities 15,074 12,937 Shareholders' equity 97,627 85,953 ---------- ---------- Total liabilities and shareholders' equity $1,422,484 $1,227,166 ========== ========== Interest rate spread 3.41% 3.39% ==== ==== Net interest margin (1) 3.73% 3.82% ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 115.45% 115.64% ========== ==========
(1) Net interest margin = annualized net interest income / average interest-earning assets 12 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 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; assessments of loan quality, and probable loan losses, liquidity, and market or interest rate risk; and statements of Southwest's ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon: the amount and timing of future changes in interest rates and other economic conditions; future laws and regulations; and a variety of other matters. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward-looking statements. In addition, Southwest's past growth and performance do not necessarily indicate its future results. You should read this management's discussion and analysis of Southwest's consolidated financial condition and results of operations in conjunction with Southwest's unaudited consolidated financial statements and the accompanying notes. GENERAL Southwest Bancorp, Inc. ("Southwest") is a financial holding company for the Stillwater National Bank and Trust Company ("Stillwater National"), SBI Capital Trust, and Business Consulting Group, Inc. Southwest is an independent institution, and is not controlled by out of state organizations or individuals. Southwest offers a broad range of commercial and consumer banking and other financial services through full service offices in Stillwater, Oklahoma City, Tulsa and Chickasha, Oklahoma and Frisco, Texas; loan production offices in Wichita, Kansas and on the campuses of the University of Oklahoma 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). Southwest has applied to create SNB Bank of Wichita, which it expects to open on the site of its Kansas loan production office during 2003. Southwest devotes substantial efforts to marketing and providing services to local businesses, their primary employees, and to other managers and professionals living and working in Southwest's market areas. Southwest has developed a marketing and delivery system that does not rely on an extensive branch network. Southwest has established and pursued a strategy of independent operation for the benefit of all of its shareholders. Southwest has grown from $434 million in assets since becoming a public company at year-end 1993, to $1.5 billion at March 31, 2003, without acquiring other financial institutions. Southwest considers acquisitions of other financial institutions and other companies, however, from time to time, although it does not have any specific agreements or understandings for any such acquisition at present. Southwest also considers, from time to time, the establishment of new lending, banking and other offices in additional geographic markets. Southwest also extends loans to borrowers in Oklahoma and neighboring states through participations with correspondent banks. 13 FINANCIAL CONDITION TOTAL ASSETS Southwest's total assets were $1.5 billion at March 31, 2003 and $1.3 billion at December 31, 2002. LOANS Total loans, including loans held for sale, were $1.2 billion at March 31, 2003, a 12% increase ($128.6 million) from December 31, 2002. Southwest experienced increases in the categories of real estate construction loans ($53.9 million, or 41%); commercial and industrial loans ($48.1 million, or 14%); government-guaranteed student loans ($31.1 million, or 26%); and commercial real estate mortgages ($6.9 million, or 2%). These increases in loans were offset by reductions in residential mortgage loans ($10.0 million, or 10%) and other consumer loans ($1.4 million, or 6%). Loans held for sale, consisting of certain residential mortgages and business loans, decreased $1.2 million, or 12%, while portfolio loans increased $129.8 million, or 12%. Management determines the appropriate level of the allowance for loan losses using a systematic methodology. (See Note 4, "Allowance for Loan Losses," in the Notes to Unaudited Consolidated Financial Statements.) The allowance for loan losses increased by $1.3 million, or 11%, from December 31, 2002 to March 31, 2003. At March 31, 2003, the allowance for loan losses was $13.2 million, or 1.07% of total loans and 89.79% of nonperforming loans, compared to $11.9 million, or 1.08% of total loans and 92.11% of nonperforming loans, at December 31, 2002. (See "Results of Operations-Provision for Loan Losses.") DEPOSITS AND OTHER BORROWINGS Southwest's deposits were $1.2 billion at March 31, 2003, an increase of $129.9 million, or 13%, from $1.0 billion at December 31, 2002. Increases occurred in all categories of deposits: time deposits increased $89.9 million, or 16%; money market accounts increased $24.2 million, or 9%; noninterest-bearing demand accounts increased $9.8 million, or 7%; interest-bearing demand accounts increased $5.4 million, or 11%; and savings accounts increased $546,000, or 10%. Stillwater National has unsecured brokered certificate of deposit lines of credit in connection with its retail certificate of deposit program from Merrill Lynch & Co., Morgan Stanley Dean Witter, Salomon Smith Barney, Prudential Securities Inc., PaineWebber Inc., RBC Dain Rauscher Inc., and CountryWide Securities that total $675.0 million. At March 31, 2003, $249.8 million in these retail certificates of deposit were included in total deposits. Stillwater National has other brokered certificates of deposit totaling $45.8 million included in total deposits at March 31, 2003. During the same period, other borrowings increased $1.1 million, or less than 1%. SHAREHOLDERS' EQUITY Shareholders' equity increased by $3.4 million, or 4%, due primarily to earnings for the first three months of 2003 and stock option exercises, offset in part by common stock dividends and a decrease in accumulated other comprehensive income (net, after tax, unrealized gains on investment securities available for sale). At March 31, 2003, Southwest and Stillwater National continued to exceed all applicable regulatory capital requirements. RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003 and 2002 NET INCOME For the first quarter of 2003, Southwest recorded net income of $3.5 million. This was $435,000, or 14%, more than the $3.1 million in net income recorded for the first quarter of 2002. Average shares outstanding were 5,827,499 for the first quarter of 2003 and 5,702,426 for the same period in 2002. Basic and diluted earnings per share increased to $0.60 and $0.58 per share for the first quarter of 2003 from $0.54 and $0.52 per share for the same period in 2002, respectively. 14 Net interest income increased $1.5 million, or 14%, for the first quarter of 2003 compared to the same period in 2002. This increase in net interest income as well as an $816,000, or 31%, increase in other income was offset by a $472,000, or 38%, increase in the provision for loan losses; a $1.1 million, or 14%, increase in other expense; and a $359,000, or 23%, increase in taxes on income. For the first quarter of 2003, the return on average total equity was 14.59% compared to a 14.52% return on average total equity for the first quarter of 2002. NET INTEREST INCOME Net interest income increased to $12.6 million for the first quarter of 2003 from $11.1 million for the same period in 2002 due to an $836,000, or 4%, increase in interest income combined with a $697,000, or 9%, reduction in interest expense. Yields on Southwest's interest-earning assets declined by 68 basis points, and the rates paid on Southwest's interest-bearing liabilities declined by 70 basis points, resulting in an increase in the interest rate spread to 3.41% for the first quarter of 2003 from 3.39% for the first quarter of 2002. During the same periods, annualized net interest margin declined from 3.82% to 3.73%. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 115.45% for the first quarter of 2003 from 115.64% for the first quarter of 2002. Total interest income for the first quarter of 2003 was $19.8 million, a 4% increase from $19.0 million during the same period in 2002. The principal factor in the increase of interest income was the $195.2 million, or 17%, increase in average interest-earning assets, which was partially offset by the 68 basis point reduction in the yield earned on interest-earning assets. Southwest's average loans increased $232.1 million, or 24%, and the related yield was reduced to 6.07% for the first quarter of 2003 from 6.80% in 2002. During the same period, average investment securities declined $36.6 million, or 17%, and the related yield was reduced to 4.61% from 5.51%. Total interest expense for the first quarter of 2003 was $7.2 million, a decline of 9% from $7.9 million for the same period in 2002. The decline in total interest expense can be attributed to the 70 basis point reduction in the rates paid on interest-bearing liabilities, which was partially offset by the $170.7 million, or 17%, increase in average interest-bearing liabilities. Rates paid on deposits decreased for all categories. OTHER INCOME Other income increased by $816,000, or 31%, for the first quarter of 2003 compared to the same period of 2002 primarily as a result of a $477,000, or 27%, increase in service charges; a $293,000, or 46%, increase in gains on sales of loans; and a $46,000, or 20%, increase in other noninterest income. OTHER EXPENSES Southwest's other expenses increased $1.1 million, or 14%, for the first quarter of 2003 compared to the same period in 2002. This increase was primarily the result of a $510,000, or 13%, increase in salaries and employee benefits; a $223,000, or 10%, increase in general and administrative expenses; a $205,000, or 12%, increase in occupancy expense; a $139,000, or 632%, increase in other real estate expense; and a $6,000, or 8%, increase in FDIC and other insurance. * * * * * * * PROVISION FOR LOAN LOSSES Southwest makes provisions for loan losses in amounts necessary to maintain the allowance for loan losses at the level Southwest determines is appropriate based on a systematic methodology. (See Note 4, "Allowance for Loan Losses," in the Notes to Unaudited Consolidated Financial Statements.) The allowance for loan losses of $13.2 million increased $1.3 million, or 11%, from year-end 2002, and represented 1.07% of total loans, compared with 1.08% of total loans at December 31, 2002. Loans of $1.2 billion at March 31, 2003 grew $128.6 million, or 12%, from year-end 2002. A provision of $1.7 million was recorded in the first three months of 2003, an increase of $472,000, or 38%, from the first three months of 2002. The primary cause of the increase in the allowance was growth in loans, particularly in real estate construction and commercial loans. 15 Total nonaccrual loans increased $535,000, or 5%, from December 31, 2002, while total nonperforming loans increased by $1.7 million, or 13%. Total nonperforming assets of $15.2 million (which includes other real estate owned) increased by $1.6 million, or 12%, and equaled 1.24% of total loans and other real estate, the same percentage as at December 31, 2002. As shown in Note 4, total nonperforming loans at March 31, 2003 represented 1.19% of total loans, compared to $12.9 million, or 1.17% of total loans, at December 31, 2002. TAXES ON INCOME Southwest's income tax expense was $1.9 million and $1.6 million for the first three months of 2003 and 2002, respectively. Southwest's effective tax rates have been lower than federal and state statutory rates primarily because of tax-exempt income on municipal obligations and loans and the organization in July 2001 of a real estate investment trust. 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 residential mortgage loans and available for sale investments. Southwest's portfolio of government-guaranteed student loans and SBA loans are also readily salable. Additional sources of liquidity, including cash flow from the repayment of loans, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of deposits and liquid assets, and accessibility to the capital and money markets. These funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans, and operate the organization. Southwest has 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 ("SLMA"), the F&M Bank of Tulsa ("F&M"), and 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 $668,000 at March 31, 2003. Stillwater National has approved federal funds purchase lines totaling $111.5 million with three other banks and one institutional broker; no amounts were outstanding on these lines at March 31, 2003. In addition, Stillwater National has available a $35.0 million line of credit from the SLMA and a $272.8 million line of credit from the FHLB. Borrowings under the SLMA line would be secured by student loans. Borrowings under the FHLB line are secured by all unpledged securities and other loans. The SLMA line expires April 20, 2007; no amount was outstanding on this line at March 31, 2003. The FHLB line of credit had an outstanding balance of $141.5 million at March 31, 2003. Stillwater National also has available unsecured brokered certificate of deposit lines of credit in connection with its retail certificate of deposit program from Merrill Lynch & Co., Morgan Stanley Dean Witter, Salomon Smith Barney, Prudential Securities Inc., PaineWebber Inc., RBC Dain Rauscher Inc., and CountryWide Securities that total $675.0 million. At March 31, 2003, $249.8 million in these retail certificates of deposit were included in total deposits. Stillwater National sells securities under agreements to repurchase with Stillwater National retaining custody of the collateral. Collateral consists of direct obligations of U.S. Government Agency issues, which are designated as pledged with Stillwater National's safekeeping agent. These transactions are for one-to-four day periods. During the first three months of 2003, the only categories of other borrowings whose averages exceeded 30% of ending shareholders' equity were repurchase agreements and funds borrowed from the FHLB. 16
MARCH 31, 2003 MARCH 31, 2002 ----------------------------- --------------------------- FUNDS FUNDS REPURCHASE BORROWED REPURCHASE BORROWED AGREEMENTS FROM THE FHLB AGREEMENTS FROM THE FHLB ----------------------------- --------------------------- (DOLLARS IN THOUSANDS) Amount outstanding at end of period $58,233 $141,500 $57,994 $105,272 Weighted average rate paid at end of period 0.89% 3.09% 1.22% 3.81% Average Balance: For the three months ended $50,778 $155,371 $51,814 $129,844 Average Rate Paid: For the three months ended 0.89% 2.99% 1.21% 3.47% Maximum amount outstanding at any month end $58,233 $166,500 $57,994 $141,500
During the first three months of 2003, cash and cash equivalents increased by $12.7 million. This increase was the net result of cash provided from financing activities of $131.2 million (primarily from an increase in deposits) and cash provided from operating activities of $8.4 million offset in part by cash used in net loan origination and other investing activities of $126.9 million. During the first three months of 2002, cash and cash equivalents decreased by $5.8 million. This reduction was the net result of cash used in net loan origination and other investing activities of $16.0 million and cash used in financing activities of $786,000 offset in part by cash provided from operating activities of $11.0 million. CAPITAL RESOURCES In the first three months of 2003, total shareholders' equity increased $3.4 million, or 4%. Earnings, net of cash dividends declared on common stock, contributed $2.8 million to shareholders' equity during this three-month period. The sale or issuance of common stock through the dividend reinvestment plan, the employee stock purchase plan and the employee stock option plan contributed an additional $1.4 million to shareholders' equity in the first three months of 2003, including tax benefits realized by Southwest relating to option exercises. Accumulated comprehensive income, consisting of net unrealized gains (losses) on investment securities available for sale (net of tax), declined to $1.5 million at March 31, 2003 compared to $2.2 million at December 31, 2002. Bank holding companies are required to maintain capital ratios in accordance with guidelines adopted by the Federal Reserve Board ("FRB"). The guidelines are commonly known as Risk-Based Capital Guidelines. At March 31, 2003, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 11.11%, a Tier I risk-based capital ratio of 10.04%, and a leverage ratio of 8.66%. As of March 31, 2003, Stillwater National also met the criteria for classification as a "well-capitalized" institution under the prompt corrective action rules promulgated under the Federal Deposit Insurance Act. Designation of the bank as a "well-capitalized" institution under these regulations does not constitute a recommendation or endorsement of Stillwater National by Federal bank regulators. Southwest declared a dividend of $0.125 per common share payable on April 1, 2003 to shareholders of record as of March 18, 2003. 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 the effects of general levels of inflation. 17 * * * * * * * QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management has determined that no additional disclosures are necessary to assess changes in information about market risk that have occurred since December 31, 2002. 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 its 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 the 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. NON-GAAP FINANCIAL MEASURES None of the financial measures used in this report are defined as non-GAAP financial measures under federal securities regulations. Other banking organizations, however, may present such non-GAAP financial measures, which differ from measures based upon accounting principles generally accepted in the United States. For example, such non-GAAP measures may exclude certain income or expense items in calculating operating income or efficiency ratios, or may increase yields and margins to reflect the benefits of tax-exempt interest-earning assets. Readers of this report should be aware that certain measures, such as the efficiency ratio, are calculated using accounting principles generally accepted in the United States. 18 PART II. OTHER INFORMATION Item 1. Legal proceedings None Item 2. Changes in securities None Item 3. Defaults upon senior securities None Item 4. Submission of matters to a vote of security holders None Item 5. Other information None Item 6. Exhibits and reports on Form 8-K (a) Exhibits. Exhibit 99.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 Exhibit 99.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K. Southwest filed a report on Form 8-K, dated January 22, 2003, announcing, under item 9 of that form, the intention of Rick Green, President and Chief Executive Officer, to sell a portion of his holdings of Southwest common stock in order to diversify his holdings for estate and retirement planning purposes. 19 SIGNATURES Pursuant to the requirements 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. (Registrant) By: /s/ Rick Green May 12, 2003 ---------------------------------------- -------------------- Rick Green Date President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kerby E Crowell May 12, 2003 ---------------------------------------- ------------------- Kerby E. Crowell Date Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer) 20 CERTIFICATION I, Rick Green, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Southwest Bancorp, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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: May 12, 2003 /s/ Rick Green ------------------- ----------------------------------------- Rick Green President and Chief Executive Officer (Principal Executive Officer) 21 CERTIFICATION I, Kerby Crowell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Southwest Bancorp, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly 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: May 12, 2003 /s/ Kerby E. Crowell -------------------- --------------------------------------- Kerby E. Crowell Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer) 22