EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2000
Southwest Bancorp, Inc. ("Southwest") is the financial holding company
for Stillwater National Bank and Trust Company ("Stillwater National").
Southwest and Stillwater National offer commercial and consumer lending and
deposit services from offices in Stillwater, Tulsa, Oklahoma City, and
Chickasha, Oklahoma; loan production offices on the campuses of Oklahoma State
University-Tulsa and the University of Oklahoma Health Sciences Center; a
marketing presence in the Student Union at Oklahoma State University-Stillwater
and in two AAA Oklahoma offices; and the Internet, through SNB DirectBanker(TM).
A substantial portion of Southwest's current business and focus for the future
are services for local businesses, their primary employees, and to other
managers and professionals living and working in its Oklahoma market areas.
Stillwater National's website and online banking technology are frequently
updated in response to the changing needs of Stillwater National's large base of
Internet banking customers.
Southwest was organized in 1981 as the holding company for Stillwater
National, which was chartered in 1894. At December 31, 2000, Southwest had total
assets of $1.2 billion, deposits of $945.1 million and shareholders' equity of
$73.2 million.
Southwest's philosophy is to provide a high level of quality customer
service, a wide range of financial services, and products responsive to customer
needs. This philosophy has led to the development of financial products that
respond to customers' needs for speed, efficiency and information. These include
SNB DirectBanker(TM) and other Internet banking products, which complement
Southwest's more traditional banking products.
Southwest has established and pursued a strategy of independent
operation for the benefit of all of its shareholders, and has capitalized on its
position as an Oklahoma owned and operated organization to increase its banking
business.
1
Letter to Shareholders from the C.E.O.
January 22, 2001
Shareholders, Customers and Friends:
The year 2000 was a year of solid performance and development for
Southwest Bancorp, Inc. Our annual financial results include:
o A 21% increase
in diluted earnings per share;
o A 17% increase in book value per share;
o A 7%
growth in assets, to $1.2 billion;
o Return on average shareholder's equity of
14.9%; and
o A 4 percentage point improvement in our efficiency ratio.
Strategically, we continued our focus on expansion of business and products
in targeted markets, including Oklahoma businesses and their managers and the
medical industry, as well as our other traditional markets: SBA and student
lending and general consumer banking through traditional and alternative
channels. We established important, new strategic alliances for product
development and delivery, including alliances for:
o Our Investor Services
Division;
o Fiduciary services;
o Commercial web-based product development; and
o Medical industry business and product development.
Our technology product expansion continues. We continue to enhance our
SNB DirectBanker(TM), SNB Cash Management, SNB Business Mail Processing and
Professional Financial Management Services. Soon, we plan to introduce SNB
Document Imaging Services for business use, including web-based storage and
retrieval. Our imaging product, alone or linked with our other flexible
services, will provide immediate, measurable value to businesses that are highly
dependent on paper processing of customer, client, and patient records.
In 2000, we became a financial holding company under new federal
banking laws that will allow us to prudently expand our operations at less cost
and into new activities related to our targeted markets. In the fourth quarter,
we reached agreement with the American Automobile Association ("AAA") to serve
as the sole provider of financial services for AAA Oklahoma.
2
Southwest's performance is the result of responsiveness, empathy,
creativity, customer satisfaction, loyalty and initiative. Each of which are
critical components of our vision.
We began 2000 facing worldwide concern over the Y2K computer
transitions. Our confidence in our preparations was validated. Southwest's
professional team of systems and technology managers and staff successfully
planned and implemented strategies for Y2K, so that Southwest and its customers
experienced smooth, reliable, and secure delivery of services across the
transition to the New Millennium.
Early in 2000, we enhanced our Treasury organization and focused on
funding our planned growth and expanding product offerings while maximizing
efficiency of our funding and investment management. We believe we have
excellent talent and intellectual resources in place to anticipate and manage
our future funding needs.
Each of our divisions' markets plays a vital role in Southwest's
success. Each division contributed to a successful year 2000. Each grew and
attracted new financial relationships. Our team sales effort and web-based
product offerings helped us increase deposits in all major categories. All
categories of loans increased for the year. Our web-based lending contributed to
the growth.
Our officers and employees are deeply involved in the community. We
lead funding drives, educational committees, boards, and the arts. Southwest's
people work to give back to our communities and our state.
Our board of directors and management team are enthusiastic about 2001
and the future of Southwest Bancorp, Inc. The marketplace continues to place a
high value on what we deliver--a focus on relationship building, financial
solutions that add measurable value, responsiveness, and flexibility in service
delivery channels. These differentiate us in the market.
Thank you for your continuing confidence and support of Oklahoma's
Southwest Bancorp.
Sincerely,
/s/Rick Green
Rick Green
President and Chief Executive Officer
3
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents Southwest's selected consolidated
financial information for each of the five years in the period ended December
31, 2000. The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements of Southwest, including the
accompanying Notes, presented elsewhere in this report.
For the Year Ended December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------
(dollars in thousands, except per share data)
Operations Data
Interest income $ 97,274 $ 80,595 $ 80,252 $ 76,849 $ 64,668
Interest expense 57,155 42,495 42,274 41,247 32,833
-------------------------------------------------------------------
Net interest income 40,119 38,100 37,978 35,602 31,835
Provision for loan losses (1) 3,550 2,495 3,380 12,104 3,100
Gain on sales of securities and loans 1,753 2,395 2,918 5,199 2,227
Other income 6,736 6,049 4,025 4,696 4,122
Other expenses 29,615 30,426 26,982 25,746 23,226
-------------------------------------------------------------------
Income before taxes 15,443 13,623 14,559 7,647 11,858
Taxes on income 5,238 4,757 5,181 2,667 4,306
-------------------------------------------------------------------
Net income $ 10,205 $ 8,866 $ 9,378 $ 4,980 $ 7,552
===================================================================
Net income available to common shareholders $ 10,205 $ 8,866 $ 7,392 $ 3,393 $ 5,965
===================================================================
Dividends Declared
Preferred stock $ -- $ -- $ 1,190 $ 1,587 $ 1,587
Common stock 1,678 1,601 1,366 1,208 1,053
Ratio of total dividends declared to net income 16.44% 18.06% 27.26% 56.12% 34.96%
Per Share Data
Basic earnings per common share $ 2.67 $ 2.23 $ 1.95 $ 0.90 $ 1.59
Diluted earnings per common share 2.64 2.19 1.89 0.88 1.56
Common stock cash dividends 0.44 0.40 0.36 0.32 0.28
Book value per common share (2) 19.32 16.55 15.21 13.38 12.66
Weighted average common shares outstanding:
Basic 3,822,416 3,973,878 3,795,136 3,773,037 3,760,370
Diluted 3,861,901 4,054,668 3,914,145 3,872,888 3,828,381
Financial Condition Data (2)
Investment securities $ 229,792 $ 211,682 $ 174,671 $ 187,740 $ 147,351
Loans (4) 912,550 852,808 793,319 719,113 644,646
Interest-earning assets 1,142,945 1,064,496 969,002 916,860 791,997
Total assets 1,203,566 1,120,420 1,027,865 963,286 829,117
Interest-bearing deposits 825,370 761,481 722,962 744,865 670,216
Total deposits 945,102 871,235 842,717 841,112 753,945
Long-term debt 25,013 25,013 25,013 25,013 --
Total shareholders' equity (3) 73,239 64,254 57,801 68,048 65,032
Common shareholders' equity 73,239 64,254 57,801 50,666 47,650
Mortgage servicing portfolio 94,545 109,297 126,410 132,824 118,953
Selected Ratios
Return on average assets 0.87% 0.84% 0.95% 0.54% 0.98%
Return on average total shareholders' equity 14.89 13.83 14.33 7.54 12.15
Return on average common equity 14.89 13.83 13.70 6.95 13.30
Net interest margin 3.57 3.82 4.04 4.03 4.32
Efficiency ratio (5) 60.93 65.37 60.07 56.59 60.83
Average assets per employee (6) $ 3,780 $ 3,476 $ 3,116 $ 2,667 $ 2,162
4
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
At December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------
(dollars in thousands, except per share data)
Asset Quality Ratios
Allowance for loan losses to loans (2) 1.33% 1.31% 1.31% 1.15% 1.11%
Nonperforming loans to loans (2)(7) 1.32 0.63 0.17 0.99 1.03
Allowance for loan losses to nonperforming loans (2)(7) 100.71 207.26 786.17 116.08 107.37
Nonperforming assets to loans and other real estate
owned (2)(8) 1.45 0.83 0.62 1.04 1.04
Net loan charge-offs to average loans 0.29 0.21 0.17 1.57 0.31
Capital Ratios
Average shareholders' equity to average assets
Total 5.82 6.11 6.64 7.12 8.05
Common 5.82 6.11 5.48 5.26 5.81
Tier I capital to risk-weighted assets (2) 10.36 9.76 8.88 8.96 10.21
Total capital to risk-weighted assets (2) 11.68 11.34 10.81 13.30 11.40
Leverage ratio (2) 8.08 8.06 7.69 6.95 7.77
<FN>
(1) 1997 reflects provisions for loan losses that significantly exceeded
historical levels.
(2) At period end.
(3) On September 1, 1998, Southwest redeemed all of its Series A Preferred
Stock at its stated liquidation value of $17.25 million.
(4) Net of unearned discounts but before deduction of allowance for loan
losses.
(5) The efficiency ratio = other expenses/(net interest income + gain on
sales of securities and loans + other income).
(6) Ratio = year-to-date average assets divided by the number of FTE
employees at December 31, 2000.
(7) Nonperforming loans consist of nonaccrual loans, loans contractually
past due 90 days or more and loans with restructured terms.
(8) Nonperforming assets consist of nonperforming loans and foreclosed assets.
</FN>
FORWARD-LOOKING STATEMENTS
This management's discussion and analysis of financial condition and
results of operations, the letter from the President which precedes it, and
other portions of this annual 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 of
probable loan losses; 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: future 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.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Southwest Bancorp, Inc.'s ("Southwest") net income available to common
shareholders, return on average common equity and diluted earnings per common
share exceeded the levels achieved for 1999.
o Net income available to common shareholders for 2000 was $10.2 million, up
from $8.9 million in 1999 and $7.4 million in 1998;
o Return on average common equity for 2000 was 14.89%, compared to 13.83% in
1999 and 13.70% in 1998; and
o Diluted earnings per common share increased to $2.64 in 2000, compared to
$2.19 in 1999 and $1.89 in 1998.
Overall balance sheet growth was positive:
o Total assets at year-end 2000 increased 7%, to $1.2 billion, compared
to $1.1 billion for 1999, and $1.0 billion for 1998.
o Total loans grew by 7% to $912.6 million at December 31, 2000, compared
to $852.8 million for 1999, and $793.3 million for 1998.
o Common shareholders' equity at year-end increased 14% to $73.2 million
for 2000 compared to $64.3 million for 1999 and $57.8 million for 1998.
Southwest repurchased 102,500 shares of its outstanding common stock
during 2000 at an average price of $17.33 per share under its share repurchase
program.
SUMMARY OF EARNINGS
NET INCOME
Net income for 2000 was $10.2 million, a $1.3 million increase over the
$8.9 million earned in 1999. Basic earnings per common share increased 20% to
$2.67 per share for 2000 from $2.23 per share for 1999. Diluted earnings per
common share increased 21% to $2.64 per share for 2000 from $2.19 per share for
1999. The increase in earnings was primarily the result of a $2.0 million, or
5%, increase in net interest income. Earnings for 2000 also benefited from an
$811,000, or 3%, reduction in other expenses and a $45,000, or 1%, increase in
other income. These positive developments offset a $1.1 million, or 42%,
increase in the provision for loan loss and a $481,000, or 10%, increase in
taxes on income.
Net income for 1999 was $8.9 million, an increase of $1.5 million, or
20%, over the $7.4 million net income available to common shareholders recorded
in 1998. Basic earnings per common share increased 14% to $2.23 per share for
1999 from $1.95 per share for 1998. Diluted earnings per common share increased
16% to $2.19 per share for 1999 from $1.89 per share for 1998.
In 1998, net income available to common shareholders reflected
dividends on Southwest's Series A Preferred Stock, which was redeemed in 1998,
and a one-time accounting adjustment related to that redemption. All of
Southwest's 1999 net income was available to common shareholders. The increase
in 1999 earnings was the result of the elimination of preferred dividends,
offset in part by increased borrowing costs, the one-time accounting adjustment
for the redemption of preferred that reduced 1998 earnings, a $1.5 million
increase in other income primarily related to increased service charges and
gains on the sale of three branch buildings, an $885,000 decrease in the
provision for loan losses, a $546,000 decrease in salaries and benefits, and a
$424,000 decrease in income tax expense. The increase in net interest income of
$122,000 in 1999 over 1998 was limited by increased use of borrowings to replace
funding from the preferred stock redeemed in 1998. These positive developments
were offset in part by a $2.0 million write-down on a single property in other
real estate, a $937,000 increase in occupancy expense, and a $788,000 increase
in general and administrative expense. The write-down on other real estate
related to a property acquired in the second quarter of 1998 in foreclosure of a
problem loan. The property has been recorded by management at its estimated fair
value less selling costs in accordance with generally accepted accounting
principles. Net income for 1999 declined 5% from the $9.4 million earned in
1998, which was stated before the costs of preferred stock.
These increases and decreases in the components of income are
discussed further in other sections of this Management's Discussion.
6
NET INTEREST INCOME
Years ended December 31, 2000 and 1999
Net interest income for 2000 increased to $40.1 million from $38.1
million in 1999, primarily as a result of increases in Southwest's loan
portfolio and the yield earned on those loans. The interest rate spread declined
to 2.87% for 2000 from 3.18% for 1999 as a result of the 89 basis point increase
in rates paid on Southwest's interest-bearing liabilities which exceeded the 58
basis point increase in yields on Southwest's interest-earning assets. The ratio
of average interest-earning assets to average interest-bearing liabilities
declined to 113.68% for 2000 from 114.78% for 1999.
Interest income for 2000 was $97.3 million, up from $80.6 million in
1999 as a result of increases in both interest-earning assets and the yields
earned on those assets. Yields on total interest-earning assets were 8.65% in
2000 and 8.07% in 1999. Loan interest and fee income increased $14.1 million, or
20%, and average loans outstanding increased $92.1 million, or 11%, to $900.2
million in 2000 from $808.1 million in 1999. Interest on investment securities
increased $2.5 million, or 22%, and average investment securities outstanding
increased $32.8 million, or 17%, to $221.8 million in 2000 from $189.0 million
in 1999. The increase in interest-earning assets was funded by growth in
deposits and short-term borrowings and retention of earnings.
Total interest expense for 2000 was $57.2 million, a $14.7 million, or
35%, increase from $42.5 million in 1999. The increase in interest expense was
due to increases in all categories of average interest-bearing liabilities and
the associated rates paid on those liabilities. Average interest-bearing
deposits increased $83.0 million, or 11%, to $806.5 million for 2000 from $723.5
million for 1999. Average short-term borrowings increased $36.1 million, or 30%,
to $157.5 million for 2000 from $121.4 million for 1999. Rates paid on
interest-bearing liabilities increased to 5.78% in 2000 from 4.89% in 1999.
Years ended December 31, 1999 and 1998
Net interest income for 1999 increased to $38.1 million from $38.0
million in 1998, primarily as a result of the increase in Southwest's loan
portfolio. The interest rate spread declined to 3.18% for 1999 from 3.34% as a
result of the decline in yields on Southwest's interest-earning assets of 46
basis points, which exceeded the 30 basis point decrease in rates paid on
Southwest's interest-bearing liabilities. The ratio of average interest-earning
assets to average interest-bearing liabilities declined to 114.78% for 1999 from
115.53% for 1998, in part due to borrowings to replace funding from the
preferred stock redeemed in September 1998.
Interest income for 1999 was $80.6 million, up from $80.3 million in
1998 primarily as a result of growth in interest-earning assets, which partially
offset the decline in yields. Yields on total interest-earning assets were 8.07%
in 1999 and 8.53% in 1998. Loan interest and fee income increased $353,000
because the greater volume of loans outstanding more than offset the effect of
the 54 basis point decline in loan yields. Average loans increased $51.5 million
to $808.1 million in 1999 from $756.6 million in 1998, a 7% increase. The
increase in interest-earning assets was funded by growth in short-term
borrowings and retention of earnings.
Total interest expense for 1999 was $42.5 million, a $221,000 increase
from $42.3 million in 1998. The increase in interest expense was primarily due
to a $65.2 million, or 116%, increase in average short-term borrowings from
$56.2 million for the year ended December 31, 1998 to $121.4 million for the
year ended December 31, 1999. Average time deposits declined $17.9 million, or
3%. Rates paid on interest-bearing liabilities declined to 4.89% in 1999 from
5.19% in 1998.
7
THREE YEAR COMPARISON OF CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST, YIELDS,
AND RATES
The following table provides certain information relating to
Southwest's average consolidated statements of financial condition and reflects
the interest income on interest-earning assets, interest expense of
interest-bearing liabilities, and the average yields earned and rates paid for
the periods indicated. Yields and rates are derived by dividing income or
expense by the average daily balance of the related assets or liabilities,
respectively, for the periods presented. Nonaccrual loans have been included in
the average balances of loans receivable.
For the Year Ended December 31,
----------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------- --------------------------------
(dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivable $ 900,241 $83,480 9.27% $ 808,142 $69,373 8.58%
Investment securities 221,783 13,655 6.16 188,951 11,157 5.90
Other interest-earning assets 2,263 139 6.14 1,336 65 4.87
-------------------------------- --------------------------------
Total interest-earning assets 1,124,287 97,274 8.65 998,429 80,595 8.07
Noninterest-earning assets:
Other assets 53,252 51,229
------------ ------------
Total assets $1,177,539 $1,049,658
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand $ 47,902 1,263 2.64% $ 45,520 876 1.92%
Money market accounts 97,056 4,690 4.83 96,371 3,611 3.75
Savings accounts 4,731 94 1.99 3,709 74 2.00
Time deposits 656,765 39,205 5.97 577,880 29,512 5.11
------------------------------- -------------------------------
Total interest-bearing deposits 806,454 45,252 5.61 723,480 34,073 4.71
Short-term borrowings (1) 157,517 9,577 6.08 121,367 6,096 5.02
Long-term debt 25,013 2,326 9.30 25,013 2,326 9.30
------------------------------- -------------------------------
Total interest-bearing liabilities 988,984 57,155 5.78 869,860 42,495 4.89
----------------- -----------------
Noninterest-bearing liabilities:
Noninterest-bearing demand 105,177 101,202
Other noninterest-bearing liabilities 14,861 14,511
Shareholders' equity 68,517 64,085
------------ ------------
Total liabilities and
shareholders' equity $1,177,539 $1,049,658
============ ============
Net interest income $40,119 $38,100
========= ========
Interest rate spread 2.87% 3.18%
======= ======
Net interest margin (2) 3.57% 3.82%
======= ======
Ratio of average interest-earning
assets to average
interest-bearing liabilities 113.68% 114.78%
======= ======
8
For the Year Ended December 31,
--------------------------------
1998
--------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
--------------------------------
(dollars in thousands)
ASSETS
Interest-earning assets:
Loans receivable $ 756,611 $69,020 9.12%
Investment securities 181,807 11,128 6.12
Other interest-earning assets 1,947 104 5.34
--------------------------------
Total interest-earning assets 940,365 80,252 8.53
Noninterest-earning assets:
Other assets 44,362
------------
Total assets $ 984,727
============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand $ 43,931 1,007 2.29%
Money market accounts 89,642 3,356 3.74
Savings accounts 3,442 76 2.21
Time deposits 595,766 32,614 5.47
-------------------------------
Total interest-bearing deposits 732,781 37,053 5.06
Short-term borrowings (1) 56,164 2,895 5.15
Long-term debt 25,013 2,326 9.30
-------------------------------
Total interest-bearing liabilities 813,958 42,274 5.19
-----------------
Noninterest-bearing liabilities:
Noninterest-bearing demand 90,214
Other noninterest-bearing liabilities 15,134
Shareholders' equity 65,421
------------
Total liabilities and
shareholders' equity $ 984,727
============
Net interest income $37,978
========
Interest rate spread 3.34%
======
Net interest margin (2) 4.04%
======
Ratio of average interest-earning
assets to average
interest-bearing liabilities 115.53%
======
<FN>
(1) The increase in short-term borrowings resulted mainly from increases in
Federal Home Loan Bank borrowings and in Sweep Repurchase Agreements,
under which commercial demand deposits are moved into repurchase
agreements.
(2) Net interest margin = net interest income / total interest-earning
assets.
</FN>
PROVISION FOR LOAN LOSSES
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
credit portfolio and ongoing, quarterly assessments of the probable losses
inherent in the loan and lease portfolio,
8
and to a lesser extent, unused commitments to provide financing. An appropriate
level of the allowance for loan losses is determined by management based upon a
number of factors including, among others: analytical reviews of loan loss
experience in relation to outstanding loans and commitments; unfunded loan
commitments; problem and nonperforming loans and other loans presenting credit
concerns; trends in loan growth, portfolio composition and quality; appraisals
of the value of collateral; and management's judgment with respect to economic
conditions and their impact on the existing loan portfolio. Based upon this
review, management established an allowance of $12.1 million, or 1.33% of total
loans, at December 31, 2000 compared to an allowance of $11.2 million, or 1.31%
of total loans, at December 31, 1999. During fiscal years 2000, 1999, and 1998,
the provisions for loan losses were $3.6 million, $2.5 million, and $3.4
million, respectively.
In establishing the level of the allowance for December 31, 2000,
management considered a number of factors that indicated a need for the recorded
increase in the allowance level, including: the continued growth in the
portfolio; the increased risk associated with the volume of the loan portfolio
invested in commercial and commercial real estate loans, which are viewed as
entailing greater risk than certain other categories of loans; the nonperforming
portion of the portfolio; and charge-off history. Management also considered
other factors, including the relative volumes of the loan portfolio invested in
certain types of credits, such as residential mortgage loans which are deemed to
be of relatively low risk, and therefore require a lower allowance. At December
31, 2000, total nonperforming loans were $12.0 million, or 1.32% of total loans,
compared to $5.4 million, or 0.63% of total loans, at December 31, 1999.
Southwest determined the level of the allowance for loan losses at December 31,
2000 was appropriate as a result of considering these and other factors it
deemed relevant to an appropriate level of the allowance. During 2000, there
were no changes in estimation methods or assumptions that affected the
methodology for determining the allowance. Management conducted a similar
analysis in order to determine the appropriate allowance as of December 31, 1999
and 1998.
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 of such loans may cause a significant increase in nonperforming assets,
and may lead to a material increase in charge-offs and the provision for loan
losses in future periods.
The following table shows the amounts of nonperforming loans at the end
of the periods indicated.
At December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------
(dollars in thousands)
Total nonaccrual $3,138 $5,205 $ 872 $5,458 $4,635
Total past due 90 days or more 208 194 451 1,677 1,437
Total restructured 8,694 -- -- -- 577
----------------------------------------------------------
Total nonperforming loans 12,040 5,399 1,323 7,135 6,649
Other real estate owned 1,225 1,729 3,650 362 64
----------------------------------------------------------
Total nonperforming assets $13,265 $7,128 $4,973 $7,497 $6,713
==========================================================
Nonperforming loans to loans 1.32% 0.63% 0.17% 0.99% 1.03%
Allowance for loan losses to nonperforming loans 100.71% 207.26% 786.17% 116.08% 107.37%
9
The following table analyzes Southwest's allowance for loan losses for
the periods indicated.
For the Year Ended December 31,
-----------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------
(dollars in thousands)
Balance at beginning of period $11,190 $10,401 $ 8,282 $ 7,139 $ 5,813
Loans charged-off:
Real estate mortgage 563 307 460 1,305 148
Real estate construction 1,083 10 -- -- --
Commercial 1,170 1,229 1,320 8,691 1,064
Installment and consumer 474 802 594 1,532 1,089
-----------------------------------------------------------
Total charge-offs 3,290 2,348 2,374 11,528 2,301
-----------------------------------------------------------
Recoveries:
Real estate mortgage 155 30 105 85 25
Real estate construction -- -- -- -- --
Commercial 360 382 582 300 288
Installment and consumer 160 230 426 182 214
-----------------------------------------------------------
Total recoveries 675 642 1,113 567 527
-----------------------------------------------------------
Net loans charged-off 2,615 1,706 1,261 10,961 1,774
Provision for loan losses 3,550 2,495 3,380 12,104 3,100
-----------------------------------------------------------
Balance at end of period $12,125 $11,190 $10,401 $ 8,282 $ 7,139
===========================================================
Ratio of allowance for loan losses to loans outstanding:
Average 1.35% 1.38% 1.37% 1.18% 1.23%
End of period 1.33 1.31 1.31 1.15 1.11
Ratio of net charge-offs to average loans
outstanding during the period 0.29 0.21 0.17 1.57 0.31
OTHER INCOME
Southwest has developed sources of noninterest income through student
lending, mortgage banking, and expansion of Southwest's ATM network, in addition
to traditional deposit and loan service charges and fees.
Total other income increased by $45,000 for fiscal year 2000 compared
to 1999 primarily due to a $1.4 million increase in services charges. The
increase in service charges can be attributed to increases both in transaction
accounts and in fees earned by Southwest's ATM network, which continues to
expand its locations. Other income also benefited from a $174,000 increase in
gains on sales of government-guaranteed student loans and a $107,000 increase in
gains in sales of Small Business Administration ("SBA") loans. These increases
were offset by a $678,000 reduction in other noninterest income and a $435,000
reduction in gains on sales of residential mortgage loans. The reduction in
other noninterest income was due primarily to $840,000 in gains on sales of
property recorded in 1999. Government-guaranteed student loans sold during 2000
totaled $53.4 million compared to $38.4 million during 1999. The principal
balance of residential mortgage loans sold was $56.2 million during 2000
compared to $85.7 million during 1999. Sales of mortgage loans declined
principally as a result of increased interest rates, which reduced refinances
and overall originations.
Total other income increased by $1.5 million for fiscal year 1999
compared to 1998 primarily due to increased service charges ($1.2 million) and
gains on the sales of three branch locations that were no longer being used
($840,000). The increase in service charges can be attributed to fees earned by
Southwest's ATM network, which expanded into adjoining states during 1999. These
increases were offset by reductions in the gains on sales of residential
mortgage loans ($408,000) and government-guaranteed student loans ($222,000).
The principal balance of residential mortgage loans sold was $85.7 million
during 1999 compared to $124.3 million during 1998. Government-guaranteed
student loans sold during 1999 totaled $38.4 million compared to $40.4 million
during
10
1998. Sales of mortgage loans declined principally as a result of increased
interest rates, which reduced refinances and overall originations.
OTHER EXPENSES
Southwest's other expenses declined $811,000, or 3%, for fiscal year
2000 compared to 1999. This decline was primarily the result of a $1.6 million,
or 67%, reduction in other real estate expense. During fiscal year 1999, other
real estate expense included a $2.0 million write-down on a single property.
This property was sold during the second quarter of 2000. In addition, general
and administrative expense declined $567,000 for fiscal year 2000 compared to
1999 due to a $600,000 payment in 1999 to settle pending litigation and $303,000
in offering expenses paid in 1999 on behalf of selling shareholders in a public
offering. These reductions in expense were partially offset by an $800,000, or
6%, increase in personnel expense, a $559,000, or 9%, increase in occupancy
expense and a $35,000, or 15%, increase in FDIC and other insurance.
Southwest's other expenses increased $3.4 million, or 13%, for fiscal
year 1999 compared to fiscal year 1998. This increase was primarily the result
of a $2.0 million write-down on a single property in other real estate. This
property was acquired in the second quarter of 1998 in foreclosure of a problem
loan. The property was recorded by management at its best estimate of fair value
less selling costs in accordance with generally accepted accounting principles.
Occupancy expense increased $937,000, due primarily to increased data
processing, depreciation, and equipment costs, as systems, facilities and
equipment were upgraded. General and administrative expenses increased $788,000.
The increase in general and administrative expenses was due primarily to a
$600,000 payment to settle pending litigation and $303,000 in offering expenses
paid on behalf of the selling shareholders in Southwest's public offering. These
increases were offset by a $546,000 reduction in salaries and employee benefits.
TAXES ON INCOME
Southwest's income tax expense for fiscal years 2000, 1999, and 1998
was $5.2 million, $4.8 million, and $5.2 million, respectively. Southwest's
effective tax rates have been lower than statutory federal and state rates
primarily because of tax-exempt income on municipal obligations and loans.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Quarter Ended
----------------------------------------------------------
12-31-00 09-30-00 06-30-00 03-31-00
----------------------------------------------------------
(dollars in thousands, except per share data)
Operations Data
Interest income $25,999 $24,682 $23,742 $22,851
Interest expense 15,494 15,039 13,765 12,857
----------------------------------------------------------
Net interest income 10,505 9,643 9,977 9,994
Provision for loan losses 825 925 975 825
Gain on sales of securities and loans 355 699 246 453
Other income 1,796 1,689 1,708 1,543
Other expenses 7,652 7,239 7,292 7,432
----------------------------------------------------------
Income before taxes 4,179 3,867 3,664 3,733
Taxes on income 1,409 1,292 1,250 1,287
----------------------------------------------------------
Net income $ 2,770 $ 2,575 $ 2,414 $ 2,446
==========================================================
Per Share Data
Basic earnings per common share $0.73 $0.68 $0.63 $0.63
Diluted earnings per common share $0.72 $0.67 $0.63 $0.62
Dividends declared per common share $0.11 $0.11 $0.11 $0.11
Weighted average common shares outstanding
Basic 3,787,881 3,798,789 3,837,442 3,866,190
Diluted 3,808,469 3,829,907 3,877,704 3,925,675
11
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
For the Quarter Ended
----------------------------------------------------------
12-31-99 09-30-99 06-30-99 03-31-99
----------------------------------------------------------
(dollars in thousands, except per share data)
Operations Data
Interest income $21,097 $20,038 $19,644 $19,816
Interest expense 11,438 10,534 10,147 10,376
----------------------------------------------------------
Net interest income 9,659 9,504 9,497 9,440
Provision for loan losses 795 600 425 675
Gain on sales of securities and loans 563 743 402 687
Other income 1,525 1,751 1,692 1,081
Other expenses 8,537 7,305 7,338 7,246
----------------------------------------------------------
Income before taxes 2,415 4,093 3,828 3,287
Taxes on income 754 1,453 1,373 1,177
----------------------------------------------------------
Net income $ 1,661 $ 2,640 $ 2,455 $ 2,110
==========================================================
Per Share Data
Basic earnings per common share $0.42 $0.66 $0.60 $0.55
Diluted earnings per common share $0.42 $0.64 $0.59 $0.54
Dividends declared per common share $0.10 $0.10 $0.10 $0.10
Weighted average common shares outstanding
Basic 3,937,058 4,036,097 4,077,420 3,843,223
Diluted 4,006,752 4,114,164 4,153,725 3,941,217
FINANCIAL CONDITION
Southwest's total assets increased by $83.2 million, or 7%, from
$1,120.4 million at December 31, 1999 to $1,203.6 million at December 31, 2000
after increasing by $92.5 million, or 9%, between December 31, 1998 and 1999.
The growth in assets in years 2000 and 1999 was attributable to increases in
both investment securities and outstanding loans.
Southwest's investment securities increased by $18.1 million, or 9%,
from $211.7 million at December 31, 1999 to $229.8 million at December 31, 2000
after decreasing by $37.0 million, or 21%, between December 31, 1998 and 1999.
The growth during 2000 came primarily from tax-exempt municipal securities,
which increased by $9.9 million, or 32%, from December 31, 1999 to December
2000. Mortgage-backed securities also increased $6.4 million, or 10%, during the
same period. The growth during 1999 came primarily from mortgage-backed
securities, which increased by $33.2 million, or 107%, from December 31, 1998 to
December 31, 1999.
Loans were $912.6 million at December 31, 2000, an increase of $59.8
million, or 7%, compared to December 31, 1999. Southwest experienced increases
in all categories of outstanding loans. The allowance for loan losses increased
by $935,000, or 8%, from December 31, 1999 to December 31, 2000. At December 31,
2000, the allowance for loan losses was $12.1 million, or 1.33% of total loans,
compared to $11.2 million, or 1.31% of total loans, at December 31, 1999.
Loans were $852.8 million at December 31, 1999, an increase of $59.5
million, or 8%, compared to December 31, 1998. Southwest experienced increases
in all categories of outstanding loans other than commercial real estate
mortgage loans and consumer loans. The allowance for loan losses increased by
$789,000, or 8%, from December 31, 1998 to December 31, 1999. At December 31,
1999, the allowance for loan losses was $11.2 million, or 1.31% of total loans,
compared to $10.4 million, or 1.31% of total loans, at December 31, 1998.
Southwest's deposits increased by $73.9 million, or 8%, from $871.2
million at December 31, 1999 to $945.1 million at December 31, 2000 after
increasing by $28.5 million, or 3%, between December 31, 1998 and December 31,
1999. While all categories of deposit increased during the period, the growth in
deposits occurred primarily in time deposits, which increased $54.9 million, or
9% from December 31, 1999 to December 31, 2000.
12
CAPITAL RESOURCES
At December 31, 2000, total shareholders' equity was $73.2 million
compared to $64.3 million at December 31, 1999. Earnings, net of common
dividends, contributed $8.5 million to shareholders' equity. Sales of common
stock through the dividend reinvestment plan, the employee stock purchase plan
and the employee stock option plan contributed an additional $148,000 to
shareholders' equity in 2000. Net unrealized holding gains (losses) on
investment securities available for sale (net of tax) increased to a gain of
$379,000 at December 31, 2000 compared to a loss of $(1.7) million at December
31, 1999. During 2000, Southwest repurchased 102,500 shares at an average price
of $17.33 per share, which reduced common shareholders' equity $1.8 million.
Repurchases of an additional 92,500 shares may be made under the repurchase plan
adopted in December 1999. Repurchases may be made from time to time based on
market conditions, projected capital needs, and other factors.
During 1999, earnings, net of common dividends, contributed $7.3
million to common shareholders' equity. Sale of common stock through the
dividend reinvestment plan, the employee stock purchase plan and the employee
stock option plan contributed an additional $477,000 to common shareholders'
equity in 1999. Net unrealized gains (losses) on investment securities available
for sale (net of tax) declined to a loss of $(1.7) million at December 31, 1999
as compared to a gain of $513,000 at December 31, 1998. As a result, common
shareholders' equity increased $6.5 million, or 11%, in 1999. In 1999, Southwest
repurchased 204,000 shares at an average price of $22.05 per share, which
reduced common shareholders' equity $4.5 million. On March 19, 1999, Southwest
completed a public offering of its common stock, including 811,231 shares sold
by the Estate of Paul C. Wise and Dr. James B. Wise and 250,000 newly issued
shares sold by Southwest. Southwest received proceeds of $5.4 million, after
offering expenses and underwriting discount. The net proceeds were invested in
Stillwater National, where the funds were used for general corporate purposes
and lending and investment activities. Southwest redeemed its Series A Preferred
Stock on September 1, 1998 for $17.25 million. Funds for this redemption came
from the sale of securities purchased with proceeds from the Trust Preferred
issued in 1997.
Bank holding companies are required to maintain capital ratios in
accordance with guidelines adopted by the Federal Reserve Board. The guidelines
are commonly known as Risk-Based Capital Guidelines. On December 31, 2000,
Southwest exceeded all applicable capital requirements, having a total
risk-based capital ratio of 11.68%, a Tier 1 risk-based capital ratio of 10.36%,
and a leverage ratio of 8.08%. As of December 31, 2000, 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 as a well-capitalized institution under these
regulations does not constitute a recommendation or endorsement of Southwest or
Stillwater National by Federal bank regulators.
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.
During 2000, cash and cash equivalents increased $4.5 million as
compared to the year ended December 31, 1999. The increase was the result of
cash provided from financing activities (primarily increased deposits) of $69.3
million and operating activities of $10.1 million offset by $74.9 million in
cash used in investing activities.
Cash and cash equivalents decreased by $6.0 million during 1999. This
decrease was the result of cash provided from financing activities (primarily
increased deposits and short-term borrowings) of $85.6 million and operating
activities of $11.9 million offset by $103.5 million in cash used in investing
activities.
13
ASSET/LIABILITY MANAGEMENT AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Southwest's net income is largely dependent on its net interest income.
Southwest seeks to maximize its net interest margin within an acceptable level
of interest rate risk. Interest rate risk can be defined as the amount of
forecasted net interest income that may be gained or lost due to favorable or
unfavorable movements in interest rates. Interest rate risk, or sensitivity,
arises when the maturity or repricing characteristics of assets differ
significantly from the maturity or repricing characteristics of liabilities. Net
interest income is also affected by changes in the portion of interest-earning
assets that are funded by interest-bearing liabilities rather than by other
sources of funds, such as noninterest-bearing deposits and shareholders' equity.
Southwest attempts to manage interest rate risk while enhancing net
interest margin by adjusting its asset/liability position. At times, depending
on the level of general interest rates, the relationship between long- and
short-term interest rates, market conditions and competitive factors, Southwest
may determine to increase its interest rate risk position somewhat in order to
increase its net interest margin. Southwest monitors interest rate risk and
adjusts the composition of its interest-related assets and liabilities in order
to limit its exposure to changes in interest rates on net interest income over
time. Southwest's asset/liability committee reviews its interest rate risk
position and profitability, and recommends adjustments. The asset/liability
committee also reviews the securities portfolio, formulates investment
strategies, and oversees the timing and implementation of transactions.
Notwithstanding Southwest's interest rate risk management activities, the
potential for changing interest rates is an uncertainty that can have an adverse
effect on net income.
"Gap analysis" is a measure of interest rate sensitivity traditionally
used in the banking industry. Gap analysis measures the cumulative differences
between the amounts of assets and liabilities maturing or repricing within
various time periods.
14
The following table shows Southwest's interest rate sensitivity gaps
for selected maturity periods at December 31, 2000:
0 to 3 4 to 12 Over 1 to Over
Months Months 5 Years 5 Years Total
------------------------------------------------------------------
(dollars in thousands)
Interest-earning assets:
Loans receivable $ 472,931 $ 253,996 $ 136,141 $ 49,482 $ 912,550
Investment securities 17,017 25,264 160,570 26,941 229,792
Federal funds sold -- -- -- -- --
Due from banks 603 -- -- -- 603
------------------------------------------------------------------
Total 490,551 279,260 296,711 76,423 1,142,945
Interest-bearing liabilities:
Money market deposit accounts 103,001 -- -- -- 103,001
Time deposits 170,714 423,259 72,166 147 666,286
Savings accounts 4,884 -- -- -- 4,884
NOW accounts 51,199 -- -- -- 51,199
Short-term borrowings 150,498 -- -- -- 150,498
Long-term debt -- -- -- 25,013 25,013
------------------------------------------------------------------
Total 480,296 423,259 72,166 25,160 1,000,881
------------------------------------------------------------------
Interest sensitivity gap $ 10,255 $(143,999) $ 224,545 $ 51,263 $ 142,064
==================================================================
Cumulative interest sensitivity gap $ 10,255 $(133,744) $ 90,801 $ 142,064 $ 142,064
==================================================================
Percentage of interest-earning assets
to interest-bearing liabilities 102.14% 65.98% 411.15% 303.75% 114.19%
==================================================================
Percentage of cumulative gap to total 0.85% (11.11)% 7.54% 11.80% 11.80%
assets ==================================================================
It is Southwest's goal to maintain a percentage of rate-sensitive
assets to rate-sensitive liabilities of between 75% and 125%. This percentage of
rate-sensitive assets to rate-sensitive liabilities presents a static position
as of a single day and is not necessarily indicative of Southwest's position at
any other point in time and does not take into account the sensitivity of yields
and costs of specific assets and liabilities to changes in market rates. The
foregoing analysis assumes that Southwest's mortgage-backed securities mature
during the period in which they are estimated to prepay. No other prepayment or
repricing assumptions have been applied to Southwest's interest-earning assets.
A principal objective of Southwest's asset/liability management effort
is to balance the various factors that generate interest rate risk, thereby
maintaining the interest rate sensitivity of Southwest within acceptable risk
levels. To measure its interest rate sensitivity position, Southwest utilizes a
simulation model that facilitates the forecasting of net interest income under a
variety of interest rate and growth scenarios. At December 31, 2000, the model
projected net income would decrease by 3.35% if interest rates would immediately
fall by 200 basis points. It projects an increase in net income of 5.70% if
interest rates would immediately rise by 200 basis points. The model projected
net income would decrease by 3.62% if interest rates would gradually fall by 200
basis points over a one-year time horizon. It projects an increase in net income
of 4.22% if interest rates would gradually rise by 200 basis points over a
one-year time horizon. The earnings simulation model uses numerous assumptions
regarding the effect of changes in interest rates on the timing and extent of
repricing characteristics, future cash flows and customer behavior. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net income. Actual results will differ from simulated results
due to timing, magnitude and frequency of interest rate changes and changes in
market conditions and management strategies, among other factors.
15
EFFECTS OF INFLATION
The consolidated financial statements and related consolidated
financial data presented herein have been prepared in accordance with generally
accepted accounting principles and practices within the banking industry that
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.
CHANGE IN AUDITORS
On August 28, 2000, Southwest dismissed Deloitte & Touche LLP, which
had previously served as independent accountants for Southwest. The reports of
Deloitte & Touche LLP on the consolidated financial statements of Southwest as
of and for the fiscal years ended December 31, 1999 and December 31, 1998,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles. The change in
independent accountants was recommended by Southwest's Audit Committee and
approved by Southwest's Board of Directors. In connection with its audit for the
fiscal years ended December 31, 1999 and 1998, and in the interim period from
January 1, 2000 through August 28, 2000, there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to make reference to such disagreements
in its report on the consolidated financial statements for such years.
On August 31, 2000, Southwest engaged Ernst & Young LLP as its new
independent accountants. The engagement of Ernst & Young LLP was recommended by
Southwest's Audit Committee and approved by Southwest's Board of Directors.
16
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SOUTHWEST BANCORP, INC.:
We have audited the accompanying consolidated statement of financial
condition of Southwest Bancorp, Inc. as of December 31, 2000, and the related
consolidated statements of operations, comprehensive income, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of Southwest's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
statement of financial condition of Southwest Bancorp, Inc. as of December 31,
1999, and the related consolidated statements of operations, comprehensive
income, shareholders' equity, and cash flows for each of the two years in the
period ended December 31, 1999, were audited by other auditors whose report
dated January 28, 2000, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southwest Bancorp, Inc. at December 31, 2000, and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Tulsa, Oklahoma
January 22, 2001
17
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999
--------------- --------------
Assets
Cash and cash equivalents $ 30,851 $ 26,340
Investment securities:
Held to maturity, fair value $64,615 (2000) and $71,087 (1999) 64,406 71,814
Available for sale, amortized cost $156,316 (2000) and $134,223 (1999) 156,947 131,379
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 8,439 8,489
Loans held for sale 7,888 21,282
Loans receivable, net of allowance for loan losses
of $12,125 (2000) and $11,190 (1999) 892,537 820,336
Accrued interest receivable 12,042 9,413
Premises and equipment, net 20,416 20,800
Other assets 10,040 10,567
--------------- --------------
Total assets $1,203,566 $1,120,420
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 119,732 $ 109,754
Interest-bearing demand 51,199 44,782
Money market accounts 103,001 101,302
Savings accounts 4,884 3,984
Time deposits of $100,000 or more 304,814 270,450
Other time deposits 361,472 340,963
--------------- --------------
Total deposits 945,102 871,235
Accrued interest payable 7,105 6,004
Other liabilities 2,609 2,094
Short-term borrowings 150,498 151,820
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
--------------- --------------
Total liabilities 1,130,327 1,056,166
--------------- --------------
Shareholders' equity:
Common stock - $1 par value; 20,000,000 shares authorized;
4,081,056 shares issued and outstanding 4,081 4,081
Capital surplus 14,788 14,855
Retained earnings 59,912 51,385
Accumulated other comprehensive gain (loss) 379 (1,708)
Treasury stock, at cost; 290,772 (2000) and 197,931 (1999) shares (5,921) (4,359)
--------------- --------------
Total shareholders' equity 73,239 64,254
--------------- --------------
Total liabilities & shareholders' equity $1,203,566 $1,120,420
=============== ==============
See notes to consolidated financial statements.
18
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
-------------- -------------- ---------------
Interest income:
Interest and fees on loans $83,480 $69,373 $69,020
Investment securities:
U.S. Government and agency obligations 6,767 7,036 8,873
Mortgage-backed securities 4,576 2,705 1,245
State and political subdivisions 1,499 868 582
Other securities 832 579 457
Federal funds sold 120 34 75
-------------- -------------- ---------------
Total interest income 97,274 80,595 80,252
Interest expense:
Interest-bearing demand 1,263 876 1,007
Money market accounts 4,690 3,611 3,356
Savings accounts 94 74 76
Time deposits of $100,000 or more 18,797 10,851 8,627
Other time deposits 20,408 18,661 23,987
Short-term borrowings 9,577 6,096 2,895
Long-term debt 2,326 2,326 2,326
-------------- -------------- ---------------
Total interest expense 57,155 42,495 42,274
-------------- -------------- ---------------
Net interest income 40,119 38,100 37,978
Provision for loan losses 3,550 2,495 3,380
Other income:
Service charges and fees 6,198 4,833 3,658
Other noninterest income 538 1,216 367
Gain on sales of loans receivable 1,871 2,025 2,652
Gain (loss) on sales of investment securities (118) 370 266
-------------- -------------- ---------------
Total other income 8,489 8,444 6,943
Other expenses:
Salaries and employee benefits 14,401 13,601 14,147
Occupancy 6,476 5,917 4,980
FDIC and other insurance 274 239 248
Other real estate 808 2,446 172
General and administrative 7,656 8,223 7,435
-------------- -------------- ---------------
Total other expenses 29,615 30,426 26,982
-------------- -------------- ---------------
Income before taxes 15,443 13,623 14,559
Taxes on income 5,238 4,757 5,181
-------------- -------------- ---------------
Net income $10,205 $ 8,866 $ 9,378
============== ============== ===============
Net income available to common shareholders $10,205 $ 8,866 $ 7,392
============== ============== ===============
Basic earnings per common share $2.67 $2.23 $1.95
============== ============== ===============
Diluted earnings per common share $2.64 $2.19 $1.89
============== ============== ===============
Cash dividends declared per share $0.44 $0.40 $0.36
============== ============== ===============
See notes to consolidated financial statements.
19
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
2000 1999 1998
-------------- --------------- --------------
Net income $10,205 $ 8,866 $ 9,378
Other comprehensive income (loss):
Unrealized holding gain (loss) on available for
sale securities 3,357 (3,330) 154
Reclassification adjustment for (gains) losses
arising during the period 118 (370) (266)
-------------- --------------- --------------
Other comprehensive income (loss), before tax 3,475 (3,700) (112)
Tax (expense) benefit related to items
of other comprehensive income (loss) (1,388) 1,479 45
-------------- --------------- --------------
Other comprehensive income (loss), net of tax 2,087 (2,221) (67)
-------------- --------------- --------------
Comprehensive income $12,292 $ 6,645 $ 9,311
============== =============== ==============
See notes to consolidated financial statements.
20
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED TOTAL
OTHER SHARE-
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED COMPREHENSIVE TREASURY HOLDERS'
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) STOCK EQUITY
-----------------------------------------------------------------------------------------------
Balance, January 1, 1998 690,000 $ 690 3,787,839 $ 3,788 $24,764 $38,226 $ 580 -- $68,048
Cash dividends:
Common, $0.36 per share -- -- -- -- -- (1,366) -- -- (1,366)
Preferred, $1.725 per share -- -- -- -- -- (1,190) -- -- (1,190)
Common stock issued:
Employee Stock Option Plan -- -- 5,000 5 68 -- -- -- 73
Employee Stock Purchase Plan -- -- 2,557 2 69 -- -- -- 71
Dividend Reinvestment Plan -- -- 3,669 4 100 -- -- -- 104
Preferred Stock Redeemed (690,000) (690) -- -- (15,632) (928) -- -- (17,250)
Other comprehensive income
(loss), net of tax -- -- -- -- -- -- (67) -- (67)
Net income -- -- -- -- -- 9,378 -- -- 9,378
-----------------------------------------------------------------------------------------------
Balance, December 31, 1998 -- -- 3,799,065 3,799 9,369 44,120 513 -- 57,801
Cash dividends:
Common, $0.40 per share -- -- -- -- -- (1,601) -- -- (1,601)
Common stock issued:
Employee Stock Option Plan -- -- 30,000 30 352 -- -- -- 382
Employee Stock Purchase Plan -- -- 1,269 1 29 -- -- $ 29 59
Dividend Reinvestment Plan -- -- 722 1 17 -- -- 18 36
Public Offering -- -- 250,000 250 5,101 -- -- -- 5,351
Other comprehensive income
(loss), net of tax -- -- -- -- -- -- (2,221) -- (2,221)
Treasury shares purchased -- -- -- -- (13) -- -- (4,406) (4,419)
Net income -- -- -- -- -- 8,866 -- -- 8,866
-----------------------------------------------------------------------------------------------
Balance, December 31, 1999 -- -- 4,081,056 4,081 14,855 51,385 (1,708) (4,359) 64,254
Cash dividends:
Common, $0.44 per share -- -- -- -- -- (1,678) -- -- (1,678)
Common stock issued:
Employee Stock Option Plan -- -- -- -- (35) -- -- 89 54
Employee Stock Purchase Plan -- -- -- -- (16) -- -- 62 46
Dividend Reinvestment Plan -- -- -- -- (16) -- -- 64 48
Other comprehensive income
(loss), net of tax -- -- -- -- -- -- 2,087 -- 2,087
Treasury shares purchased -- -- -- -- -- -- -- (1,777) (1,777)
Net income -- -- -- -- -- 10,205 -- -- 10,205
-----------------------------------------------------------------------------------------------
Balance, December 31, 2000 -- -- 4,081,056 $ 4,081 $14,788 $59,912 $ 379 $(5,921) $73,239
===============================================================================================
See notes to consolidated financial statements.
21
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
2000 1999 1998
------------- -------------- --------------
Operating activities:
Net income $10,205 $8,866 $9,378
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 3,550 2,495 3,380
Depreciation and amortization expense 2,493 2,284 1,883
Amortization of premiums and accretion of
discounts on securities, net (13) 278 171
Amortization of intangibles 182 273 293
(Gain) Loss on sales/calls of securities 118 (370) (266)
(Gain) Loss on sales of loans receivable (1,871) (2,025) (2,652)
(Gain) Loss on sales of premises/equipment 48 (851) 37
(Gain) Loss on other real estate owned, net 424 1,950 (34)
Proceeds from sales of residential mortgage loans 56,986 86,845 125,885
Residential mortgage loans originated for resale (59,370) (86,203) (124,307)
Changes in assets and liabilities:
Accrued interest receivable (2,629) (755) 225
Other assets (1,550) (1,205) (1,034)
Income taxes payable 365 (151) (370)
Accrued interest payable 1,101 420 (920)
Other liabilities 121 21 417
------------- -------------- --------------
Net cash (used in) provided from operating activities 10,160 11,872 12,086
------------- -------------- --------------
Investing activities:
Proceeds from sales of available for sale securities 3,998 283 14,097
Proceeds from principal repayments, calls and maturities:
Held to maturity securities 23,290 24,291 29,001
Available for sale securities 15,129 28,136 34,610
Proceeds from sales of Federal Home Loan Bank stock 146 -- --
Purchases of held to maturity securities (15,930) (21,141) (19,734)
Purchases of available for sale securities (41,274) (67,837) (44,635)
Purchases of Federal Reserve Bank and Federal Home Loan
Bank stock (96) (4,353) (286)
Loans originated and principal repayments, net (115,631) (99,106) (119,769)
Proceeds from sales of guaranteed student loans 54,440 39,265 41,503
Purchases of premises and equipment (2,247) (4,186) (7,680)
Proceeds from sales of premises and equipment 90 1,157 127
Proceeds from sales of other real estate owned 3,169 -- 619
------------- -------------- --------------
Net cash (used in) provided from investing activities (74,916) (103,491) (72,147)
------------- -------------- --------------
Financing activities:
Net increase (decrease) in deposits 73,867 28,518 1,636
Net increase (decrease) in short-term borrowings (1,322) 57,248 74,024
Net proceeds from issuance of common stock 148 5,768 248
Redemption of preferred stock -- -- (17,250)
Purchases of treasury stock (1,777) (4,359) --
Common stock dividends paid (1,649) (1,555) (1,327)
Preferred stock dividends paid -- -- (1,190)
------------- -------------- --------------
Net cash (used in) provided from financing activities 69,267 85,620 56,141
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 4,511 (5,999) (3,920)
Cash and cash equivalents,
Beginning of period 26,340 32,339 36,259
------------- -------------- --------------
End of period $30,851 $26,340 $32,339
============= ============== ==============
See notes to consolidated financial statements.
22
SOUTHWEST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS - Southwest Bancorp, Inc.
("Southwest") was incorporated in 1981 as a bank holding company headquartered
in Stillwater, Oklahoma engaged primarily in commercial and consumer banking
services in the State of Oklahoma. The accompanying consolidated financial
statements include the accounts of Stillwater National Bank and Trust Company
("Stillwater National"), a national bank established in 1894, and SBI Capital
Trust, a Delaware business trust established in 1997. Stillwater National and
SBI Capital Trust are wholly owned, direct subsidiaries of Southwest. All
significant intercompany balances and transactions have been eliminated.
MANAGEMENT ESTIMATES - In preparing its financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of the dates shown on the consolidated statements of
financial condition and revenues and expenses during the periods reported.
Actual results could differ significantly from those estimates. Changes in
economic conditions could impact the determination of material estimates such as
the allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from depository
institutions, and federal funds sold. Federal funds sold are sold for
one-to-four day periods.
INVESTMENT SECURITIES - Investments in debt and equity securities are
identified as held to maturity and available for sale based on management
considerations of asset/liability strategy, changes in interest rates and
prepayment risk, the need to increase capital and other factors. Southwest has
the ability and intent to hold to maturity its investment securities classified
as held to maturity. Southwest had no investments held for trading purposes for
any period presented. Under certain circumstances (including the deterioration
of the issuer's creditworthiness, a change in tax law, or statutory or
regulatory requirements), Southwest may change the investment security
classification. The classifications Southwest utilizes determines the related
accounting treatment for each category of investments. Available for sale
securities are accounted for at fair value with unrealized gains or losses, net
of taxes, excluded from operations and reported as accumulated other
comprehensive income. Held to maturity securities are accounted for at amortized
cost.
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of discounts are
recorded to operations over the contractual maturity or estimated life of the
individual investment on the level yield method. Gain or loss on sale of
investments is based upon the specific identification method. Income earned on
Southwest's investments in state and political subdivisions is not taxable.
Federal Reserve Bank ("FRB") and Federal Home Loan Bank ("FHLB") stock
are not readily marketable, therefore these investments are carried at cost
which approximates fair value.
LOANS RECEIVABLE - Interest on loans is accrued and credited to
operations based upon the principal amount outstanding. In general, accrued
interest income on impaired loans is written off after the loan is 90 days past
due; subsequent interest income is recorded when cash receipts are received from
the borrower. Stillwater National originates real estate mortgage loans and
government-guaranteed student loans for portfolio investment or sale in the
secondary market. During the period of origination, real estate mortgage loans
are designated as held either for investment purposes or sale. Mortgage loans
held for sale are generally sold within a one-month period from loan closing at
amounts approximating par value of the loans. Government-guaranteed student
loans are generally sold after Southwest has been notified of the borrower's
change from deferment status, which can range from one to five years, or longer.
Real estate mortgage loans held for sale and government-guaranteed student loans
are carried at cost, which does not exceed market. Gains or losses recognized
upon the sales of loans are determined on a specific identification basis.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
established through a provision for loan losses charged to operations. Loan
amounts which are determined to be uncollectible are charged against this
allowance, and recoveries, if any, are added to the allowance. A loan is
considered to be impaired when, based on current information and events, it is
probable that Southwest will be unable to collect all amounts due according to
23
the contractual terms of the loan agreement. The allowance for loan losses
related to loans that are identified for evaluation of impairment is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. Smaller
balance, homogeneous loans, including mortgage, student and consumer, are
collectively evaluated for impairment. This evaluation is inherently subjective
as it requires material estimates including the amounts and timing of future
cash flows expected to be received on impaired loans that may be susceptible to
significant change. All of Southwest's nonaccrual loans have been defined as
impaired loans.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
recorded on a straight-line basis over the estimated useful life of each asset,
which ranges from three to forty years. Southwest reviews the carrying value of
long-lived assets used in operations when changes in events or circumstances
indicate that the assets might have become impaired. This review initially
includes a comparison of carrying value to the undiscounted cash flows estimated
to be generated by those assets. If this review indicates that an asset is
impaired, Southwest records a charge to operations to reduce the asset's
carrying value to fair value, which is based on estimated discounted cash flows.
Long-lived assets that are held for disposal are valued at the lower of the
carrying amount or fair value less cost to sell.
OTHER REAL ESTATE OWNED - Other real estate owned is initially recorded
at the lesser of the fair value less the estimated costs to sell the asset or
the recorded amount of the related loan. Write-downs of carrying value required
at the time of foreclosure are recorded as a charge to the allowance for loan
losses. Costs related to the development of such real estate are capitalized
whereas costs related to holding the property are expensed. Foreclosed property
is subject to periodic revaluation based upon estimates of fair value. In
determining the valuation of other real estate owned, management obtains
independent appraisals for significant properties. Valuation adjustments are
provided, as necessary, by charges to operations.
Profit from sales of foreclosed property by Southwest is recognized in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 66, Accounting for Sales of Real Estate. Losses are recognized as
incurred.
INTANGIBLES - Intangibles consist of goodwill and mortgage servicing
rights and are included in other assets in the consolidated statements of
financial condition. Goodwill is amortized using the straight-line method over
15 years. Loan servicing rights are capitalized based on estimated fair market
value at the point of origination. The servicing rights are amortized on an
individual loan by loan basis over the period of estimated net servicing income.
Impairment of loan servicing rights is assessed based on the fair value of those
rights. The capitalized amounts and amortization of the loan servicing rights is
not material. Southwest reviews the carrying value of intangible assets annually
for impairment. Assets are considered impaired when the balances are not
recoverable from estimated future cash flows. At December 31, 2000 and 1999,
Stillwater National had recorded cumulative amortization of $2.0 million and
$1.8 million, respectively.
DEPOSITS - The total amount of time deposits with a minimum
denomination of $100,000 was approximately $304.8 million and $270.5 million at
December 31, 2000 and 1999, respectively. The total amount of overdrawn deposit
accounts that were reclassified as loans at December 31, 2000 and 1999 was $1.5
million and $574,000, respectively. Time deposit maturities are as follows:
$594.0 million in 2001, $45.5 million in 2002, $24.1 million in 2003, $2.3
million in 2004 and $366,000 thereafter.
LONG-TERM DEBT - The long-term debt consists of the Guaranteed
Preferred Beneficial Interests in Southwest's Subordinated Debentures purchased
from SBI Capital Trust.
LOAN SERVICING INCOME - Southwest earns fees for servicing real estate
mortgages owned by others. These fees are generally calculated on the
outstanding principal balance of the loans serviced and are recorded as income
when received.
TAXES ON INCOME - Southwest and its subsidiaries file consolidated
income tax returns. Deferred income taxes arise from temporary differences
between financial and tax bases of certain assets and liabilities. A valuation
allowance will be established if it is more likely than not that some portion of
the deferred tax asset will not be realized.
EARNINGS PER COMMON SHARE - Basic earnings per common share is computed
based upon net income, after deducting the dividend requirements of preferred
stock, divided by the weighted average number of common shares outstanding
during each period. Diluted earnings per common share is computed based upon net
income, after deducting the preferred stock dividend requirements, divided by
the weighted average number of common shares outstanding during each period
adjusted for the effect of dilutive potential common shares calculated using the
24
treasury stock method. For 1998, earnings available to common shareholders also
reflected an adjustment of $928,000 of original issue costs relating to the
redemption of Southwest's Series A Preferred Stock on September 1,
1998. For the years ended December 31, 2000, 1999, and 1998, Southwest had
270,000, 170,000, and zero antidilutive options to purchase common shares,
respectively. The following is a reconciliation of net income available to
common shareholders and the common shares used in the calculations of basic and
diluted earnings per common share:
2000 1999 1998
------------ ----------- ------------
(dollars in thousands)
Net income $10,205 $ 8,866 $ 9,378
Less: preferred stock dividend requirement -- -- (1,058)
Less: redemption price of preferred stock in
excess of the carrying amount -- -- (928)
------------ ----------- ------------
Net income available to common shareholders $10,205 $ 8,866 $ 7,392
============ =========== ============
Weighted average common shares outstanding:
Basic earnings per share 3,822,416 3,973,878 3,795,136
Effect of dilutive securities:
Stock options 39,485 80,790 119,009
------------ ----------- ------------
Weighted average common shares outstanding:
Diluted earnings per share 3,861,901 4,054,668 3,914,145
============ =========== ============
COMPREHENSIVE INCOME - During 1998, Southwest adopted the provisions of
SFAS No. 130, Reporting Comprehensive Income. This statement requires
presentation of comprehensive income (net income plus all other changes in
shareholders' equity from non-equity sources). The Company's comprehensive
income consists of its net income and unrealized holding gains (losses) in its
available for sale securities.
TRUST - Southwest offers trust services to customers through its
relationship with the Heritage Trust Company, a trust services company. Property
(other than cash on deposit) held by Stillwater National in a fiduciary or
agency capacity for its customers is not included in the consolidated statements
of financial condition as it is not an asset or liability of Stillwater
National.
LIQUIDITY - Stillwater National is required by the Federal Reserve Bank
to maintain average reserve balances. Cash and due from banks in the
consolidated statements of financial condition include restricted amounts of
zero and $61,000 at December 31, 2000 and 1999, respectively.
RECLASSIFICATIONS - Certain reclassifications have been made to the
prior year amounts to conform to the current year presentation.
25
2. INVESTMENT SECURITIES
A summary of the amortized cost and fair values of investment
securities follows:
At December 31, 2000
-----------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
(dollars in thousands)
Held to Maturity:
U.S. Government and agency obligations $ 28,198 $ 241 $ 6 $ 28,433
Obligations of state and political subdivisions 36,208 163 189 36,182
-------------- ------------- ------------- -------------
Total $ 64,406 $ 404 $ 195 $ 64,615
============== ============= ============= =============
Available for Sale:
U.S. Government and agency obligations $ 77,404 $ 795 $ 187 $ 78,012
Obligations of state and political subdivisions 4,787 38 7 4,818
Mortgage-backed securities 70,533 531 497 70,567
Equity securities 3,592 34 76 3,550
-------------- ------------- ------------- -------------
Total $156,316 $ 1,398 $ 767 $156,947
============== ============= ============= =============
At December 31, 1999
-----------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
(dollars in thousands)
Held to Maturity:
U.S. Government and agency obligations $ 45,349 $ 76 $ 317 $ 45,108
Obligations of state and political subdivisions 26,465 1 487 25,979
-------------- ------------- ------------- -------------
Total $ 71,814 $ 77 $ 804 $ 71,087
============== ============= ============= =============
Available for Sale:
U.S. Government and agency obligations $ 61,637 $ 37 $ 1,260 $ 60,414
Obligations of state and political subdivisions 4,794 -- 89 4,705
Mortgage-backed securities 65,760 83 1,641 64,202
Equity securities 2,032 28 2 2,058
-------------- ------------- ------------- -------------
Total $134,223 $ 148 $ 2,992 $131,379
============== ============= ============= =============
As required by law, investment securities are pledged to secure public
and trust deposits, as well as the Sweep Repurchase Agreement Product and
borrowings from the FHLB. Securities with an amortized cost of $203.4 million
and $188.5 million were pledged to meet such requirements of $105.8 million and
$80.6 million at December 31, 2000 and 1999, respectively. Any amount
overpledged can be released at any time.
26
A comparison of the amortized cost and approximate fair value of
Southwest's debt securities by maturity date at December 31, 2000 follows.
Mortgage-backed securities are included in the period in which they are
estimated to prepay.
Available for Sale Held to Maturity
-----------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------------------
(dollars in thousands)
One year or less $ 18,783 $ 18,734 $ 13,482 $ 13,490
Two years through five years 109,061 109,647 50,924 51,125
Five years through ten years 14,204 14,495 -- --
More than ten years 10,676 10,521 -- --
-------------- ------------- ------------- -------------
Total $152,724 $153,397 $ 64,406 $ 64,615
============== ============= ============= =============
Gross realized gains (losses) on sales of investment securities were
$(118,000), $370,000, and $266,000 during 2000, 1999, and 1998, respectively.
The gross proceeds from such sales of investment securities totaled
approximately $4.0 million, $283,000, and $14.1 million during 2000, 1999, and
1998, respectively. A portion of the gain on sales of investment securities
during 1999 and 1998 occurred when securities classified as "held to maturity"
and "available for sale", originally purchased at a discount, were called prior
to their stated maturity dates.
3. LOANS RECEIVABLE
Major classifications of loans are as follows:
At December 31,
----------------------------------
2000 1999
----------------------------------
(dollars in thousands)
Real estate mortgage:
Commercial $276,525 $263,216
One-to-four family residential 107,360 102,973
Real estate construction 103,951 85,511
Commercial 311,953 296,415
Installment and consumer:
Government-guaranteed student loans 77,846 69,873
Other 34,915 34,820
------------- -------------
912,550 852,808
Allowance for loan losses (12,125) (11,190)
------------- -------------
Loans receivable, net $900,425 $841,618
============= =============
Stillwater National extends commercial and consumer credit primarily to
customers in the State of Oklahoma, which subjects the loan portfolio to the
general economic conditions within this area. At December 31, 2000 and 1999,
substantially all of Stillwater National's loans are collateralized with real
estate, inventory, accounts receivable and/or other assets or guaranteed by
agencies of the United States Government.
Loans to individuals and businesses in the healthcare industry totaled
$127.9 million, or 14% of total loans. Stillwater National does not have any
other concentrations of loans to individuals or businesses involved in a single
industry of more than 5% of total loans. In the event of total nonperformance by
the borrowers, Stillwater National's accounting loss would be limited to the
recorded investment in the loans receivable reduced by proceeds received from
disposition of the related collateral.
27
Stillwater National had loans which were held for sale of $7.9 million
and $21.3 million at December 31, 2000 and 1999, respectively. These loans are
carried at cost, which does not exceed market. Government- guaranteed student
loans are generally sold to a single servicer. A substantial portion of the
one-to-four family residential loans and loan servicing rights are sold to five
servicers.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $3.1 million and $5.2 million at December 31,
2000 and 1999, respectively. If interest on those loans had been accrued, the
interest income as reported in the accompanying consolidated statements of
operations would have increased by approximately $155,000, $549,000, and
$682,000 for 2000, 1999, and 1998, respectively.
The unpaid principal balance of real estate mortgage loans serviced for
others totaled $94.5 million and $109.3 million at December 31, 2000 and 1999,
respectively. Stillwater National maintained escrow accounts totaling $379,000
and $512,000 for real estate mortgage loans serviced for others at December 31,
2000 and 1999, respectively.
The following table sets forth the remaining maturities for certain
loan categories at December 31, 2000. Student loans that do not have stated
maturities are treated as due in one year or less.
One year One to Over
or less five years five years Total
------------ ----------- ------------ ------------
(dollars in thousands)
Real estate mortgage:
Commercial $ 22,859 $ 40,448 $ 213,218 $ 276,525
One-to-four family residential 16,955 43,544 46,861 107,360
Real estate construction 70,396 12,317 21,238 103,951
Commercial 161,277 104,660 46,016 311,953
Installment and consumer:
Government-guaranteed student loans 77,846 -- -- 77,846
Other 15,243 17,913 1,759 34,915
------------ ----------- ------------ ------------
Total $ 364,576 $ 218,882 $ 329,092 $ 912,550
============ =========== ============ ============
The following table sets forth at December 31, 2000 the dollar amount
of all loans due more than one year after December 31, 2000.
Fixed Variable Total
----------- ------------ ------------
(dollars in thousands)
Real estate mortgage:
Commercial $ 33,342 $ 220,324 $ 253,666
One-to-four family residential 32,624 57,781 90,405
Real estate construction 4,394 29,161 33,555
Commercial 29,267 121,409 150,676
Installment and consumer:
Government-guaranteed student loans -- -- --
Other 16,298 3,374 19,672
----------- ------------ ------------
Total $ 115,925 $ 432,049 $ 547,974
=========== ============ ============
28
The allowance for loan losses is summarized as follows:
For the Years Ended December 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
(dollars in thousands)
Beginning balance $11,190 $10,401 $ 8,282
Provision for loan losses 3,550 2,495 3,380
Loans charged off (3,290) (2,348) (2,374)
Recoveries 675 642 1,113
------------ ----------- ------------
Total $12,125 $11,190 $10,401
============ =========== ============
As of December 31, 2000 and 1999, impaired loans totaled $3.2 million
and $7.3 million and had been allocated a related allowance for loan loss of
$847,000 and $1.6 million, respectively. The average balance of impaired loans
totaled $10.8 million and $5.9 million for the years ended December 31, 2000 and
1999. Interest income recognized on impaired loans totaled $142,000, $330,000,
and $203,000, respectively, for the years ended December 31, 2000, 1999, and
1998.
Directors and officers of Southwest and Stillwater National were
customers of, and had transactions with, Stillwater National in the ordinary
course of business, and similar transactions are expected in the future. All
loans included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of loss or present other unfavorable features. Certain officers, directors,
employees, and companies in which they have partial ownership had indebtedness
to Stillwater National totaling $1.1 million, $1.2 million and $1.4 million at
December 31, 2000, 1999 and 1998, respectively. During 2000, $6.7 million of new
loans were made to these persons and repayments totaled $7.0 million.
4. PREMISES AND EQUIPMENT
These consist of the following:
At December 31,
-------------------------------
2000 1999
-------------------------------
(dollars in thousands)
Land $4,558 $4,407
Buildings and improvements 10,981 9,864
Furniture, fixtures, and equipment 17,714 17,551
Construction/Remodeling in progress 277 675
------------ -------------
33,530 32,497
Accumulated depreciation and amortization (13,114) (11,697)
------------ -------------
Premises and equipment, net $ 20,416 $ 20,800
============ =============
29
5. OTHER BORROWED FUNDS
During 2000, the only categories of short-term borrowings whose
averages exceeded 30% of ending shareholders' equity were repurchase agreements
and funds borrowed from the FHLB.
At December 31,
-----------------------------------------------
2000 1999 1998
-----------------------------------------------
(dollars in thousands)
Amounts outstanding at end of period:
Treasury, tax and loan note option $ 1,944 $ 2,500 $ 601
Federal funds purchased and securities sold
under repurchase agreements 55,758 40,270 55,971
Borrowed from the Federal Home Loan Bank 92,574 109,050 38,000
Other short-term borrowings 222 -- --
Weighted average rate outstanding:
Treasury, tax and loan note option 5.72% 4.52% 4.11%
Federal funds purchased and securities sold
under repurchase agreements 5.72 5.08 4.65
Borrowed from the Federal Home Loan Bank 6.43 5.64 5.14
Other short-term borrowings 9.50 -- --
Maximum amounts of borrowings outstanding
at any month-end:
Treasury, tax and loan note option $ 2,500 $ 2,715 $ 2,500
Federal funds purchased and securities sold
under repurchase agreements 59,766 52,588 56,329
Borrowed from the Federal Home Loan Bank 127,850 124,150 38,000
Other short-term borrowings 222 -- --
Approximate average short-term borrowings
outstanding for the year:
Treasury, tax and loan note option $ 1,658 $ 1,568 $ 1,589
Federal funds purchased and securities sold
under repurchase agreements 51,718 41,087 33,965
Borrowed from the Federal Home Loan Bank 104,032 78,701 20,576
Other short-term borrowings 109 11 26
Approximate weighted average rate for the year:
Treasury, tax and loan note option 6.33% 4.85% 5.14%
Federal funds purchased and securities sold
under repurchase agreements 5.59 4.56 4.99
Borrowed from the Federal Home Loan Bank 6.32 5.27 5.43
Other short-term borrowings 9.00 4.50 5.62
Stillwater National has entered into an agreement with the FHLB to
obtain advances from the FHLB from time to time. The terms of the agreement are
set forth in the Advance, Pledge and Security Agreement (the "Agreement"). The
FHLB requires that Stillwater National pledge collateral on such advances. Under
the terms of the Agreement, the discounted value of the collateral, as defined
by the FHLB, should at all times be at least equal to the amount borrowed by
Stillwater National. Such advances outstanding are subject to a blanket
collateral arrangement which requires the pledging of eligible collateral to
secure such advances. Such collateral principally includes certain loans and
securities. At December 31, 2000 and 1999, loans pledged under the Agreement
were $355.2 million and $323.8 million and investment securities (at carrying
value) were $53.7 million and $58.9 million, respectively.
30
Southwest has available various forms of short-term borrowings for cash
management and liquidity purposes. These forms of borrowings include federal
funds purchases, 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"). Southwest has available a $5.0 million line of credit from F&M,
$222,500 of which was outstanding at December 31, 2000. Stillwater National also
carries interest-bearing demand notes issued by the U.S. Treasury in connection
with the Treasury Tax and Loan note program; the outstanding balance of those
notes was $1.9 million at December 31, 2000. Stillwater National has approved
federal funds purchase lines totaling $20.0 million with three other banks; no
amounts were outstanding on these lines at December 31, 2000. In addition,
Stillwater National has available a $35.0 million line of credit from the SLMA
and a $150.5 million line of credit from the FHLB. Borrowings under the SLMA
line would be secured by student loans. Borrowings under the FHLB line would be
secured by all unpledged securities and other loans. The SLMA line expires April
20, 2007; no amount was outstanding on this line at December 31, 2000. The FHLB
line of credit had an outstanding balance of $92.6 at December 31, 2000.
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,
PaineWebber, Inc., and CountryWide Securities that total $415.0 million. At
December 31, 2000, $148.3 million in 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 the U.S. Government or U.S. Government Agency
issues, which are designated as pledged with Stillwater National's safekeeping
agent. The type of collateral required, and the retention of the collateral and
the security sold minimize Stillwater National's risk of exposure to loss. These
transactions are for one-to-four day periods. At December 31, 2000, one
repurchase agreement for $8.8 million exceeded 10% of equity capital.
6. LONG-TERM DEBT
On June 4, 1997, SBI Capital Trust, a newly-formed subsidiary of
Southwest, issued 1,000,500 of its 9.30% Cumulative Trust Preferred Securities
(the "Trust Preferred") in an underwritten public offering for an aggregate
price of $25,012,500. Proceeds of the Trust Preferred were invested in the 9.30%
Subordinated Debentures (the "Subordinated Debentures") of Southwest. After
deducting underwriter's compensation and other expenses of the offering, the net
proceeds were available to Southwest to increase capital and for general
corporate purposes, including use in investment activities and Stillwater
National's lending activities, and the redemption, in whole, of Southwest's
9.20% Redeemable Cumulative Preferred Stock, Series A (the "Series A Preferred
Stock"). Interest payments on the Subordinated Debentures are deductible for
federal income tax purposes.
The Trust Preferred and the Subordinated Debentures each mature on July
31, 2027. If certain conditions are met, the maturity dates of the Trust
Preferred and the Subordinated Debentures may be shortened to a date not earlier
than July 31, 2002, or extended to a date not later than July 31, 2036. The
Trust Preferred and the Subordinated Debentures also may be redeemed prior to
maturity if certain events occur. The Trust Preferred is subject to mandatory
redemption, in whole or in part, upon repayment of the Subordinated Debentures
at maturity or their earlier redemption. Southwest also has the right, if
certain conditions are met, to defer payment of interest on the Subordinated
Debentures, which would result in a deferral of dividend payments on the Trust
Preferred, at any time or from time to time for a period not to exceed 20
consecutive quarters in a deferral period.
Southwest and SBI Capital Trust believe that, taken together, the
obligations of Southwest under the Trust Preferred Guarantee Agreement, the
Amended and Restated Trust Agreement, the Subordinated Debentures, the Indenture
and the Agreement As To Expenses and Liabilities, entered into in connection
with the offering of the Trust Preferred and the Subordinated Debentures, in the
aggregate constitute a full and unconditional guarantee by Southwest of the
obligations of SBI Capital Trust under the Trust Preferred.
SBI Capital Trust is a Delaware business trust created for the purpose
of issuing the Trust Preferred and purchasing the Subordinated Debentures, which
are its sole assets. Southwest owns all of the 30,960 outstanding common
securities, liquidation value $25 per share, (the "Common Securities") of SBI
Capital Trust.
The Trust Preferred meet the regulatory criteria for Tier I capital,
subject to Federal Reserve guidelines that limit the amount of the Trust
Preferred and cumulative perpetual preferred stock to an aggregate of 25% of
Tier I capital. At December 31, 2000, $24.3 million of the Trust Preferred was
included in Tier I Capital.
31
For accounting purposes, the Trust Preferred is presented on the
Consolidated Statements of Financial Condition as a separate category of
long-term debt entitled "Guaranteed Preferred Beneficial Interests in
Southwest's Subordinated Debentures."
7. INCOME TAXES
The components of taxes on income follow:
For the Years Ended December 31,
------------------------------------------
2000 1999 1998
------------------------------------------
(dollars in thousands)
Current tax expense:
Federal $3,776 $4,959 $5,437
State 542 711 726
Deferred tax expense (benefit):
Federal 786 (766) (849)
State 134 (147) (133)
----------- ---------- -----------
Taxes on income $5,238 $4,757 $5,181
=========== ========== ===========
The taxes on income reflected in the accompanying consolidated
statements of operations differs from the expected U.S. Federal income tax rates
for the following reasons:
For the Years Ended December 31,
------------------------------------------
2000 1999 1998
------------------------------------------
(dollars in thousands)
Computed tax expense at statutory rates $5,253 $4,768 $5,096
Increase (decrease) in income
taxes resulting from:
Benefit of income not subject to U.S. Federal
income tax (565) (403) (287)
State income taxes, net of Federal income
tax benefit 446 377 386
Other 104 15 (14)
----------- ---------- -----------
Taxes on income $5,238 $4,757 $5,181
=========== ========== ===========
Deferred tax expense (benefit) relating to temporary differences
includes the following components:
For the Years Ended December 31,
------------------------------------------
2000 1999 1998
------------------------------------------
(dollars in thousands)
Provision for loan losses $(318) $(305) $(897)
Accumulated depreciation 401 193 239
Intangibles 21 18 (4)
Write-downs on other real estate owned 649 (754) 17
Deferred compensation accrual 39 -- --
Other 128 (65) (337)
----------- ---------- -----------
Total $ 920 $(913) $(982)
=========== ========== ===========
32
Net deferred tax assets of $3.6 million and $5.9 million at December
31, 2000 and 1999, respectively, are reflected in the accompanying consolidated
statements of financial condition in other assets. There were no valuation
allowances at December 31, 2000 or 1999.
Temporary differences that give rise to the deferred tax assets
(liabilities) include the following:
At December 31,
--------------------------
2000 1999
--------------------------
(dollars in thousands)
Provision for loan losses $ 4,645 $ 4,327
Accumulated depreciation (1,643) (1,242)
Intangibles 143 164
Write-downs on other real estate owned 118 767
Deferred compensation accrual 221 260
Other 373 501
---------- -----------
3,857 4,777
Deferred taxes (payable) receivable on
investment securities available for sale (250) 1,138
---------- -----------
Net deferred tax asset $ 3,607 $ 5,915
========== ===========
8. SHAREHOLDERS' EQUITY
On March 19, 1999, Southwest completed a public offering of common
stock. The offering included 811,231 shares sold by the Estate of Paul C. Wise
and Dr. James B. Wise and 250,000 newly issued shares sold by Southwest.
Southwest received proceeds of $5.4 million, after offering expenses and
underwriting discount. The net proceeds were invested in Stillwater National,
where the funds were used for general corporate purposes and lending and
investment activities. Southwest recorded $303,000 in offering expenses paid on
behalf of the selling shareholders.
In April 1999, Southwest's Board of Directors (the "Board") authorized
the repurchase of up to 5%, or 204,000 shares, of its outstanding common stock,
par value $1.00 per share, in connection with shares expected to be issued under
Southwest's dividend reinvestment, stock option, and employee benefit plans and
for other corporate purposes. In December 1999, Southwest had completed the
repurchase of shares under the program and the Board authorized the repurchase
of up to an additional 5%, or approximately 195,000 shares. The additional
repurchases will also be made in connection with shares expected to be issued
under Southwest's dividend reinvestment, stock option, and employee benefit
plans and for other corporate purposes. The share repurchases are expected to be
made primarily on the open market from time to time until April 30, 2001, or
earlier termination of the repurchase program by the Board. Repurchases under
the program will be made at the discretion of management based upon market,
business, legal, accounting and other factors.
On April 22, 1999, Southwest adopted a Rights Plan designed to protect
its shareholders against acquisitions that the Board 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 $110.00.
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.
Southwest has reserved for issuance 200,000 shares of common stock
pursuant to the terms of the Dividend Reinvestment and Employee Stock Purchase
Plans. The Dividend Reinvestment Plan allows shareholders of record a convenient
and economical method of increasing their equity ownership of Southwest. The
Employee Stock
33
Purchase Plan allows Company employees to acquire additional common shares
through payroll deductions. Since July 1999, shares issued out of these plans
have come from treasury shares. At December 31, 2000, 26,828 new shares had been
issued and 7,728 treasury shares had been reissued by these plans.
9. CAPITAL REQUIREMENTS
Southwest and Stillwater National are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on Southwest's and Stillwater National's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, Southwest and Stillwater National must meet specific
capital guidelines that involve quantitative measures of Southwest's and
Stillwater National's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. Southwest's and Stillwater
National's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Southwest and Stillwater National to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2000 and 1999, that Southwest and Stillwater National met all capital adequacy
requirements to which they are subject.
As of December 31, 2000 and 1999, the most recent notification from the
Office of the Comptroller of the Currency ("OCC") categorized Stillwater
National as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, Stillwater National
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed Stillwater National's
category.
Southwest's and Stillwater National's actual capital amounts and ratios
are presented below.
To Be Well Capitalized
Under Prompt Corrective For Capital
Actual Action Provisions Adequacy Purposes
-----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------
(dollars in thousands)
AS OF DECEMBER 31, 2000:
Total Capital (to risk-weighted assets)
Southwest $109,317 11.68% N/A N/A $ 74,847 8.00%
Stillwater National 105,961 11.35 $ 93,394 10.00% 74,715 8.00
Tier I Capital (to risk-weighted assets)
Southwest 96,910 10.36 N/A N/A 37,424 4.00
Stillwater National 94,281 10.09 56,036 6.00 37,358 4.00
Tier I Leverage (to average assets)
Southwest 96,910 8.08 N/A N/A 47,968 4.00
Stillwater National 94,281 7.88 59,836 5.00 47,869 4.00
AS OF DECEMBER 31, 1999:
Total Capital (to risk-weighted assets)
Southwest $101,899 11.34% N/A N/A $ 71,877 8.00%
Stillwater National 100,031 11.14 $ 89,807 10.00% 71,846 8.00
Tier I Capital (to risk-weighted assets)
Southwest 87,671 9.76 N/A N/A 35,939 4.00
Stillwater National 88,828 9.89 53,884 6.00 35,923 4.00
Tier I Leverage (to average assets)
Southwest 87,671 8.06 N/A N/A 43,504 4.00
Stillwater National 88,828 8.18 54,269 5.00 43,415 4.00
34
The approval of the Comptroller of the Currency is required if the
total of all dividends declared by Stillwater National in any calendar year
exceeds the total of its net profits of that year combined with its retained net
profits of the preceding two years. In addition, Stillwater National may not pay
a dividend if, after paying the dividend, Stillwater National would be under
capitalized. Stillwater National's maximum amount of dividends available for
payment totaled approximately $17.0 million at December 31, 2000. Dividends
declared by Stillwater National for the years ended December 31, 2000, 1999, and
1998 did not exceed the threshold requiring regulatory approval.
10. STOCK OPTION PLAN
The Southwest Bancorp, Inc. 1994 Stock Option Plan and 1999 Stock
Option Plan (the "Stock Plans") provide selected key employees with the
opportunity to acquire common stock. The exercise price of all options granted
under the Stock Plans is the fair market value on the grant date. Depending upon
terms of the stock option agreements, stock options generally become exercisable
on either a quarterly or annual basis and expire either 30 days after becoming
exercisable or from five to ten years after the date of grant. Southwest applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for the Stock Plans; accordingly, no compensation expense has been
recorded in the accompanying consolidated statements of operations. Had
compensation cost for the Stock Plans been determined based upon the fair value
of the options at their grant date as prescribed in SFAS No. 123, Accounting for
Stock-Based Compensation, Southwest's proforma data would have been as follows:
For the Years Ended December 31,
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
Proforma net income $9,706,991 $8,437,924 $9,168,804
Proforma net income available to common shareholders $9,706,991 $8,437,924 $6,653,804
Basic earnings per common share $2.54 $2.12 $1.75
Diluted earnings per common share $2.51 $2.08 $1.70
Weighted average fair value at grant date $7.56 $8.13 $7.52
Because SFAS No. 123 is applicable only to options granted subsequent
to December 31, 1994, its proforma effect is not necessarily indicative of its
impact on future years.
The compensation cost is calculated using the Black-Scholes option
pricing model with the following weighted average assumptions:
For the Years Ended December 31,
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
Expected dividend yield 1.77% 1.56% 1.50%
Expected volatility 26.87% 26.65% 24.75%
Risk-free interest rate 6.20% 6.42% 6.54%
Expected option term (in years) 9.69 10.00 10.00
35
The Stock Plan's activity follows:
Weighted
Number of Average
Options Exercise Price
----------------------------------
Outstanding at January 1, 1998 260,500 $14.90
Granted 100,000 26.12
Exercised (5,000) 14.55
Canceled/expired (3,000) 13.38
----------------------------------
Outstanding at December 31, 1998 352,500 18.10
Granted 158,000 22.79
Exercised (30,000) 12.75
Canceled/expired (26,000) 25.34
----------------------------------
Outstanding at December 31, 1999 454,500 19.67
Granted 112,000 15.98
Exercised (4,000) 13.38
Canceled/expired (52,900) 22.40
----------------------------------
Outstanding at December 31, 2000 509,600 $18.63
==================================
Total exercisable at December 31, 1998 152,000 $14.39
Total exercisable at December 31, 1999 174,200 $15.91
Total exercisable at December 31, 2000 214,964 $16.54
At December 31, 2000, Southwest had reserved 795,522 shares under the
Stock Plans, and had 509,600 shares under option. The following summarizes the
information concerning options outstanding and exercisable at December 31, 2000.
Number of Range of Weighted Average Weighted Exercisable
Options Exercise Remaining Average Number Weighted Average
Outstanding Prices Contractual Life Exercise Price Exercisable Exercise Price
- ----------------------------------------------------------------------------------------------------------------
165,500 $12.75 - $13.38 2.7 $12.80 129,500 $12.79
102,500 $15.63 - $16.81 7.9 $15.82 20,164 $15.80
112,600 $19.25 - $21.81 7.7 $21.20 24,300 $21.10
129,000 $24.75 - $27.22 7.5 $26.08 41,000 $26.08
11. EMPLOYEE BENEFITS
Southwest sponsors a noncontributory, defined contribution profit
sharing plan intended to provide retirement benefits for employees of Southwest.
The plan covers all employees who have completed one year of service and have
attained the age of 21. The plan is subject to the Employee Retirement Income
Security Act of 1974, as amended. Company contributions are made at the
discretion of the Board of Directors; however, the annual contribution may not
exceed 15% of the total annual compensation of all participants. Southwest made
contributions of $990,000, $650,000, and $1.2 million in 2000, 1999, and 1998,
respectively.
36
12. OPERATING LEASES
Southwest leases certain equipment and facilities for its operations.
Future minimum annual rental payments required under operating leases, net of
sublease agreements, that have initial or remaining lease terms in excess of one
year as of December 31, 1999 follow:
2001 $859,995
2002 547,170
2003 148,356
2004 32,339
Thereafter None
The total rental expense was $1.1 million, $1.2 million, and $1.2
million in 2000, 1999, and 1998, respectively.
13. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by Southwest using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts Southwest could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - The fair value of U.S. Government and agency
obligations, other securities and mortgage-backed securities is estimated based
on quoted market prices or dealer quotes. The fair value for other investments
such as obligations of state and political subdivisions is estimated based on
quoted market prices.
LOANS RECEIVABLE - Fair values are estimated for certain homogeneous
categories of loans adjusted for differences in loan characteristics. Stillwater
National's loans have been aggregated by categories consisting of commercial,
real estate, student, and other consumer. The fair value of loans is estimated
by discounting the cash flows using credit and interest rate risks inherent in
the loan category and interest rates currently offered for loans with similar
terms and credit risks.
ACCRUED INTEREST RECEIVABLE - The carrying amount is a reasonable
estimate of fair value for accrued interest receivable.
DEPOSITS - The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the statement
of financial condition date. The fair value of fixed maturity certificates of
deposits is estimated using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS - The fair values of short-term borrowings are
the amounts payable at the statement of financial condition date, as the
carrying amount is a reasonable estimate of fair value. Included in short-term
borrowings are federal funds purchased, securities sold under agreements to
repurchase, and treasury tax and loan demand notes.
LONG-TERM DEBT - The fair value of long-term debt, which consists of
the Subordinated Debentures, is estimated based on quoted market prices or
dealer quotes.
OTHER LIABILITIES AND ACCRUED INTEREST PAYABLE - The estimated fair
value of other liabilities, which primarily include trade accounts payable, and
accrued interest payable approximates their carrying value.
COMMITMENTS - Commitments to extend credit, standby letters of credit
and financial guarantees written or other items have short maturities and
therefore have no significant fair values.
37
The carrying values and estimated fair values of Southwest's financial
instruments follow:
At December 31, 2000 At December 31, 1999
-------------------------------- --------------------------------
Carrying Fair Carrying Fair
Values Values Values Values
--------------------------------------------------------------------
(dollars in thousands)
Cash and cash equivalents $ 30,851 $ 30,851 $ 26,340 $ 26,340
Investment securities:
Held to maturity 64,406 64,615 71,814 71,087
Available for sale 156,947 156,947 131,379 131,379
FRB and FHLB stock 8,439 8,439 8,489 8,489
Loans receivable 900,425 908,735 841,618 855,460
Accrued interest receivable 12,042 12,042 9,413 9,413
Deposits 945,102 948,802 871,235 870,151
Accrued interest payable 7,105 7,105 6,004 6,004
Other liabilities 2,609 2,609 2,094 2,094
Short-term borrowings 150,498 150,498 151,820 151,820
Long-term debt 25,013 23,637 25,013 24,892
Commitments -- -- -- --
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, Stillwater National makes use of a
number of different financial instruments to help meet the financial needs of
its customers. In accordance with generally accepted accounting principles,
these transactions are not presented in the accompanying consolidated financial
statements and are referred to as off-balance sheet instruments. These
transactions and activities include commitments to extend lines of commercial
and real estate mortgage credit, standby and commercial letters of credit and
available credit card lines of credit.
The following table provides a summary of Stillwater National's
off-balance sheet financial instruments:
At December 31,
-------------------------------
2000 1999
-------------------------------
(dollars in thousands)
Commitments to extend commercial and real estate mortgage credit $182,900 $255,175
Standby and commercial letters of credit 6,537 3,041
Credit card lines of credit 423,194 304,772
------------- -------------
Total $612,631 $562,988
============= =============
A loan commitment is a binding contract to lend up to a maximum amount
for a specified period of time provided there is no violation of any financial,
economic or other terms of the contract. A standby letter of credit obligates
Stillwater National to honor a financial commitment by issuing a guarantee to a
third party should Stillwater National's customer fail to perform. Many loan
commitments and most standby letters of credit expire unfunded, and, therefore,
total commitments do not represent future funding obligations of Stillwater
National. Loan commitments and letters of credit are made under normal credit
terms, including interest rates and collateral prevailing at the time, and
usually require the payment of a fee by the customer. Commercial letters of
credit are commitments generally issued to finance the movement of goods between
buyers and sellers. Stillwater National's exposure to credit loss, assuming
commitments are funded, in the event of nonperformance by the other party to the
financial instrument is represented by the contractual amount of those
instruments. Stillwater National had an agreement with other financial
institutions to purchase $423.2 million and $304.8 million of unadvanced credit
card lines of credit at December 31, 2000 and 1999, respectively, if such credit
card lines of credit are funded. Such
38
commitments are made with the same terms as similarly funded extensions of
credit including collateral, rates and maturities. Stillwater National does not
anticipate any material losses as a result of the commitments.
15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Southwest is at all times subject to
various pending and threatened legal actions. The relief or damages sought in
some of these actions may be substantial. After reviewing pending and threatened
actions with counsel, management considers that the outcome of such actions will
not have a material adverse effect on Southwest's financial position; however,
Southwest is not able to predict whether the outcome of such actions may or may
not have a material adverse effect on results of operations in a particular
future period as the timing and amount of any resolution of such actions and
relationship to the future results of operations are not known.
At periodic intervals, the Federal Reserve Bank and the Office of the
Comptroller of the Currency routinely examine Southwest's and Stillwater
National's financial statements as part of their legally prescribed oversight of
the banking industry. Based on these examinations, the regulators can direct
that Southwest's and Stillwater National's financial statements be adjusted in
accordance with their findings.
Stillwater National has adopted a Severance Compensation Plan (the
"Plan") for the benefit of certain officers and key members of management. The
Plan's purpose is to protect and retain certain qualified employees in the event
of a change in control (as defined) and to reward those qualified employees for
loyal service to Stillwater National by providing severance compensation to them
upon their involuntary termination of employment after a change in control of
Stillwater National. At December 31, 2000, Stillwater National has not recorded
any amounts in the consolidated financial statements relating to the Plan. If a
change of control were to occur, the maximum amount payable to certain officers
and key members of management would approximate $984,000.
16. SUPPLEMENTAL CASH FLOWS INFORMATION
For the years ended December 31,
-----------------------------------------------------
2000 1999 1998
-----------------------------------------------------
(dollars in thousands)
Cash paid for interest $56,054 $42,075 $43,194
Cash paid for taxes on income 3,722 5,431 5,664
Loans transferred to other real estate owned 3,089 29 3,873
17. ACCOUNTING STANDARD ISSUED BUT NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS No. 133 requires that Southwest measure all derivatives
at fair value and to recognize them in the statement of financial condition as
an asset or liability, depending on Southwest's rights or obligations under the
applicable derivative contract. In June 1999, the FASB issued SFAS No. 137,
which deferred the effective date of adoption of SFAS No. 133 for one year. SFAS
N0. 133 was also amended by SFAS No. 138 in June 2000. Southwest will adopt SFAS
No. 133, as amended, on January 1, 2001, as required. Management of Southwest
believes that adoption of the new method of accounting for derivatives and
hedging activities will not have a material impact on Southwest's consolidated
financial condition or results of operations.
39
18. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Following are the condensed financial statements of Southwest Bancorp,
Inc. ("Parent Company only") for the periods indicated:
At December 31,
---------------------------------
2000 1999
---------------------------------
STATEMENTS OF FINANCIAL CONDITION (dollars in thousands)
<C
Assets:
Cash and due from banks $ 1,747 $ 170
Investment in subsidiary bank 94,935 87,403
Investment securities, available for sale 906 904
Other assets 1,721 1,576
--------------- ---------------
Total $99,309 $90,053
=============== ===============
Liabilities:
Subordinated debentures $25,013 $25,013
Other liabilities 1,057 786
Shareholders' Equity:
Common 73,239 64,254
--------------- ---------------
Total $99,309 $90,053
=============== ===============
For the Years Ended December 31,
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
STATEMENTS OF OPERATIONS (dollars in thousands)
Income:
Cash dividends from subsidiary bank $ 6,450 $ 6,989 $ 2,933
Investment income 55 53 636
Security gains/(losses) (107) -- 129
--------------- --------------- ---------------
Total income 6,398 7,042 3,698
Expense:
Interest on subordinated debentures 2,326 2,326 2,326
Other expense 350 632 378
--------------- --------------- ---------------
Total expense 2,676 2,958 2,704
--------------- --------------- ---------------
Total income before taxes and equity in
undistributed income of subsidiary bank 3,722 4,084 994
Taxes on income (1,031) (1,098) (752)
--------------- --------------- ---------------
Income before equity in undistributed
income of subsidiary bank 4,753 5,182 1,746
Equity in undistributed income of subsidiary bank 5,452 3,684 7,632
--------------- --------------- ---------------
Net income $10,205 $ 8,866 $ 9,378
=============== =============== ===============
Net income available to common shareholders $10,205 $ 8,866 $ 7,392
=============== =============== ===============
40
For the Years Ended December 31,
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
(dollars in thousands)
STATEMENTS OF CASH FLOWS
Operating activities:
Net income $10,205 $ 8,866 $ 9,378
Equity in undistributed income of subsidiary bank (5,452) (3,684) (7,632)
Other, net (23) (42) 149
--------------- --------------- ---------------
Net cash provided by operating activities 4,730 5,140 1,895
--------------- --------------- ---------------
Investing activities:
Available for sale securities:
Purchases (623) (400) (504)
Sales 25 -- 13,963
Maturities 500 400 835
--------------- --------------- ---------------
Net cash provided by (used in) investing activities (98) -- 14,294
--------------- --------------- ---------------
Financing activities:
Proceeds from issuance of:
Common stock -- 5,768 248
Subordinated debentures -- -- --
Net increase in short-term borrowings 223 -- --
Redemption of preferred stock -- -- (17,250)
Purchases of treasury stock, net (1,629) (4,359) --
Capital contribution to Bank -- (5,000) --
Cash dividends paid:
Preferred stock -- -- (1,190)
Common stock (1,649) (1,555) (1,327)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities (3,055) (5,146) (19,519)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,577 (6) (3,330)
Cash and cash equivalents,
Beginning of year 170 176 3,506
--------------- --------------- ---------------
End of year $ 1,747 $ 170 $ 176
=============== =============== ===============
***********
41
REPORT OF MANAGEMENT
January 22, 2001
To the Shareholders of Southwest Bancorp, Inc.:
FINANCIAL STATEMENTS
Southwest Bancorp, Inc. is responsible for the preparation, integrity,
and fair presentation of its published financial statements as of December 31,
2000, and for the year then ended. The consolidated financial statements of
Southwest Bancorp, Inc. have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts that are based upon informed
judgments and estimates of management.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining effective
internal control over financial reporting, presented in conformity with
generally accepted accounting principles and the instructions to the
Consolidated Financial Statements for Bank Holding Companies with Total
Consolidated Assets of $150 million or More, or with More Than One Subsidiary
Bank (Form FR Y-9C) (FR Y-9C instructions). The internal control system contains
monitoring mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any internal
control system, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even effective internal control systems
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of
internal control systems may vary over time.
Management assessed Southwest Bancorp, Inc.'s internal control over
financial reporting, presented in conformity with generally accepted accounting
principles and FR Y-9C instructions as of December 31, 2000. This assessment was
based on criteria for effective internal control over financial reporting
described in "Internal Control - Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that Southwest Bancorp, Inc. maintained
effective internal control over financial reporting, presented in conformity
with generally accepted accounting principles and FR Y-9C instructions as of
December 31, 2000.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for compliance with the federal and
state laws and regulations concerning dividend restrictions and federal laws and
regulations concerning loans to insiders, designated by the Federal Deposit
Insurance Corporation as safety and soundness laws and regulations.
Management has assessed compliance by Southwest Bancorp, Inc.
subsidiary Stillwater National Bank with the designated laws and regulations
relating to safety and soundness. Based on this assessment, management believes
that the subsidiary insured depository institution complied, in all significant
respects, with the designated laws and regulations related to safety and
soundness for the year ended December 31, 2000.
/s/Rick Green /s/Kerby Crowell
Rick Green Kerby E. Crowell
President and Chief Executive Officer Executive Vice President and Chief
Financial Officer
42
BOARD OF DIRECTORS OF SOUTHWEST BANCORP, INC. AND STILLWATER NATIONAL BANK &
TRUST COMPANY
Robert B. Rodgers
Chairman of the Board
President, Bob Rodgers Ford-Lincoln-Mercury
Rick Green
President and Chief Executive Officer, Vice Chairman of the Board
James E. Berry II
President, Shading Concepts, Drapery Manufacturing/Sales
Tom D. Berry
Investments
Joe Berry Cannon
Professor of Management, Oral Roberts University School of Business
J. Berry Harrison
Rancher
Erd M. Johnson
Petroleum Engineer & Operating Partner, Johnson Oil Partnership
Betty Kerns
Owner, Betty Kerns & Associates, Government Relations Consulting
David P. Lambert
President, Lambert Construction Company
Al Litchenburg
Senior Vice President, American Fidelity Assurance Co.
Linford R. Pitts
President, Stillwater Transfer & Storage Co.
Russell W. Teubner
Founder and Director, Esker S.A., Software
Stanley R. White
Chief Lending Officer, Stillwater National Bank & Trust Co.
OFFICERS OF SOUTHWEST BANCORP, INC.
Rick Green
President and Chief Executive Officer
Kerby E. Crowell, CPA
Executive Vice President and Chief Financial Officer
Kay W. Smith
Vice President and Comptroller
Deborah T. Bradley
Secretary
SENIOR MANAGEMENT OF STILLWATER NATIONAL BANK & TRUST COMPANY
Rick Green
President and Chief Executive Officer
Kerby E. Crowell, CPA
Executive Vice President and Chief Financial Officer
Jerry Lanier
Executive Vice President, Credit Administration
Kimberly G. Sinclair
Executive Vice President and Chief Administrative Officer
Chuck Westerheide
Executive Vice President and Treasurer
Stanley R. White
Executive Vice President and Chief Lending Officer
Mark A. Poole
President, Tulsa Division
Joseph P. Root
President, Central Oklahoma Division
Connie Saldivar
Senior Vice President Retail Sales
CORPORATE INFORMATION
INDEPENDENT AUDITORS
Ernst & Young LLP
3900 One Williams Center
Tulsa, OK 74172
SPECIAL COUNSEL
Kennedy, Baris & Lundy, L.L.P.
4701 Sangamore Road
Suite P-15
Bethesda, MD 20816
GENERAL COUNSEL
Hert & Baker
222 E. 7th Avenue
Stillwater, OK 74074
TRANSFER AGENTS AND REGISTRARS
Common Stock:
Computershare Investor Services, LLC
2 North LaSalle St.
Chicago, IL 60602
Trust Preferred Securities:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
ANNUAL MEETING
The 2001 Annual Meeting of Shareholders will be held on April 26, 2001 at 11:00
a.m. in the Auditorium (Room 215) at the Stillwater Public Library, 1 107 S.
Duck, Stillwater, Oklahoma.
ANNUAL REPORT ON FORM 10-K:
Copies of Southwest's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, as filed with the Securities and Exchange Commission, may be
obtained by shareholders as of the record date for the Annual Meeting at no
charge by writing to Kerby E. Crowell, Chief Financial Officer, Southwest
Bancorp, Inc., P.O. Box 1988, Stillwater, Oklahoma 74076.
43
CORPORATE INFORMATION
SOUTHWEST BANCORP, INC.
CORPORATE HEADQUARTERS
P.O. Box 1988
608 S. Main Street
Stillwater, Oklahoma 74076
405-372-2230
STILLWATER NATIONAL BANK & TRUST COMPANY LOCATIONS
CORPORATE HEADQUARTERS DRIVE-IN & MORTGAGE LENDING OKC BRANCH
P.O. Box 1988 P.O. Box 1988 6305 Waterford Blvd.,
608 S. Main Street 308 S. Main St. Suite 205
Stillwater, Oklahoma 74076 Stillwater, Oklahoma 74076 Oklahoma City,
405-372-2230 405-372-2230 Oklahoma 73118
405-427-4000
CHICKASHA BRANCH TULSA UTICA BRANCH TULSA 61ST BRANCH
500 W. Grand Avenue P.O. Box 521500 P.O. Box 521500
Chickasha, Oklahoma 73018 1500 S. Utica Ave. 2431 E. 61st, Suite 170
405-427-4800 Tulsa, Oklahoma 74152 Tulsa, Oklahoma 74152
918-523-3900 918-523-3600
OPERATIONS CENTER OSU-TULSA LOAN OFFICE OUHSC LOAN OFFICE
P.O. Box 1988 North Hall 1106 N. Stonewall
1624 Cimarron Plaza 700 N. Greenwood Ave. Oklahoma City,
Stillwater, Oklahoma 74076 Tulsa, Oklahoma 74106 Oklahoma 73190
918-594-8581 405-271-3113
OSU-STILLWATER MARKETING OFFICE AAA OKLAHOMA MARKETING OFFICES WEBSITE ADDRESS
P.O. Box 1988 3625 N.W. 39th www.banksnb.com
Student Union, Room 179 Oklahoma City, Oklahoma 73112
Stillwater, Oklahoma 74076 405-917-2391
405-744-5961
2121 E. 15th
Tulsa, Oklahoma 74104
918-283-2568
STOCK INFORMATION
NASDAQ National Market Symbols:
Common Stock - OKSB Trust Preferred Securities - OKSBO
Number of common shareholders of record at December 31, 2000: 2,000
The following table sets forth the common stock dividends paid for each quarter
during 2000 and 1999 and the range of high and low closing trade prices for the
common stock for those periods.
2000 1999
----------------------------------------------------------------------------------
Dividend Dividend
High Low Declared High Low Declared
--------------------------------------- ---------------------------------------
For the Quarter Ending:
March 31 $21.000 $17.000 $0.11 $27.000 $23.630 $0.10
June 30 18.500 14.375 0.11 23.625 20.125 0.10
September 30 16.750 14.813 0.11 24.625 20.875 0.10
December 31 16.625 13.313 0.11 23.250 19.500 0.10
44