SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
March 31, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-23064
SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1136584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
608 South Main Street 74074
Stillwater, Oklahoma (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (405) 372-2230
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
[ x ] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
3,799,356
1
SOUTHWEST BANCORP, INC.
INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Financial Condition at
March 31, 2001 and December 31, 2000 3
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000 4
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 5
Unaudited Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 2001 and 2000 6
Unaudited Consolidated Statements of Comprehensive Income for the
three months ended March 31, 2001 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Average Balances, Yields and Rates 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 16
PART II. OTHER INFORMATION 17
SIGNATURES 18
2
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
MARCH 31, DECEMBER 31,
2001 2000
--------- -----------
Assets
Cash and cash equivalents $ 25,490 $ 30,851
Investment securities:
Held to maturity, fair value $62,306 (2001) and $64,615 (2000) 61,391 64,406
Available for sale, amortized cost $163,156 (2001) and $156,316 (2000) 165,423 156,947
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 8,328 8,439
Loans held for sale 12,766 7,888
Loans receivable, net of allowance for loan losses
of $12,167 (2001) and $12,125 (2000) 906,628 892,537
Accrued interest receivable 12,096 12,042
Premises and equipment, net 20,114 20,416
Other assets 8,543 10,040
----------- -----------
Total assets $ 1,220,779 $ 1,203,566
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 115,491 $ 119,732
Interest-bearing demand 47,618 51,199
Money market accounts 128,639 103,001
Savings accounts 5,519 4,884
Time deposits of $100,000 or more 298,379 304,814
Other time deposits 353,377 361,472
----------- -----------
Total deposits 949,023 945,102
----------- -----------
Accrued interest payable 6,527 7,105
Other liabilities 3,754 2,609
Short-term borrowings 159,979 150,498
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
----------- -----------
Total liabilities 1,144,296 1,130,327
----------- -----------
Shareholders' equity:
Common stock - $1 par value; 20,000,000 shares authorized;
4,081,056 shares issued 4,081 4,081
Capital surplus 14,765 14,788
Retained earnings 62,086 59,912
Accumulated other comprehensive income (loss) 1,364 379
Treasury stock, at cost; 286,103 (2001) and 290,772 (2000) shares (5,813) (5,921)
----------- -----------
Total shareholders' equity 76,483 73,239
----------- -----------
Total liabilities & shareholders' equity $ 1,220,779 $ 1,203,566
=========== ===========
See notes to unaudited consolidated financial statements.
3
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except earnings per share data)
FOR THE THREE MONTHS
ENDED MARCH 31,
2001 2000
-------- --------
Interest income:
Interest and fees on loans $ 21,128 $ 19,568
Investment securities:
U.S. Government and agency obligations 1,677 1,668
Mortgage-backed securities 1,199 1,060
State and political subdivisions 433 327
Other securities 190 183
Other interest-earning assets 9 45
-------- --------
Total interest income 24,636 22,851
Interest expense:
Interest-bearing demand 287 278
Money market accounts 1,443 1,044
Savings accounts 26 22
Time deposits of $100,000 or more 4,770 4,250
Other time deposits 5,553 4,490
Short-term borrowings 2,126 2,191
Long-term debt 582 582
-------- --------
Total interest expense 14,787 12,857
-------- --------
Net interest income 9,849 9,994
Provision for loan losses 825 825
Other income:
Service charges and fees 1,509 1,460
Other noninterest income 81 83
Gain on sales of loans receivable 539 453
Gain on sales of investment securities 57 --
-------- --------
Total other income 2,186 1,996
Other expenses:
Salaries and employee benefits 3,601 3,566
Occupancy 1,619 1,579
FDIC and other insurance 71 66
Other real estate (17) 317
General and administrative 1,973 1,904
-------- --------
Total other expenses 7,247 7,432
-------- --------
Income before taxes 3,963 3,733
Taxes on income 1,334 1,287
-------- --------
Net income $ 2,629 $ 2,446
======== ========
Basic earnings per share $ 0.69 $ 0.63
======== ========
Diluted earnings per share $ 0.68 $ 0.62
======== ========
Cash dividends declared per share $ 0.12 $ 0.11
======== ========
See notes to unaudited consolidated financial statements.
4
SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
2001 2000
-------- --------
Operating activities:
Net income $ 2,629 $ 2,446
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 825 825
Depreciation and amortization expense 620 620
Amortization of premiums and accretion of
discounts on securities, net (9) 15
Amortization of intangibles 41 47
(Gain) Loss on sales/calls of securities (57) --
(Gain) Loss on sales of loans receivable (539) (453)
(Gain) Loss on sales of premises/equipment (4) (4)
(Gain) Loss on other real estate owned, net (18) 258
Proceeds from sales of residential mortgage loans 21,447 12,622
Residential mortgage loans originated for resale (20,702) (12,640)
Changes in assets and liabilities:
Accrued interest receivable (54) (3,000)
Other assets 659 726
Income taxes payable 763 1,168
Accrued interest payable (578) 875
Other liabilities 344 1,089
-------- --------
Net cash (used in) provided from operating activities 5,367 4,594
-------- --------
Investing activities:
Proceeds from sales of available for sale securities 2,114 1,000
Proceeds from principal repayments, calls and maturities:
Held to maturity securities 3,000 8,200
Available for sale securities 14,296 1,620
Proceeds from sales of Federal Home Loan Bank stock 111 --
Purchases of held to maturity securities -- (5,190)
Purchases of available for sale securities (23,170) (12,403)
Purchases of Federal Reserve Bank and Federal Home Loan
Bank stock -- (95)
Loans originated and principal repayments, net (38,623) (43,930)
Proceeds from sales of guaranteed student loans 18,510 7,236
Purchases of premises and equipment (329) (779)
Proceeds from sales of premises and equipment 15 25
Proceeds from sales of other real estate owned 278 21
-------- --------
Net cash (used in) provided from investing activities (23,798) (44,295)
-------- --------
Financing activities:
Net increase (decrease) in deposits 3,921 44,232
Net increase (decrease) in short-term borrowings 9,481 (6,197)
Net proceeds from issuance of common stock 85 35
Purchases of treasury stock -- (606)
Common stock dividends paid (417) (388)
-------- --------
Net cash (used in) provided from financing activities 13,070 37,076
-------- --------
Net increase (decrease) in cash and cash equivalents (5,361) (2,625)
Cash and cash equivalents,
Beginning of period 30,851 26,340
-------- --------
End of period $ 25,490 $ 23,715
======== ========
See notes to consolidated financial statements.
5
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
ACCUMULATED TOTAL
OTHER SHARE-
COMMON STOCK CAPITAL RETAINED COMPREHENSIVE TREASURY HOLDERS'
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) STOCK EQUITY
-------------------------------------------------------------------------------------
Balance, January 1, 2001 4,081,056 $ 4,081 $ 14,788 $ 59,912 $ 379 $ (5,921) $ 73,239
Cash dividends declared:
Common, $0.12 per share -- -- -- (455) -- -- (455)
Common stock issued:
Employee Stock Option Plan -- -- (15) -- -- 77 62
Employee Stock Purchase Plan -- -- (2) -- -- 11 9
Dividend Reinvestment Plan -- -- (6) -- -- 20 14
Other comprehensive income
(loss), net of tax -- -- -- -- 985 -- 985
Treasury shares purchased -- -- -- -- -- -- --
Net income -- -- -- 2,629 -- -- 2,629
-------------------------------------------------------------------------------------
Balance, March 31, 2001 4,081,056 $ 4,081 $ 14,765 $ 62,086 $ 1,364 $ (5,813) $ 76,483
=====================================================================================
See notes to unaudited consolidated financial statements.
SOUTHWEST BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
FOR THE THREE MONTHS
ENDED MARCH 31,
2001 2000
------- -------
Net income $ 2,629 $ 2,446
Other comprehensive income (loss)
Unrealized holding gain (loss) on available
for sale securities 1,693 (525)
Reclassification adjustment for (gains) losses
arising during the period (57) --
------- -------
Other comprehensive income (loss), before tax 1,636 (525)
Tax (expense) benefit related to items
of other comprehensive income (loss) (651) 212
------- -------
Other comprehensive income (loss), net of tax 985 (313)
------- -------
Comprehensive income $ 3,614 $ 2,133
======= =======
See notes to unaudited consolidated financial statements.
6
SOUTHWEST BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
information and notes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, cash flows and
comprehensive income in conformity with accounting principles generally accepted
in the United States of America. However, the unaudited consolidated financial
statements include all adjustments which, in the opinion of management, are
necessary for a fair presentation. Those adjustments consist of normal,
recurring adjustments. The results of operations and cash flows for the three
months ended March 31, 2001 and 2000 should not be considered indicative of the
results to be expected for the full year. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Southwest Bancorp, Inc. Annual
Report on Form 10-K for the year ended December 31, 2000.
NOTE 2: PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Southwest Bancorp, Inc. ("Southwest") and its wholly owned
subsidiaries, the Stillwater National Bank and Trust Company ("Stillwater
National") and SBI Capital Trust ("SBI Capital"). All significant intercompany
transactions and balances have been eliminated in consolidation.
NOTE 3: RECENTLY ADOPTED ACCOUNTING STANDARD
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 established new accounting and
reporting standards for derivative financial instruments and for hedging
activities. SFAS No. 133 required that Southwest recognize all derivatives at
fair value 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. Southwest adopted SFAS
No. 133 on January 1, 2001, as required. Adoption of the new method of
accounting for derivatives and hedging activities did not have a material impact
on Southwest's consolidated financial condition or results of operations.
7
NOTE 4: ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below for the indicated
periods.
For the three For the
months ended year ended
March 31, 2001 December 31, 2000
-------------- -----------------
(Dollars in thousands)
Balance at beginning of period $ 12,125 $ 11,190
Loans charged-off:
Real estate mortgage 86 563
Real estate construction 73 1,083
Commercial 489 1,170
Installment and consumer 255 474
-------- --------
Total charge-offs 903 3,290
Recoveries:
Real estate mortgage 11 155
Commercial 72 360
Installment and consumer 37 160
-------- --------
Total recoveries 120 675
-------- --------
Net loans charged-off 783 2,615
Provision for loan losses 825 3,550
-------- --------
Balance at end of period $ 12,167 $ 12,125
======== ========
Loans outstanding:
Average $932,636 $900,241
End of period 931,561 912,550
Net charge-offs to total average loans (annualized) 0.34% 0.29%
Allowance for loan losses to total loans 1.31% 1.33%
Nonperforming assets and other risk elements of the loan portfolio are shown
below as of the indicated dates.
At At
March 31, 2001 December 31, 2000
-------------- -----------------
(Dollars in thousands)
Nonaccrual loans (1) $ 4,504 $ 3,138
Past due 90 days or more (2) 1,154 208
Restructured 8,694 8,694
------- -------
Total nonperforming loans 14,352 12,040
Other real estate owned 1,078 1,225
------- -------
Total nonperforming assets $15,430 $13,265
======= =======
Nonperforming loans to loans receivable 1.54% 1.32%
Allowance for loan losses to nonperforming loans 84.78% 100.71%
Nonperforming assets to loans receivable and
other real estate owned 1.65% 1.45%
(1) The government-guaranteed portion of loans included in these totals was $192
(2001) and $101 (2000).
(2) The government-guaranteed portion of loans included in these totals was $0
(2001) and $99 (2000).
Total nonperforming loans at March 31, 2001 and December 31, 2000 include an
$8.7 million restructured credit and a related nonaccrual credit. These loans
are secured by a shopping center development that became fully leased during the
first quarter of 2001 and is generating cash flows that management believes are
sufficient to service debt on market terms. The classifications of these credits
have not been changed since year-end, however, pending final resolution of the
current credits, which may include a payoff of these credits or an additional
restructuring and potential reclassification of the credits as performing. It
also is possible that Stillwater National may take ownership of the shopping
center for a period pending sale to a third party as part of this resolution.
Management believes that the resolution will not have a significant effect on
annual net income, however, based upon its assessment of the profitability and
attractiveness of the property.
8
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, and to a lesser extent, unused commitments to
provide financing. Southwest's methodology for assessing the appropriateness of
the allowance includes determination of a formula allowance, specific allowances
and an unallocated allowance. The formula allowance is calculated by applying
loss factors to corresponding categories of outstanding loans and leases. Loss
factors are based on Southwest's historical loss experience in the various
portfolio categories over the prior six quarters or four quarters, whichever is
greater. The use of these loss factors is intended to reduce the differences
between estimated losses inherent in the portfolio and observed losses. Specific
allowances are established in cases where management has identified significant
conditions or circumstances related to a credit that management believes
indicate the probability that a loss may be incurred in an amount different from
the amount determined by application of the formula allowance. 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.
Allowances are established for credits that do not have specific allowances
according to the application of credit risk factors. These factors are set by
management to reflect its assessment of the relative level of risk inherent in
each grade. The unallocated allowance is based upon management's evaluation of
various conditions that are not directly measured in the determination of the
formula and specific allowances. Management reviews these conditions quarterly.
During the first quarter of 2001, there were no changes in estimation methods or
assumptions that affected Southwest's methodology for assessing the
appropriateness of the allowance.
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.
NOTE 5: LOANS RECEIVABLE
Southwest extends commercial and consumer credit primarily to customers in the
State of Oklahoma, but its commercial lending operations are concentrated in the
Stillwater, Tulsa, and Oklahoma City areas of the state. As a result, the
collectibility of Southwest's loan portfolio can be affected by changes in the
general economic conditions in the state and in those metropolitan areas. At
March 31, 2001 and December 31, 2000, substantially all of Southwest's loans are
collateralized with real estate, inventory, accounts receivable and/or other
assets, or are guaranteed by agencies of the United States Government.
At March 31, 2001, loans to individuals and businesses in the healthcare
industry totaled approximately $127.5 million, or 14% of total loans. Southwest
does not have any other concentrations of loans to individuals or businesses
involved in a single industry totaling 5% or more of total loans.
The principal balance of loans for which accrual of interest has been
discontinued totaled approximately $4.5 million at March 31, 2001. During the
first three months of 2001, no interest income was received on nonaccruing
loans. If interest on those loans had been accrued, additional total interest
income of $129,200 would have been recorded.
NOTE 6: LONG-TERM DEBT
The guaranteed preferred beneficial interests in Southwest's subordinated
debentures represent interests in 9.30% subordinated debentures ("Subordinated
Debentures"), due July 31, 2027, issued by Southwest to its subsidiary, SBI
Capital, in connection with SBI Capital's Cumulative Trust Preferred Securities
(the "Preferred Securities"). The Subordinated Debentures and related payments
are SBI Capital's only assets. The Preferred Securities meet the regulatory
criteria for Tier I capital, subject to Federal Reserve guidelines that limit
the amount of the Preferred Securities and cumulative perpetual preferred stock
to an aggregate of 25% of Tier I capital.
9
NOTE 7: EARNINGS PER SHARE
Basic earnings per share is computed based upon net income divided by the
weighted average number of shares outstanding during each period. Diluted
earnings per share is computed based upon net income divided by the weighted
average number of shares outstanding during each period adjusted for the effect
of dilutive potential shares calculated using the treasury stock method. At
March 31, 2001, there were 224,500 antidilutive options to purchase common
shares. At March 31, 2000, there were 268,000 antidilutive options to purchase
shares.
The following is a reconciliation of the shares used in the calculations of
basic and diluted earnings per share:
For the three months
ended March 31,
2001 2000
--------- ---------
Weighted average shares outstanding:
Basic earnings per share 3,793,505 3,866,190
Effect of dilutive securities:
Stock options 86,679 59,485
--------- ---------
Weighted average shares outstanding:
Diluted earnings per share 3,880,184 3,925,675
========= =========
NOTE 8: SHAREHOLDERS' EQUITY
SHARE REPURCHASE PROGRAM
In April 1999, Southwest implemented a stock repurchase program that authorized
the purchase of up to 204,000 shares, or 5%, of its outstanding common stock.
The program was completed by the end of 1999 with Southwest purchasing 204,000
shares at an average price of $22.05 per share, which reduced shareholders'
equity $4.5 million. In December 1999, Southwest authorized the repurchase of up
to an additional 5% of its current outstanding common stock in the period ending
April 30, 2001. As of March 31, 2001, Southwest had purchased another 102,500
shares under the second program at an average price of $17.33 per share, which
reduced shareholders' equity $1.8 million during 2000. In March 2001, Southwest
authorized the repurchase of up to another 5% of its current outstanding common
stock. As of March 31, 2001, Southwest had not made any purchases under the
third program. Repurchases under the current program may be made primarily on
the open market from time to time until March 31, 2002, or earlier termination
of the repurchase program by the Board and are made at the discretion of
management based upon market, business, legal, accounting and other factors.
SHAREHOLDER RIGHTS PLAN
On April 22, 1999, Southwest adopted a Rights Plan designed to protect its
shareholders against acquisitions that the Board of Directors believes are
unfair or otherwise not in the best interests of Southwest and its shareholders.
Under the Rights Plan, each holder of record of Southwest's common stock, as of
the close of business on April 22, 1999, received one right per common share.
The rights generally become exercisable if an acquiring party accumulates, or
announces an offer to acquire, 10% or more of Southwest's voting stock. The
rights will expire on April 22, 2009. Each right will entitle the holder (other
than the acquiring party) to buy, at the right's then current exercise price,
Southwest's common stock or equivalent securities having a value of twice the
right's exercise price. The exercise price of each right was initially set at
$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.
10
SOUTHWEST BANCORP, INC.
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
For the three months ended March 31,
2001 2000
---------------------------------------------------------
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
---------------------------------------------------------
Assets:
Loans receivable $ 932,636 9.19% $ 879,678 8.95%
Investment securities 231,655 6.13 215,268 6.05
Other interest-earning assets 720 5.07 3,234 5.60
---------- ----------
Total interest-earning assets 1,165,011 8.58 1,098,180 8.37
Noninterest-earning assets 51,990 52,680
---------- ----------
Total assets $1,217,001 $1,150,860
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand $48,914 2.38% $ 47,605 2.35%
Money market accounts 122,786 4.77 97,958 4.29
Savings accounts 5,296 1.99 4,323 2.05
Time deposits 660,432 6.34 640,008 5.49
---------- ----------
Total interest-bearing deposits 837,428 5.85 789,894 5.13
Short-term borrowings 160,741 5.36 154,570 5.70
Long-term debt 25,013 9.30 25,013 9.30
---------- ----------
Total interest-bearing liabilities 1,023,182 5.86 969,477 5.33
Noninterest-bearing demand 103,999 101,246
Other noninterest-bearing liabilities 11,919 15,671
Shareholders' equity 77,901 64,466
---------- ----------
Total liabilities and shareholders' equity $1,217,001 $1,150,860
========== ==========
Interest rate spread 2.72% 3.04%
==== ====
Net interest margin (1) 3.43% 3.66%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.86% 113.28%
========== ==========
(1) Net interest margin = net interest income / total interest-earning assets
11
SOUTHWEST BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. This Management's Discussion and Analysis of
financial condition and results of operations and other portions of this report
includes 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.
You should read this Management's Discussion and Analysis of Southwest's
consolidated financial condition and results of operations in conjunction with
Southwest's unaudited consolidated financial statements and the accompanying
notes.
GENERAL
Southwest Bancorp, Inc. ("Southwest") is a registered bank holding company
headquartered in Stillwater, Oklahoma. Southwest and its subsidiary, the
Stillwater National Bank and Trust Company ("Stillwater National"), are
independent, Oklahoma institutions, and are not controlled by out of state
organizations or individuals.
Southwest offers a broad range of commercial and consumer banking and other
financial services through full service offices in Stillwater, Oklahoma City,
Tulsa and Chickasha, Oklahoma. Southwest devotes substantial efforts to
marketing and providing services to local businesses, their primary employees,
and to other managers and professionals living and working in Southwest's
Oklahoma market areas. Southwest has developed a marketing and delivery system
that does not rely on an extensive branch network.
Southwest has established and pursued a strategy of independent operation for
the benefit of all of its shareholders, and has capitalized on its position as
an Oklahoma owned and operated banking organization to increase its banking
business. Southwest has grown from $434 million in assets since becoming a
public company at year-end 1993, to $1.22 billion at March 31, 2001, without
acquiring other financial institutions. Southwest considers acquisitions of
other financial institutions and other companies, however, from time to time,
although it does not have any specific agreements or understandings for any such
acquisition at present.
FINANCIAL CONDITION
TOTAL ASSETS
Southwest's total assets were $1.22 billion at March 31, 2001, a 1% increase
from $1.20 billion at December 31, 2000.
LOANS RECEIVABLE
Loans were $931.6 million at March 31, 2001, a 2% increase ($19.0 million) from
December 31, 2000. Southwest experienced increases in the categories of
government-guaranteed student loans ($8.6 million, or 11%), commercial loans
($7.1 million, or 2%), commercial real estate mortgages ($4.4 million, or 2%),
and residential mortgages ($2.2 million, or 2%). These increases were offset by
reductions in other consumer loans ($3.0 million, or 9%) and real estate
construction loans ($358,000, or less than 1%). The allowance for loan losses
increased by $42,000, or less than 1%, from December 31, 2000 to March 31, 2001.
At March 31, 2001, the allowance for loan losses was $12.2 million, or 1.31% of
total loans, compared to $12.1 million, or 1.33% of total loans, at December 31,
2000. The increase in total loans from year-end 2000 to March 31, 2001 is the
net result of growth from loan originations and payoffs.
12
DEPOSITS
Southwest's deposits increased $3.9 million, or less than 1%, from $945.1
million at December 31, 2000 to $949.0 million at March 31, 2001. Increases
occurred in money market accounts ($25.6 million, or 25%) and savings accounts
($635,000, or 13%). These increases were offset in part by decreases in time
deposits ($14.5 million, or 2%), demand deposits ($4.2 million, or 4%), and NOW
accounts ($3.6 million, or 7%).
SHAREHOLDERS' EQUITY
Shareholders' equity increased by $3.2 million, or 4%, due primarily to
earnings, net of common stock dividends, for the first three months of 2001, as
well as a $985,000 increase in the net unrealized gains on investment securities
available for sale (net of tax). At March 31, 2001, Southwest and Stillwater
National continued to exceed all applicable regulatory capital requirements.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
NET INCOME
For the first quarter of 2001, Southwest recorded net income of $2.6 million.
This was $183,000 more than the $2.4 million in net income recorded for the
first quarter of 2000. Average shares outstanding were 3,793,505 for the first
quarter of 2001 and 3,866,190 for the first quarter of 2000. Basic and diluted
earnings per share increased to $0.69 and $0.68 per share for the first quarter
of 2001 from $0.63 and $0.62 per share for the same period in 2000,
respectively.
Net interest income declined $145,000, or 1%, for the first quarter of 2001
compared to the same period in 2000. This reduction in net interest income as
well as a $47,000, or 4%, increase in taxes on income was offset by a $190,000,
or 10%, increase in other income and a $185,000, or 2%, reduction in other
expense. For the first quarter of 2001, the return on average total equity was
13.69% compared to a 15.26% return on average total equity for the first quarter
of 2000.
NET INTEREST INCOME
Net interest income declined to $9.8 million for the first quarter of 2001 from
$10.0 million for the same period in 2000 as the $1.8 million, or 8%, increase
in interest income was offset by a $1.9 million, or 15%, increase in interest
expense. Yields on Southwest's interest-earning assets increased by 21 basis
points, and the rates paid on Southwest's interest-bearing liabilities increased
by 53 basis points, resulting in a reduction in the interest rate spread to
2.72% for the first quarter of 2001 from 3.04% for the first quarter of 2000.
Net interest margin also declined from 3.66% to 3.43%. The ratio of average
interest-earning assets to average interest-bearing liabilities increased to
113.86% for the first quarter of 2001 from 113.28% for the first quarter of
2000, primarily due to the increase in average loans outstanding.
Total interest income for the first quarter of 2001 was $24.6 million, an 8%
increase from $22.9 million during the same period in 2000. The principal factor
in the increase of interest income was the $66.8 million increase in average
interest-earning assets. Southwest's average loans increased $53.0 million, or
6%, and the related yield increased to 9.19% for the first quarter of 2001 from
8.95% in 2000. During the same period, average investment securities increased
$16.4 million, or 8%, and the related yield increased to 6.13% from 6.05%.
Total interest expense for the first quarter of 2001 was $14.8 million, an
increase of 15% from $12.9 million for the same period in 2000. The increase in
total interest expense can be attributed to an increase in the rates paid on
average interest-bearing liabilities, which increased to 5.86% from 5.33%.
During the same period, average interest-bearing liabilities increased $53.7
million, or 6%. Rates paid on deposits increased for all categories other than
savings.
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OTHER INCOME
Other income increased by $190,000 for the first quarter of 2001 compared to the
same period of 2000 primarily as a result of an $86,000 increase in gains on
sales of loans, a $57,000 increase in gains on sales/calls of securities and a
$49,000 increase in service charges and fees. The increase in gains on sales of
securities occurred when "available for sale" securities were called prior to
their stated maturity date.
OTHER EXPENSES
Southwest's other expenses declined $185,000 for the first quarter of 2001
compared to the same period in 2000. This reduction was primarily the result of
a $334,000 decline in other real estate expense. This reduction in expense was
offset by a $69,000 increase in general and administrative expense, a $40,000
increase in occupancy expense, and a $35,000 increase in salaries and employee
benefits.
PROVISION FOR LOAN LOSSES
Southwest makes provisions for loan losses in amounts deemed necessary to
maintain the allowance for loan losses at an appropriate level. An appropriate
level of the allowance for loan losses is determined by management. See Note 4,
Allowance for Loan Losses, in the Notes to Unaudited Consolidated Financial
Statements for additional information.
TAXES ON INCOME
Southwest's income tax expense was $1.3 million for the first three months of
2001 and 2000. Southwest's effective tax rates have been lower than federal and
state statutory rates primarily because of tax-exempt income on municipal
obligations and loans.
* * * * * * *
LIQUIDITY
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital, or the sale of highly marketable
assets such as residential mortgage loans and available for sale investments.
Southwest's portfolio of government-guaranteed student loans and SBA loans are
also readily salable. Additional sources of liquidity, including cash flow from
the repayment of loans, are also considered in determining whether liquidity is
satisfactory. Liquidity is also achieved through growth of deposits and liquid
assets, and accessibility to the capital and money markets. These funds are used
to meet deposit withdrawals, maintain reserve requirements, fund loans, and
operate the organization.
Southwest has available various forms of short-term borrowings for cash
management and liquidity purposes. These forms of borrowings include federal
funds 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"). 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 $888,000 at March 31, 2001.
Stillwater National has approved federal funds purchase lines totaling $20.0
million with three other banks; no amounts were outstanding on these lines at
March 31, 2001. In addition, Stillwater National has available a $35.0 million
line of credit from the SLMA and a $223.0 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 March 31, 2001. The FHLB line of credit had an outstanding balance of
$102.6 million at March 31, 2001. 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 March 31, 2001, $123.1 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.
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During the first three months of 2001, the only categories of short-term
borrowings whose averages exceeded 30% of ending shareholders' equity were
repurchase agreements and funds borrowed from the FHLB.
March 31, 2001 March 31, 2000
------------------------------- ----------------------------------
Repurchase Funds Borrowed Repurchase Funds Borrowed
Agreements from the FHLB Agreements from the FHLB
------------------------------- ----------------------------------
(Dollars in thousands) (Dollars in thousands)
Amount outstanding at end of period $ 56,247 $102,644 $ 52,352 $ 92,300
Weighted average rate paid at end of period 4.91% 5.58% 5.33% 5.98%
Average Balance:
For the three months ended $ 51,195 $107,878 $ 42,838 $110,004
Average Rate Paid:
For the three months ended 5.12% 5.47% 5.21% 5.90%
Maximum amount outstanding at any month end $ 56,247 $120,635 $ 52,905 $127,850
During the first three months of 2001, cash and cash equivalents decreased $5.3
million. This decline was the net result of cash used in investing activities of
$23.8 million offset in part by cash provided from financing activities of $13.1
million (primarily from the increase in short-term borrowings) and cash provided
from operating activities of $5.4 million.
During the first three months of 2000, cash and cash equivalents decreased $2.6
million. This decline was the net result of cash used in investing activities of
$44.3 million offset in part by cash provided from financing activities of $37.1
million (primarily from the increase in deposits) and cash provided from
operating activities of $4.6 million.
CAPITAL RESOURCES
In the first three months of 2001, total shareholders' equity increased $3.2
million, or 4%, as a result of earnings, offset in part by dividends and an
increase in net unrealized gains (losses) on investment securities. Earnings,
net of cash dividends declared on common stock, contributed $2.2 million to
shareholders' equity during this three month period. The sale or issuance of
common stock through the dividend reinvestment plan, the employee stock purchase
plan and the employee stock option plan contributed an additional $85,000 to
shareholders' equity in the first three months of 2001. Accumulated
comprehensive income, consisting of net unrealized gains (losses) on investment
securities available for sale (net of tax) increased to $1.4 million at March
31, 2001 compared to $379,000 at December 31, 2000.
Bank holding companies are required to maintain capital ratios in accordance
with guidelines adopted by the Federal Reserve Board ("FRB"). The guidelines are
commonly known as Risk-Based Capital Guidelines. At March 31, 2001, Southwest
exceeded all applicable capital requirements, having a total risk-based capital
ratio of 11.93%, a Tier I risk-based capital ratio of 10.68%, and a leverage
ratio of 8.20%. As of March 31, 2001, Stillwater National also met the criteria
for classification as a "well-capitalized" institution under the prompt
corrective action rules promulgated under the Federal Deposit Insurance Act.
Designation of the bank as a "well-capitalized" institution under these
regulations does not constitute a recommendation or endorsement of Stillwater
National by Federal bank regulators.
Southwest declared a dividend of $.12 per common share payable on April 2, 2001
to shareholders of record as of March 19, 2001.
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EFFECTS OF INFLATION
The unaudited consolidated financial statements and related unaudited
consolidated financial data presented herein have been prepared in accordance
with accounting principles generally accepted in the United States of America
and practices within the banking industry which require the measurement of
financial position and operating results in terms of historical dollars without
considering fluctuations in the relative purchasing power of money over time due
to inflation. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
* * * * * * *
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management has determined that no additional disclosures are necessary to assess
changes in information about market risk that have occurred since December 31,
2000.
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PART II. OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
On January 25, 2001, Southwest filed a report of Form
8-K reporting, in Item 5 of that form, that the
amount of its nonperforming assets as of December 31,
2000, as previously reported, was inadvertently
overstated, and providing corrected disclosures.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST BANCORP, INC.
(Registrant)
By: /s/ Rick J. Green May 8, 2001
-------------------------------------- -----------------------------
Rick J. Green Date
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kerby E. Crowell May 8, 2001
-------------------------------------- -----------------------------
Kerby E. Crowell Date
Executive Vice President, Chief Financial
Officer and Assistant Secretary
(Principal Financial and Accounting Officer)
18