EXHIBIT 13
Southwest Bancorp, Inc. ("Southwest") is the financial holding company
for Stillwater National Bank and Trust Company ("Stillwater National"). A
substantial portion of Southwest's current business and focus for the future are
services for local businesses, their primary employees, and other managers and
professionals living and working in its market areas. Information regarding
Southwest can be accessed via the Internet at www.oksb.com. Southwest and
Stillwater National offer commercial and consumer lending and deposit services
from offices in Stillwater, Tulsa, Oklahoma City, and Chickasha, Oklahoma and
Frisco, Texas; loan production offices in Wichita, Kansas and on the campuses of
Oklahoma State University-Tulsa and the University of Oklahoma Health Sciences
Center-Oklahoma City; and a marketing presence in the Student Union at Oklahoma
State University-Stillwater. Southwest has applied to create SNB Bank of
Wichita, which it expects to open on the site of its Kansas loan production
office during 2003.
Southwest was organized in 1981 as the holding company for Stillwater
National, which was chartered in 1894. At December 31, 2002, Southwest had total
assets of $1.3 billion, deposits of $1.0 billion and shareholders' equity of
$96.4 million.
Southwest's philosophy is to provide a high level of customer service,
a wide range of financial services, and products responsive to customer needs.
This philosophy has led to the development of financial products that respond to
customers' needs for speed, efficiency and information. These include SNB
DirectBanker(R) and other Internet banking products, which complement
Southwest's more traditional banking products. Information regarding products
and services of Stillwater National, including SNB DirectBanker(R), can also be
accessed via the Internet at www.banksnb.com. Stillwater National's web site and
online banking technology are frequently updated in response to the changing
needs of Stillwater National's large base of Internet banking customers.
Southwest has established and pursued a strategy of independent
operation for the benefit of all its shareholders.
LETTER TO SHAREHOLDERS FROM THE C.E.O.
February 25, 2003
In 2002, Southwest continued its focus on producing consistent current
performance while making strategic moves into important new markets with
significant growth potential.
o Net Income: $13.4 million: up 14%
o Diluted earnings per share: $2.23: up 12%
o Book value per share: $16.69: up 12%
o Dividends per share: $0.44: up 38%
o Return on average equity of 15%
o Efficiency ratio of 57%
o Total loans of $1.10 billion: up 18%
o Total assets of $1.35 billion: up 11%
GOAL FOCUSED PERFORMANCE. At Southwest, we maintain an intense focus on
specific performance goals designed to increase shareholder value. These goals
include annual growth in diluted EPS and assets of at least 10% and geographic
market share growth and expansion. In 2002, annual net income increased 14%,
book value per share and diluted EPS increased 12%, assets grew 11%, and return
on average equity was just under 15%. This performance is the result of loan
growth (up 18% over year-end 2001), increased net interest income (up 10% from
2001), increased service charges and fees (up 22% from 2001), and improved
efficiency (an efficiency ratio of 56.92%; an improvement of nearly three
percentage points from the year 2001).
PERFORMANCE CONSISTENCY. We also focus on building a record of
consistent performance. Our 2002 results are consistent with our overall
historic trends. Southwest became a public company in late 1993. Since year-end
1993, we have increased our net income and market value per share at a compound
rate of 14% per year, book value per share at 12% per year; diluted earnings per
share at 10% per year; assets at 13% per year, and loans at 15% per year.
COMMITMENT TO OUR CUSTOMERS. In 2002, we continued our focus on our
strengths in investments, lending, deposit, and cash management services, and
increased our efforts in consulting services and web-based and other tech
services. We are strongly committed to delivery of services that "make our
customers money." These services include Business Mail Processing, Document
Imaging, and Cash Management/Treasury services. All these services are designed
for the health care industry and other document-intensive businesses for use in
providing measurable office management and cash management benefits, while
allowing our customers to improve the quality of service to their patients,
clients, and customers.
STRATEGIC MARKET ENTRY. During 2002, we made strategic moves into two
important markets-the Dallas, Texas area and Wichita, Kansas. These offices are
capitalizing on our strengths in serving medical, professional and small
business customers. We expect continued growth from both locations. Our Dallas
presence is through a banking office. We plan to expand our existing Kansas
operations by establishing a new, Kansas based, federally chartered bank, SNB
Bank of Wichita, later this year.
COMMITMENT TO OUR COMMUNITIES. We also remain committed to the
communities we serve. Southwest supports local, state and national service
organizations and the arts financially, by donating many hours of voluntary
assistance, and by providing leadership in each of our geographic markets.
The Board of Directors joins me in thanking you for your investment and
support. We look forward to the future with high energy, a vision for success,
and dedication to achieve consistent high performance and growth.
Sincerely,
/s/ Rick Green
-------------------------------------
Rick Green
President and Chief Executive Officer
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, 2002. 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,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
----------------------------------------------------------------------
(dollars in thousands, except per share data)
OPERATIONS DATA
Interest income $ 76,495 $ 90,400 $ 97,274 $ 80,595 $ 80,252
Interest expense 30,606 48,867 57,155 42,495 42,274
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 45,889 41,533 40,119 38,100 37,978
Provision for loan losses 5,443 4,000 3,550 2,495 3,380
Gain on sales of securities and loans 3,498 3,346 1,753 2,395 2,918
Other income 9,148 7,395 6,736 6,049 4,025
Other expenses 33,319 31,165 29,615 30,426 26,982
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Income before taxes 19,773 17,109 15,443 13,623 14,559
Taxes on income 6,354 5,357 5,238 4,757 5,181
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 13,419 $ 11,752 $ 10,205 $ 8,866 $ 9,378
- ------------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 13,419 $ 11,752 $ 10,205 $ 8,866 $ 7,392
====================================================================================================================================
DIVIDENDS DECLARED
Preferred stock $ -- $ -- $ -- $ -- $ 1,190
Common stock 2,532 1,824 1,678 1,601 1,366
Ratio of total dividends declared to net income 18.87% 15.52% 16.44% 18.06% 27.26%
PER SHARE DATA (1)
Basic earnings per common share $ 2.34 $ 2.06 $ 1.78 $ 1.49 $ 1.30
Diluted earnings per common share 2.23 2.00 1.76 1.46 1.26
Common stock cash dividends 0.44 0.32 0.29 0.27 0.24
Book value per common share (2) 16.69 14.93 12.88 11.03 10.14
Weighted average common shares outstanding:
Basic 5,745,083 5,693,129 5,733,624 5,960,817 5,692,704
Diluted 6,026,059 5,864,422 5,792,852 6,082,002 5,871,218
FINANCIAL CONDITION DATA (2)
Investment securities $ 188,689 $ 227,346 $ 229,792 $ 211,682 $ 174,671
Total loans (3) 1,101,112 931,046 912,550 852,808 793,319
Interest-earning assets 1,292,232 1,160,478 1,142,945 1,064,496 969,002
Total assets 1,349,768 1,216,495 1,203,566 1,120,420 1,027,865
Interest-bearing deposits 885,812 777,600 825,370 761,481 722,962
Total deposits 1,021,757 904,796 945,102 871,235 842,717
Other borrowings 199,282 195,367 150,498 151,820 94,572
Long-term debt 25,013 25,013 25,013 25,013 25,013
Total shareholders' equity (4)(5) 96,372 85,125 73,239 64,254 57,801
Common shareholders' equity 96,372 85,125 73,239 64,254 57,801
Mortgage servicing portfolio 107,733 91,120 94,545 109,297 126,410
SELECTED RATIOS
Return on average assets 1.05% 0.96% 0.87% 0.84% 0.95%
Return on average total shareholders' equity 14.94 14.87 14.89 13.83 14.33
Return on average common equity 14.94 14.87 14.89 13.83 13.70
Net interest margin 3.75 3.54 3.57 3.82 4.04
Efficiency ratio (6) 56.92 59.62 60.93 65.37 60.07
Average assets per employee (7) $ 3,936 $ 3,916 $ 3,780 $ 3,476 $ 3,116
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
At December 31,
---------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------
(dollars in thousands, except per share data)
ASSET QUALITY RATIOS
Allowance for loan losses to total loans (2) 1.08% 1.23% 1.33% 1.31% 1.31%
Nonperforming loans to total loans (2)(8) 1.17 0.99 1.32 0.63 0.17
Allowance for loan losses to nonperforming loans (2)(8) 92.11 124.56 100.71 207.26 786.17
Nonperforming assets to total loans and other real
estate owned (2)(9) 1.24 1.06 1.45 0.83 0.62
Net loan charge-offs to average total loans 0.50 0.49 0.29 0.21 0.17
CAPITAL RATIOS
Average shareholders' equity to average assets
Total 7.05 6.45 5.82 6.11 6.64
Common 7.05 6.45 5.82 6.11 5.48
Tier I capital to risk-weighted assets (2) 10.38 11.15 10.36 9.76 8.88
Total capital to risk-weighted assets (2) 11.42 12.34 11.68 11.34 10.81
Leverage ratio (2) 8.99 8.84 8.08 8.06 7.69
(1) All share and per share information has been restated to reflect the
three-for-two stock split effected in the form of a stock dividend paid
August 29, 2001.
(2) At period end.
(3) Net of unearned discounts but before deduction of allowance for loan
losses.
(4) On September 1, 1998, Southwest redeemed all of its Series A Preferred
Stock at its stated liquidation value of $17.25 million.
(5) Reflects the public offering of 250,000 shares of common stock in May 1999,
and repurchases of common shares in 1999, 2000, and 2001. Please see note 8
to the consolidated financial statements.
(6) The efficiency ratio = other expenses/(net interest income + total other
income) as shown on the consolidated statements of operations. This ratio
has not been adjusted to remove any income or expense recorded under
accounting principles generally accepted in the United States.
(7) Ratio = year-to-date average assets divided by the number of FTE employees
at year-end.
(8) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and loans with restructured terms.
(9) Nonperforming assets consist of nonperforming loans and foreclosed assets.
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, probable
loan losses, liquidity, and market or interest rate risk; and statements of
Southwest's ability to achieve financial and other goals. These forward-looking
statements are subject to significant uncertainties because they are based upon:
the amount and timing of future changes in interest rates and other economic
conditions; future laws and regulations; and a variety of other matters. Because
of these uncertainties, the actual future results may be materially different
from the results indicated by these forward-looking statements. In addition,
Southwest's past growth and performance do not necessarily indicate its future
results.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Southwest Bancorp, Inc.'s ("Southwest") net income and diluted earnings
per share reached their highest levels in our history.
o Net income for 2002 was $13.4 million, up from $11.8 million in 2001
and $10.2 million in 2000;
o Return on average common equity for 2002 was 14.94%, compared to 14.87%
in 2001 and 14.89% in 2000; and
o Diluted earnings per common share increased to $2.23 in 2002, compared
to $2.00 in 2001 and $1.76 in 2000.
Balance sheet growth was favorable:
o Total assets at year-end 2002 increased 11%, ending the year at $1.35
billion compared to $1.22 billion at year-end 2001 and $1.20 billion
for 2000.
o Total loans grew to $1.10 billion at December 31, 2002, compared to
$931.0 million for 2001, and $912.6 million for 2000.
o Common shareholders' equity at year-end increased 13% to $96.4 million
for 2002 compared to $85.1 million for 2001 and $73.2 million for 2000.
On August 29, 2001, Southwest effected a 3:2 stock split of its common
stock in the form of a dividend of 2,040,465 shares. All share and per share
amounts in this annual report have been retroactively restated to reflect this
stock split.
Southwest repurchased 61,870 shares of its outstanding common stock
during 2002 at an average price of $20.12 per share under its share repurchase
program.
SUMMARY OF EARNINGS
NET INCOME
Net income for 2002 was $13.4 million, a $1.6 million increase over the
$11.8 million earned in 2001. Basic earnings per common share increased 14% to
$2.34 per share for 2002 from $2.06 per share for 2001. Diluted earnings per
common share increased 12% to $2.23 per share for 2002 from $2.00 per share for
2001. The increase in earnings was primarily the result of a $4.4 million, or
10%, increase in net interest income and a $1.9 million, or 18%, increase in
other income. This revenue growth more than offset a $2.2 million, or 7%,
increase in other expenses, a $1.4 million, or 36%, increase in the provision
for loan losses and a $997,000, or 19%, increase in taxes on income.
Net income for 2001 was $11.8 million, a $1.6 million increase over the
$10.2 million earned in 2000. Basic earnings per common share increased 16% to
$2.06 per share for 2001 from $1.78 per share for 2000. Diluted earnings per
common share increased 14% to $2.00 per share for 2001 from $1.76 per share for
2000. The 2001 increase in earnings was primarily the result of a $2.3 million,
or 27%, increase in other income based on increased gains on sales of loans and
service charges and fees and a $1.4 million, or 4%, increase in net interest
income. In 2001, other expenses increased by $1.6 million, or 5%, the provision
for loan losses increased by $450,000, or 13%, and taxes on income increased by
$119,000, or 2%.
These increases and decreases in the components of income are discussed
further in other sections of this Management's Discussion.
NET INTEREST INCOME
Years ended December 31, 2002 and 2001
Net interest income for 2002 increased to $45.9 million from $41.5
million in 2001, primarily as a result of increases in Southwest's loan
portfolio, the interest rate spread, and noninterest-bearing funds. The interest
rate spread increased to 3.34% for 2002 from 2.92% for 2001 as a result of the
188 basis point reduction in rates paid on Southwest's interest-bearing
liabilities, which exceeded the 146 basis point reduction in yields on
Southwest's interest-earning assets. The ratio of average interest-earning
assets to average interest-bearing liabilities increased to 116.17% for 2002
from 114.92% for 2001.
Interest income for 2002 was $76.5 million, down from $90.4 million in
2001 as a result of reductions in the yields earned on interest-earning assets.
Yields on total interest-earning assets were 6.25% in 2002 and 7.71% in 2001.
Loan interest and fee income declined $11.3 million, or 15%, while average loans
outstanding increased $74.2 million, or 8%, to $1,012.5 million in 2002 from
$938.3 million in 2001. Interest on investment securities declined $2.6 million,
or 19% and average investment securities outstanding decreased $25.7 million, or
11%, to $208.0 million in 2002 from $233.7 million in 2001. The increase in
interest-earning assets was funded by increased deposits and retention of
earnings.
Total interest expense for 2002 was $30.6 million, an $18.3 million, or
37%, decrease from $48.9 million in 2001. The decrease in interest expense was
due to decreases in the rates paid on all categories of interest-bearing
liabilities. Average interest-bearing deposits increased $52.5 million, or 6%,
to $862.2 million for 2002 from $809.7 million for 2001. Average other
borrowings decreased $20.4 million, or 11%, to $165.7 million for 2002 from
$186.1 million for 2001. Rates paid on interest-bearing liabilities declined to
2.91% in 2002 from 4.79% in 2001.
Years ended December 31, 2001 and 2000
Net interest income for 2001 increased to $41.5 million from $40.1
million in 2000, primarily as a result of increases in Southwest's loan
portfolio, the interest rate spread, and noninterest-bearing funds. The interest
rate spread increased to 2.92% for 2001 from 2.87% for 2000 as a result of the
99 basis point reduction in rates paid on Southwest's interest-bearing
liabilities which exceeded the 94 basis point reduction in yields on Southwest's
interest-earning assets. The ratio of average interest-earning assets to average
interest-bearing liabilities increased to 114.92% for 2001 from 113.68% for
2000.
Interest income for 2001 was $90.4 million, down from $97.3 million in
2000 as a result of reductions in the yields earned on interest-earning assets.
Yields on total interest-earning assets were 7.71% in 2001 and 8.65% in 2000.
Loan interest and fee income declined $6.6 million, or 8%, and average loans
outstanding increased $38.0 million, or 4%, to $938.3 million in 2001 from
$900.2 million in 2000. Interest on investment securities declined $146,000, or
1% and average investment securities outstanding increased $11.9 million, or 5%,
to $233.7 million in 2001 from $221.8 million in 2000. The increase in
interest-earning assets was funded by other borrowings and retention of
earnings.
Total interest expense for 2001 was $48.9 million, a $8.3 million, or
15%, decrease from $57.2 million in 2000. The decrease in interest expense was
due to decreases in the rates paid on all categories of interest-bearing
liabilities. Average interest-bearing deposits increased $3.3 million, or less
than 1%, to $809.7 million for 2001 from $806.5 million for 2000. Average other
borrowings increased $28.6 million, or 18%, to $186.1 million for 2001 from
$157.5 million for 2000. Rates paid on interest-bearing liabilities declined to
4.79% in 2001 from 5.78% in 2000.
The reductions in yields earned on interest-earning assets and rates
paid on interest-bearing liabilities reflected the Federal Reserve's actions to
decrease interest rates during 2001. The Federal Reserve lowered interest rates
eleven times during 2001, reducing the benchmark federal funds rate by 475 basis
points.
THREE YEAR COMPARISON OF CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST, YIELDS,
AND RATES
The table on the following page 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 reflected in the Consolidated Statements of Operations 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 total loans.
This table shows that the composition of Southwest's interest-earning
assets changed in 2002 to include a higher level of loans and a lower level of
investment securities, while the composition of interest-bearing liabilities
changed as Southwest increased noninterest-bearing and money market deposits
while decreasing its use of higher rate time deposits and other borrowings. The
changes in the composition of interest-earning assets and their funding sources
reflect market demand and management's efforts to maximize net interest margin
while controlling interest rate, credit and other risks.
For the Year Ended December 31,
---------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------ ------------------------------- ---------------------------
Interest (1) Interest (1) Interest (1)
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------------ ------------------------------- ---------------------------
(dollars in thousands)
ASSETS
INTEREST-EARNING ASSETS:
Total loans $1,012,487 $ 65,503 6.47% $ 938,278 $ 76,850 8.19% $ 900,241 $83,480 9.27%
Investment securities 208,015 10,948 5.26 233,686 13,509 5.78 221,783 13,655 6.16
Other interest-earning assets 2,664 44 1.65 1,212 41 3.38 2,263 139 6.14
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,223,166 76,495 6.25 1,173,176 90,400 7.71 1,124,287 97,274 8.65
NONINTEREST-EARNING ASSETS:
Other assets 52,004 52,586 53,252
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $1,275,170 $1,225,762 $1,177,539
====================================================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Interest-bearing demand $ 52,096 372 0.71% $ 49,156 809 1.65% $ 47,902 1,263 2.64%
Money market accounts 211,883 4,305 2.03 130,828 4,386 3.35 97,056 4,690 4.83
Savings accounts 5,702 25 0.44 5,361 79 1.47 4,731 94 1.99
Time deposits 592,478 18,749 3.16 624,359 33,497 5.37 656,765 39,205 5.97
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 862,159 23,451 2.72 809,704 38,771 4.79 806,454 45,252 5.61
Other borrowings (2) 165,745 4,829 2.91 186,109 7,770 4.17 157,517 9,577 6.08
Long-term debt 25,013 2,326 9.30 25,013 2,326 9.30 25,013 2,326 9.30
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,052,917 30,606 2.91 1,020,826 48,867 4.79 988,984 57,155 5.78
---------------- --------------- -------------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing demand 118,401 110,438 105,177
Other noninterest-bearing liabilities 14,007 15,452 14,861
Shareholders' equity 89,845 79,046 68,517
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Total liabilities and
stockholders' equity $1,275,170 $1,225,762 $1,177,539
====================================================================================================================================
Net interest income $ 45,889 $41,533 $40,119
====================================================================================================================================
Interest rate spread 3.34% 2.92% 2.87%
====================================================================================================================================
Net interest margin (3) 3.75% 3.54% 3.57%
====================================================================================================================================
Ratio of average
interest-earning assets
to average interest-bearing
liabilities 116.17% 114.92% 113.68%
====================================================================================================================================
(1) Yields, net interest spreads, and net interest margins are calculated using
income recorded in accordance with accounting principals generally accepted
in the United States ("GAAP"), and are not shown on the higher, non-GAAP
tax-equivalent basis.
(2) The decrease in other borrowings resulted mainly from reductions in Federal
Home Loan Bank borrowings.
(3) Net interest margin = net interest income / total interest-earning assets.
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 loan
portfolio and ongoing, quarterly assessments of the probable losses inherent in
the loan and lease portfolio and unused commitments to provide financing.
Southwest's systematic methodology for assessing the appropriateness of the
allowance includes determination of a formula allowance, specific allowances and
a general reserve. The formula allowance is calculated by applying loss factors
to corresponding categories of outstanding loans and leases. Loss factors
generally are based on Southwest's historical loss experience in the various
portfolio categories over the prior six quarters or four quarters, but may be
adjusted for categories where six and four quarter loss experience is
historically unusual. The use of these loss factors is intended to reduce the
differences between estimated losses inherent in the portfolio and observed
losses. Formula allowances also are established for loans that do not have
specific allowances according to the application of credit risk factors. These
factors are set by management to reflect its assessment of the relative level of
risk inherent in each grade. Specific allowances are established in cases where
management has identified significant conditions or circumstances related to
individual loans that management believes indicate the probability that losses
may be incurred in an amount different from the amounts determined by
application of the formula allowance. Specific allowances include amounts
related to loans that are identified for evaluation of impairment, which is
based on discounted cash flows using each loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans. All
of Southwest's nonaccrual loans are considered to be impaired loans. The general
reserve is based upon management's evaluation of various factors that are not
directly measured in the determination of the formula and specific allowances.
These factors may include general economic and business conditions affecting
lending areas, credit quality trends (including trends in delinquencies and
nonperforming loans expected to result from existing conditions), loan volumes
and concentrations, specific industry conditions within portfolio categories,
recent loss experience in particular loan categories, duration of the current
business cycle, bank regulatory examination results, findings of internal credit
examiners, and management's judgment with respect to various other conditions
including credit administration and management and the quality of risk
identification systems. Management reviews these conditions quarterly. Based
upon this review, management established an allowance of $11.9 million, or 1.08%
of total loans, at December 31, 2002 compared to an allowance of $11.5 million,
or 1.23% of total loans, at December 31, 2001. At December 31, 2002, total
nonperforming loans were $12.9 million, or 1.17% of total loans, compared to
$9.2 million, or 0.99% of total loans, at December 31, 2001. The
government-guaranteed portions of year-end nonperforming loans were $1.0 million
for 2002 and $905,000 for 2001. The allowance for loan losses equaled 92.11% of
nonperforming loans at December 31, 2002 compared to 124.56% at December 31,
2001. During 2002, 2001, and 2000, the provisions for loan losses were $5.4
million, $4.0 million, and $3.6 million, respectively, while net charge-offs
were $5.0 million, $4.6 million, and $2.6 million.
During 2002, there were no changes in estimation methods or assumptions
that affected the methodology for assessing the appropriateness of the
allowance. Southwest determined the level of the allowance for loan losses at
December 31, 2002 was appropriate, based on that methodology. Although the
amount of the allowance for loan losses increased from year-end 2001, the
percentage of the total allowance to loans decreased, in spite of an increase in
nonperforming loans. The decreased percentage resulted from a decrease in the
required specific allocations for problem loans and from improvements in the
credit quality of performing loans, evidenced by a $26.9 million, or 48%,
decrease in potential problem loans. In total, and as a percentage of total
loans, the allowance relating to commercial mortgages and real estate
construction loans increased from December 31, 2001, while the allowance
relating to commercial loans decreased. The increases in the allowance relating
to commercial mortgages and construction loans resulted from increases in the
allowance related to problem and potential problem loans and in the allowance
relating to performing loans. The decrease in the allowance relating to
commercial loans resulted from significant decreases in allocations relating to
potential problem loans and specific allocations on problem loans (including
allowances on impaired loans), offset in part by an increase in the allowance on
the remaining commercial loan portfolio. The general reserve comprised 11.30% of
the total allowance at year-end 2002, up from 4.90% at year-end 2001.
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,
---------------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------------
(dollars in thousands)
Total nonaccrual $11,455 $ 7,291 $ 3,138 $ 5,205 $ 872
Total past due 90 days or more 1,452 1,935 208 194 451
Total restructured -- -- 8,694 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 12,907 9,226 12,040 5,399 1,323
Other real estate owned 747 640 1,225 1,729 3,650
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $13,654 $ 9,866 $13,265 $ 7,128 $ 4,973
========================================================================================================================
Nonperforming loans to total loans 1.17% 0.99% 1.32% 0.63% 0.17%
Allowance for loan losses to nonperforming loans 92.11% 124.56% 100.71% 207.26% 786.17%
The following table analyzes Southwest's allowance for loan losses for
the periods indicated.
For the Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
----------------------------------------------------------------
(dollars in thousands)
Balance at beginning of period $11,492 $12,125 $11,190 $10,401 $ 8,282
LOANS CHARGED-OFF:
Real estate mortgage 777 445 563 307 460
Real estate construction -- 99 1,083 10 --
Commercial 4,248 4,364 1,170 1,229 1,320
Installment and consumer 371 621 474 802 594
- ------------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 5,396 5,529 3,290 2,348 2,374
- ------------------------------------------------------------------------------------------------------------------------------------
RECOVERIES:
Real estate mortgage 93 54 155 30 105
Real estate construction -- 22 -- -- --
Commercial 107 574 360 382 582
Installment and consumer 149 246 160 230 426
- ------------------------------------------------------------------------------------------------------------------------------------
Total recoveries 349 896 675 642 1,113
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 5,047 4,633 2,615 1,706 1,261
Provision for loan losses 5,443 4,000 3,550 2,495 3,380
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $11,888 $11,492 $12,125 $11,190 $10,401
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of allowance for loan losses to total loans:
Average 1.17% 1.22% 1.35% 1.38% 1.37%
End of period 1.08 1.23 1.33 1.31 1.31
Ratio of net charge-offs to average total loans
during the period 0.50 0.49 0.29 0.21 0.17
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 noninterest
income, referred to as "total other income" in the Consolidated Statements of
Operations, represented 22% of total net revenues (net interest income plus
other income) in 2002.
Total other income increased by $1.9 million for fiscal year 2002
compared to 2001 primarily due to a $1.5 million increase in service charges.
Other income also benefited from a $270,000 increase in other noninterest income
and a $191,000 increase in gains on sales of loans. These increases were
partially offset by a reduction in gains on sales of available for sale
investment securities of $39,000. The increase in service charges was primarily
due to additional deposit accounts as reflected by the significant increases in
noninterest-bearing demand, interest-bearing demand and money market account
balances at December 31, 2002 as compared to December 31, 2001. The lower
interest rate environment during 2002 also contributed to the increase in
service charge income by reducing the earnings credit on commercial transaction
accounts.
Total other income increased by $2.3 million for fiscal year 2001
compared to 2000 primarily due to a $749,000 increase in gains on sales of
residential mortgage loans. Other income also benefited from a $535,000 increase
in service charges, a $485,000 increase in gains on sales of investment
securities, and a $386,000 increase in gains on sales of Small Business
Administration ("SBA") loans. The principal balance of residential mortgage
loans sold was $117.4 million compared to $56.2 million during 2000. Sales of
residential mortgage loans increased primarily as a result of reduced interest
rates, which increased refinances and overall originations. The increase in
service charges can be attributed to increases in transaction accounts and in
fees earned by Southwest's ATM network. The lower interest rate environment
during 2001 also contributed to the increase in service charge income by
reducing the earnings credit on commercial transaction accounts. The gains on
sales of investment securities during 2001 occurred when securities were called
prior to their stated maturity date.
OTHER EXPENSES
Southwest's other expenses increased $2.2 million, or 7%, for fiscal
year 2002 compared to 2001. This increase was primarily the result of a $1.4
million, or 9%, increase in personnel expense which can be attributed to
additional compensation and higher benefit costs for Southwest's employee base.
In addition, general and administrative expense increased $316,000, or 4%, and
occupancy expense increased $513,000, or 8%. These increases in expense were
partially offset by a $55,000, or 96%, reduction in other real estate expense.
Southwest's other expenses increased $1.6 million, or 5%, for fiscal
year 2001 compared to 2000. This increase was primarily the result of a $1.4
million, or 10%, increase in personnel expense which can be attributed to
additional compensation and higher benefit costs for Southwest's employee base.
In addition, general and administrative expense increased $772,000, or 10%, and
occupancy expense increased $130,000, or 2%. These increases in expense were
partially offset by a $751,000, or 93%, reduction in other real estate expense.
TAXES ON INCOME
Southwest's income tax expense for fiscal years 2002, 2001, and 2000
was $6.4 million, $5.4 million, and $5.2 million, respectively. Southwest's
effective tax rates have been lower than statutory federal and state statutory
rates primarily because of tax-exempt income on municipal obligations and loans
and the organization in July 2001 of a real estate investment trust.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Quarter Ended
-------------------------------------------------------------
12-31-02 09-30-02 06-30-02 03-31-02
-------------------------------------------------------------
(dollars in thousands, except per share data)
OPERATIONS DATA
Interest income $ 19,023 $ 19,138 $ 19,371 $ 18,963
Interest expense 7,359 7,677 7,669 7,901
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 11,664 11,461 11,702 11,062
Provision for loan losses 1,348 1,570 1,275 1,250
Gain on sales of securities and loans 1,141 1,155 556 646
Other income 2,543 2,353 2,250 2,002
Other expenses 8,973 8,389 8,146 7,811
- -----------------------------------------------------------------------------------------------------------------------
Income before taxes 5,027 5,010 5,087 4,649
Taxes on income 1,538 1,561 1,684 1,571
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 3,489 $ 3,449 $ 3,403 $ 3,078
=======================================================================================================================
PER SHARE DATA
Basic earnings per common share $ 0.61 $ 0.60 $ 0.59 $ 0.54
Diluted earnings per common share 0.58 0.57 0.56 0.52
Dividends declared per common share 0.11 0.11 0.11 0.11
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 5,770,147 5,774,107 5,732,589 5,702,426
Diluted 6,047,302 6,078,858 6,029,952 5,932,514
For the Quarter Ended
-------------------------------------------------------------
12-31-01 09-30-01 06-30-01 03-31-01
-------------------------------------------------------------
(dollars in thousands, except per share data)
OPERATIONS DATA
Interest income $ 19,878 $ 22,368 $ 23,518 $ 24,636
Interest expense 9,110 11,828 13,142 14,787
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 10,768 10,540 10,376 9,849
Provision for loan losses 1,150 900 1,125 825
Gain on sales of securities and loans 897 1,021 832 596
Other income 2,001 1,936 1,868 1,590
Other expenses 8,139 8,007 7,772 7,247
- -----------------------------------------------------------------------------------------------------------------------
Income before taxes 4,377 4,590 4,179 3,963
Taxes on income 1,379 1,357 1,287 1,334
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 2,998 $ 3,233 $ 2,892 $ 2,629
=======================================================================================================================
PER SHARE DATA (1)
Basic earnings per common share $ 0.52 $ 0.57 $ 0.51 $ 0.46
Diluted earnings per common share 0.51 0.54 0.50 0.45
Dividends declared per common share 0.08 0.08 0.08 0.08
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1)
Basic 5,680,190 5,704,012 5,698,049 5,690,258
Diluted 5,867,729 5,905,128 5,835,735 5,820,277
(1) All share and per share information has been restated to reflect the
three-to-two stock split effected in the form of a stock dividend paid
August 29, 2001.
FINANCIAL CONDITION
Southwest's total assets increased by $133.3 million, or 11%, from
$1.22 billion at December 31, 2000 to $1.35 billion at December 31, 2002 after
increasing by $12.9 million, or 1%, between December 31, 2000 and 2001. The
growth in assets in 2002 was primarily attributable to the $170.1 million, or
18%, increase in total loans.
Southwest's investment securities decreased by $38.6 million, or 17%,
from $227.3 million at December 31, 2001 to $188.7 million at December 31, 2002
after decreasing by $2.4 million, or 1%, between December 31, 2000 and 2001. The
decline in 2002 came primarily from mortgage-backed securities, which decreased
$28.9 million, or 41%, from December 31, 2001 to December 31, 2002. Decreases
also occurred during the same period in Southwest's investment in U.S.
government and agency securities, which decreased $1.0 million, or 1%,
tax-exempt municipal securities, which decreased $9.2 million, or 25%, and the
investment in Federal Home Loan Bank stock, which decreased $861,000, or 10%.
These reductions in investment securities were partially offset by a $1.3
million, or 28%, increase in other investment securities.
Total loans were $1.10 billion at December 31, 2002, an increase of
$170.1 million, or 18%, compared to December 31, 2001. All categories of loans
increased, except one-to-four family residential mortgages and consumer loans.
The allowance for loan losses increased by $396,000, or 3%, from December 31,
2001 to December 31, 2002. At December 31, 2002, the allowance for loan losses
was $11.9 million, or 1.08% of total loans, compared to $11.5 million, or 1.23%
of total loans, at December 31, 2001. (See "Provision for Loan Losses" above.)
Southwest's investment securities decreased by $2.4 million, or 1%,
from $229.8 million at December 31, 2000 to $227.3 million at December 31, 2001.
The decline in 2001 came primarily from tax-exempt municipal securities, which
decreased $4.2 million, or 10%, from December 31, 2000 to December 31, 2001.
Southwest's investment in U.S. government and agency securities decreased
$787,000 (less than 1%), during the same period. These decreases were partially
offset by a $1.5 million, or 21%, increase in Federal Home Loan Bank stock.
Total loans were $931.0 million at December 31, 2001, an increase of
$18.5 million, or 2%, compared to December 31, 2000. In 2001, Southwest
increased its commercial real estate mortgages and government-guaranteed student
loans. The allowance for loan losses decreased by $633,000, or 5%, from December
31, 2000 to December 31, 2001. At December 31, 2001, the allowance for loan
losses was $11.5 million, or 1.23% of total loans, compared to $12.1 million, or
1.33% of total loans, at December 31, 2000.
CAPITAL RESOURCES
At December 31, 2002, total shareholders' equity was $96.4 million
compared to $85.1 million at December 31, 2001. Earnings, net of common
dividends, contributed $10.9 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 $1.8 million to
shareholders' equity in 2002, including tax benefits realized by Southwest
relating to option exercises. Under accounting principles generally accepted in
the United States, these tax benefits increase shareholders' equity, but do not
affect net income. Net unrealized holding gains (losses) on investment
securities available for sale (net of tax) decreased to a gain of $2.2 million
at December 31, 2002 compared to $2.4 million at December 31, 2001. During 2002,
Southwest repurchased 61,870 shares at an average price of $20.12 per share,
which reduced shareholders' equity by $1.2 million. Repurchases of an additional
271,000 shares may be made under the repurchase plan adopted in March 2002.
Repurchases may be made from time to time based on market conditions, projected
capital needs, and other factors.
At December 31, 2001, total shareholders' equity was $85.1 million
compared to $73.2 million at December 31, 2000. Earnings, net of common
dividends, contributed $9.9 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 $597,000 to
shareholders' equity in 2001. Net unrealized holding gains (losses) on
investment securities available for sale (net of tax) increased to a gain of
$2.4 million at December 31, 2001 compared to $379,000 at December 31, 2000.
During 2001, Southwest repurchased 40,000 shares at an average price of $16.19
per share, which reduced shareholders' equity by $647,000.
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, 2002,
Southwest exceeded all applicable capital requirements, having a total
risk-based capital ratio of 11.42%, a Tier 1 risk-based capital ratio of 10.38%,
and a leverage ratio of 8.99%. As of December 31, 2002, 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
Small Business Administration ("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.
Cash and cash equivalents increased $2.4 million during 2002. This
increase was the result of cash provided from operating activities of $17.6
million and financing activities (primarily increased deposits) of $118.8
million offset by $134.0 million in cash used in investing activities.
Cash and cash equivalents increased $1.6 million during 2001. This
increase was the result of cash provided from operating activities of $15.3
million and financing activities (primarily other borrowings) of $2.7 million
offset by $16.5 million in cash used in investing activities.
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-term and
other interest rates, market conditions and competitive factors, Southwest may
determine to increase its interest rate risk position in order to increase its
net interest margin. Southwest monitors interest rate risk and adjusts the
composition of its rate-sensitive assets and liabilities in order to limit its
exposure to changes in interest rates on net interest income over time.
Southwest's asset/liability committee reviews its interest rate risk position
and profitability, and recommends adjustments. The asset/liability committee
also reviews the securities portfolio, formulates investment strategies, and
oversees the timing and implementation of transactions. Notwithstanding
Southwest's interest rate risk management activities, the potential for changing
interest rates is an uncertainty that can have an adverse effect on net income.
Interest rate sensitivity analysis measures the cumulative differences
between the amounts of assets and liabilities maturing or repricing within
various time periods.
The following table shows Southwest's interest rate sensitivity gaps
for selected maturity periods at December 31, 2002:
0 to 3 4 to 12 Over 1 to Over
Months Months 5 Years 5 Years Total
----------------------------------------------------
(dollars in thousands)
RATE-SENSITIVE ASSETS:
Total loans $720,899 $216,053 $119,851 $ 44,309 $1,101,112
Investment securities 31,323 65,078 86,428 5,860 188,689
Federal funds sold -- -- -- -- --
Due from banks 2,431 -- -- -- 2,431
- ---------------------------------------------------------------------------------------------------
Total 754,653 281,131 206,279 50,169 1,292,232
RATE-SENSITIVE LIABILITIES:
Money market deposit accounts 258,712 -- -- -- 258,712
Time deposits 158,889 277,232 135,117 -- 571,238
Savings accounts 5,700 -- -- -- 5,700
NOW accounts 50,162 -- -- -- 50,162
Other borrowings 149,282 30,000 20,000 -- 199,282
Long-term debt -- -- -- 25,013 25,013
- ---------------------------------------------------------------------------------------------------
Total 622,745 307,232 151,117 25,013 1,110,107
- ---------------------------------------------------------------------------------------------------
Interest sensitivity gap $131,908 $(26,101) $ 51,162 $ 25,156 $ 182,125
===================================================================================================
Cumulative interest sensitivity gap $131,908 $105,807 $156,969 $182,125 $ 182,125
===================================================================================================
Percentage of rate-sensitive assets
to rate-sensitive liabilities 121.18% 91.50% 132.98% 200.57% 116.41%
===================================================================================================
Percentage of cumulative gap to total assets 9.77% 7.84% 11.63% 13.49% 13.49%
===================================================================================================
The 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 for this report.
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, 2002, the model
projected net income would decrease by 7.74% if interest rates immediately fell
by 100 basis points. It projects an increase in net income of 1.59% if interest
rates immediately rose by 100 basis points. The model projected net income would
decrease by 4.59% if interest rates gradually fell by 100 basis points over a
one-year time horizon. It projects an increase in net income of 2.28% if
interest rates gradually rose by 100 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, cash flows,
magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.
EFFECTS OF INFLATION
The consolidated financial statements and related consolidated
financial data in this report have been prepared in accordance with accounting
principles generally accepted in the United States 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.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 required that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also includes guidance
on the initial recognition and measurement of goodwill and other intangible
assets arising from business combinations completed after June 30, 2001. SFAS
No. 142 prohibits the amortization of goodwill and intangible assets with
indefinite useful lives. SFAS No. 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives. Additionally, SFAS No. 142
requires that goodwill included in the carrying value of equity method
investments no longer be amortized. Southwest adopted SFAS No. 141 and SFAS No.
142 on January 1, 2002 as required. Southwest has completed the first of the
required impairment tests of goodwill and intangible assets; the tests indicated
no impairment existed of either goodwill or intangible assets. Finite-lived
intangible assets continue to be amortized as allowed and consisted of mortgage
and other loan servicing rights with a total carrying value of $897,000; no
impairment was indicated.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of; however, it retained the fundamental provisions of the Statement
related to the recognition and measurement of the impairment of long-lived
assets to be "held and used." In addition, SFAS No. 144 provided more guidance
on estimating cash flows when performing a recoverability test, required that a
long-lived asset to be disposed of other than by sale (e.g. abandoned) be
classified as "held and used" until it is disposed of, and established more
restrictive criteria to classify an asset as "held for sale." Southwest adopted
SFAS No. 144 on January 1, 2002. Adoption of SFAS No. 144 did not have a
material impact on Southwest's results of operations or financial position.
On December 31, 2002, the Financial Accounting Standards Board issued
FASB Statement No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure. Statement No. 148 amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
Statement 123's fair value method of accounting for stock-based employee
compensation. Statement 148 also amends the disclosure provisions of Statement
123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure
in the summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While the Statement does not amend Statement 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of Statement 148 are applicable to all companies with stock-based
employee compensation, regardless of whether they account for that compensation
using the fair value method of Statement 123 or the intrinsic value method of
Opinion 25. Statement 148's amendment of the transition and annual disclosure
requirements of Statement 123 are effective for fiscal years ending after
December 15, 2002. Statement 148's amendment of the disclosure requirements of
Opinion 28 is effective for financial reports containing condensed consolidated
financial statements for interim periods beginning after December 15, 2002.
NON-GAAP FINANCIAL MEASURES
None of the financial measures used in this report are defined as
non-GAAP financial measures under federal securities regulations. Other banking
organizations, however, may present such non-GAAP financial measures, which
differ from measures based upon accounting principles generally accepted in the
United States. For example, such non-GAAP measures may exclude certain income or
expense items in calculating operating income or efficiency ratios, or may
increase yields and margins to reflect the benefits of tax-exempt earning
assets. Readers of this report should be aware that certain measures, such as
the efficiency ratio, are calculated using accounting principles generally
accepted in the United States.
REPORT OF MANAGEMENT
January 22, 2003
To the Shareholders of Southwest Bancorp, Inc.:
FINANCIAL STATEMENTS
The management of Southwest Bancorp, Inc. ("Southwest") is responsible
for the preparation, integrity, and fair presentation of its published financial
statements as of December 31, 2002, 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 some amounts that are based upon informed judgments and estimates of
management.
INTERNAL CONTROL OVER FINANCIAL REPORTING
We, as management of Southwest, are 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). Internal control is designed to
provide reasonable assurance to Southwest's management and board of directors
regarding the preparation of reliable published financial statements. Internal
control over financial reporting includes self-monitoring mechanisms, and
actions are taken to correct deficiencies as they are identified.
Because of inherent limitations in any internal control system, no
matter how well designed, misstatements due to error or fraud may occur and not
be detected, and controls may be overridden or circumvented. Accordingly, even
effective internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. Further, because of
changes in conditions, internal control effectiveness may vary over time.
Management assessed Southwest's internal control over financial
reporting, as it relates to its financial statements, presented in conformity
with generally accepted accounting principles and FR Y-9C instructions as of
December 31, 2002. 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, as of December
31, 2002, its system of internal control over financial reporting as it relates
to its financial statements presented in conformity with generally accepted
accounting principles and FR Y-9C instructions met those criteria.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is 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 this 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, 2002.
/s/ Rick Green /s/ Kerby Crowell
Rick Green Kerby E. Crowell
President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SOUTHWEST BANCORP, INC.:
We have audited the accompanying consolidated statements of financial
condition of Southwest Bancorp, Inc. as of December 31, 2002 and 2001, and the
related consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
Southwest Bancorp's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States.
/s/
Ernst & Young LLP
Tulsa, Oklahoma
January 22, 2003
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SOUTHWEST BANCORP, INC.
AT DECEMBER 31, 2002 AND 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
ASSETS
Cash and cash equivalents $ 34,847 $ 32,406
Investment securities:
Held to maturity, fair value $32,000 (2002) and $51,030 (2001) 31,154 49,893
Available for sale, amortized cost $145,141 (2002) and $163,924 (2001) 148,476 167,545
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 9,059 9,908
Loans held for sale 10,638 12,740
Loans receivable, net of allowance for loan losses
of $11,888 (2002) and $11,492 (2001) 1,078,586 906,814
Accrued interest receivable 9,283 10,157
Premises and equipment, net 20,202 20,418
Other assets 7,523 6,614
- --------------------------------------------------------------------------------------------------------------
Total assets $ 1,349,768 $ 1,216,495
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 135,945 $ 127,196
Interest-bearing demand 50,162 49,051
Money market accounts 258,712 157,266
Savings accounts 5,700 5,372
Time deposits of $100,000 or more 309,205 260,071
Other time deposits 262,033 305,840
- --------------------------------------------------------------------------------------------------------------
Total deposits 1,021,757 904,796
Accrued interest payable 4,486 3,470
Other 2,858 2,724
liabilities
Other borrowings 199,282 195,367
Long-term debt:
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 25,013 25,013
- --------------------------------------------------------------------------------------------------------------
Total liabilities 1,253,396 1,131,370
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; 20,000,000 shares authorized;
6,121,521 shares issued and outstanding 6,122 6,122
Paid in capital 12,317 12,508
Retained earnings 80,724 69,838
Accumulated other comprehensive gain (loss) 2,201 2,389
Treasury stock, at cost; 348,142 (2002) and 420,764 (2001) shares (4,992) (5,732)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 96,372 85,125
- --------------------------------------------------------------------------------------------------------------
Total liabilities & shareholders' equity $ 1,349,768 $ 1,216,495
==============================================================================================================
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF OPERATIONS
SOUTHWEST BANCORP, INC.
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000
- ---------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans $ 65,503 $ 76,850 $ 83,480
Investment securities:
U.S. Government and agency obligations 5,913 6,329 6,767
Mortgage-backed securities 3,126 4,780 4,576
State and political subdivisions 1,355 1,638 1,499
Other securities 554 762 813
Federal funds sold 44 41 139
- ---------------------------------------------------------------------------------------
Total interest income 76,495 90,400 97,274
INTEREST EXPENSE:
Interest-bearing demand 372 809 1,263
Money market accounts 4,305 4,386 4,690
Savings accounts 25 79 94
Time deposits of $100,000 or more 9,320 15,468 18,797
Other time deposits 9,429 18,029 20,408
Other borrowings 4,829 7,770 9,577
Long-term debt 2,326 2,326 2,326
- ---------------------------------------------------------------------------------------
Total interest expense 30,606 48,867 57,155
- ---------------------------------------------------------------------------------------
Net interest income 45,889 41,533 40,119
Provision for loan losses 5,443 4,000 3,550
OTHER INCOME:
Service charges and fees 8,216 6,733 6,198
Other noninterest income 932 662 538
Gain on sales of loans 3,170 2,979 1,871
Gain (loss) on sales of investment securities 328 367 (118)
- ---------------------------------------------------------------------------------------
Total other income 12,646 10,741 8,489
OTHER EXPENSES:
Salaries and employee benefits 17,168 15,794 14,401
Occupancy 7,119 6,606 6,476
FDIC and other insurance 286 280 274
Other real estate 2 57 808
General and administrative 8,744 8,428 7,656
- ---------------------------------------------------------------------------------------
Total other expenses 33,319 31,165 29,615
- ---------------------------------------------------------------------------------------
Income before taxes 19,773 17,109 15,443
Taxes on income 6,354 5,357 5,238
- ---------------------------------------------------------------------------------------
Net income $ 13,419 $ 11,752 $ 10,205
=======================================================================================
Basic earnings per common share $ 2.34 $ 2.06 $ 1.78 (1)
Diluted earnings per common share 2.23 2.00 1.76 (1)
Cash dividends declared per share 0.44 0.32 0.29 (1)
The accompanying notes are an integral part of this statement.
(1) All share and per share information has been restated to reflect the
three-for-two stock split effected in the form of a stock dividend paid
August 29, 2001.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SOUTHWEST BANCORP, INC.
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000
- -------------------------------------------------------------------------------------------
(Dollars in thousands)
Net income $ 13,419 $ 11,752 $ 10,205
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding gain (loss) on available for
sale securities 43 3,357 3,357
Reclassification adjustment for (gains) losses
arising during the period (328) (367) 118
- -------------------------------------------------------------------------------------------
Other comprehensive income (loss), before tax (285) 2,990 3,475
Tax (expense) benefit related to items
of other comprehensive income (loss) 97 (980) (1,388)
- -------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax (188) 2,010 2,087
- -------------------------------------------------------------------------------------------
Comprehensive income $ 13,231 $ 13,762 $ 12,292
===========================================================================================
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SOUTHWEST BANCORP, INC.
Accumulated Total
Other Share-
Common Stock Paid in Retained Comprehensive Treasury holders'
Shares Amount Capital Earnings Income (Loss) Stock Equity
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
(1)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2000 6,121,521 $ 6,122 $12,814 $51,385 $(1,708) $(4,359) $64,254
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Common, $0.29 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 6,121,521 6,122 12,747 59,912 379 (5,921) 73,239
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Common, $0.32 per share, and
other dividends -- -- -- (1,826) -- -- (1,826)
Common stock issued:
Employee Stock Option Plan -- -- (234) -- -- 739 505
Employee Stock Purchase Plan -- -- -- -- -- 39 39
Dividend Reinvestment Plan -- -- (5) -- -- 58 53
Other comprehensive income
(loss), net of tax -- -- -- -- 2,010 -- 2,010
Treasury shares purchased -- -- -- -- -- (647) (647)
Net income -- -- -- 11,752 -- -- 11,752
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 6,121,521 6,122 12,508 69,838 2,389 (5,732) 85,125
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Common, $0.44 per share, and
other dividends -- -- -- (2,533) -- -- (2,533)
Common stock issued:
Employee Stock Option Plan -- -- (515) -- -- 1,913 1,398
Employee Stock Purchase Plan -- -- 24 -- -- 37 61
Dividend Reinvestment Plan -- -- 15 -- -- 35 50
Tax benefit related to exercise
of stock options -- -- 285 -- -- -- 285
Other comprehensive income
(loss), net of tax -- -- -- -- (188) -- (188)
Treasury shares purchased -- -- -- -- -- (1,245) (1,245)
Net income -- -- -- 13,419 -- -- 13,419
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 6,121,521 $ 6,122 $12,317 $80,724 $ 2,201 $(4,992) $96,372
===============================================================================================================================
The accompanying notes are an integral part of this statement.
(1) All share and per share information has been restated to reflect the
three-for-two stock split effected in the form of a stock dividend paid
August 29, 2001.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOUTHWEST BANCORP, INC.
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 13,419 $ 11,752 $ 10,205
Adjustments to reconcile net income to net
cash (used in) provided from operating activities:
Provision for loan losses 5,443 4,000 3,550
Depreciation and amortization expense 2,510 2,434 2,493
Amortization of premiums and accretion of
discounts on securities, net (59) 15 (13)
Amortization of intangibles 202 178 182
Tax benefit from exercise of stock options 285 -- --
(Gain) Loss on sales/calls of securities (328) (367) 118
(Gain) Loss on sales of loans (3,170) (2,979) (1,871)
(Gain) Loss on sales of premises/equipment -- 137 48
(Gain) Loss on other real estate owned, net (92) (16) 424
Proceeds from sales of residential mortgage loans 133,207 118,899 56,986
Residential mortgage loans originated for resale (134,705) (118,717) (59,370)
Changes in assets and liabilities:
Accrued interest receivable 874 1,885 (2,629)
Other assets (905) 1,685 (1,550)
Income taxes payable (195) (170) 365
Accrued interest payable 1,016 (3,635) 1,101
Other liabilities 150 246 121
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided from operating activities 17,652 15,347 10,160
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities 18,769 1,993 3,998
Proceeds from principal repayments, calls and maturities:
Held to maturity securities 19,533 14,475 23,290
Available for sale securities 71,707 69,475 15,129
Proceeds from redemptions of Federal Home Loan Bank stock 2,378 718 146
Purchases of Federal Home Loan Bank stock and Federal Reserve
Bank stock (1,529) (2,187) (96)
Purchases of held to maturity securities (2,093) -- (15,930)
Purchases of available for sale securities (70,008) (78,688) (41,274)
Loans originated and principal repayments, net (289,085) (105,352) (115,631)
Proceeds from sales of guaranteed student loans 117,703 84,658 54,440
Purchases of premises and equipment (2,361) (2,640) (2,247)
Proceeds from sales of premises and equipment 67 67 90
Proceeds from sales of other real estate owned 922 963 3,169
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided from investing activities (133,997) (16,518) (74,916)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 116,961 (40,306) 73,867
Net increase (decrease) in other borrowings 3,915 44,869 (1,322)
Net proceeds from issuance of common stock 1,509 597 148
Purchases of treasury stock (1,245) (647) (1,777)
Common stock dividends paid (2,354) (1,787) (1,649)
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided from financing activities 118,786 2,726 69,267
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,441 1,555 4,511
CASH AND CASH EQUIVALENTS,
Beginning of period 32,406 30,851 26,340
- -------------------------------------------------------------------------------------------------------------
End of period $ 34,847 $ 32,406 $ 30,851
=============================================================================================================
The accompanying notes are an integral part of this statement.
SOUTHWEST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
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 as well as Wichita, Kansas and the Dallas,
Texas area. The accompanying consolidated financial statements include the
accounts of Stillwater National Bank and Trust Company ("Stillwater National"),
a national bank established in 1894, SBI Capital Trust, a Delaware business
trust established in 1997, Business Consulting Group, Inc. ("BCG"), a consulting
company established in 2002, and consolidated subsidiaries of Stillwater
National, include SNB Real Estate Holdings, Inc. and SNB REIT, Inc. Stillwater
National, SBI Capital Trust and BCG are wholly owned, direct subsidiaries of
Southwest. All significant intercompany balances and transactions have been
eliminated.
MANAGEMENT ESTIMATES - In preparing Southwest's 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, the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans, income taxes, and the
fair value of financial instruments.
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 determine 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 or loss. 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 generally is not
subject to ordinary Federal income tax.
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 - 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.
Southwest 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 within ninety days of closing. Real estate mortgage loans held
for sale and government-guaranteed student loans are carried at the lower of
cost or market. Gains or losses recognized upon the sale 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 the contractual
terms of the loan agreement. The allowance for loan losses related to loans that
are evaluated for impairment is based either on the discounted cash flows using
the loan's initial effective interest rate or on 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 are considered to be 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 costs 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,
and 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.
Profits and losses from sales of foreclosed property by Southwest 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. SFAS No. 142, adopted on January 1, 2002, requires that goodwill no
longer be amortized, but must be reviewed for impairment at least annually.
Southwest completed the first of the required impairment tests of goodwill; the
tests indicated no impairment existed. The remaining capitalized amount of
goodwill is not material. The cessation of amortization of goodwill did not have
a material impact on the Statement of Operations. 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, 2002 and 2001, Southwest had recorded cumulative
amortization of $2.4 million and $2.2 million, respectively.
DEPOSITS - The total amount of time deposits with a minimum denomination of
$100,000 was approximately $309.2 million and $260.1 million at December 31,
2002 and 2001, respectively. The total amount of overdrawn deposit accounts that
were reclassified as loans at December 31, 2002 and 2001 was $529,000 and
$575,000, respectively. Time deposit maturities are as follows: $436.1 million
in 2003, $88.3 million in 2004, $15.3 million in 2005, $1.4 million in 2006 and
$30.1 million 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 divided by the weighted average number of common shares
outstanding during each period. Diluted earnings per common share is computed
based upon net income 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 treasury stock method. For the years ended
December 31, 2002, 2001, and 2000, Southwest had 14,000, 150,000, and 405,000
antidilutive options to purchase common shares, respectively. The following is a
reconciliation of the common shares used in the calculations of basic and
diluted earnings per common share:
2002 2001 2000
---------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic earnings per share 5,745,083 5,693,129 5,733,624
EFFECT OF DILUTIVE SECURITIES:
Stock options 280,976 171,293 59,228
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Diluted earnings per share 6,026,059 5,864,422 5,792,852
========================================================================================
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, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, Southwest's proforma
data would have been as follows:
For the Years Ended December 31
-------------------------------
2002 2001 2000
-------------------------------
Proforma net income $12,967 $11,313 $9,707
Basic earnings per common share $ 2.26 $ 1.99 $ 1.69
Diluted earnings per common share $ 2.15 $ 1.93 $ 1.68
Weighted average fair value at grant date $ 4.82 $ 4.83 $ 5.04
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,
--------------------------------
2002 2001 2000
--------------------------------
Expected dividend yield 1.73% 1.71% 1.77%
Expected volatility 25.40% 25.67% 26.87%
Risk-free interest rate 5.70% 5.82% 6.20%
Expected option term (in years) 8.87 9.17 9.69
The Stock Plan's activity follows:
Weighted
Number of Average
Options Exercise Price
---------------------------
- ----------------------------------------------------------------------------
Outstanding at January 1, 2000 681,750 $13.12
- ----------------------------------------------------------------------------
Granted 168,001 10.65
Exercised (6,000) 8.92
Canceled/expired (79,350) 14.93
- ----------------------------------------------------------------------------
Outstanding at December 31, 2000 764,401 12.42
- ----------------------------------------------------------------------------
Granted 25,000 14.90
Exercised (49,051) 10.30
Canceled/expired (78,949) 14.76
- ----------------------------------------------------------------------------
Outstanding at December 31, 2001 661,401 12.39
- ----------------------------------------------------------------------------
Granted 121,540 20.68
Exercised (129,617) 10.79
Canceled/expired -- --
- ----------------------------------------------------------------------------
Outstanding at December 31, 2002 653,324 $14.25
============================================================================
Total exercisable at December 31, 2000 322,426 $11.03
Total exercisable at December 31, 2001 324,050 $11.29
Total exercisable at December 31, 2002 305,081 $13.16
At December 31, 2002, Southwest had reserved 1,193,283 shares under the
Stock Plans, and had 653,324 shares under option. The following summarizes the
information concerning options outstanding and exercisable at December 31, 2002.
Number of Range of Weighted Average Weighted Exercisable
Options Exercise Remaining Average Number Weighted Average
Outstanding Prices Contractual Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------
256,736 $ 8.50 - $12.96 3.9 $ 9.56 156,161 $ 9.29
263,275 $14.21 - $17.83 5.9 $15.69 104,125 $15.86
99,313 $18.15 - $20.23 4.2 $18.72 33,460 $18.67
20,000 $24.65 - $24.99 4.4 $24.82 6,668 $24.82
14,000 $26.31 - $26.61 4.9 $26.42 4,667 $26.42
COMPREHENSIVE INCOME - The Company's comprehensive income (net income plus
all other changes in shareholders' equity from non-equity sources) 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 Southwest 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 Southwest.
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 $535,000 and
$116,000 at December 31, 2002 and 2001, respectively.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
year amounts to conform to the current year presentation.
SEGMENTS - The Company operates under one reportable segment under SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
2. INVESTMENT SECURITIES
A summary of the amortized cost and fair values of investment securities
follows:
At December 31, 2002
--------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------
(dollars in thousands)
Held to Maturity:
U.S. Government and agency obligations $ 8,068 $ 267 $ -- $ 8,335
Obligations of state and political subdivisions 23,086 579 -- 23,665
- -------------------------------------------------------------------------------------------------------
Total $ 31,154 $ 846 $ -- $ 32,000
=======================================================================================================
Available for Sale:
U.S. Government and agency obligations $ 94,046 $ 2,295 $ -- $ 96,341
Obligations of state and political subdivisions 4,340 253 -- 4,593
Mortgage-backed securities 40,916 852 17 41,751
Equity securities 5,839 45 93 5,791
- -------------------------------------------------------------------------------------------------------
Total $145,141 $ 3,445 $ 110 $148,476
=======================================================================================================
At December 31, 2001
--------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------
(dollars in thousands)
Held to Maturity:
U.S. Government and agency obligations $ 17,723 $ 539 $ 1 $ 18,261
Obligations of state and political subdivisions 32,170 599 -- 32,769
- -------------------------------------------------------------------------------------------------------
Total $ 49,893 $ 1,138 $ 1 $ 51,030
=======================================================================================================
Available for Sale:
U.S. Government and agency obligations $ 85,499 $ 2,210 $ 9 $ 87,700
Obligations of state and political subdivisions 4,560 112 -- 4,672
Mortgage-backed securities 69,303 1,385 31 70,657
Equity securities 4,562 66 112 4,516
- -------------------------------------------------------------------------------------------------------
Total $163,924 $ 3,773 $ 152 $167,545
=======================================================================================================
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 $134.9 million and $193.4
million were pledged to meet such requirements of $80.9 million and $117.1
million at December 31, 2002 and 2001, respectively. Any amount overpledged can
be released at any time.
A comparison of the amortized cost and approximate fair value of
Southwest's debt securities by maturity date at December 31, 2002 follows on the
next page.
Available for Sale Held to Maturity
--------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------------
(dollars in thousands)
One year or less $ 65,131 $ 66,331 $ 15,220 $ 15,389
Two years through five years 70,920 73,092 15,934 16,611
Five years through ten years 3,237 3,293 -- --
More than ten years 5,853 5,760 -- --
- ------------------------------------------------------------------------------------
Total $145,141 $148,476 $ 31,154 $ 32,000
====================================================================================
Gross realized gains (losses) on sales of investment securities were
$328,000, $367,000, and $(118,000) during 2002, 2001, and 2000, respectively.
The gross proceeds from such sales of investment securities totaled
approximately $18.8 million, $2.0 million, and $4.0 million during 2002, 2001,
and 2000, respectively. A portion of the gain on sales of investment securities
during 2002 and 2001 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
Major classifications of loans are as follows:
At December 31,
-----------------------------
2002 2001
-----------------------------
(dollars in thousands)
Real estate mortgage:
Commercial $ 374,999 $ 301,578
One-to-four family residential 102,423 106,206
Real estate construction 130,001 91,897
Commercial 348,879 312,577
Installment and consumer:
Government-guaranteed student loans 119,064 91,841
Other 25,746 26,947
- ---------------------------------------------------------------------------
1,101,112 931,046
Allowance for loan losses (11,888) (11,492)
- ---------------------------------------------------------------------------
Total loans, net $ 1,089,224 $ 919,554
===========================================================================
Southwest extends commercial and consumer credit primarily to customers in
the states of Oklahoma, Texas and Kansas which subjects the loan portfolio to
the general economic conditions within this area. At December 31, 2002 and 2001,
substantially all of Southwest'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
$206.8 million, or 19% of total loans. Southwest 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, Southwest's accounting loss would be limited to the recorded
investment in the loans reduced by proceeds received from disposition of the
related collateral.
Southwest had loans which were held for sale of $10.6 million and $12.7
million at December 31, 2002 and 2001, respectively. These loans are carried at
the lower of cost or 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 $11.5 million and $7.3 million at December
31, 2002 and 2001, 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 $749,000, $543,000, and
$155,000, for 2002, 2001, and 2000, respectively.
The unpaid principal balance of real estate mortgage loans serviced for
others totaled $107.7 million and $91.1 million at December 31, 2002 and 2001,
respectively. Southwest maintained escrow accounts totaling $321,000 and
$370,000 for real estate mortgage loans serviced for others at December 31, 2002
and 2001, respectively.
The following table sets forth the remaining maturities for certain loan
categories at December 31, 2002. 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 $ 35,359 $ 120,286 $ 219,354 $ 374,999
One-to-four family residential 16,154 34,154 52,115 102,423
Real estate construction 54,354 35,993 39,654 130,001
Commercial 172,022 126,033 50,824 348,879
Installment and consumer:
Government-guaranteed student loans 119,064 -- -- 119,064
Other 9,605 14,863 1,278 25,746
- --------------------------------------------------------------------------------------------------------
Total $ 406,558 $ 331,329 $ 363,225 $1,101,112
========================================================================================================
The following table sets forth at December 31, 2002 the dollar amount of
all loans due more than one year after December 31, 2002.
Fixed Variable Total
-------- -------- --------
(dollars in thousands)
Real estate mortgage:
Commercial $ 31,133 $308,507 $339,640
One-to-four family residential 33,964 52,305 86,269
Real estate construction 16,174 59,473 75,647
Commercial 22,041 154,816 176,857
Installment and consumer:
Government-guaranteed student loans -- -- --
Other 10,748 5,393 16,141
- --------------------------------------------------------------------------------
Total $114,060 $580,494 $694,554
================================================================================
The allowance for loan losses is summarized as follows:
For the Years Ended December 31,
--------------------------------------
2002 2001 2000
--------------------------------------
(dollars in thousands)
Beginning balance $ 11,492 $ 12,125 $ 11,190
Provision for loan losses 5,443 4,000 3,550
Loans charged off (5,396) (5,529) (3,290)
Recoveries 349 896 675
- ---------------------------------------------------------------------
Total $ 11,888 $ 11,492 $ 12,125
=====================================================================
As of December 31, 2002 and 2001, impaired loans totaled $11.5 million and
$7.3 million and had a related allowance for loan loss of $930,000 and $2.4
million, respectively. The average balance of impaired loans totaled $7.5
million and $6.3 million for the years ended December 31, 2002 and 2001,
respectively. Interest income recognized on impaired loans totaled $241,000,
$392,000, and $142,000, respectively, for the years ended December 31, 2002,
2001, and 2000.
Directors and officers of Southwest and Stillwater National were customers
of, and had transactions with, Southwest 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 directors, and companies in which they have
ownership interests, had indebtedness to Southwest totaling $2.6 million, $1.5
million and $1.4 million at December 31, 2002, 2001 and 2000, respectively.
During 2002, $6.8 million of new loans and advances on existing loans were made
to these persons and repayments totaled $5.7 million.
4. PREMISES AND EQUIPMENT
These consist of the following:
At December 31,
----------------------
2002 2001
----------------------
(dollars in thousands)
Land $ 4,558 $ 4,558
Buildings and improvements 11,218 10,972
Furniture, fixtures, and equipment 21,153 19,599
Construction/Remodeling in progress 444 48
- ----------------------------------------------------------------------
37,373 35,177
Accumulated depreciation and amortization (17,171) (14,759)
- ----------------------------------------------------------------------
Premises and equipment, net $ 20,202 $ 20,418
======================================================================
5. OTHER BORROWED FUNDS
During 2002, the only categories of other borrowings whose averages
exceeded 30% of ending shareholders' equity were repurchase agreements and funds
borrowed from the FHLB.
At December 31,
--------------------------------------
2002 2001 2000
--------------------------------------
(dollars in thousands)
AMOUNTS OUTSTANDING AT END OF PERIOD:
Treasury, tax and loan note option $ 2,500 $ 1,493 $ 1,944
Federal funds purchased and securities sold
under repurchase agreements 67,895 51,579 55,758
Borrowed from the Federal Home Loan Bank 128,887 142,295 92,574
Other -- -- 222
WEIGHTED AVERAGE RATE OUTSTANDING AT END OF PERIOD:
Treasury, tax and loan note option 0.99% 1.40% 5.72%
Federal funds purchased and securities sold
under repurchase agreements 1.25 1.61 5.72
Borrowed from the Federal Home Loan Bank 3.28 3.27 6.43
Other -- -- 9.50
MAXIMUM AMOUNTS OF BORROWINGS OUTSTANDING
AT ANY MONTH-END:
Treasury, tax and loan note option $ 2,500 $ 2,500 $ 2,500
Federal funds purchased and securities sold
under repurchase agreements 77,994 58,274 59,766
Borrowed from the Federal Home Loan Bank 141,500 168,590 127,850
Other 250 500 222
APPROXIMATE AVERAGE SHORT-TERM BORROWINGS
OUTSTANDING FOR THE YEAR:
Treasury, tax and loan note option $ 1,415 $ 1,596 $ 1,658
Federal funds purchased and securities sold
under repurchase agreements 48,608 53,128 51,718
Borrowed from the Federal Home Loan Bank 115,684 131,220 104,032
Other 38 165 109
APPROXIMATE WEIGHTED AVERAGE RATE FOR THE YEAR:
Treasury, tax and loan note option 1.46% 3.55% 6.33%
Federal funds purchased and securities sold
under repurchase agreements 1.22 3.39 5.59
Borrowed from the Federal Home Loan Bank 3.64 4.50 6.32
Other 4.38 6.76 9.00
Southwest 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
Southwest 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 Southwest. 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, 2002 and
2001, loans pledged under the Agreement were $385.5 million and $312.1 million
and investment securities (at carrying value) were $25.9 million and $42.8
million, respectively.
Southwest has available various forms of other 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 FRB, the Student Loan Marketing Association ("SLMA"), the F&M Bank of
Tulsa ("F&M") and the FHLB. Southwest has available a $5.0 million line of
credit from F&M, none of which was outstanding at December 31, 2002. Southwest
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 $2.5 million at December 31, 2002. Southwest has approved
federal funds purchase lines totaling $70.0 million with three other banks; the
outstanding balance on these lines totaled $20.0 million at December 31, 2002.
In addition, Southwest has available a $35.0 million line of credit from the
SLMA and a $257.1 million line of credit from the FHLB. Borrowings under the
SLMA line would be secured by student loans. Borrowings under the FHLB line are
secured by all unpledged securities and other loans. The SLMA line expires April
20, 2007; no amount was outstanding on this line at December 31, 2002. The FHLB
line of credit had an outstanding balance of $128.9 million at December 31, 2002
and maturities as follows: $22.4 million in 2003, $0 in 2004, $20.0 million in
2005, $20.0 million in 2006, $20.0 million in 2007 and $46.5 million after 2007.
Southwest also has available unsecured brokered certificate of deposit lines of
credit in connection with its retail certificate of deposit program from Merrill
Lynch & Co., Morgan Stanley Dean Witter, Salomon Smith Barney, Prudential
Securities, Inc., PaineWebber, Inc., RBC Dain Rauscher, Inc., and CountryWide
Securities that total $675.0 million. In conjunction with these lines of credit,
$176.1 million in retail certificates of deposit were included in total deposits
at December 31, 2002.
Southwest sells securities under agreements to repurchase with Southwest
retaining custody of the collateral. Collateral consists of direct obligations
of U.S. Government Agency issues, which are designated as pledged with
Southwest's safekeeping agent. The type of collateral required, and the
retention of the collateral and the security sold minimize Southwest's risk of
exposure to loss. These transactions are for one-to-four day periods. At
December 31, 2002, two repurchase agreements to one entity totaling $12.0
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 and 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 meets 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, 2002, all of the Trust Preferred was included in
Tier I capital.
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,
----------------------------------
2002 2001 2000
----------------------------------
(dollars in thousands)
CURRENT TAX EXPENSE:
Federal $ 6,642 $ 4,707 $ 3,776
State 6 205 542
DEFERRED TAX EXPENSE (BENEFIT):
Federal (307) 399 786
State 13 46 134
- -----------------------------------------------------------------------
Taxes on income $ 6,354 $ 5,357 $ 5,238
=======================================================================
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,
-----------------------------------
2002 2001 2000
-----------------------------------
(dollars in thousands)
Computed tax expense at statutory rates $ 6,921 $ 5,817 $ 5,253
INCREASE (DECREASE) IN INCOME
TAXES RESULTING FROM:
Benefit of income not subject to U.S.
Federal income tax (675) (653) (565)
State income taxes, net of Federal income
tax benefit 12 165 446
Other 96 28 104
- -------------------------------------------------------------------------------
Taxes on income $ 6,354 $ 5,357 $ 5,238
===============================================================================
Deferred tax expense (benefit) relating to temporary differences includes
the following components:
For the Years Ended December 31,
--------------------------------
2002 2001 2000
--------------------------------
(dollars in thousands)
Provision for loan losses $(138) $ 344 $(318)
Accumulated depreciation (37) 16 401
Intangibles 36 21 21
Write-downs on other real estate owned 10 (22) 649
Deferred compensation accrual 28 42 39
Other (193) 44 128
- -------------------------------------------------------------------------
Total $(294) $ 445 $ 920
=========================================================================
Net deferred tax assets of $2.6 million and $2.2 million at December 31,
2002 and 2001, respectively, are reflected in the accompanying consolidated
statements of financial condition in other assets. There were no valuation
allowances at December 31, 2002 or 2001. Temporary differences that give rise to
the deferred tax assets (liabilities) include the following:
At December 31,
----------------------
2002 2001
----------------------
(dollars in thousands)
Provision for loan losses $ 4,439 $ 4,301
Accumulated depreciation (1,622) (1,659)
Intangibles 86 122
Write-downs on other real estate owned 130 140
Deferred compensation accrual 151 179
Other 522 329
- -----------------------------------------------------------------------
3,706 3,412
Deferred taxes (payable) receivable on
investment securities available for sale (1,133) (1,230)
- -----------------------------------------------------------------------
Net deferred tax asset $ 2,573 $ 2,182
=======================================================================
8. SHAREHOLDERS' EQUITY
On August 29, 2001, Southwest effected a 3:2 stock split of its common
stock in the form of a dividend of 2,040,465 shares. Share and per share amounts
in this report have been retroactively restated to reflect this stock split.
In April 2001, Southwest's Board of Directors (the "Board") authorized the
repurchase of up to 5%, or 292,500 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 April 2002, that program had expired and the
Board authorized the repurchase of another 5%, or approximately 286,000 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 March
31, 2003, 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 $73.34. In
addition, upon the occurrence of certain events, holders of the rights would be
entitled to purchase, at the then current exercise price, common stock or
equivalent securities of an acquiring entity worth twice the exercise price.
Under the Rights Plan, Southwest also may exchange each right, other than rights
owned by an acquiring party, for a share of its common stock or equivalent
securities.
Southwest has reserved for issuance 300,000 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 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, 2002, 40,243 new
shares had been issued and 22,810 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 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, 2002 and 2001, that Southwest and
Stillwater National met all capital adequacy requirements to which they are
subject.
As of December 31, 2002 and 2001, 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, 2002:
Total Capital (to risk-weighted assets)
Southwest $130,843 11.42% N/A N/A $ 91,652 8.00%
Stillwater National 127,073 11.11 $ 114,341 10.00% 91,473 8.00
Tier I Capital (to risk-weighted assets)
Southwest 118,955 10.38 N/A N/A 45,826 4.00
Stillwater National 115,271 10.07 68,605 6.00 45,737 4.00
Tier I Leverage (to average assets)
Southwest 118,955 8.99 N/A N/A 52,933 4.00
Stillwater National 115,271 8.72 66,015 5.00 52,812 4.00
AS OF DECEMBER 31, 2001:
Total Capital (to risk-weighted assets)
Southwest $119,013 12.34% N/A N/A $ 77,129 8.00%
Stillwater National 115,866 12.05 $ 96,184 10.00% 76,947 8.00
Tier I Capital (to risk-weighted assets)
Southwest 107,521 11.15 N/A N/A 38,565 4.00
Stillwater National 104,374 10.85 57,711 6.00 38,474 4.00
Tier I Leverage (to average assets)
Southwest 107,521 8.84 N/A N/A 48,651 4.00
Stillwater National 104,374 8.60 60,665 5.00 48,532 4.00
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 $13.0 million at December 31, 2002. Dividends declared by
Stillwater National for the years ended December 31, 2002, 2001, and 2000 did
not exceed the threshold requiring regulatory approval.
10. 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 $1.1 million, $1.0 million, and $990,000 in 2002, 2001, and
2000, respectively.
11. 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, 2002 follow:
2003 $1,143,769
2004 1,024,156
2005 955,137
2006 895,531
Thereafter 2,966,242
The total rental expense was $1.1 million, $1.0 million, and $1.0 million
in 2002, 2001, and 2000, respectively.
12. 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 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 - Fair values are estimated for certain homogeneous categories of
loans adjusted for differences in loan characteristics. Southwest's loans have
been aggregated by categories consisting of commercial, real estate, student,
and other consumer. The fair value of loans is estimated by discounting the cash
flows using 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.
OTHER BORROWINGS - The fair values of other borrowings are the amounts
payable at the statement of financial condition date, as the carrying amount is
a reasonable estimate of fair value. Included in other 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.
The carrying values and estimated fair values of Southwest's financial
instruments follow:
At December 31, 2002 At December 31, 2001
-------------------------- --------------------------
Carrying Fair Carrying Fair
Values Values Values Values
----------------------------------------------------------
(dollars in thousands)
Cash and cash equivalents $ 34,847 $ 34,847 $ 32,406 $ 32,406
Investment securities:
Held to maturity 31,154 32,000 49,893 51,030
Available for sale 148,476 148,476 167,545 167,545
FRB and FHLB stock 9,059 9,059 9,908 9,908
Total loans 1,089,224 1,092,325 919,554 925,997
Accrued interest receivable 9,283 9,283 10,157 10,157
Deposits 1,021,757 1,028,689 904,796 909,631
Accrued interest payable 4,486 4,486 3,470 3,470
Other liabilities 2,858 2,858 2,724 2,724
Short-term borrowings 199,282 199,282 195,367 195,367
Long-term debt 25,013 25,173 25,013 25,663
Commitments -- -- -- --
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, Southwest makes use of a number of
different financial instruments to help meet the financial needs of its
customers. In accordance with generally accepted accounting principles, these
transactions are not presented in the accompanying consolidated financial
statements and are referred to as off-balance sheet instruments. These
transactions and activities include commitments to extend 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 Southwest's off-balance sheet
financial instruments:
At December 31,
----------------------
2002 2001
----------------------
(dollars in thousands)
Commitments to extend commercial and real estate mortgage credit $413,098 $256,655
Standby and commercial letters of credit 5,670 2,551
Credit card lines of credit -- 492,388
- --------------------------------------------------------------------------------------------
Total $418,768 $751,594
============================================================================================
A loan commitment is a binding contract to lend up to a maximum amount for
a specified period of time provided there is no violation of any financial,
economic or other terms of the contract. A standby letter of credit obligates
Southwest to honor a financial commitment by issuing a guarantee to a third
party should Southwest'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 Southwest. Loan
commitments and letters of credit are made under normal credit terms, including
interest rates and collateral prevailing at the time, and usually require the
payment of a fee by the customer. Commercial letters of credit are commitments
generally issued to finance the movement of goods between buyers and sellers.
Southwest's exposure to credit loss, assuming commitments are funded, in the
event of nonperformance by the other party to the financial instrument is
represented by the contractual amount of those instruments. Southwest does not
anticipate any material losses as a result of the commitments.
During the third quarter of 2002, Southwest sold its portfolio of credit
card lines of credit to the institution that owned a 100% participation in the
outstanding loan balances.
14. 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.
Southwest 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 Southwest by providing severance compensation to them upon their involuntary
termination of employment after a change in control of Southwest. At December
31, 2002, Southwest 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 $1.2 million.
15. SUPPLEMENTAL CASH FLOWS INFORMATION
For the years ended December 31,
-------------------------------
2002 2001 2000
-------------------------------
(dollars in thousands)
Cash paid for interest $29,590 $52,502 $56,054
Cash paid for taxes on income 6,600 4,650 3,722
Loans transferred to other real estate owned 937 362 3,089
16. ACCOUNTING STANDARD ISSUED BUT NOT YET ADOPTED
On December 31, 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure. Statement No. 148 amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition to
Statement 123's fair value method of accounting for stock-based employee
compensation. Statement 148 also amends the disclosure provisions of Statement
123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure
in the summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
While the Statement does not require companies to account for employee stock
options using the fair value method, the disclosure provisions of Statement 148
are applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair value
method of Statement 123 or the intrinsic value method of Opinion 25. Statement
148's amendment of the transition and annual disclosure requirements of
Statement 123 are effective for fiscal years ending after December 15, 2002.
Statement 148's amendment of the disclosure requirements of Opinion 28 is
effective for financial reports containing condensed consolidated financial
statements for interim periods beginning after December 15, 2002.
17. 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,
----------------------
2002 2001
----------------------
(dollars in thousands)
STATEMENTS OF FINANCIAL CONDITION
ASSETS:
Cash and due from banks $ 1,290 $ 983
Investment in subsidiary bank 117,984 106,991
Investment securities, available for sale 906 912
Loans, net of allowance for loan losses of $0 for both periods 93 0
Other assets 2,196 2,120
- ------------------------------------------------------------------------------------------
Total $122,469 $111,006
==========================================================================================
LIABILITIES:
Subordinated debentures $ 25,013 $ 25,013
Other liabilities 1,084 868
SHAREHOLDERS' EQUITY:
Common stock and related accounts 96,372 85,125
- ------------------------------------------------------------------------------------------
Total $122,469 $111,006
==========================================================================================
For the Years Ended December 31,
--------------------------------------
2002 2001 2000
--------------------------------------
(dollars in thousands)
STATEMENTS OF OPERATIONS
INCOME:
Cash dividends from subsidiary bank $ 4,400 $ 3,800 $ 6,450
Other income 375 -- --
Investment income 43 51 55
Interest and fees on loans (7) -- --
Security gains/(losses) 1 6 (107)
- ---------------------------------------------------------------------------------------------
Total income 4,812 3,857 6,398
EXPENSE:
Interest on subordinated debentures 2,326 2,326 2,326
Provision for loan losses 146 -- --
Other expense 957 456 350
- ---------------------------------------------------------------------------------------------
Total expense 3,429 2,782 2,676
- ---------------------------------------------------------------------------------------------
Total income before taxes and equity in
undistributed income of subsidiary bank 1,383 1,075 3,722
Taxes on income (1,137) (1,030) (1,031)
- ---------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiary bank 2,520 2,105 4,753
Equity in undistributed income of subsidiary bank 10,899 9,647 5,452
- ---------------------------------------------------------------------------------------------
Net income $ 13,419 $ 11,752 $ 10,205
=============================================================================================
For the Years Ended December 31,
--------------------------------------
2002 2001 2000
--------------------------------------
(dollars in thousands)
STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net income $ 13,419 $ 11,752 $ 10,205
Equity in undistributed income of subsidiary bank (10,899) (9,647) (5,452)
Other, net (40) 72 (23)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,480 2,177 4,730
- ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Available for sale securities:
Purchases (400) (1,774) (623)
Sales -- 399 25
Maturities 409 893 500
Other (93) -- --
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (84) (482) (98)
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings -- (223) 223
Purchases of treasury stock, net 264 (50) (1,629)
Capital contribution to Bank -- (399) --
Cash dividends paid on common stock (2,353) (1,787) (1,649)
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,089) (2,459) (3,055)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 307 (764) 1,577
Cash and cash equivalents,
Beginning of year 983 1,747 170
- ------------------------------------------------------------------------------------------------
End of year $ 1,290 $ 983 $ 1,747
================================================================================================
BOARD OF DIRECTORS OF SOUTHWEST OFFICERS OF SOUTHWEST BANCORP, CORPORATE INFORMATION
BANCORP, INC. AND STILLWATER INC.
NATIONAL BANK & TRUST COMPANY INDEPENDENT AUDITORS
Rick Green Ernst & Young LLP
Robert B. Rodgers President and Chief Executive 3900 One Williams Center
Chairman of the Board Officer Tulsa, OK 74172
President, Bob Rodgers Motor Kerby E. Crowell, CPA
Company Executive Vice President and SPECIAL COUNSEL
Rick Green Chief Financial Officer Kennedy, Baris & Lundy, L.L.P.
President and Chief Executive Kay W. Smith 4701 Sangamore Road
Officer, Vice Chairman of the Senior Vice President and Suite P-15
Board Comptroller Bethesda, MD 20816
James E. Berry II
President, Shading Concepts, GENERAL COUNSEL
Drapery Manufacturing/Sales Hert, Baker & Koemel
Tom D. Berry SENIOR MANAGEMENT OF STILLWATER 222 E. 7th Avenue
Investments NATIONAL BANK & TRUST COMPANY Stillwater, OK 74074
Joe Berry Cannon
Professor of Management, Rick Green TRANSFER AGENTS AND REGISTRARS
Oral Roberts University President and Chief Executive
School of Business Officer Common Stock:
J. Berry Harrison Kerby E. Crowell, CPA Computershare Investor Services,
Rancher Executive Vice President and LLC
Erd M. Johnson Chief Financial Officer 2 North LaSalle St.
Petroleum Engineer & Jerry Lanier Chicago, IL 60602
Operating Partner, Johnson Executive Vice President and
Oil Partnership Chief Lending Officer Trust Preferred Securities:
Betty B. Kerns Kimberly G. Sinclair State Street Bank and Trust
Owner, Betty Kerns & Executive Vice President and Company
Associates, Government Chief Administrative Officer Two International Place
Relations Consulting Chuck Westerheide Boston, MA 02110
David P. Lambert Executive Vice President
President, Lambert and Treasurer ANNUAL MEETING
Construction Company Steve Gobel The 2003 Annual Meeting of
Linford R. Pitts Executive Vice President Shareholders will be held on
President, Stillwater Transfer & John Frazee April 24, 2003 at 11:00 a.m. in the
Storage Co. President, Kansas LPO Auditorium (Room 215) at the
Russell W. Teubner Rex E. Horning Stillwater Public Library, 1107 S.
Founder and Director, Esker S.A., President, Stillwater Division Duck, Stillwater, Oklahoma.
Software Len McLaughlin
Stanley R. White President, Texas Division ANNUAL REPORT ON FORM 10-K:
President and Managing Director, Joseph P. Root Copies of Southwest's Annual
Tulsa and Eastern Region, President, Central Oklahoma Report on Form 10-K for the fiscal
Stillwater National Bank Division year ended December 31, 2002, as
& Trust Co. Richard Webb filed with the Securities and
President, Business Consulting Exchange Commission, may be
Group, Inc. obtained by shareholders as of the
Stanley R. White record date for the Annual Meeting
President and Managing Director, at no charge by writing to Kerby E.
Tulsa and Eastern Region Crowell, Chief Financial Officer,
Melanie Pitchford Southwest Bancorp, Inc., P.O. Box
Vice President, 1988, Stillwater, Oklahoma 74076
Human Resources and are available via the Internet at
www.oksb.com.
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 WATERFORD BRANCH
P.O. Box 1988 P.O. Box 1988 6301 Waterford Blvd.
608 S. Main Street 308 S. Main Street Suite 101
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 Avenue 2431 E. 61st, Suite 170
405-427-4800 Tulsa, Oklahoma 74152 Tulsa, Oklahoma 74152
918-523-3600 918-523-3600
TEXAS BRANCH OPERATIONS CENTER KANSAS LOAN OFFICE
5300 Town and Country Blvd. P.O. Box 1988 8415 E. 21st Street North
Suite 100 1624 Cimarron Plaza Suite 150
Frisco, Texas 75034 Stillwater, Oklahoma 74076 Wichita, Kansas 67206
972-624-2900 405-372-2230 316-315-1600
OSU-TULSA LOAN OFFICE OUHSC LOAN OFFICE OSU-STILLWATER MARKETING OFFICE
North Hall 1106 N. Stonewall P.O. Box 1988
700 N. Greenwood Avenue Oklahoma City, Student Union, Room 150
Tulsa, Oklahoma 74106 Oklahoma 73190 Stillwater, Oklahoma 74076
918-594-8581 405-271-3113 405-744-5961
OSU CAMPUS BRANCH BANK WEBSITE ADDRESSES
P.O. Box 1988 Stillwater National Bank & Trust Company: www.banksnb.com
1102 W. Hall of Fame Avenue Southwest Bancorp, Inc.: www.oksb.com
Stillwater, Oklahoma 74074
405-372-2230
STOCK INFORMATION
NASDAQ National Market Symbols: Common Stock - OKSB Trust Preferred Securities - OKSBO
Number of common shareholders of record at February 25, 2003: 2,200
The following table sets forth the common stock dividends paid for each quarter
during 2002 and 2001 and the range of high and low closing trade prices for the
common stock for those periods.
2002 2001
----------------------------------------------------------------------------
Dividend Dividend
High Low Declared High Low Declared
--------------------------------- ----------------------------------
For the Quarter Ending:
March 31 $20.50 $17.61 $0.11 $15.33 $11.00 $0.08
June 30 27.23 20.15 0.11 16.37 14.25 0.08
September 30 27.02 23.80 0.11 19.13 14.83 0.08
December 31 26.97 21.04 0.11 17.99 14.38 0.08