-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LLOCWAz+ysvQO9zmNh5CIMA+qeMttoguon2pfqhXa5JYQXRki4NFsbulX862gOzy zW5mqJhbK1LOsqtaxqjRyg== 0000928385-98-000628.txt : 19980401 0000928385-98-000628.hdr.sgml : 19980401 ACCESSION NUMBER: 0000928385-98-000628 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST BANCORP INC CENTRAL INDEX KEY: 0000914374 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 731136584 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-23064 FILM NUMBER: 98580047 BUSINESS ADDRESS: STREET 1: 608 SOUTH MAIN STREET CITY: STILLWATER STATE: OK ZIP: 74074 BUSINESS PHONE: 4053722230 MAIL ADDRESS: STREET 1: 608 SOUTH MAIN STREET CITY: STILLWATER STATE: OK ZIP: 74074 10-K405 1 FORM 10-K FOR 12/31/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission File No. 0-23064 SOUTHWEST BANCORP, INC. ------------------------------------------------ (Exact name of registrant as specified in its charter) OKLAHOMA 73-1136584 - ------------------------------- -------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 608 SOUTH MAIN STREET, STILLWATER, OKLAHOMA 74074 - ------------------------------------------- --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (405) 372-2230 Securities registered pursuant to Section 12(b) of the Act: NOT APPLICABLE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $1.00 PER SHARE --------------------------------------- (Title of Class) 9.20% REDEEMABLE, CUMULATIVE PREFERRED STOCK, SERIES A ------------------------------------------------------ (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 6, 1998, the aggregate market value of the 2,228,815 shares of Common Stock of the registrant issued and outstanding held by nonaffiliates on such date was approximately $60.2 million based on the closing sales price of $27.00 per share of the registrant's Common Stock on March 6, 1998. Solely for purposes of this calculation, it is assumed that directors, officers and 5% stockholders of the registrant are affiliates. Number of shares of Common Stock outstanding as of March 6, 1998: 3,791,147 DOCUMENTS INCORPORATED BY REFERENCE The following lists the documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: 1. Portions of the Annual Report to Stockholders for the year ended December 31, 1997. ("The Annual Report)." (Parts I, II and IV) 2. Portions of Proxy Statement for 1998 Annual Meeting of Stockholders (the "Proxy Statement"). (Part III) FORWARD-LOOKING STATEMENTS Portions of Part I and Part II of this Annual Report on Form 10-K contain forward-looking statements, including statements of goals, intentions, and expectations, regarding or based upon general economic conditions, interest rates, developments in national and local markets, and other matters, and which, by their nature, are subject to significant uncertainties. Because of these uncertainties and the assumptions on which statements in this report are based, the actual future results may differ materially from those indicated in this report. Past results are not necessarily indicative of future performance. PART I ITEM 1. BUSINESS - ----------------- GENERAL Southwest Bancorp, Inc. (the "Company") is a one-bank holding company headquartered in Stillwater, Oklahoma, engaged in providing commercial and consumer banking services through its subsidiary, Stillwater National Bank and Trust Company (the "Bank"). The Company has six full-service banking offices, two of which are located in each of Stillwater and Tulsa, Oklahoma, and one each in Oklahoma City and Chickasha, Oklahoma. The Company pursues a decentralized community banking strategy through three regional divisions -- the Stillwater Division, the Central Oklahoma Division (which includes Oklahoma City and Chickasha) and the Tulsa Division -- that offer commercial, consumer and real estate lending services and retail and commercial deposit products in their market areas. The Stillwater Division of the Bank serves the Stillwater market as a full-service community bank emphasizing both commercial and consumer lending. The Central Oklahoma Division and the Tulsa Division each have followed a more focused marketing strategy, targeting managers and professionals and Oklahoma-based businesses for lending and offering more specialized services. Each regional division is managed by a senior officer. As a result of unusually large loan charge-offs recorded in 1997, management has revised the Bank's credit and loan review policies and standards, has revised individual and committee loan authorities, and has committed additional resources to the credit administration and loan review functions. The Company believes its management approach, coupled with the continuity of service of its senior officers, its management information systems, and restructured credit processes should enable the Company to develop long-term customer relationships, maintain high quality service and respond quickly to customer needs. In addition to the services offered through the regional divisions, the Bank offers student and mortgage lending services throughout the State of Oklahoma. The Bank was founded in Stillwater and is currently in its 104th year of operation. The Company became the holding company for the Bank in 1981. On December 23, 1993, the Company completed a public offering of 866,050 shares of its common stock, $1.00 par value per share (the "Common Stock"). On July 31, 1995, the Company completed a public offering of 690,000 shares of 9.20% Redeemable, Cumulative Preferred Stock, Series A (the "Preferred Stock"). On June 4, 1997, SBI Capital Trust, a wholly owned subsidiary of the Company, completed a public offering of 1,000,500 of its 9.30% Cumulative Trust Preferred Securities (the "Trust Preferred Securities"). The proceeds of the Trust Preferred Securities were used to purchase 9.30% Subordinated Debentures issued by the Company. The Trust Preferred Securities are shown as "Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures" in the Company's consolidated financial statements. The Company began offering loans in Oklahoma City in 1982 and in Tulsa in 1985 by establishing loan production offices in these markets. The Company's banking strategy includes the offering of multiple commercial and consumer services to local businesses and their primary employees as well as to other managers and professionals living and working in the Company's market areas. Working within the branching limitations imposed by Oklahoma law, the Company has developed a marketing strategy that does not rely on an extensive branch network to deliver financial services to its target markets. The Company's high customer service philosophy includes offering an array 2 of financial services, loan officers who often meet at the customer's home or place of business to close loans and the use of third-party courier services to collect commercial deposits. The Company offers a wide variety of commercial and consumer lending and deposit services. The commercial loans offered by the Company include (i) commercial real estate loans, (ii) working capital and other commercial loans, (iii) construction loans, and (iv) Small Business Administration ("SBA") guaranteed loans. Consumer lending services include (i) government-guaranteed student loans, (ii) residential real estate loans and mortgage banking services, and (iii) personal lines of credit and installment loans. The Company issues credit cards throughout the state of Oklahoma, but credit card loans and accounts are owned and serviced by unrelated parties under agreements with the Company. The Company also offers deposit and personal banking services, including (i) commercial deposit services such as lock-box services, and commercial checking and other deposit accounts, (ii) retail deposit services such as certificates of deposit, money market accounts, checking accounts, NOW accounts, savings accounts and Automatic Teller Machine ("ATM") access, and (iii) personal brokerage and trust services. The Company is regulated as a bank holding company by the Board of Governors of the Federal Reserve System ("Federal Reserve") and the Bank is regulated as a national bank by the Office of the Comptroller of the Currency of the U.S. Department of Treasury ("OCC"). The deposit accounts of the Bank are insured to applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). The Company's principal executive offices are located at 608 South Main Street, Stillwater, Oklahoma 74074. The Company's telephone number is (405) 372-2230. LENDING ACTIVITIES Lending. Loans include commercial real estate, commercial, residential real estate mortgage, construction, student and other consumer loans. Interest earned on the Bank's loan portfolio is its primary source of income. As of December 31, 1997, the Bank's loans, net of discount, represented approximately 75% of its total assets. Although the Bank's legal lending limit to any one borrower was $12.1 million as of December 31, 1997, the Bank's lending policy generally limits loans to any one borrower to 90% of the Bank's legal lending limit. The Bank's largest single borrower, net of participation, as of December 31, 1997 had outstanding loans of $9.6 million. For further information regarding the Bank's loan portfolio, including information regarding concentrations of credit, see "Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion") on pages 8 through 21 and "Note 3. Loans Receivable" to the Consolidated Financial Statements on pages 31 through 33 of the Annual Report. 3 The following table presents the composition of the Bank's loan portfolio, net of unearned interest, at each of the dates indicated: LOAN PORTFOLIO COMPOSITION
At December 31, ------------------------------------------------------------------------------------------- 1997 1996 1995 1994 ------------------- ------------------- ------------------- ------------------- Amount % Amount % Amount % Amount % ------------------- ------------------- ------------------- ------------------- (dollars in thousands) Real estate mortgage -- Commercial....................... $223,672 31.10% $196,163 30.43% $160,126 30.10% $132,297 32.06% One-to-four family residential... 79,843 11.10 61,175 9.49 42,988 8.08 33,882 8.21 Real estate construction.......... 72,454 10.08 54,369 8.43 33,159 6.23 20,725 5.02 Commercial........................ 241,007 33.52 218,515 33.90 181,081 34.04 120,781 29.27 Installment and consumer -- Guaranteed student loans......... 64,390 8.95 61,959 9.61 67,388 12.67 61,752 14.97 Credit cards..................... 73 0.01 20,839 3.23 21,869 4.11 20,958 5.08 Other consumer................... 37,674 5.24 31,626 4.91 25,377 4.77 22,219 5.39 ------------------------------------------------------------------------------------------ 719,113 100.00% 644,646 100.00% 531,988 100.00% 412,614 100.00% ====== ====== ====== ====== Less: Allowance for loan losses........ (8,282) (7,139) (5,813) (4,959) -------- -------- -------- -------- Total.......................... $710,831 $637,507 $526,175 $407,655 ======== ======== ======== ======== ------------------- 1993 ------------------- Amount % ------------------- Real estate mortgage -- Commercial....................... $ 88,953 27.87% One-to-four family residential... 31,864 9.98 Real estate construction.......... 9,844 3.08 Commercial........................ 80,732 25.29 Installment and consumer -- Guaranteed student loans......... 69,739 21.84 Credit cards..................... 19,189 6.01 Other consumer................... 18,939 5.93 ------------------- 319,260 100.00% ====== Less: Allowance for loan losses........ (3,960) -------- Total.......................... $315,300 ========
4 NONPERFORMING LOANS Nonperforming loans consist of loans on a nonaccrual basis, loans which are contractually past due 90 days or more, and loans, the original terms of which have been restructured. The Bank maintains a loan review department, which reports directly to the Chief Financial Officer. The loan review department does not have any lending authority. The Bank has retained, since late 1993, an outside consultant to advise the loan review department and assist in the loan review function. The loan review department recommends credits to the Executive Loan Committee for inclusion on the watch list which is reviewed by the Loan Quality Assurance Committee of the Board of Directors monthly. With the concurrence of the Executive Loan Committee, credits also may be recommended to the Loan Quality Assurance Committee for inclusion on the watch list by the Chief Lending Officer, loan managers and individual loan officers. The recognition of interest income on loans receivable is discontinued when, in management's judgment, the interest will not be collectible in the normal course of business. Generally, the Bank does not accrue interest on any asset (i) which is maintained on a cash basis because of deterioration in the financial condition of the borrower, (ii) for which payment in full of principal or interest is not expected, or (iii) upon which principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection. The Company does not have any material amounts of interest-earning assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans. During the years ended December 31, 1997 and 1996 gross interest income of $144,000 and $398,000, respectively, would have been recorded on loans accounted for on a nonaccrual or restructured basis if such loans had been current throughout the period. Interest on such loans included in income during such periods amounted to approximately $30,000 and $37,000, respectively. At December 31, 1997, the Company had $27.0 million of loans which were not included in the past due, nonaccrual or restructured categories, but for which known information about possible credit problems caused management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms over the next six months. Loans may be monitored by management and reported as potential nonperforming loans for an extended period of time during which management continues to be uncertain as to the ability of certain borrowers to comply with the present loan repayment terms. These loans are subject to continuing management attention and are considered by management in determining the level of the allowance for loan losses. No interest-bearing assets disclosed above, other than loans, were classified as nonperforming at December 31, 1997 or were recognized by management as potential problem assets based upon known information about possible credit problems of the borrower or issuer. For additional information on nonperforming loans, see the table on page 14 of the Annual Report. LOAN CONCENTRATIONS The Bank extends commercial and consumer credit primarily to customers in the State of Oklahoma which subjects the loan portfolio to the general economic conditions within this area. At December 31, 1997 and 1996, substantially all of the Bank's loans were 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 approximately $71.1 million, or 10% of total loans. Other notable concentrations of credit within the loan portfolio include $22.4 million in residential construction loans, $14.8 million in restaurant loans and $17.7 million in hotel/motel loans. 5 ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation reserve established by management in an amount it deems adequate to provide for losses in the loan portfolio. Management assesses the adequacy of the allowance for loan losses based upon a number of factors including, among others, analytical reviews of loan loss experience in relationship to outstanding loans and commitments; unfunded loan commitments; problem and nonperforming loans and other loans presenting credit concerns; trends in loan growth, portfolio composition and quality; use of appraisals to estimate the value of collateral; and management's judgment with respect to current and expected economic conditions and their impact on the existing loan portfolio. The allowance for loan losses is increased by provisions for loan losses charged to expense. Charge-offs of loan amounts determined by management to be uncollectible or impaired decrease the allowance and recoveries of previous charge-offs, if any, are added to the allowance. Management believes that the allowance for loan losses was adequate at December 31, 1997. The amount of the allowance deemed appropriate by management, and the levels of loan charge-offs and nonperforming loans, are affected by changing economic conditions and economic prospects and the financial positions of borrowers. Management strives to carefully monitor credit quality and the adequacy of the allowance for loan losses, 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 the Company, 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 lead to a material increase in charge-offs and the provision for loan losses. Since problems with commercial and commercial real estate loans do not necessarily appear early in their lives, the Company may experience increased levels of nonperforming loans and loan charge-offs as the relatively large volume of recently originated loans mature. In addition, the OCC, as an integral part of its examination process, periodically reviews the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based upon judgments of the OCC examiners about information available to them at the time of their examination. The allowance for loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. 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. The allowance for loan losses is established through a provision for loan losses charged to expense. A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All of the Company's nonaccrual loans have been defined as impaired loans. Based upon its review, management established an allowance of $8.3 million, or 1.15% of total loans, at December 31, 1997 compared to an allowance of $7.1 million, or 1.11% of total loans, at December 31, 1996. In establishing this level of allowance for December 31, 1997, management considered a number of factors that tended to indicate a potential need for an increased allowance level, including the continued growth in the loan portfolio, the increased risk associated with the level of real estate construction loans (10% of the loan portfolio at December 31, 1997 and 8% of the portfolio at December 31, 1996), which are viewed as entailing greater risk than certain other categories of loans, and the increased level of one-to-four family residential mortgage loans (11% of the loan portfolio at December 31, 1997 versus 9% at December 31, 1996), which are viewed as entailing less risk than certain other categories of loans. Relatively low-risk student loans comprised 9% of the portfolio at December 31, 1997 versus 10% at year-end 1996. The level of commercial loans, which comprise the largest category in the portfolio, remained unchanged at approximately 34% of the total portfolio at December 31, 1997 and 1996. The level of commercial mortgage loans increased slightly to 31% of the total loan portfolio at year- end 1997 from 30% at the previous year-end. Overall, the loan portfolio, before deduction of the allowance for loan losses, increased by $74.5 million, or 12%, from year-end 1996 to year-end 1997, while the allowance grew by $1.1 million, or 16%. 6 At December 31, 1997, nonperforming loans were $7.1 million, or 0.99% of the portfolio, compared with $6.6 million, or 1.03% of the portfolio, at December 31, 1996. The allowance for loan losses equalled 116.08% and 107.37% of nonperforming loans at December 31, 1997 and 1996, respectively. Large changes in the ratio of the allowance to nonperforming loans may occur from period to period because of variations in the amounts of nonperforming loans, which depend largely on the condition of a small number of individual loans and borrowers relative to the total loan portfolio. At December 31, 1997 and 1996, impaired loans totaled $5.5 million and $4.8 million, and had been allocated a related allowance for loan losses of $707,000 and $2.0 million, respectively. For additional information regarding the Company's allowance for loan losses, see "Provision for Loan Losses" in the Management's Discussion on pages 12 and 13 of the Annual Report. 7 The following table allocates the allowance for loan losses by loan category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
At December 31, ------------------------------------------------------------------------------------------- 1997 1996 1995 1994 ------------------------ -------------------- -------------------- ---------------------- Percent of Percent of Percent of Percent of Loans in Each Loans in Each Loans in Each Loans in Each Category to Category to Category to Category to Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans ------ ------------- ------ ------------- ------ ------------- ------ -------------- (dollars in thousands) Real estate mortgage -- One-to-four family residential............. $ 488 11.10% $ 294 9.49% $ 176 8.08% $ 178 8.21% Commercial............... 1,073 31.10 584 30.43 538 30.10 941 32.06 Real estate construction... 732 10.08 457 8.43 310 6.23 195 5.02 Commercial................. 4,477 33.52 4,597 33.90 3,688 34.04 2,616 29.27 Installment and consumer... Guaranteed student loans. -- 8.95 -- 9.61 9 12.67 6 14.97 Credit cards............. 1 0.01 670 3.23 456 4.11 247 5.08 Other consumer............. 573 5.24 263 4.91 83 4.77 137 5.39 Unallocated................ 938 -- 274 -- 553 -- 639 -- ----- ------ ------ ------ ------ ------ ------ ------ Total allowance for loan losses......... $ 8,282 100.00% $7,139 100.00% $5,813 100.00% $4,959 100.00% ===== ====== ====== ====== ====== ====== ====== ====== ---------------- 1993 ---------------- Percent of Loans in Each Category to Amount Total Loans ------ ------------- Real estate mortgage -- One-to-four family residential............. $ 103 9.98% Commercial............... 519 27.87 Real estate construction... 32 3.08 Commercial................. 1,302 25.29 Installment and consumer... Guaranteed student loans. 65 21.84 Credit cards............. 747 6.01 Other consumer............. 88 5.93 Unallocated................ 1,104 -- ------ ------ Total allowance for loan losses......... $3,960 100.00% ====== ======
Management strives to carefully monitor credit quality and the adequacy of the allowance for loan losses, 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 the Company, 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 lead to a material increase in charge-offs and the provision for loan losses. 8 TRUST SERVICES The Company offers trust services through its relationship with the Trust Company of Oklahoma, (the "Trust Company"). In December 1996, the Company sold its investment in the capital stock of the parent corporation of the Trust Company for a pre-tax gain of approximately $287,000, but continues to offer trust services through the Trust Company. The strategic importance of this relationship is that the Company is able to offer high-quality trust services as part of its complement of financial services. Management believes that offering trust services in this manner is more attractive than offering services through a wholly owned trust department within the Company because (i) a wholly owned trust company would probably be smaller in size than the Trust Company and only marginally profitable, and (ii) the size and reputation of the Trust Company aid the Company in competing for new accounts. INVESTMENT ACTIVITIES The objectives of the investment portfolio are to provide the Company with a source of liquidity (from scheduled maturities) as well as a source of earnings. For further information regarding the Company's investment portfolio, see "Note 2. Investment Securities" to Consolidated Financial Statements on pages 30 and 31 of the Annual Report. INVESTMENT SECURITIES PORTFOLIO COMPOSITION
DECEMBER 31, ---------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) U.S. Government and agency securities.. $154,209 $109,988 $110,785 State and municipal obligations........ 10,953 13,153 11,579 Mortgage-backed securities............. 16,427 23,061 24,222 Other securities....................... 6,151 1,149 1,102 -------- -------- -------- Total investment securities....... $187,740 $147,351 $147,688 ======== ======== ======== Available for sale (fair value)........ $100,746 $ 63,762 $ 73,044 Held to maturity (amortized cost)...... 86,994 83,589 74,644
9 The following table sets forth the maturities, carrying value (amortized cost (in the case of investment securities being held to maturity) or estimated fair value (in the case of investment securities available for sale)), estimated fair market values and average yields for the Company's investment portfolio at December 31, 1997. Yields are not presented on a tax-equivalent basis. Maturities of mortgage-backed securities are based on expected maturities. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers on the underlying mortgages may have the right to call or prepay obligations with or without prepayment penalties. The securities of no single issuer (other than the United States or its agencies), or in the case of securities issued by state and political subdivisions, no source or group of sources of repayment, accounted for more than 10% of shareholders' equity of the Company at December 31, 1997. MATURITY OF INVESTMENT SECURITIES PORTFOLIO
One Year or Less One to Five Years Five to Ten Years More than Ten Total Investment Years Securities -------------------- ----------------- ----------------- ----------------- ---------------------- Carrying Average Carrying Average Carrying Average Carrying Average Carrying Fair Value Yield Value Yield Value Yield Value Yield Value Value ------------------- ----------------- ---------------- ---------------- ---------------------- (dollars in thousands) Held to Maturity - ---------------- U.S. government and agency securities............... $21,933 5.94% $ 55,328 6.26% -- -- -- -- $ 77,261 $ 77,908 State and municipal obligations.............. 5,986 4.42 3,747 4.17 -- -- -- -- 9,733 9,684 Mortgage-backed securities -- -- -- -- -- -- -- -- -- -- Other securities........... -- -- -- -- -- -- -- -- -- -- ------- -------- ------- ------- Total held to maturity... 27,919 5.61 59,075 6.13 -- -- -- -- 86,994 87,592 ------- -------- ------- ------- Available for Sale - ------------------ U.S. government and agency securities............... 11,144 6.35 57,830 6.49 $7,974 7.02% -- -- 76,948 76,948 State and municipal obligations.............. 237 3.94 983 5.34 -- -- -- -- 1,220 1,220 Mortgage-backed securities 2,267 6.38 14,160 6.66 -- -- -- -- 16,427 16,427 Other securities........... -- -- 4,151 7.09 -- -- $2,000 7.70% 6,151 6,151 ------- -------- -------- -------- ------- ------- Total available for sale. 13,648 6.31 77,124 6.54 7,974 7.02 2,000 7.70 100,746 100,746 ------- -------- -------- -------- ------- ------- Total investment securities. $41,567 5.84 $136,199 6.36 $7,974 7.02 $2,000 7.70 $187,740 $188,338 ======= ======== ======== ======== ======== ======== Average Held to Maturity Yield - ---------------- -------- U.S. government and agency securities............... 6.17% State and municipal obligations.............. 4.32 Mortgage-backed securities -- Other securities........... -- Total held to maturity... 5.96 Available for Sale - ------------------ U.S. government and agency securities............... 5.96 State and municipal obligations.............. 6.62 Mortgage-backed securities Other securities........... 7.30 Total available for sale. 6.57 Total investment securities.............. 6.28
10 At December 31, 1997, the Company held mortgage-backed securities with a book value of $16.4 million, all of which were collateralized by single-family mortgage loans. It is the Company's policy to purchase mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation or Freddie Mac ("FHLMC"), Federal National Mortgage Association or Fannie Mae ("FNMA"), or the Government National Mortgage Association or Ginnie Mae ("GNMA"), when such securities can be acquired at attractive yields, and where the investment characteristics of the securities complement the Bank's asset/liability management objectives, primarily as to interest rate adjustments and terms to maturity. FHLMC, FNMA and GNMA mortgage-backed securities have lower risk weightings, and therefore require less capital, than residential mortgage loans. Mortgage-backed securities also may be used as collateral for borrowings and, through repayments, as a source of liquidity. At December 31, 1997, 1996, and 1995, the Company had no investments in privately issued mortgage-backed securities, and had no mortgage-related securities that were rated "high risk" under regulatory guidelines. Because they are primarily adjustable rate and have relatively short terms, the Company's mortgage-backed securities are helpful in limiting interest rate risk. Prepayments in the Company's mortgage related securities portfolio may be affected by declining and rising interest rate environments. In a low and falling interest rate environment, prepayments would be expected to increase. The Company's floating rate mortgage-backed securities would be expected to generate lower yields as a result of the effect of falling interest rates on the indexes for determining payment of interest. Additionally, the increased principal payments received may be subject to reinvestment at lower rates. Conversely, in a period of rising rates, prepayments would be expected to decrease, which would make less principal available for reinvestment at higher rates. In a rising rate environment, floating rate instruments would generate higher yields to the extent that the indexes for determining payment of interest did not exceed the life-time interest rate caps. Such prepayments may subject the Company's mortgage-backed securities to yield and price volatility. DEPOSIT ACTIVITY. The principal sources of funds for the Bank are core deposits (demand deposits, NOW accounts, money market accounts, savings accounts and certificates of deposit of less than $100,000) from the local market areas surrounding each of the Bank's offices. The Bank's deposit base includes transaction accounts, time and savings accounts and accounts which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities as well as a low-cost source of funds. Time and savings accounts, including money market deposit accounts, also provide a relatively stable and low-cost source of funding. The largest source of funds for the Bank remains certificates of deposit. The Bank offers a variety of cash management services to its commercial deposit customers including lock-box collections and deposit reconciliation and verification. Commercial customers in Tulsa and Oklahoma City frequently use third-party courier services to deliver deposits which has allowed the Bank to effectively service these metropolitan areas from its current branch locations. The Bank's deposits grew by $87.5 million, or 12%, during 1997. Deposit growth during 1997 came mainly from time deposits. The Bank has not solicited brokered deposits as a source of funds, although its capitalization would permit such activity on an unrestricted basis under current federal banking regulations. The Bank plans to solicit brokered deposits on a national basis through a national brokerage firm from time to time in the future when rates on such deposits are attractive relative to other sources of funds with comparable maturities. 11 The following table sets forth the distribution of the Bank's deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposit. DEPOSITS
At December 31, ------------------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------ ------------------------------ --------------------------- Percent of Percent Percent Amount Deposits Rate Amount of Deposits Rate Amount of Deposits Rate ------------------------------ ------------------------------ --------------------------- (dollars in thousands) Demand deposits............ $ 96,560 11.48% N/A $ 83,729 11.11% N/A $ 78,308 12.34% N/A NOW accounts............... 37,447 4.45 2.37% 34,309 4.55 2.32% 33,762 5.32 2.37% Money market accounts...... 94,496 11.23 4.12 86,910 11.53 3.82 75,330 11.87 4.10 Savings accounts........... 3,655 0.43 2.49 4,086 0.54 2.49 4,788 0.76 2.44 Time deposits of $100,000 or more.................. 132,003 15.69 5.48 123,068 16.33 5.66 86,258 13.60 5.77 Other time deposits........ 477,264 56.72 5.74 421,843 55.94 5.77 355,941 56.11 5.89 ---------------------- ----------------------- ----------------------- Total deposits......... $841,425 100.00% $753,945 100.00% $634,387 100.00% ====================== ======================= =======================
The following table indicates the amount of the Bank's certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 1997. AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
Maturity Period Amount ------------------------------- --------------- (In thousands) Three months or less........... $ 51,076 Over three through six months.. 47,966 Over six through 12 months..... 24,227 Over 12 months................. 8,734 --------------- Total...................... $132,003 ===============
12 BORROWINGS. The Company uses various forms of short-term borrowings for cash management and liquidity purposes on a limited basis. These forms of borrowings include federal funds purchased and borrowings from the Federal Reserve Bank, the Federal Home Loan Bank ("FHLB") and the Student Loan Marketing Association ("SLMA"). For additional information regarding the Company's borrowings, see "Liquidity" in the Management's discussion on page 17 and "Note 5. Other Borrowed Funds" and "Note 6. Long-Term Debt" to Consolidated Financial Statements on pages 33 and 34 of the Annual Report.
At December 31, ---------------------------- 1997 1996 1995 --------- --------- ------ (dollars in thousands) Amounts outstanding at end of period Treasury, tax and loan note option...... $ 1,595 $1,185 $ 471 Federal funds purchased and securities sold under repurchase agreements...... 18,953 1,800 2,800 Other short-term borrowings............. -- -- 7,500 Weighted average rate paid on: Treasury, tax and loan note option...... 5.25% 4.99% 5.15% Federal funds purchased and securities sold under repurchase agreements...... 4.94% 6.70% 5.75% Other short-term borrowings............. -- -- 5.55%
Year Ended December 31, -------------------------------- 1997 1996 1995 ---------- -------- ---------- (dollars in thousands) Maximum amount of borrowings outstanding at any month end: Treasury, tax and loan note option........ $ 1,843 $1,500 $ 1,710 Federal funds purchased and securities sold under repurchase agreements........ 19,953 2,300 11,200 Other short-term borrowings............... 5,000 -- 12,500 Approximate average short-term borrowings outstanding with respect to: Treasury, tax and loan note option........ 1,205 1,135 1,152 Federal funds purchased and securities sold under repurchase agreements........ 4,657 251 1,536 Other short-term borrowings............... 739 554 1,839 Approximate weighted average rate paid on: Treasury, tax and loan not option......... 5.36% 4.96% 5.79% Federal funds purchased and securities sold under repurchase agreements........ 4.98% 5.78% 6.05% Other short-term borrowings............... 5.84% 5.59% 6.41%
13 The following table sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by the prior period's rate); and (ii) changes in rates (change in rate multiplied by the prior period's volume). Changes in rate-volume (changes in rate multiplied by the changes in volume) are allocated between changes in rate and changes in volume in proportion to the relative contribution of each. CHANGES IN INTEREST INCOME AND EXPENSES RATE/VOLUME ANALYSIS
Year Ended Year Ended December 31, 1997 December 31, 1996 Compared to Compared to December 31, 1996 December 31, 1995 -------------------------------------------------------------- Increase (decrease) attributable to change in: Yield/ Net Yield/ Net Volume Rate Change Volume Rate Change ---------------------------- ------------------------------- (dollars in thousands) Interest earned on: Loans receivable/(1)/ $11,182 $(799) $10,383 $10,201 $(615) $9,586 Investment securities 1,534 49 1,583 243 (57) 186 Federal funds sold 199 16 215 (46) (58) (104) Total interest income 12,915 (734) 12,181 10,398 (730) 9,668 Interest paid on: NOW accounts 38 18 56 90 (16) 74 Money market accounts 449 258 707 332 (364) (32) Savings accounts (18) -- (18) (22) 3 (19) Time deposits 6,402 (306) 6,096 4,916 (477) 4,439 Short-term borrowings 240 (5) 235 (143) (30) (173) Long-term debt 1,338 -- 1,338 -- -- -- ---------------------------- ------------------------------- Total interest expense 8,449 (35) 8,414 5,173 (884) 4,289 ---------------------------- ------------------------------- Net interest income $ 4,466 $(699) $ 3,767 $ 5,225 $ 154 $5,379 ==============================================================
(1) Average balance includes nonaccrual loans. Fees included in interest income on loans receivable are not considered material to any period presented. Interest on tax-exempt loans and securities is not presented on a tax-equivalent basis because such amounts are not considered material. 14 REGULATION OF BRANCH AND INTERSTATE BANKING. Under the McFadden Act of 1927, national banks may only establish branches to the extent specifically authorized by statute for banks chartered by the state in which the national bank is located and subject to the restrictions as to location imposed by state law on state banks. Oklahoma law provides that Oklahoma banks may establish no more than two branches within the corporate city limits where the main bank is located or within 25 miles of the main bank if it is located in a city that has no other bank. Oklahoma banks, however, may acquire an unlimited number of offices of other banks or savings associations provided that the bank does not control more than 15% of the insured deposits in the State of Oklahoma. Accordingly, the Bank can open branches in markets other than Stillwater only through acquisitions of existing banks or branches. The Bank Holding Company Act of 1956, as amended (the "BHC Act") allows the Federal Reserve to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years), if any, specified by the statutory law of the host state. The BHC Act also prohibits the Federal Reserve from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. The BHC Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit. Beginning on June 1, 1997, the federal banking agencies were authorized to approve interstate bank (as opposed to bank holding company) merger transactions without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks had "opted out" of the interstate bank mergers that applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Oklahoma did not "opt out," and allows interstate bank mergers and interstate branch acquisitions, provided that the Oklahoma bank or branch acquired has been in existence for at least five years. Interstate bank mergers and branch acquisitions also are subject to the nationwide and statewide insured deposit concentration amounts described above. Federal law also generally allows bank holding companies to acquire or establish federal savings associations, without regard to location. Under federal law, federal savings associations may establish or acquire branches in or outside of their home states without regard to state restrictions. Federal law authorizes the OCC and FDIC to approve interstate branching de novo by national and state banks, respectively, only in states which specifically allow for such branching. Oklahoma does not. Federal law also prohibits any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production, and requires an out-of-state bank to help meet the credit needs of the communities served by its interstate branches. COMPETITION The Bank encounters competition primarily in seeking deposits and in obtaining loan customers. The level of competition for deposits is high. The Bank's principal competitors for deposits are other financial institutions, including other banks, credit unions, and savings institutions. Competition among these institutions is based primarily on interest rates and other terms offered, service charges imposed on deposit accounts, the quality of services rendered, and the convenience of banking facilities. Additional competition for depositors' funds comes from U.S. Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors, such as securities firms. Competition from credit unions has intensified in recent years as historic federal limits on 15 membership have been relaxed. Because federal law subsidizes credit unions by giving them a general exemption from federal income taxes, credit unions have a significant cost advantage over banks and savings associations, which are fully subject to federal income taxes. Credit unions may use this advantage to offer rates that are highly competitive with those offered by banks and thrifts. The Bank also competes in its lending activities with other financial institutions such as savings institutions, credit unions, securities firms, insurance companies, small loan companies, finance companies, mortgage companies and other sources of funds. Many of the Bank's nonbank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally-insured banks and state regulations governing state chartered banks. As a result, such nonbank competitors have advantages over the Bank in providing certain services. A number of the financial institutions with which the Bank competes in both lending and deposit activities are larger than the Bank. In recent periods, competition has increased in the Bank's market area as new entrants and existing competitors have sought to more aggressively expand their loan and deposit market share, and as a result of the Bank's efforts to solicit larger loan customers, for whom there is greater competition. The Company anticipates that competition may intensify as a result of acquisition of Oklahoma banks by out-of-state bank holding companies and the special advantages given to federal credit unions under current law. See " --Regulation of Branch and Interstate Banking." The business of mortgage banking is highly competitive. The Company competes for loan origination with other financial institutions, such as mortgage bankers, state and national commercial banks, savings and loan associations, credit unions and insurance companies. Many of the Company's competitors have financial resources that are substantially greater than those available to the Company. The Company competes principally by providing competitive pricing, by motivating its sales force through the payment of commissions on loans originated, and by providing high quality service to builders, borrowers, and realtors. EMPLOYEES As of December 31, 1997, the Company and the Bank had 348 full-time equivalent employees. None of the employees of the Company or the Bank is subject to a collective bargaining agreement. The Company considers its relationships with its employees and those of the Bank to be good. SUPERVISION AND REGULATION GENERAL The Company and the Bank are extensively regulated under federal and state law. These laws and regulations are generally intended to protect depositors and the federal deposit insurance funds, not shareholders. As an originator of guaranteed student loans, the Bank is also subject to examination by the U.S. Department of Education to determine its compliance with the requirements of federal laws governing student loans. In addition, the Bank is considered to be a federal contractor required to comply with the requirements of the Office of Federal Contract Compliance Programs for affirmative action programs, among other things. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company and the Bank. The operations of the Company and the Bank may be affected by legislative changes and by the policies of various regulatory authorities. The Company is unable to predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, economic control or new Federal or state legislation may have in the future. 16 FEDERAL BANK HOLDING COMPANY REGULATION The Company is a bank holding company within the meaning of the BHC Act, and, as such, it is subject to regulation, supervision and examination by the Federal Reserve. The Company is required to file annual and quarterly reports with the Federal Reserve and to provide to the Federal Reserve such additional information as the Federal Reserve may require. With certain limited exceptions, the BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (1) acquiring direct or indirect ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company. The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anti- competi tive result, unless the anti-competitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. In addition, and subject to certain exceptions, the Change in Bank Control Act (the "Control Act") and regulations promulgated thereunder by the Federal Reserve require any person acting directly or indirectly, or through or in concert with one or more persons, to give the Federal Reserve 60 days' written notice before acquiring control of a bank holding company. Transactions which are presumed to constitute the acquisition of control include the acquisition of any voting securities of a bank holding company having securities registered under section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if, after the transaction, the acquiring person (or persons acting in concert) owns, controls or holds with power to vote 25% or more of any class of voting securities of the institution. The acquisition may not be consummated subsequent to such notice if the Federal Reserve issues a notice within 60 days, or within certain extensions of such period, disapproving the same. With certain exceptions, the BHC Act also prohibits a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of managing or controlling banks. In making this determination, the Federal Reserve considers whether the performance of such activities by a bank holding company can be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency, which can be expected to outweigh the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve also considers capital adequacy and other financial and management factors, including Community Reinvestment Act ("CRA") and "fair lending" compliance, in reviewing acquisitions and mergers. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to the bank holding company or its subsidiaries, on investments in their securities and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit the Company's ability to obtain funds from the Bank for its cash needs, including funds for payment of dividends, interest and operating expenses. Further, under the BHC Act and certain regulations of the Federal Reserve, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, the Bank may not generally require a customer to obtain other services from the Bank or the Company, and may not require that customer to promise not to obtain other services from a competitor, as a condition to an extension of credit to the customer. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate 17 of earning retention that is consistent with the company's capital needs, asset quality, and overall financial condition. Bank holding companies are required to give the Federal Reserve notice of any purchase or redemption of their outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the bank holding company's consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, Federal Reserve order, directive, or any condition imposed by, or written agreement with, the Federal Reserve. Bank holding companies whose capital ratios exceed the thresholds for "well-capitalized" banks on a consolidated basis are exempt from the foregoing requirement if they were rated composite 1 or 2 in their most recent inspection and are not the subject of any unresolved supervisory issues. STATE BANK HOLDING COMPANY REGULATION Under Oklahoma law, any bank holding company or other company which submits an application to the Federal Reserve for approval of the acquisition of a state or national bank located in Oklahoma must submit a copy of such application to the Oklahoma Bank Board. Subject to certain exceptions for supervisory acquisitions and certain other limited exceptions, Oklahoma law further provides that it shall be unlawful for a multi-bank holding company to acquire direct or indirect ownership or control of any financial institution with deposits insured by the FDIC or the National Credit Union Administration ("NCUA") and located in Oklahoma if such acquisition results in such multi-bank holding company having direct or indirect ownership or control of banks located in Oklahoma, the total deposits of which at the time of such acquisition exceed 15% of aggregate deposits of all financial institutions with deposits insured by the FDIC and the NCUA. See "Business -- Regulation of Branch and Interstate Banking." FEDERAL BANK REGULATION As a national bank, the Bank is subject to the primary supervision of the OCC under the National Bank Act. The prior approval of the OCC is required for a national bank to establish or relocate an additional branch office or to engage in any merger, consolidation, or significant purchase or sale of assets. The OCC regularly examines the operations and condition of the Bank, including but not limited to its capital adequacy, reserves, loans, investments, and management practices. These examinations are for the protection of the Bank's depositors and the Bank Insurance Fund. In addition, the Bank is required to furnish quarterly and annual reports to the OCC. The OCC's enforcement authority includes the power to remove officers and directors and the authority to issue cease and desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business. The OCC has adopted regulations regarding the capital adequacy of national banks, which require national banks to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See "Regulatory Capital Requirements." The ability of banks and bank holding companies to operate in multiple locations or in more than one state is regulated by both federal and state law. See "Business -- Regulation of Branch and Interstate Banking." The CRA requires that, in connection with examinations of financial institutions within their jurisdiction, the Federal Reserve or the OCC evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered by the Federal Reserve and OCC in evaluating mergers, acquisitions and applications to open a branch or facility. 18 The Bank participates in various community development programs in an effort to meet its responsibilities under the CRA. The Bank's participation in the Guaranteed Student Loan program, the SBA loan programs, and the Central Oklahoma Clearing House Association Home Loan program also helped meet CRA responsibilities. In addition, the Bank has developed and operates its own Sheltered Home Loan program to specifically address the need for a home loan program for low-to-moderate income borrowers. The Bank is also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons. Extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral as, and following credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with persons not covered above and who are not employees, and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties on the Bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of the Bank, the imposition of a cease and desist order, and other regulatory sanctions. The Bank is a member of the Federal Reserve System and its deposits are insured by the FDIC to the legal maximum of $100,000 for each insured depositor. Some of the aspects of the lending and deposit business of the Bank that are subject to regulation by the Federal Reserve and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and deposit accounts. In addition, the Bank is subject to numerous federal and state laws and regulations that include specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms, and discrimination in credit transactions. The Bank is subject to restrictions imposed by federal law on extensions of credit to, and certain other transactions with, the Company and other affiliates, and on investments in their stock or other securities. These restrictions prevent the Company from borrowing from the Bank unless the loans are secured by specified collateral, and require those transactions to have terms comparable to terms of arms-length transactions with third persons. In addition, secured loans and other transactions and investments by the Bank are generally limited in amount as to the Company and as to any other affiliate to 10% of the Bank's capital and surplus and as to the Company and all other affiliates together to an aggregate of 20% of the Bank's capital and surplus. These regulations and restrictions may limit the Company's ability to obtain funds from the Bank for its cash needs, including funds for acquisitions and for payment of dividends, interest, and operating expenses. Under OCC regulations, national banks must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit secured by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards; prudent underwriting standards, including loan-to-value limits, that are clear and measurable; loan administration procedures; and documentation, approval, and reporting requirements. A bank's real estate lending policy must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (the "Interagency Guidelines") adopted by the federal bank regulators. The Interagency Guidelines, among other things, call for internal loan-to-value limits for real estate loans that are not in excess of the limits specified in the Guidelines. The Interagency Guidelines state, however, that it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits. 1996 Act. The operations of the Company and the Bank are affected by new -------- federal and state laws. The federal Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "1996 Act"), enacted in September 1996, included provisions that affect banks, bank holding companies, and savings institutions. The 1996 Act had, and is expected to have in the future, its most significant effect upon banks and savings institutions that hold deposits assessed at Savings Deposit Insurance Fund ("SAIF") rates. Among other things, the 1996 Act recapitalized the SAIF through a special assessment on savings association deposits and bank deposits that had been acquired from savings associations. The Bank is assessed at "SAIF" rates on certain deposits, as described below. The 1996 Act may 19 increase competition from savings associations by equalizing, over time, the amount of federal insurance premiums paid on savings association and bank deposits. The 1996 Act also provided that institutions with deposits insured by the Bank Insurance Fund ("BIF"), as well as those with SAIF-insured deposits, are responsible for payment of certain bonds issued in connection with the resolution of failed savings associations. The result of these provisions will be somewhat higher federal deposit insurance premiums for the Bank. These higher insurance premiums are not expected to have a material adverse effect on the Bank or the Company. The 1996 Act also simplified the regulatory approval process for new activities of banks and bank holding companies, and reduces a number of other regulatory burdens. None of these changes is expected to have a significant effect on the Company or the Bank. DEPOSIT INSURANCE As an FDIC member institution, the deposits of the Bank are currently insured to a maximum of $100,000 per depositor through the BIF, administered by the FDIC, and the Bank is required to pay quarterly deposit insurance premium assessments to the FDIC. The FDIC is permitted by Federal Law to make special assessments on insured depository institutions, in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed from the U.S. Treasury and other sources or for any other purpose the FDIC deems necessary. Generally, under the risk-based assessment system used by the FDIC, banks are assessed insurance premiums according to how much risk they are deemed to present the BIF. Banks with higher levels of capital and involving a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or involving a higher degree of supervisory concern. As a result of the acquisition of savings association deposits in 1991, the Bank is required to pay insurance premiums on a portion of its deposits at the rates assessed on SAIF-insured deposits. The 1996 Act authorized the FDIC to assess a one-time fee on institutions with deposits insured by the SAIF and other deposits assessed at SAIF rates in order to increase the SAIF's reserves to the 1.25% of insured deposits required by the Federal Deposit Insurance Act. The amount of this one- time special assessment on the Bank's SAIF-assessable deposits was $436,000. After the payment of this special assessment in 1996, the insurance premiums related to the Bank's SAIF-assessable deposits were reduced. The Bank has been informed that it is in the lowest assessment category for BIF and SAIF for the first assessment period of 1998. DIVIDENDS The principal source of the Company's cash revenues is dividends received from the Bank. Pursuant to the National Bank Act, no national bank may pay dividends from its paid-in capital. All dividends must be paid out of current or retained net profits, after deducting reserves for losses and bad debts. The National Bank Act further restricts the payment of dividends out of net profits by prohibiting a national bank from declaring a dividend on its shares of common stock until the surplus fund equals the amount of capital stock or, if the surplus fund does not equal the amount of capital stock, until one-tenth of a bank's net profits for the preceding half-year in the case of quarterly or semiannual dividends, or the preceding two half-year periods in the case of an annual dividends, are transferred to the surplus fund. The approval of the OCC is required prior to the payment of a dividend if the total of all dividends declared by a national bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The Bank may not pay a dividend if, after paying the dividend, the Bank would be undercapitalized. At December 31, 1997 the Bank had a maximum of approximately $13.2 million available for dividend payments to the Company under the foregoing statutes. Accordingly, the Company does not anticipate that these limitations will affect the Company's ability to pay dividends to its shareholders consistent with its past practice and as proposed. 20 In the first quarter of 1998, the Company adopted a policy which prohibits the declaration of dividends on common stock while the Company is operating at a loss. Dividends on common stock were declared in the third quarter of 1997, prior to the adoption of this policy, although a loss was incurred for that quarter. In addition, the appropriate regulatory authorities are authorized to prohibit banks and bank holding companies from paying dividends which would constitute an unsafe and unsound banking practice. The Bank and the Company are not currently subject to any such regulatory restrictions on their dividends. REGULATORY CAPITAL REQUIREMENTS The Federal Reserve and the OCC have established guidelines for maintenance of appropriate levels of capital by bank holding companies and national banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to "risk-weighted" assets. The regulations of the Federal Reserve and the OCC require bank holding companies and national banks, respectively, to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in the risk-based capital guidelines discussed in the following paragraphs) to total assets of 3.0%. The capital regulations state, however, that only the strongest bank holding companies and banks, with composite examination ratings of 1 under the rating system used by the federal bank regulators, are permitted to operate at or near this minimum level of capital. All other bank holding companies and banks are expected to maintain a leverage ratio of at least 1% to 2% above the minimum ratio, depending on the assessment of an individual organization's capital adequacy by its primary regulator. A bank or bank holding company experiencing or anticipating significant growth is expected to maintain capital well above the minimum levels. In addition, the Federal Reserve has indicated that it also may consider the level of an organization's ratio of tangible Tier 1 capital (after deducting all intangibles) to total assets in making an overall assessment of capital. The risk-based capital rules of the Federal Reserve and the OCC require bank holding companies and national banks to maintain minimum regulatory capital levels based upon a weighting of their assets and off-balance sheet obligations according to risk. The risk-based capital rules have two basic components: a core capital (Tier 1) requirement and a supplementary capital (Tier 2) requirement. Core capital consists primarily of common stockholders' equity, certain perpetual preferred stock (noncumulative perpetual preferred stock with respect to banks), and minority interests in the equity accounts of consolidated subsidiaries; less all intangible assets, except for certain mortgage servicing rights and purchased credit card relationships. Supplementary capital elements include, subject to certain limitations, the allowance for losses on loans and leases; perpetual preferred stock that does not qualify as Tier 1 capital; long- term preferred stock with an original maturity of at least 20 years from issuance; hybrid capital instruments, including perpetual debt and mandatory convertible securities; and subordinated debt and intermediate-term preferred stock. Federal Reserve Guidelines applicable to cumulative perpetual preferred stock limit the amount of the Company's outstanding Preferred Stock and the 9.30% Cumulative Trust Preferred Securities issued by SBI Capital Trust that may be included in the calculation of Tier 1 capital to 25% of total Tier 1 capital. The excess, if any, is included as supplementary capital. The risk-based capital regulations assign balance sheet assets and credit equivalent amounts of off-balance sheet obligations to one of four broad risk categories based principally on the degree of credit risk associated with the obligor. The assets and off-balance sheet items in the four risk categories are weighted at 0%, 20%, 50% and 100%. These computations result in total risk- weighted assets. The risk-based capital regulations require all banks and bank holding companies to maintain a minimum ratio of total capital to total risk-weighted assets of 8%, with at least 4% as core capital. For the purpose of calculating these ratios: (i) supplementary capital is limited to no more than 100% of core capital; and (ii) the aggregate amount of certain types of supplementary capital will be limited. In addition, the risk-based capital 21 regulations limit the allowance for loan losses that may be included in includable capital to 1.25% of total risk-weighted assets. In 1996, the federal bank regulatory agencies, including the OCC, issued a joint policy statement regarding the evaluation of commercial banks' capital adequacy for interest rate risk. Under the policy, the OCC's assessment of a bank's capital adequacy includes an assessment of the bank's exposure to adverse changes in interest rates. The OCC has determined to rely on its examination process for such evaluations rather than on standardized measurement systems or formulas. The OCC may require banks that are found to have a high level of interest rate risk exposure or weak interest rate risk management systems to take corrective actions. Management believes its interest rate risk management systems and its capital relative to its interest rate risk are adequate. Federal banking regulations also require banks with significant trading assets or liabilities to maintain supplemental risk-based capital based upon their levels of market risk. The Bank did not have significant levels of trading assets or liabilities during 1997, and was not required to maintain such supplemental capital. The OCC has established regulations that classify national banks by capital levels and provide for the OCC to take various "prompt corrective actions" to resolve the problems of any bank that fails to satisfy the capital standards. Under these regulations, a well-capitalized bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based capital ratio of 6% or more, and a leverage ratio of 5% or more. An adequately capitalized bank is one that does not qualify as well-capitalized but meets or exceeds the following capital requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest composite examination rating. A bank that does not meet these standards is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized, depending on its capital levels. A national bank that falls within any of the three undercapitalized categories established by the prompt corrective action regulation is subject to severe regulatory sanctions. As of December 31, 1997, the Bank was well-capitalized as defined in the OCC's regulations. As of December 31, 1997, the Company and the Bank were in compliance with applicable capital requirements. See "Note 6. Long Term Debt," "Note 8. Shareholders' Equity" and "Note 9. Capital Requirements" to the Notes to Consolidated Financial Statements on pages 34, 36 and 37 of the Annual Report. SUPERVISION AND REGULATION OF MORTGAGE BANKING OPERATIONS The Bank's mortgage banking business is subject to the rules and regulations of the U.S. Department of Housing and Urban Development ("HUD"), the Federal Housing Administration ("FHA"), the Veterans' Administration ("VA"), FMHA and FNMA with respect to originating, processing, selling and servicing mortgage loans. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers, and fix maximum loan amounts. Lenders such as the Company are required annually to submit to FNMA, FHA and VA audited financial statements, and each regulatory entity has its own financial requirements. The Company's affairs are also subject to examination by the Federal Reserve, FNMA, FHA and VA at all times to assure compliance with the applicable regulations, policies and procedures. Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, Federal Truth-in-Lending Act, Fair Housing Act, Fair Credit Reporting Act, the National Flood Insurance Act and the Real Estate Settlement Procedures Act and related regulations that prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. The Company's mortgage banking operations also are affected by various state and local laws and regulations and the requirements of various private mortgage investors. 22 MONETARY POLICY The earnings of a bank holding company are affected by the policies of regulatory authorities, including the Federal Reserve, in connection with the Federal Reserve's regulation of the money supply. The Federal Reserve uses various methods to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS - ---- --- --------- Robert L. McCormick.................................... 63 President and Director of the Company; Vice Chairman and Chief Executive Officer and Director of the Bank Thomas E. Bennett, Jr.................................. 47 President, Tulsa Division of the Bank Kerby E. Crowell....................................... 48 Executive Vice President, Treasurer and Chief Financial Officer of the Company and the Bank Rick J. Green.......................................... 50 Executive Vice President and Chief Operating Officer of the Bank Jerry L. Lanier........................................ 49 Senior Vice President of the Bank Joseph P. Root......................................... 33 President, Central Oklahoma Division of the Bank Kimberly G. Sinclair................................... 42 Executive Vice President and Chief Administrative Officer of the Bank Stanley R. White....................................... 51 Chief Lending Officer of the Bank Patrick E. Zimmerman................................... 36 President, Stillwater Division of the Bank
Set forth below is certain information regarding the principal occupations and business experience of each executive officer of the Company. Unless otherwise indicated, each person has held the indicated positions for at least the last five years. Robert L. McCormick has been a director and Chief Executive Officer of the Company since its inception in 1981. He has been President, Chief Executive Officer and a director of the Bank since 1970. He is presently a Regent, Oklahoma State Regents for Higher Education. He has served as President of the Independent Bankers Association of America; President, Independent Bankers Association of Oklahoma; President of the Board of Directors Stillwater Chamber of Commerce; Chairman of the State Chamber, Oklahoma's Association of Business and Industry; Chairman and President of the Board of Directors for the Oklahoma Academy for State Goals; Chairman of the Board of Trustees of the Oklahoma State University Foundation; 1991 Drive Chairman for the Stillwater United Way; and was 1990 Citizen of the Year of the Stillwater Chamber of Commerce. 23 Thomas E. Bennett, Jr. has been President of the Tulsa Division of the Bank since 1991 and associated with the Bank since 1973; with the exception of 1985- 86 when he was a White House Fellow and Special Assistant to the Comptroller of the Currency, U.S. Department of the Treasury in Washington, D.C.; and from 1986-87 while he obtained a Masters in Public Administration with Honors from Harvard University in Cambridge, Massachusetts; and from 1987-88 when he was Senior Advisor and Coordinator of Strategic Planning for the Oklahoma Department of Commerce putting together a comprehensive Five Year Economic Development Plan for the State of Oklahoma. Mr. Bennett is currently a Member of the National Advisory Board of the U.S. Small Business Administration, Director of the Tulsa Metropolitan Chamber of Commerce and a Trustee of the Tulsa Airport Authority. Mr. Bennett is a former Trustee of Rogers University, a past National President of the Oklahoma State University Alumni Association, a former Trustee of the Oklahoma State University Development Foundation, a past National Director of the Independent Bankers Association of America, a past Director of the Higher Education Alumni Council of Oklahoma, and a member of Oklahoma's Post Secondary Oversight Counsel. Mr. Bennett is a past member of the Regional Advisory Board of the Resolution Trust Corporation, a past Chairman of the Oklahoma Group of the Robert Morris Associates, and a past Chairman of the lending committee of the Oklahoma Bankers Association. He is also a past Director of the Tulsa Philharmonic, past President and Drive Chairman of the Stillwater United Way, past President and Co-founder of the Stillwater Public Education Foundation, past Director of the Stillwater Chamber of Commerce, Stillwater YMCA and Payne County Red Cross. Kerby E. Crowell has served as Executive Vice President, Treasurer and Chief Financial Officer of the Company and the Bank for the last eleven years. Mr. Crowell joined the Bank in 1969. He is currently President of the Oklahoma City Chapter of the Financial Executives Institute, and a member of the Bank Operations Committee of the Independent Bankers Association of America. He is past President and Director of the Oklahoma 4-H Foundation, Inc., Director and past President of the Payne County Affiliate of the American Diabetes Association, past President of the Stillwater Breakfast Kiwanis Club, the Bank Administration Institute's Northern Oklahoma Chapter, and the North Central Chapter of Certified Public Accountants, and past Vice Chairman of the Bank Services Committee. Mr. Crowell is also a graduate of the Leadership Stillwater Class XI. Rick J. Green is an Executive Vice President and the Chief Operating Officer of the Bank. Previously, Mr. Green has served as President of the Central Oklahoma Division of the Bank and as Executive Vice President of the Bank. Mr. Green joined the Bank in 1972. He is a member of the Oklahoma City and Edmond Chambers of Commerce and has served as Chair/Ambassador of the Stillwater Chamber of Commerce, on the Oklahoma State University Alumni Association Homecoming and Honor Students Committees, as Chairman of the Payne County Youth Services, as Co-Chairman of the United Way of Stillwater Fund Drive and as a member of the Advisory Board of the Oklahoma State University Technical Institute. He is a member of the Commercial Real Estate Association of Oklahoma City, the Oklahoma and Oklahoma City Homebuilders Associations, and past member of the Stillwater Medical Center Committee on Physician Recruitment. Jerry L. Lanier was recently appointed Senior Vice President in Credit Administration, supervising this area corporate-wide. From 1992 until joining the Bank in 1998, Mr. Lanier was a consultant specializing in loan review. During this same period he also served as court-appointed receiver for a number of Oklahoma-based insurance companies. From 1982-1992, Mr. Lanier served as President of American National Bank and Trust Co. of Shawnee, Oklahoma including service as Chief Executive Officer from 1987-92. From 1970-1981, he was a National Bank Examiner for the Comptroller of the Currency in Oklahoma City and Dallas, Texas, and, while an examiner, served as Regional Director of Special Surveillance from 1979 to 1981, and conducted bank examinations in Europe. Mr. Lanier has served as United Way Drive Chairman and President; Chairman of the Shawnee Advisory Board of Oklahoma Baptist University; Director of the Shawnee Chamber of Commerce; Director and Chairman of the Youth and Family Resource Center; and President and Trustee of the Shawnee Educational Foundation. Joseph P. Root was appointed President of the Central Oklahoma Division of the Bank in November 1997. Previously, Mr. Root was Senior Vice President in the Central Oklahoma Division. Mr. Root joined the Bank in 1992. He is a member of the Oklahoma City Chamber of Commerce and the State Chamber of Commerce of Oklahoma, and of Robert Morris Associates. In addition, he is a member of the Oklahoma City Men's Dinner Club. 24 Kimberly G. Sinclair was appointed Chief Administrative Officer in 1995 and has been Executive Vice President of the Bank since 1991. Prior to 1991, she had been Senior Vice President and Chief Operations Officer of the Bank since 1985. Ms. Sinclair joined the Bank in 1975. She is a member of the Stillwater Junior Service League, Treasurer of the Board of Trustees of the Stillwater Public Education Foundation, and a graduate of the Leadership Stillwater Class IX. She has been an Ambassador with the Stillwater Chamber of Commerce and active with the Pioneer Booster Club and Stillwater PTA. Stanley R. White was appointed Chief Lending Officer in December 1995. Prior to this appointment he had been President of the Stillwater Division of the Bank since 1991. Mr. White joined the Bank in 1974. He is a past member and past Chairman of the Board of Trustees of the Stillwater Medical Center, past Director of the Stillwater Public Education Foundation, the Judith Karman Hospice, United Way, March of Dimes, and the Stillwater Rotary, and past President of the Stillwater Chamber of Commerce and the Stillwater Industrial Foundation. Mr. White has also served as past Director of the Oklahoma State University Alumni Association and the Oklahoma State Chamber of Commerce, past Board Member of the Oklahoma Law Enforcement Retirement Board, and currently serves as Director of the Oklahoma Medical Research Foundation, Director of Leadership Oklahoma, Vice President of Leadership Oklahoma Alumni, past Chairman and Trustee of the Board of Governors of the Oklahoma State University Foundation, and is a Director of Oklahoma Academy for State Goals. Mr. White is also past Chairman of the Oklahoma Bankers Association, past Chairman of the Oklahoma Bankers Association Government Relations Council and past Chairman of the Education Committee of this organization, and a member of the American Bankers Association Government Relations Council. Mr. White is also Director of the Texas Chapter and Senior Member of the Robert Morris Association. Patrick E. Zimmerman has been President of the Stillwater Division since July 1996. Prior to becoming President, Mr. Zimmerman served as Executive Vice President and Stillwater Division Manager from December 1995 to July 1996, as Senior Vice President of Commercial Lending of the Bank from January 1995 to December 1995, as Vice President of Commercial Lending of the Bank from January 1992 to January 1995, and as the Administrative Vice President and Branch Manager of Farm Credit Services in Stillwater, an agricultural lending institution, from February 1987 to January 1992. Mr. Zimmerman is a member of the Stillwater Chamber of Commerce and a 1995 Graduate of Leadership Oklahoma. He currently serves as a board member of the Oklahoma State University Alumni Association. Mr. Zimmerman has also served as a board member of the Stillwater Chamber of Commerce, Stillwater Area United Way, and as a Director of the Stillwater Industrial Foundation. He was the Campaign Chairman for the 1996 Stillwater Area United Way Campaign and is past Chairman of the Board of the Stillwater Chamber of Commerce. Mr. Zimmerman is past president of the Stillwater Frontier Rotary Club and is past Chairman of the Banking Leadership Oklahoma Committee for the Oklahoma Bankers Association. Mr. Zimmerman is also a member of the Robert Morris Association. ITEM 2. PROPERTIES - ------------------- The Bank's principal office occupies 14,000 square feet of ground on the corner of Sixth and Main Streets in Stillwater, Oklahoma. The building consists of 29,300 square feet of office space which was constructed in 1967 and remodeled in 1981, 1994 and 1996. The principal office houses the Bank's commercial and consumer lending operations as well as its executive offices and human resources and training departments. The Bank's other banking office in Stillwater occupies approximately 90,000 square feet of ground on the corner of Third and Main Streets. The building consists of 11,500 square feet of office space which was constructed in 1981. The facility houses the Bank's mortgage lending operations, a six-lane drive- through facility including commercial teller facilities, two ATMs, plus parking for both customers and employees of the facility. In order to provide room for the back-office operations needed to support its asset growth, the Bank has leased approximately 24,000 square feet of additional space at 1624 Cimarron Plaza in Stillwater, in which it houses student lending operations along with its accounting, marketing, finance, loan review and check-clearing operations. The lease on this space expires on March 31, 2001 with options to renew through February 28, 2010. 25 The Bank's Oklahoma City office occupies 22,677 square feet in the Waterford office complex near 63rd Street and Pennsylvania Avenue and includes one ATM. The space is leased pursuant to Leases which expire on December 31, 2002, with options to renew for up to six years. The Bank owns an additional parcel of land in Oklahoma City where one of the branches acquired in the Branch Acquisition was formerly located and is now used only to house an ATM. The parcel occupies 15,000 square feet at the intersection of Broadway and Robert S. Kerr Avenues. The building occupies 1,400 square feet. The Company has leased out this building on a month-to-month basis while retaining the right to maintain its ATM on the premises. The Bank's Tulsa banking offices consist of 22,337 square feet of leased space in the Silvey office building near 61st and Lewis Streets and an owned full-service branch located at 21st and Birmingham Streets. The leased facility provides space for E-Bank, commercial and mortgage lending operations, teller services, deposit-gathering services, and an ATM. The space is leased for five years with options to renew for up to ten years. The owned facility consists of 16,000 square feet of land with a 2,000 square foot facility housing a three- lane drive-in and lending and deposit-gathering operations. The Company is in the process of constructing a new facility to replace its 21st and Birmingham Streets office in Tulsa. Groundbreaking on this 42,000 square foot building occurred May 22, 1997, with occupancy anticipated in the fourth quarter of 1998. When opened, the building will include space for rental to third parties. The total cost of the new building is expected to be $9.5 million. A substantial portion of these costs will be capitalized and, except for the cost of the land, will be expensed over the useful life of the property. During 1996, the Bank purchased a new building at 500 W. Grand Avenue, Chickasha, Oklahoma. The building consists of approximately 3,600 square feet of office space and has one drive-through lane. The Bank also continues to own the office building at its former location in Chickasha and to house an ATM on that site. ITEM 3. LEGAL PROCEEDINGS - -------------------------- In the normal course of business, the Company 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 the Company's financial position; however, the Company 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted to a vote of security holders during the fourth quarter of 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - -------------------------------------------------------------------------- MATTERS - ------- The information contained under the section captioned "Stock Information" in the Annual Report (See Exhibit 13, page 48) is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- 26 The information contained in the table captioned "Selected Consolidated Financial Data" in the Annual Report (See Exhibit 13, pages 5 and 6) is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report (See Exhibit 13, pages 8 through 21) is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- The information contained in the section captioned "Asset/Liability Management and Quantitative and Qualitative Disclosures About Market Risk" in the Annual Report (See Exhibit 13, pages 17 through 19) is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The consolidated financial statements contained in the Annual Report (see Item 14(a)(1)) and the information under the caption "Selected Quarterly Financial Data (Unaudited)" in the Annual Report (See Exhibit 13, pages 22 through 44 and 7) are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- The information concerning the Board of Directors of the Company and the filing of Beneficial Ownership Reports contained under the section captioned "Proposal I -- Election of Directors" on pages 3 through 6 of the Proxy Statement and the information with respect to initial statements of beneficial ownership and changes in beneficial ownership under the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" on page 13 of the Proxy Statement are incorporated herein by reference. For information as to executive officers of the Company, see "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K. ITEM 11. MANAGEMENT REMUNERATION - -------------------------------- The information contained under the sections captioned "Compensation Committee Report on Executive Compensation," "Stock Performance Comparisons" and "Executive Compensation and Other Benefits" on pages 6 through 11 of the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- (A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ----------------------------------------------- Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders Thereof" on pages 1 and 2 of the Proxy Statement. 27 (B) SECURITY OWNERSHIP OF MANAGEMENT -------------------------------- Information required by this item is incorporated herein by reference to the section captioned "Security Ownership of Management" on pages 12 and 13 of the Proxy Statement. (C) CHANGES IN CONTROL ------------------ Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- The information required by this item is incorporated herein by reference to the section captioned "Certain Transactions" on page 11 of the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------ (A) DOCUMENTS FILED AS PART OF THIS REPORT -------------------------------------- (1) FINANCIAL STATEMENTS. The following financial statements are -------------------- incorporated by reference in Item 8 hereof from the Annual Report (see Exhibit 13, pages 22 through 44 ). Independent Auditors' Report Consolidated Statements of Financial Condition at December 31, 1997 and 1996 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements. (2) FINANCIAL STATEMENT SCHEDULES. All schedules for which provision is ----------------------------- made in the applicable accounting regulations of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto. (3) EXHIBITS. The following is a list of exhibits filed as part of this -------- Annual Report on Form 10-K with an index to their location in the sequentially numbered copy of this Annual Report on Form 10-K. NO. EXHIBITS --- -------- 3.1 Amended and Restated Certificate of Incorporation of Southwest Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1996) 3.2 Bylaws of Southwest Bancorp, Inc. (incorporated by reference as Exhibit 3.2 to Registration Statement on Form S-1 (File No. 33- 71168)) 28 4 Certificate of Designations for 9.20% Redeemable, Cumulative, Preferred Stock, Series A (incorporated by reference to Exhibit 4 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) * 10.1 1992 Performance Unit Plan (incorporated by reference as Exhibit 10.1 to Registration Statement on Form S-1 (File No. 33-71168)) * 10.2 Severance Compensation Plan (incorporated by reference as Exhibit 10.2 to Registration Statement on Form S-1 (File No. 33-71168)) * 10.3 Southwest Bancorp, Inc. 1994 Stock Option Plan (incorporated by reference from Exhibit 10.3 to Annual Report on Form 10-K for the fiscal year ended December 31, 1993) * 10.4 Southwest Bancorp, Inc. Employee Stock Purchase Plan (incorporated by reference from Exhibit 4.1 to Registration Statement on Form S-8 (File No. 33-97850)) 10.5 Agreement dated as of November 17, 1997 between Stillwater National Building Corporation and Flintco, Inc. with respect to 1500 South Utica, Tulsa, Oklahoma 13 1997 Annual Report to Stockholders 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors 24 Power of Attorney 27 Financial Data Schedule (B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the ------------------- last quarter of the period covered by this Annual Report on Form 10-K. (C) EXHIBITS. See (a)(3) above for all exhibits filed herewith and the -------- Exhibit Index. (D) FINANCIAL STATEMENTS EXCLUDED FROM ANNUAL REPORT. There are no other ------------------------------------------------ financial statements which were excluded from the Annual Report to Stockholders by Rule 14a-3(b) which are required to be included herein. - ------------ * Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOUTHWEST BANCORP, INC. March 25, 1998 By: /s/ Robert L. McCormick ---------------------------- Robert L. McCormick President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Robert L. McCormick March 25, 1998 - ------------------------------------------- Robert L. McCormick Director and President (Principal Executive Officer) /s/ Kerby E. Crowell March 25, 1998 - ------------------------------------------- Kerby E. Crowell Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) A majority of the directors of the Company executed a power of attorney appointing Robert L. McCormick as their attorney-in-fact, empowering him to sign this report on their behalf. This power of attorney has been filed with the Securities and Exchange Commission under Part IV, Exhibit 24 of this Form 10-K for the year ended December 31, 1997. This report has been signed below by such attorney-in-fact as of March 25, 1998. By: /s/ Robert L. McCormick --------------------------------------- Robert L. McCormick Attorney-in-Fact for Majority of the Directors of the Company 30 EX-10.5 2 EXHIBIT 10.5 Standard Form of Agreement Between Owner and Contractor where the basis of payment is the Cost of the Work Plus a Fee with or without a Guaranteed Maximum Price AIA Document A111 - Electronic Format THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. The 1981 Edition of AIA Document A201, General Conditions of the Contract for Construction, is adopted in this document by reference. Do not use with other general conditions unless this document is modified. This document has been approved and endorsed by The Associated General Contractors of America. Copyright 1920, 1925, 1951, 1958, 1961, 1967, 1974, 1978, 1987 by The American institute of Architects, 1735 New York Avenue N W., Washington D C 20006-5292 Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecution. AGREEMENT made as of the 17th day of November in the year of Nineteen Hundred and Ninety - seven. BETWEEN the Owner: (Name and address) STILLWATER NATIONAL BUILDING CORP. - ---------------------------------- 2431 East 61st Street, Suite 170 - -------------------------------- TULSA, OK 74136 - --------------- and the Contractor: (Name and address) FLINTCO, INC., 1624 WEST 21ST STREET. P.O. BOX 490, TULSA, OK 74101-0490 - ------------------------------ ---------------------------------- the Project is: (Name and address) STILLWATER NATIONAL BANK - ------------------------ 1500 SOUTH UTICA - ---------------- TULSA, OK 74120 - --------------- the Architect is: (Name and address) GARY SPARKS COMPANIES, 1336 EAST 15th STREET, TULSA, OK 74120 - ------------------------------------------------------------- The Owner and Contractor agree as set forth below. AIA DOCUMENT Al I I - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N.W., WASHINGTON D.C. 20006-5292. Unlicensed photocopying violates U.S. copyright laws and is subject to legal prosecution. . This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. ELECTRONIC FORMAT A111-1987 USER DOCUMENT SLWRR1 11.DOC - 10/28/1997. AIA LICENSE NUMBER 101015, Which EMPIRES ON 9/7/1998 - PAGE #1 ARTICLE 1 THE CONTRACT DOCUMENTS 1.1 The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. An enumeration of the Contract Documents, other than Modifications, appears in Article 16. If anything in the other Contract Documents is inconsistent with this Agreement, this Agreement shall govern. ARTICLE 2 THE WORK OF THIS CONTRACT 2.1 The Contractor shall execute the entire Work described in the Contract Documents, except to the extent specifically indicated in the Contract Documents to be the responsibility of others, or as follows: ARTICLE 3 RELATIONSHIP OF THE PARTIES 3.1 The Contractor accepts the relationship of trust and confidence established by this Agreement and covenants with the Owner to cooperate with the Architect and utilize the Contractor a best skill, effects and judgment in furthering the interests of the Owner: to furnish efficient business administration and supervision: to make best efforts to furnish at all times an adequate supply of workers and materials: and to perform the Work in the best way and most expeditious and economical manner consistent with the interests of the Owner. The Owner agrees to exercise best efforts to enable the Contractor to perform the Work in the best way and most expeditious manner by furnishing and approving in a timely way information required by the Contractor and making payments to the Contractor in accordance with requirements of the Contract Documents. ARTICLE 4 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION 4.1 The date of commencement is the date from which the Contract Time of Subparagraph 4.2 is measured: it shall be the date of this Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Owner. (Insert the dale of commencement, if it differs from the ale of this Agreement o, if applicable, state that the date will be fixed in a notice to proceed.) Construction commenced Februarv 3,1997 {demolition) - --------------------------------------------------- Unless the date of commencement is established by a notice to proceed issued by the Owner, the Contractor shall notify the Owner in writing not less than five days before commencing the Work to permit timely filing of mortgages, mechanic s liens and other security interests. 4.2 The Contractor shall achieve Substantial Completion of the entire Work not later than (Insert the calendar date or number of calendar days after the date of commencement. Also insert any requirements for earlier Substantial Completion of certain portions of the Work, if not stated elsewhere in the Contract Documents.) Anticipated Substantial Completion is November 1,1998 - ----------------------------------------------------- , subject to adjustments of this Contract Time as provided in the Contract Documents. (Insert provisions if any for liquidated damages relating to failure to complete on rime J ARTICLE 5 CONTRACT SUM AIA DOCUMENT Al l t - OWNER CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS 1735 NEW YORK AVENUE N W. WASHtNGTON D C. 2000b-5292. Unlicensed photocopying violates U.S. copyright laws and is subject to legal prosecution. This document was electronically produced with Permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A III -1987 User Document: SLWTR111. DOC--10/28/1997. AIA License N umber 10 1 0 15, which expires on 917/1998--Page #2 5.1 The Owner shall pay the Contractor in current funds for the Contractor's performance of the Contract the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Contractor's Fee determined as follows: (State a lump sum percentage of Cast of the Work or other provision for determining the Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for changes in the Work.) Flintco's overhead and fee: 4% of the total cost of the work including general requirements and architect's construction document ohase work. 5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE) 5.2.1 The sum of the Cost of the Work and the Contractors Fee is guaranteed by the Contractor not to exceed Six Million Two Hundred Sixty-eight Thousand Eight Hundred Eighty-six and No/100 Dollars ($6,268.886.00), subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner. (Insert specific provisions if the Contractor is to participate in any savings.) Refer to Exhibit "A" for Allowances in this price and Exhibit "B" for fixed fee breakdown. 5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if any, which are described in the Contract Documents and are hereby accepted by the Owner: (State the numbers or other identification of accepted alternates, but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on other alternates are to be made by the Owner subsequent to the execution of this Agreement attach a schedule of such alternates showing the amount for each and the date until which that amour is valid.) 5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State unit prices only If a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1) ARTICLE 6 CHANGES IN THE WORK 6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work may be determined by any of the methods listed in Subparagraph 7.3,3 of the General Conditions, 6.1.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3,3 of the General Conditions and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3 6 of the General Conditions shall have the meanings assigned to them in the General Conditions and shall not be modified by Articles 5, 7 and 8 of this Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs" as used in the above-referenced provisions of the General Conditions shall mean the Cost of the Work as defined in Article 7 of this Agreement and the terms "fee" and "a reasonable allowance for overhead and profit" shall mean the Contractor's Fee as defined in Paragraph 5.1 of this Agreement. For chances in the work, all related General Condition items will be priced in the change and then a fee of four Percent (4%) will be calculated against the total change. 6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 6.2.1 Increased costs for the items set forth in Article 7 which result from changes in the Work shall become part of the Cost of the Work, and the Contractor's Fee shall be adjusted as provided in Paragraph 5,1, 6.3 ALL CONTRACTS 6.3.1 If no specific provision is made in Paragraph 5,1 for adjustment of the Contractor's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Paragraph 5,1 will cause AIA DOCUMENT AIII - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS, 1785 NEW YORK AVENUE N.W.. WASHINGTON D C 20005292 Unlicensed photocopying violates U. S. copyright laws and is subject to legal prosecution. This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A 111-1987 User Document: SLWFR111 DOG--10/28/1997 AIA License Number 101015, which expires on 917/1998 - Page#3 - -------------------------------------------------------------------------------- substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the basis of the Fee established for the original Work. ARTICLE 7 COSTS TO BE REIMBURSED 7.1 The term Cost of the Work shall mean costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than the standard paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 7. 7.1.1 LABOR COSTS 7.1.1.1 Wages of construction workers directly employed by the Contractor to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. 7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative personnel when stationed at the site with the Owner's agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Contractors principal or other offices shall be included in the Cost of the Work, identify in Article 14 the personnel to be included and whether for all or only part of their time.) 7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. 7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided such costs are based on wages and salaries included in the Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3. 7.1.2 SUBCONTRACT COSTS Payments made by the Contractor to Subcontractors in accordance with the requirements of the subcontracts. 7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION 7.1.3.1 Costs, including transportation. of materials and equipment incorporated or to be incorporated in the completed construction. 7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the Owner at the completion of the Work or, at the Owner's option, shall be sold by the Contractor; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED ITEMS 7.1.4.1 Costs, including transportation, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site and fully consumed in the performance of the Work; and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Contractor. Cost for items previously used by the Contractor shall mean fair market value. 7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Contractor at the site, whether rented from the Contractor or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. AIA DOCUMENT AIII - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS. 1735 NEW YORK AVENUE N. W., WASHINGTON D. C. 20006 5292. Unlicensed photocopying violates U. S. copyright laws and is subject to legs prosecution. . This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. ELECTRONIC FORMAT AL11-1987 User Document: SLVvTR111.DOC -10/28/1997. AlA License Number 101015, which expires on 9/7/1998 - Page#4 7.1.4.3 Costs of removal of debris from the site. 7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and delivery charges, telephone service at the site and reasonable petty cash expenses of the site office. 7.1.4.5 That portion of the reasonable travel and subsistence expenses of the Contractor's personnel incurred while traveling in discharge of duties connected with the Work. 7.1.5 MISCELLANEOUS COSTS 7.1.5.1 That portion directly attributable to this Contract of premiums for insurance and bonds. 7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable. 7.1.5.3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Contractor is required by the Contract Documents to pay. 7.1.5.4 Fees of testing laboratories for tests required by the Contract Documents, except those related to defective or nonconforming Work for which reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or other provisions of the Contract Documents and which do not fall within the scope of Subparagraphs 7.2.2 through 7.2.4 below. 7.1.5.5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents: the cost of defending suits or claims for infringement of patent rights arising from such requirement by the Contract Documents; payments made in accordance with legal judgments against the Contractor resulting from such suits or claims and payments of settlements made with the Owner's consent: provided, however, that such costs of legal defenses, judgment and settlements shall not be included in the calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any, and provided that such royalties, fees and costs are not excluded by the last sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of the Contract Documents. 7.1.5.6 Deposits lost for causes other than the Contractor's fault or negligence. 7.1.6 OTHER COSTS 7.1.6.1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. The Contractor can self-perform, with the Owner's consent, any portion of the Work at a mutuallv agreed upon price. This will be a lump_sum amount that is billed as a percent complete of the scheduled value on the payment application. 7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK The Cost of the Work shall also include costs described in Paragraph 7.1 which are incurred by the Contractor: 7.2.1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and progeny, as provided in Paragraph 10.3 of the General Conditions. 7.2.2 In repairing or correcting Work damaged or improperly executed by construction workers in the employ of the Contractor, provided such damage or improper execution did not result from the fault or negligence of the Contractor or the Contractor's foremen, engineers or superintendents, or other supervisory, administrative or managerial personnel of the Contractor. 7.2.3 In repairing damaged Work other than that described in Subparagraph 7.2.2, provided such damage did not result from the fault or negligence of the Contractor or the Contractor's personnel, and only to the extent that the cost of such repairs is not recoverable by the Contractor from others and the Contractor is not compensated therefor by insurance or otherwise. 7.2.4 In correcting defective or nonconforming Work performed or supplied by a Subcontractor or material supplier and not corrected by them, provided such defective or nonconforming Work did not result from the fault or neglect of the Contractor or the AIA DOCUMENT AIII - OWNER CONTRACTOR AGREEMENT . TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N. W., WASHINGTON D. C. 20006-6292. Unlicensed photocopying violates U. S. copyright laws and is subject to legal prosecution. . This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A l l l-1987 User Document: SLVvTR111.DOC -10128/1997. AIA License Number 101015, which expires on 9/7/1998 - Page#5 Contractor's personnel adequately to supervise and direct the Work of the Subcontractor or material supplier, and only to the extent that the cost of correcting the defective or nonconforming Work is not recoverable by the Contractor from the Subcontractor or material supplier. ARTICLE 8 COSTS NOT TO BE REIMBURSED 8.1 The Cost of the Work shall not include: 8.1.1 Salaries and other compensation of the Contractor's personnel stationed at the Contractor's principal office or offices other than the site office, except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3 or as may be provided in Article 14. 8.1.2 Expenses of the Contractor's principal office and offices other than the site office. 8.1.3 Overhead and general expenses, except as may be expressly included in Article 7. 8.1.4 The Contractor's capital expenses, including interest on the Contractor's capital employed for the Work. 8.1.5 Rental costs of machinery and equipment, except as specifically provided in Clause 7.1.4.2. 8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.5 of this Agreement, costs due to the fault or negligence of the Contractor, Subcontractors, anyone directly or indirectly employed by any of them, or for whose acts any of them may be liable, including but not limited to costs for the correction of damaged, defective or nonconforming Work, disposal and replacement of materials and equipment incorrectly ordered or supplied, and making good damage to property not forming part of the Work. 8.1.7 Any cost not specifically and expressly described in Article 7. 8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be exceeded. ARTICLE 9 DISCOUNTS, REBATES AND REFUNDS 9.1 Cash discounts obtained on payments made by the Contractor shall accrue to the Owner if (1) before making the payment, the Contractor included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Contractor with which to make payments: otherwise, cash discounts shall accrue to the Contractor. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Contractor shall make provisions so that they can be secured. 9.2 Amounts which accrue to the Owner in accordance with the provisions of Paragraph 9.1 shall be credited to the Owner as a deduction From the Cost of the Work. ARTICLE 10 SUBCONTRACTS AND OTHER AGREEMENTS 10.1 Those portions of the Work that the Contractor does not customarily perform with the Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with the Contractor. The Contractor shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated especially for the Work and shall deliver such bids to the Architect. The Owner will then determine, with the advice of the Contractor and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Contractor shall obtain bids: however, if a Guaranteed Maximum Price has been established, the Owner may not prohibit the Contractor from obtaining bids from others. The Contractor shall not be required to contract with anyone to whom the Contractor has reasonable objection. AIA DOCUMENT Alll - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N. W, WASHINGTON D.C. 20006 5292. Unlicensed photocopying violates U. s. copyright laws and is subject to legal prosecution. This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A l l 1-1987 User Document: SLv'vTR111.DOC --10/28/1997. AIA License Number 101015, which expires on 9/7/1998--Page #6 10.2 If a Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Contractor to the Architect (1) is recommended to the Owner by the Contractor; (2) is qualified to perform that portion of the Work; and (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted: then the Contractor may require that a Change Order be issued to adjust the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Contractor and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 10.3 Subcontracts or other agreements shall conform to the payment provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. ARTICLE 11 ACCOUNTING RECORDS 11.1 The Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to the Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Contract, and the Contractor shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 12 PROGRESS PAYMENTS 12.1 Based upon Applications for Payment submitted to the Architect by the Contractor and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Contractor as provided below and elsewhere in the Contract Documents. 12.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month, or as follows: 12.3 Provided an Application for Payment is received by the Architect not later than the 1st day of a month, the Owner shall make payment to the Contractor not later than the 10th day of the month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than 10 days after the Architect receives the Application for Payment. 12.4 With each Application for Payment the Contractor shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Contractor on account of the Cost of the Work equal or exceed (1) progress payments already received by the Contractor; less (2) that portion of those payments attributable to the Contractor's Fee; plus (3) payrolls for the period covered by the present Application for Payment; plus (4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior progress payments. 12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE 12.5.1 Each Application for Payment shall be based upon the most recent schedule of values submitted by the Contractor in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Contractor's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for Payment. 12.5.2 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been AIA DOCUMENT AIII - OWNER-CONTFACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS 1735 NEW YORK AVENUE N.W., WASHINGTON D C. 20006-5292. Unlicensed photocopying violates U. S. copyright laws and is subject to legal prosecution. . This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A111-1987 User Document: SLVvTR11 1.DOC -10/2811997. AIA License Number 101015, which expires on 9/7/1998 - Page #7 incurred by the Contractor on account of that portion of the Work for Which the Contractor has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 12.5.3 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of the General Conditions, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. 12.5 3.2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitable stored off the site at a location agreed upon in writing. 12.5.3.3 Add the Contractor's Fee, less retainage of zero percent (0%). The ----- Contractor's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Paragraph S.l or, if the Contractor's Fee is stated as a fixed sum to that Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.5.3.4 Subtract the aggregate of previous payments made by the Owner. 12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. 12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9. 5 of the General Conditions. 12.5.4 Additional retainage, if any, shall be as follows: (If it is intended to retain additional amounts from progress payments to the Contractor beyond (I) the retainage from the Contractors Fee provided in Clause 12.5.3.3. (2) the retainage from Subcontractors provided in Paragraph 12.7 below, and (3) the retainage, if any, provided by other provisions of the Contract. Insert provision for such additional retainage here. Such provision, if made, should also describe any arrangement for limiting or reducing the amount retained after the Work reaches a certain state of completion.) 12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE 12.6.1 Applications for Payment shall show the Cost of the Work actually incurred by the Contractor through the end of the period covered by the Application for Payment and for which the Contractor has made or intends to make actual payment prior to the next Application for Payment. 12.6.2 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: 12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1. 12.6.2.2 Add the Contractor's Fee, less retainage of percent (%). The Contractor's Fee shall be computed upon the Cost of the Work described in the preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.l or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the preceding Clause bears to a reasonable estimate of the probable Cost of the Work upon its completion. 12.6.2.3 Subtract the aggregate of previous payments made by the Owner. 12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the documentation required by Paragraph 12.4 or to AIA DOCUMENT AIII - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHECTS. 1735 NEW YORK AVENUE N. W., WASHINGTON DC 20006-5292. Unlicensed photocopying violates U. S. copyright laws and is subject to legal prosecution . This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A 1 11-1987 User Document: SLWTR11 1.DOC - 10/28/1997. AIA License Number 101015, which expires on 9f711998 - Page #8 substantiate prior Applications for Payment or resulting from errors subsequently discovered by the Owner's accountants an such documentation. 12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or withdrawn a Certificate for Payment as provided in the Contract Documents. 12.6.3 Additional retainage, if any, shall be as follows: 12.7 Except with the Owner's prior approval, payments to Subcontractors included in the Contractor's Applications for Payment shall not exceed an amount for each Subcontractor calculated as follows: 12.7.1 Take that portion of the Subcontract Sum properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Subcontractor's Work by the share of the total Subcontract Sum allocated to that portion in the Subcontractor's schedule of values, less retainage of zero ---- percent (0%). Pending final determination of amounts to be paid to the Subcontractor for changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3 7 of the General Conditions even though the Subcontract Sum has not yet been adjusted by Change Order. 12.7.2 Add that portion of the Subcontract Sum properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing, less retainage of ten percent (10%). 12.7.3 Subtract the aggregate of previous payments made by the Contractor to the Subcontractor. 12.7.4 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment by the Owner to the Contractor for reasons which are the fault of the Subcontractor. 12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a sum sufficient to increase the total payments to the Subcontractor to one hundred_percent (100%) of the Subcontract Sum, less amounts, if any, for incomplete Work and unsettled claims; and, if final completion of the entire Work is thereafter materially delayed through no fault of the Subcontractor, add any additional amounts payable on account of Work of the Subcontractor in accordance with Subparagraph 9.10.3 of the General Conditions. (If it is intended, prior to Substantial Completion of the entire Work of the Contractor, to reduce or limit the retainage from Subcontractors resulting from the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is not explained elsewhere in the Contract Documents, insert here provisions for such reduction or limitation.) The Subcontract Sum is the total amount stipulated in the subcontract to be paid by the Contractor to the Subcontractor for the Subcontractor's performance of the subcontract. 12.8 Except with the Owner's prior approval, the Contractor shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 12.9 In taking action on the Contractor's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Contractor and shall not be deemed to represent that the Architect has made a detailed examination, audit, or arithmetic verification of the documentation submitted in accordance with Paragraph 12.4 or other supporting data: that the Architect has made exhaustive or continuous on- site inspections or that the Architect has made examinations to ascertain how or for what purposes the Contractor has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. ARTICLE 13 FINAL PAYMENT AIA DOCUMENT AIII OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS. 1735 NEW YORK AVENUE N W, WASHINGTON D. C. 20006-5292. Unlicensed photocopying violates US. copyright laws and is subject to legal prosecution. . This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A111-1987 User Document: SLvVTR111.DOC -10/28/1997, AIA License Number 101015, Which expires on 9/7/1998 - - Page#9 13.1 Final payment shall be made by the Owner to the Contractor when (1) the Contract has been fully performed by the Contractor except for the Contractor's responsibility to correct defective or nonconforming Work, as provided in Subparagraph 12.2.2 of the General Conditions, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Contractor and reviewed by the Owner's accountants; and (3) a final Certificate for Payment has then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 13.2 The amount of the final payment shall be calculated as follows: 13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's final accounting and the Contractor's Fee; but not more than the Guaranteed Maximum Price, if any. 13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General Conditions or other provisions of the Contract Documents 13.2.3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Contractor, the Contractor shall reimburse the difference to the Owner. 13.3 The Owner's accountants will review and report in writing on the Contractor's final accounting within 30 days after delivery of the final accounting to the Architect by the Contractor. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Contractor's final accounting, and provided the other conditions of Paragraph 13.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Contractor. or notify the Contractor and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5 1 of the General Conditions. The time periods stated in this Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General Conditions. 13.4 if the Owner's accountants report the Cost of the Work as substantiated by the Contractor's final accounting to be less than claimed by the Contractor, the Contractor shall be entitled to demand arbitration of the disputed amount without a further decision of the Architect. Such demand for arbitration shall be made by the Contractor within 30 days after the Contractor's receipt of a copy of the Architect's final Certificate for Payment: failure to demand arbitration within this 30-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Contractor. Pending a final resolution by arbitration, the Owner shall pay the Contractor the amount certified in the Architect's final Certificate for Payment. 13.5 If, subsequent to final payment and at the Owner's request. the Contractor incurs costs described in Article 7 and not excluded by Article 8 to correct defective or nonconforming Work, the Owner shall reimburse the Contractor such costs and the Contractor's Fee applicable thereto on the same basis as if such costs had been incurred prior to final payment. but not in excess of the Guaranteed Maximum Price, if any. If the Contractor has participated in savings as provided in Paragraph 5.2, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Contractor. ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Where reference is made in this Agreement to a provision of the General Conditions or another Contract Document, the reference refers to that provision as amended or supplemented by other provisions of the Contract Documents. 14.2 Payments due and unpaid under the Contract shall bear interest from the date payment is due at the rate stated below, or in the absence thereof at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agreed upon, if any.) TEN PERCENT (10%) - ------------- (Usury laws and requirements under the Federal Truth in Lending Act, similar stale and local consumer credit taws and other regulations at the Owners and AIA DOCUMENT AIII - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS. 1785 NEW YORK AVENUE N W., WASHINGTON D.C. 20006-52(o)2. Unlicensed photocopying violates U.S. copyright laws and is subject to legal prosecution. . This document was electronically produced with permission of the AIA and can be reproduced without violation until the dale of expiration as noted below. Electronic Format Al 11-1987 User Document: SLVvTR1 1 1.DOC -1 0/2811997. AlA License Number 1 0101 5, which expires on gl711 998 - Page #10 Contractor's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers) 14.3 Other provisions: Personnel stationed at Contractor's Principal offices: - ------------------------------------------------------ Project Manager - Full-time - --------------------------- Estimator - Part-time - --------------------- Scheduler - Part-time - --------------------- Director of Safety - Part-time - ------------------------------ Director of Quality Control - Part-time - --------------------------------------- ARTICLE 15 TERMINATION OR SUSPENSION 15.1 The Contract may be terminated by the Contractor as provided in Article 14 of the General Conditions; however, the amount to be paid to the Contractor under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below, except that the Contractor's Fee shall be calculated as if the Work had been fully completed by the Contractor, including a reasonable estimate of the Cost of the Work for Work not actually completed. 15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions: however, the amount, if any, to be paid to the Contractor under Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the Contractor would be entitled to receive under Paragraph 15.3 below. 15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract may be terminated by the Owner for cause as provided in Article 14 of the General Conditions; however, the Owner shall then pay the Contractor an amount calculated as follows: 15.3.1 Take the Cost of the Work incurred by the Contractor to the date of termination. 15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Paragraph 5. I or, if the Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. 15.3.3 Subtract the aggregate of previous payments made by the Owner. The Owner shall also pay the Contractor fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Contractor which the Owner elects to retain and which is not otherwise included in the Cost of the Work Under Subparagraph 15.3.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Contractor shall, as a condition of receiving the payments referred to in this Article 15, execute and deliver all such papers and rake all such steps, including the legal assignment of such subcontracts and other contractual rights of the Contractor, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Contractor under such subcontracts or purchase orders. 15.4 The Work may be suspended by the Owner as provided in Article 14 of the General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be increased as provided in Subparagraph 14.3.2 of the General Conditions except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3 of this Agreement. ARTICLE 16 ENUMERATION OF CONTRACT DOCUMENTS 16.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows: AIA DOCUMENT AIII OWNER ~ CONTRACTOR AGREEMENT - TENTH EDITION - VIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE N. W.. WASHINGTON D.C.20006-5292. Unlicensed photocopying violates U.S. copyright laws and is subject to legal prosecution This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. ELECTRONIC FORMAT AL t 1-1987 User Document: SLWTR111.DOC - 10/28/1997. AIA LICENSE NUMBER 101015, WHICH EXPIRES ON 9/7/1998 - Page#11 16.1.4 The Specifications are those contained in the Project Manual dated as in Paragraph 18.1.3, and are as follows: (Either list me Specifications here to an exhibit attached to this Agreement). SECTION TITLE PAGES SEE ATTACHED EXHIBIT "C" 16.1.5 The Drawings are as follows, and are dated September 19, 1997 unless a different date is shown below: (Either list me Specifications here to an exhibit attached to this Agreement). NUMBER TITLE DATE SEE ATTACHED EXHIBIT "D" 16.1.6 The Addenda, if any, are as follows: NUMBER DATE PAGES 1 September 23, 1997 13 2 October 13,1997 20 2 Bid package #10-26 October 13, 1997 4 1 Asbestos Abatement Bid Package March 24, 1997 1 1 Bid Package #5 July 31, 1997 2 1 Bid Package #4 August 1,1997 2 2 Bid Package #4 August 1,1997 2 1 Bid Package #7 August 25, 1997 2 2 Bid Package #7 August 25, 1997 1 3 Bid Package #7 August 26, 1997 4 Portions of Addenda relating to bidding requirements are not part of the Contract Documents unless the bidding requirements are also enumerated in this Article 16. 16.1.7 Other Documents, if any, forming part of the Contract Documents are as follows: (List here ANY additional documents which are intended to form part of the Contact Documents. The General Conditions provide that bidding requirements such as advertisement of invitation to bid, instructions to Bidders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only V intended to be part of the Contract Documents.) This Agreement entered into as of the day and year first written above and is executed in at least three original copies of which one is to be deliver7l/o,je Contractor, one to the Architect for use in the administration of the Contract, and the remainder to the Owner. OWNER CONTRACTOR (SIGNATURE) (SIGNATURE) Robert L. McCormick, Jr., CEO W. Lowell Heck-V.P. (Printed name and title) (Printed name and title) AlA DOCUMENT AIII - OWNER-CONTRACTOR AGREEMENT - TENTH EDITION - AIA - COPYRIGHT 1987 - THE AMERICAN INSTITUTE OF ARCHITECTS. 1735 NEW YORK AVENUE N. W., WASHINGTON DC 20006-5292. Unlicensed photocopying violates U.& copyright laws arid is sublet to legal prosecution. This document was electronically produced with permission of the AIA and can be reproduced without violation until the date of expiration as noted below. Electronic Format A III - 1987 User Document: SLWrR111.Doc - 10/28/1997. AIA License Number 101015, which expires on 9/7/1998--Page #12 END OF EXHIBIT EXHIBIT "A" Allowances: The following allowances are included within the Guaranteed Maximum Price. If the actual cost of any one particular item is less than the allowance, 100% of the savings will accrue to the Owner. If any cost is exceeded, due to selection and approval of Owner, the additional cost will be added to the Guaranteed Maximum Cost by way of a properly executed Change Order. 1. Artist Glass: $243,200.00 Anticipated items of Work for the supplier of the Artist Glass for the amount referenced above: a. Furnishing of 3/8" high performance glass material (or other material as proposed by the Artist and approved by the Owner). b. Freight and handling expenses of the raw material. c. Overhead, facilities, labor, equipment, and materials required for manufacture of the Art Glass. d. Freight, insurance, off-loading, and installation of the completed Art Glass. e. Installation will include shipping the existing protective 1/4" glass and the Art Glass to an approved glass plant hermetically sealing the Art Glass to the existing 1/4" tempered protective glass and re-installation of the sealed unit in place. Note: Removal and stock-piling of the existing 1/4" tempered glass is included in the Guaranteed Maximum Price and will be conducted by the Glass SubContractor. 2. Signage: $55,900.00 (Exterior and interior) Anticipated items of Work for the supplier and installer of the exterior and interior signage: a. Design and Proposal b. Manufacture and installation of two monument signs, two site directional signs, building entrance sign, exterior building cast letters, directory, lobby entrance signs and room signage. 3. Banking Equipment: $226,885.00 The banking equipment manufacturer and installer included in the Guaranteed Maximum Cost is Diebold incorporated. Diebold, inc. is the low responsive bidder for this equipment, and is the recommendation of the Contractor to the Owner. END OF EXHIBIT EXHIBIT "B" Fixed Fee Schedule: The following fixed fees are included in the Guaranteed Maximum Cost. The General Condition items and the Contractors field staff fixed fees are based on the project duration as shown adjacent to each item. If the project is extended due to Owner approved changes in project scope, the additional time will be added to the Guaranteed Maximum Cost The items to be included for extension of time are the cost of the added Work and for the General Conditions and Contractor's field staff (Project Manager and Superintendent) by way of a properly executed Change Order and by a direct ratio of the stated monthly fees. Fixed Fee items: 1. PUD Exhibits: $ 9,000.00 2. Pre-Construction Fee: $10,000.00 3. Civil Engineering Fee: $40,000.00 4. Soils Analysis & Recommendations: $ 6,000.00 5. Landscape Design Fee: $10,000.00 6. Architect's Additional Services (3rd $ 7,132.50 floor rev.) 7. General Conditions: $ 3,222.22 per month for 18 months 8. Project Manager $ 5,000.00 per month for 18 months 9. Project Superintendent: $ 4,000.00 per month for 19 months 10. Taxes & insurance (29%) On Project Manager & Super. Only General Notes of Clarification: 1. The Architect's fee is based on 6% of the actual construction cost at the completion of the project. The Anticipated Architect's fee is included in the Guaranteed Maximum Cost from inception through the Construction Document Phase. All Architectural and Landscaping construction administration costs will be tHe responsibility of the Owner by separate agreement. 2. The General Conditions referenced above contains the following items: a. Builders Risk insurance b. Contractor site office trailer expenses c. Contractor mobilization expenses d. Contractor vehicle and fuel expenses e. Contractor postage expenses f. Contractor site office utility expenses g. Contractor site and principle office telephone expenses h. Contractor progress photograph expenses i. Contractor document reproduction expenses j. On-site & Off-site office equipment expenses k. Project Sign, l. Contractor safety equipment expenses m. Contractor, storage trailer expenses n. As-Built Drawings & Specification production END OF EXHIBIT EXHIBIT "C" List of Specifications dated August 1, 1997 Section: Title: Pages: 00110 Supple. Instructions To Sub-Bidders 1 00200 Information Available To Bidders 1 00500 Agreement Form 1 00700 General Conditions 1 00800 Supplementary Conditions 5 01060 Regulatory Requirements (Addenda 1) 2 01110 Supplementary Work 1 01330 Submittals 3 01400 Quality Control 3 01500 Const. Facilities & Temp. Controls 3 01600 Material & Equipment 2 01780 Contract Close-Out 3 02218 Landscape Grading (Addenda 2) 2 02310 Grading 2 02320 Excavating, Back-filling & Compacting 3 02362 Termite Control 2 02475 Drilled Concrete Piers (Caissons) 2 02620 Foundation Drainage Systems 2 02765 Stamped Patterned Concrete 2 02811 Underground Sprinkler System (Add. 2) 5 02938 Sodding (Addenda #2) 3 02950 Trees, Shrubs & Ground Cover 4 03300 Concrete 3 04100 Mortar 1 04300 Unit Masonry System 4 04720 Cast Stone 4 05120 Structural Steel 2 05210 Steel Joists 2 05310 Steel Deck 2 05400 Cold Formed Metal Framing 2 05509 Metal Fabrications 3 05530 Ornamental Handrails 2 06100 Rough Carpentry 2 06400 Architectural Woodwork 4 07130 Bentonite Waterproofing 4 07210 Building insulation 2 07241 Exterior insulation & Finish System 2 07420 Composite Metal Wall Panels 4 07530 Modified Bitumen Sheet Roofing 3 07600 Flashings & Sheet Metal 1 Exhibit "C" Continued: 07724 Roof Hatches 2 07920 Joint Sealants 2 08110 Standard Steel Doors & Frames 2 08210 Flush Wood Doors 2 08305 Access Panels 1 08331 Overhead Wood Counter Doors 2 08410 Alum. Storefront & All-Glass System 5 08710 Door Hardware 2 08800 Glazing 2 09260 Gypsum Board Systems 3 09300 Tile 2 09511 Suspended Acoustical Ceilings 2 09650 Resilient Flooring 2 09686 Carpet 1 09900 Painting 3 09955 Vinyl Coated Fabric Wall Covering 3 10155 Toilet Compartments 2 10270 Access Flooring 3 10350 Flagpoles 3 10522 Fire Extinguishers & Cabinets 2 10530 Protective Canopies 2 10800 Toilet & Barn Accessories 2 11132 Projection Screen 2 12480 Floor Mats & Frames 2 12511 Horizontal Louver Blinds 2 14240 Hydraulic Elevator 5 15010 Mechanical Special Conditions 6 15245 Vibration isolators 1 15260 Piping Insulation 4 15280 Equipment insulation 4 15290 Ductwork insulation 3 15325 Sprinkler Systems 2 15410 Plumbing Piping 8 15430 Plumbing Specialties 5 15440 Plumbing Fixtures 3 15510 Hydronic Piping 8 15515 Hydronic Specialties 5 15541 Ground Source Circulating Pumps 4 15542 Frame Mounted End Suction Cent Pumps 4 15543 Variable Frequency Drives 7 15755 Closed Circuit, Earth Coupled Heat Exch. 2 15790 Packaged Heat Pumps 2 15860 Centrifugal Fans 4 15870 Power Ventilators 2 Exhibit "C" Continued: 15890 Ductwork 4 15910 Ductwork Accessories 3 15940 Air Outlets & Inlets 2 15990 Testing, Adjusting & Balancing 7 16010 Electrical Special Conditions 9 16111 Conduit 5 16123 Building Wire and Cable 5 16130 Boxes 3 16170 Grounding & Bonding 3 16190 Supporting Devices 2 16466 Feeder & Plug-In Busway 3 16470 Panelboards 4 16477 Fuses 2 16501 Lamps 1 16502 Ballast & Accessories 2 16721 Fire Alarm Systems 13 End of Exhibit Exhibit "D" List of Drawings dated August 1, 1997 unless a different date is shown below CIVIL DRAWINGS: Number Title: Date: 1 of 1 Sanitary Sewer Plan & Profile 5/6/97 1 of 5 Existing Conditions & Demo. Plan (PFPI) 5/21/97 2 of 5 Utica Curb-line Reconfiguration Plan (PFPI) 5/21/97 3 of 5 Public Sidewalk Plan & Details (PFPI) 5/21/97 4 of 5 Drainage Area & Storm Sewer Lay-Out (PFPI) 5/21/97 5 of 5 Storm Sewer Profile/Alignment Plan (PFPI) 5/21/97 C-1 Grading/Paving Plan 5/6/97 C-2 Grading/Paving Plan 5/6/97 C-3 Paving Plan 5/6/97 LANDSCAPE DRAWINGS: Number: Title: Date: L-1 Landscape improvements - Planting 9/22/97 L-2 Landscape improvements - Planting 7/15/97 ARCHITECTURAL DRAWINGS: Number Title: Date: A101 First Level Floor Plan A101.1 First Level Exterior Dimension Plan A101.2 First Level Interior Dimension Plan A101.3 First Level Furniture, Flooring & Finish Plan A101.4 First Level -- Exterior Dimension Plan Revised 9/26/97 Al02 Second Level Floor Plan A102.2 Second Level Interior Dimension Plan A102.3 Second Level Furniture, Flooring & Finishes Plan A103 Third Level Floor Plan A103.1 Third Level Exterior Dimension Plan A103.2 Third Level Interior Dimension Plan A103.3 Third Level Furniture, Flooring, & Finishes Plan A104 Fourth Level Floor Plan A104.1 Fourth Level Exterior Dimension Plan A104.2 Fourth Level Interior Dimension Plan A104.3 Fourth Level Furniture, Flooring, & Finishes Plan A105 Roof Plan EXHIBIT "D" CONTINUED Number Title: Date: A106 Drive-Thru Plan A200 Exterior Elevations and Building Section A201 Exterior Elevations A300 Stair Sections A301 Stair Plans & Details A302 Stair Details A303 Elevator Plans & Details A401 First Level Reflected Ceiling Plan A402 Second Level Reflected Ceiling Plan A403 Third Level Reflected Ceiling Plan A404 Fourth Level Reflected Ceiling Plan A405 Ceiling Details A406 Ceiling Details A500 Door Schedule And Details A501 Foundation Details A502 Foundation Details A503 Details A504 Details A505 Details A506 Details A507 Details A508 Details A509 Details A510 Details A511 Section, Elevation and Details A512 Atrium Details A513 Building Section & DetaIls A514 Night Depository Details A600 Finish Schedule and Wail Type Legend A601 Enlarged Plans & interior Elevations A602 Interior Elevations & Details A603 Interior Elevations A604 Interior Elevations A605 Interior Elevations & Sections A608 Second Level Interior Elevations A609 Second Level interior Elevations Exhibit "D" Continued STRUCTURAL DRAWINGS: Number Title: Date: S101 Foundation Plan 9/12/97 S102 Second Floor Framing Plan 8/22/97 S103 Third Floor Framing Plan 8/22/97 S104 Fourth Floor Framing Plan 8/22/97 S105 Roof Framing Plan 8/22/97 S106 Structural Detail 8/22/97 S107 Schedule & Details 8/22/97 S108 Enlarged Detail 8/22/97 S109 Enlarged Detail 8/22/97 S110 Enlarged Detail 8/22/97 S111 Enlarged Detail 8/22/97 S112 Enlarged Detail 8/22/97 MECHANICAL DRAWINGS: Number Title: Date: M101 First Level HVAC Plan M102 Second Level HVAC Plan Ml03 Third Level HVAC Plan Ml04 Fourth Level HVAC Plan M200 Details & Schedules M201 Details & Schedules PLUMBING DRAWINGS: Number: Title: Date: P100 Site Plan Wells Layout P101 First Level Plumbing Plan P102 Second Level Plumbing Plan P103 Third Level Plumbing Plan P104 Fourth Level Plumbing Plan P105 Roof Drains P200 Plumbing Details & Schedules P300 Piping isometric P400 Piping Diagram Exhibit "D" Continued ELECTRICAL DRAWINGS: Number Title: SE100 Site Electrical E101 First Level Lighting Plan E101.1 First Level Power & Communication Plan E101.2 First Level HVAC Wiring E102 Second Level Lighting Plan E102.1 Second Level Power & Communication Plan E102.2 Second Level HVAC Wiring E103 Third Level Lighting Plan El03.1 Third Level Power & Communication Plan El03:2 Third Level HVAC Wiring El04 Fourth Level Lighting Plan E104.l Fourth Level Power & Communication Plan El04.2 Fourth Level HVAC Wiring El05 Roof Level Lighting & Power Pan E200 Electrical and Telephone Risers END OF EXHIBIT EX-13 3 EXHIBIT 13 EXHIBIT 13 LETTER TO SHAREHOLDERS February 26, 1998 Shareholders, Customers and Friends: 1997 was a disappointing year for us. Our loan loss experience was excessive amounting to 1.57% of average loans outstanding for the year. As it became apparent that we would experience losses, we immediately took action to recognize those losses, review our loan policies and procedures, and make changes in policies, organization and staffing to improve loan quality and credit review. Our loan portfolio has grown at a compound annual rate of more than 22% over the last five years. Growth rates at that level tend to introduce additional risks which are, in part, reflected in this year's losses. [Graphic - Marble design and picture of desktop with pen and paper appears here] Although we believe that our underwriting standards and policies were balanced and served the Bank well in past years, last year's losses call for a more conservative approach. We have revised loan authorities for individual officers and loan committees in an effort to assure that appropriate standards are met for large loans. We are also providing our Chief Lending Officer with more resources in order to assure that our credit department has the opportunity to thoroughly review loan proposals with less reliance on lending officers. We have hired an additional, highly experienced credit officer as Senior Vice President for Credit Administration, reporting to the Chief Lending Officer. We are also reviewing the directors' independent loan review function in order to ensure the Board of Directors has sufficient resources to carry out its duties. During 1997, management recognized that, in addition to asset quality, funding costs and other expenses were areas in which our Company needed to improve its performance. In the past, the Bank has funded its asset growth with time deposits. While this has proven to be a 1 successful funding strategy, it has resulted in higher funding costs than those of our peers. The Bank has now developed a funding strategy designed to help meet the future funding needs of the Bank while bringing the total cost of funding more in line with our peer group. Stillwater National Bank will continue to pay competitive rates, but we will focus more on adding value to our customer relationships. In addition, a broader funding base will be utilized including several non-deposit sources of funds. These sources include repurchase agreements, Federal Home Loan Bank advances and national market certificates of deposit. The impact of the new funding strategy contributed to our improved cost of funds in the fourth quarter of 1997. A greater contribution is expected in 1998 as the funding program becomes fully implemented. The Company has taken actions to reduce other expenses. This is reflected by the decline in other expenses as a percentage of average assets to 2.61% for the fourth quarter of 1997 compared to 2.95% for the same period in 1996. [Graphic - Marble design and picture of a pond appears here] During 1997, major credit card companies began to aggressively solicit the purchase of our credit card portfolio and, at the same time, were making very attractive overtures to one of our major credit card affinity relationships. A review of our opportunity to sell the credit card portfolio together with an analysis of the competitive nature of the credit card business, led us to believe it was an appropriate time to sell. We sold substantially all of our credit card portfolio for a premium of $3.7 million, net of related expenses. The results of that sale are reflected in our fourth quarter operating results. Although we sold our credit card portfolio in 1997, we continue to offer debit and credit cards to our customers. The Company continued to grow in 1997. Total assets were $963.3 million on December 31, 1997, up 16% from $829.1 million at year-end 1996. Our Company has developed renewed interest in expanding our offerings of financial services to the retail market and we are in the process of establishing a telephone Sales and Service Center which, by the second quarter of this year, will be delivering services 15 hours a day, seven days a week. It is our expectation that we 2 will be able to offer web-based home banking services by the end of the second quarter as an adjunct to our Sales and Service Center. During 1997, Mr. Rick Green was selected as the Company's Chief Operating Officer. Mr. Green has been with the Company since 1972 and has served in various capacities, most recently as the President of our Central Oklahoma Division. Mr. Haskell Cudd has notified us that he will not stand for re-election to our Board of Directors at the 1998 Annual Shareholders' Meeting. Mr. Cudd has served as a director of the Company since its inception in 1981 and as a director of the Bank since 1947. His 50 years of service to our Company are greatly appreciated. In addition to being a director of our Company, Mr. Cudd is President and C.E.O. of the Stillwater Milling Company. Over the years, he has provided leadership to that company and industry, serving as President of the Oklahoma Flour Millers' Association and as President of the Oklahoma Feed Manufacturers' Association. He is a [Graphic - Marble design and picture of Mr. McCormick appears here] Past President of the Stillwater Chamber of Commerce and a former City Commissioner. He has received numerous awards for his service to his industry and to our community. We are thankful for his years of service and he will be missed. [As this annual report was going to the printer, we were saddened by the death of Paul C. Wise, Executive Vice President and Director for the Bank and the Company. Mr. Wise joined the Bank in 1927 and became a Director in 1936. His dedication and contributions to the Company are without peer. Our sympathies are extended to his family, including directors James B. Wise and Lee Wise, and his many friends. The following page is dedicated in his memory.] We are beginning 1998 with the goal of making 1998 more reflective of the Company's performance prior to 1997. Sincerely, /s/ Robert L. McCormick President 3 In Memory of Paul C. Wise February 1998 We are saddened by the recent death of Paul C. Wise, Executive Vice President and Director of the Bank and the Company. Since joining the Bank in 1927, Mr. Wise was totally dedicated to our Company and our community. [Graphic - Picture of Mr. Wise appears here] According to Robert L. McCormick, "Mr. Wise has been a wonderful leader and mentor to the Board of Directors and all the employees of our Company. Having worked with him for over 27 years, I always respected his judgment and work ethic. We all became much better bankers and people because of his commitment to integrity, honesty and genuine customer service. He thoroughly enjoyed helping customers with their financial needs." Mr. Wise was instrumental in the growth of our Bank and the Oklahoma Banking industry. In 1931, he established the first installment loan department in Oklahoma and later helped develop the drive-in banking concept in our state. We were further reminded of Paul Wise's dedication to banking when he was honored as a prestigious member of the Oklahoma Bankers Association's 50-year club. Mr. Wise believed in helping his community. He accepted many leadership roles over the years, including helping organize the Stillwater Industrial Foundation and the Stillwater United Fund. His commitment to our community was recognized by his 1995 induction into the Stillwater Chamber of Commerce Hall of Fame. Paul Wise's distinguished 72-year banking career was recently highlighted by his substantial gift to Oklahoma State University, his alma mater. In November 1997, Mr. Wise presented a $1 million gift for an endowed chair for the College of Business at OSU. His gracious gift was the largest-ever gift made to the OSU College of Business. We are thankful for Paul Wise's many years of service to our Bank and our community. 4 SELECTED CONSOLIDATED FINANCIAL DATA The following table presents the Company's selected consolidated financial information for each of the five years in the period ended December 31, 1997. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, including the accompanying Notes, presented elsewhere herein.
For the Year Ended December 31, ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------------------------- (dollars in thousands, except share data) Operations Data Interest income $ 76,849 $ 64,668 $ 55,000 $ 37,654 $ 29,639 Interest expense 41,247 32,833 28,544 16,637 12,417 ---------------------------------------------------------------------- Net interest income 35,602 31,835 26,456 21,017 17,222 Provision for loan losses (1) 12,104 3,100 2,000 1,800 1,400 ---------------------------------------------------------------------- Net interest income after provision for loan losses 23,498 28,735 24,456 19,217 15,822 Gain on sales of securities and loans (2) 5,199 2,227 1,025 1,694 931 Other income (2) 4,696 4,122 3,849 3,427 3,284 Other expenses 25,746 23,226 19,902 16,440 13,733 ---------------------------------------------------------------------- Income before taxes 7,647 11,858 9,428 7,898 6,304 Taxes on income 2,667 4,306 3,336 2,754 2,108 ---------------------------------------------------------------------- Net income $ 4,980 $ 7,552 $ 6,092 $ 5,144 $ 4,196 ====================================================================== Net income available to common shareholders $ 3,393 $ 5,965 $ 5,426 $ 5,144 $ 4,196 ====================================================================== Dividends Declared Preferred stock $ 1,587 $ 1,587 $ 533 - - Common stock 1,208 1,053 901 $ 751 $ 444 Ratio of total dividends declared to net income 56.12% 34.96% 23.55% 14.60% 10.57% Per Share Data (3) Basic earnings per common share $ 0.90 $ 1.59 $ 1.44 $ 1.37 $ 1.44 Diluted earnings per common share 0.88 1.56 1.43 1.37 1.44 Common stock cash dividends 0.32 0.28 0.24 0.20 0.14 Book value per common share (4) 13.38 12.66 11.44 10.09 9.21 Weighted average common shares outstanding: Basic 3,773,037 3,760,370 3,755,228 3,755,228 2,910,535 Diluted 3,872,888 3,828,381 3,788,089 3,756,674 2,910,535 Financial Condition Data (4) Investment securities $ 187,740 $ 147,351 $ 147,688 $ 143,517 $ 83,442 Loans (5) 719,113 644,646 531,988 412,614 319,260 Interest-earning assets 916,860 791,997 679,676 556,131 416,202 Total assets 963,286 829,117 711,135 582,170 434,119 Interest-bearing deposits 744,865 670,216 556,079 458,899 339,605 Total deposits 841,425 753,945 634,387 525,560 394,521 Long-term debt (6) 25,013 - - - - Total shareholders' equity 68,048 65,032 60,357 37,888 34,570 Common shareholders' equity 50,666 47,650 42,975 37,888 34,570 Mortgage servicing portfolio 132,824 118,953 130,188 143,899 129,648 Selected Ratios Return on average assets 0.54% 0.98% 0.93% 1.01% 1.07% Return on average total shareholders' equity 7.54 12.15 12.81 14.17 17.76 Return on average common equity 6.95 13.30 13.48 14.17 17.76 Net interest margin 4.03 4.32 4.23 4.34 4.61 Efficiency ratio (7) 56.59 60.83 63.52 62.90 64.06 Average assets per employee $ 2,667 $ 2,162 $ 2,204 $ 2,089 $ 1,917
5 SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
At December 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------- (dollars in thousands, except share data) Asset Quality Ratios Allowance for loan losses to loans (4) 1.15% 1.11% 1.09% 1.20% 1.24% Nonperforming loans to loans (4)(8) 0.99 1.03 0.99 0.60 0.98 Allowance for loan losses to nonperforming loans (4)(8) 116.08 107.37 110.12 199.16 126.07 Nonperforming assets to loans and other real estate owned (4)(9) 1.04 1.04 1.03 0.67 1.13 Net loan charge-offs to average loans 1.57 0.31 0.24 0.22 0.30 Capital Ratios Average shareholders' equity to average assets Total 7.12 8.05 7.27 7.12 6.01 Common 5.26 5.81 6.15 7.12 6.01 Tier I risk-based capital ratio (4)(10) 8.96 10.21 10.02 9.64 12.39 Total risk-based capital ratio (4)(10) 13.30 11.40 11.41 10.89 13.64 Leverage ratio (4)(10) 6.95 7.77 8.19 6.76 8.04
(1) 1997 reflects provisions for loan losses that significantly exceed historical levels. See "Provision for Loan Losses" in the Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) 1997 includes the gain on the sale of credit card relationships. See "Other Income" in the Management's Discussion and Analysis of Financial Condition and Results of Operations. (3) All share and per share information has been restated to reflect the fourteen-to-one stock split effected in the form of a stock dividend paid November 15, 1993 and the adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share. (4) At period end. (5) Net of unearned discounts but before deduction of allowance for loan losses. (6) Consists of Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures issued on June 4, 1997 in connection with the sale of 9.30% Cumulative Trust Preferred Securities by a wholly-owned subsidiary of the Company. See Note 6 to the consolidated financial statements. (7) The efficiency ratio = other expenses/(net interest income + gain on sales of securities and loan + other income). (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. (10) Computed in accordance with regulatory guidelines as in effect on the indicated dates. 6 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Quarter Ended ----------------------------------------------------- 12-31-97 09-30-97 06-30-97 03-31-97 ----------------------------------------------------- (dollars in thousands, except share data) Operations Data Interest income $ 20,033 $ 19,962 $ 19,003 $ 17,851 Interest expense 10,908 10,860 10,220 9,259 ----------------------------------------------------- Net interest income 9,125 9,102 8,783 8,592 Provision for loan losses (1) 3,201 5,101 801 3,001 ----------------------------------------------------- Net interest income after provision for loan losses 5,924 4,001 7,982 5,591 Gain on sales of securities and loans (2) 3,811 488 489 411 Other income (2) 1,509 1,111 1,073 1,003 Other expenses 6,406 6,397 6,584 6,359 ----------------------------------------------------- Income before taxes 4,838 (797) 2,960 646 Taxes on income 1,781 (357) 1,057 186 ----------------------------------------------------- Net income $ 3,057 $ (440) $ 1,903 $ 460 ===================================================== Per Share Data (3) Basic earnings per common share $0.70 $(0.22) $0.40 $0.02 Diluted earnings per common share $0.69 $(0.22) $0.39 $0.02 Weighted average common shares outstanding: Basic 3,786,019 3,771,101 3,768,662 3,766,172 Diluted 3,894,919 3,872,638 3,868,656 3,851,280
For the Quarter Ended ---------------------------------------------------- 12-31-96 09-30-96 06-30-96 03-31-96 ---------------------------------------------------- (dollars in thousands, except share data) Operations Data Interest income $ 17,261 $ 16,696 $ 15,622 $ 15,089 Interest expense 8,917 8,561 7,769 7,586 ---------------------------------------------------- Net interest income 8,344 8,135 7,853 7,503 Provision for loan losses 675 775 775 875 ---------------------------------------------------- Net interest income after provision for loan losses 7,669 7,360 7,078 6,628 Gain on sales of securities and loans 612 601 444 570 Other income 1,065 991 1,034 1,032 Other expenses 6,089 6,453 5,465 5,219 ---------------------------------------------------- Income before taxes 3,257 2,499 3,091 3,011 Taxes on income 1,214 898 1,115 1,079 ---------------------------------------------------- Net income $ 2,043 $ 1,601 $ 1,976 $ 1,932 ==================================================== Per Share Data (3) Basic earnings per common share $0.44 $0.32 $0.42 $0.41 Diluted earnings per common share $0.43 $0.32 $0.41 $0.40 Weighted average common shares outstanding: Basic 3,763,870 3,761,502 3,759,198 3,756,861 Diluted 3,840,236 3,827,903 3,825,443 3,820,347
(1) The first, third and fourth quarters reflect provisions for loan losses that significantly exceed historical levels. See "Provision for Loan Losses" in the Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) The fourth quarter of 1997 includes the gain on the sale of credit card relationships. See "Other Income" in the Management's Discussion and Analysis of Financial Condition and Results of Operations. (3) All share and per share information has been restated to reflect the adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share. 7 FORWARD-LOOKING STATEMENTS Portions of this Annual Report contain forward-looking statements, including statements of goals, intentions, and expectations, regarding or based upon general economic conditions, interest rates, developments in national and local markets, and other matters, and which, by their nature, are subject to significant uncertainties. Because of these uncertainties and the assumptions on which statements in this report are based, the actual future results may differ materially from those indicated in this report. Past results also are not necessarily indicative of future performance. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Southwest Bancorp, Inc. (the "Company") is a one-bank holding company headquartered in Stillwater, Oklahoma engaged primarily in commercial and consumer banking services through its subsidiary, the Stillwater National Bank and Trust Company (the "Bank"). The Company has six full-service banking offices, two of which are located in each of Stillwater and Tulsa and one each in Oklahoma City and Chickasha, Oklahoma. The Company pursues a decentralized community banking strategy through three regional divisions. These divisions -- the Stillwater Division, the Central Oklahoma Division (which includes Oklahoma City and Chickasha) and the Tulsa Division -- offer commercial, consumer and real estate lending services and retail and commercial deposit products in their market areas. Student and mortgage lending services are offered throughout the State of Oklahoma. Through its sales and service center in Tulsa, the Bank is developing products for home banking and for delivery through its website, www.banksnb.com. The Company offers a wide variety of commercial and consumer lending and deposit services. The commercial loans offered by the Company include (i) commercial real estate loans, (ii) working capital and other commercial loans, (iii) construction loans, and (iv) Small Business Administration ("SBA") guaranteed loans. Consumer lending services include (i) government-guaranteed student loans, (ii) residential real estate loans and mortgage banking services, and (iii) personal lines of credit and other installment loans. The Company also offers deposit and personal banking services, including (i) commercial deposit services such as lock-box services, commercial checking and other deposit accounts, (ii) retail deposit services such as certificates of deposit, money market accounts, savings accounts and Automatic Teller Machine ("ATM") access, and (iii) personal brokerage and trust services. 8 THREE YEAR COMPARISON OF CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST, YIELDS, AND RATES The following table provides certain information relating to the Company's average consolidated statements of financial condition and reflects the interest income on interest-earning assets, interest expense of interest-bearing liabilities, and the average yields earned and rates paid for the periods indicated. Yields and rates are derived by dividing income or expense by the average daily balance of the related assets or liabilities, respectively, for the periods presented. Nonaccrual loans have been included in the average balances of loans receivable.
For the Year Ended December 31, ------------------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------------------------------------------------------------------- Interest Interest Interest 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: Loans receivable $700,129 $65,560 9.36% $580,590 $55,177 9.50% $473,080 $45,591 9.64% Investment securities 170,635 10,582 6.20 146,973 8,999 6.12 142,254 8,813 6.20 Other interest-earning assets 12,819 707 5.52 9,200 492 5.35 10,007 596 5.96 ------------------------- -------------------------- -------------------------- Total interest-earning assets 883,583 76,849 8.70 736,763 64,668 8.78 625,341 55,000 8.80 ------------------------- -------------------------- -------------------------- Noninterest-earning assets: Other assets 44,672 35,019 29,145 Total assets $928,255 $771,782 $654,486 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand $ 37,740 $ 894 2.37% $ 36,088 $ 838 2.32% $ 32,261 $ 764 2.37% Money market accounts 93,118 3,836 4.12 81,939 3,129 3.82 77,147 3,161 4.10 Savings accounts 3,860 96 2.49 4,580 114 2.49 5,441 133 2.44 Time deposits 612,014 34,743 5.68 498,283 28,647 5.75 412,570 24,208 5.87 ------------------------- -------------------------- -------------------------- Total interest-bearing deposits 746,732 39,569 5.30 620,890 32,728 5.27 527,419 28,266 5.36 Short-term borrowings 6,605 340 5.15 1,940 105 5.41 4,527 278 6.14 Long-term debt 14,459 1,338 9.25 - - - - - - ------------------------- -------------------------- -------------------------- Total interest-bearing liabilities 767,796 41,247 5.37 622,830 32,833 5.27 531,946 28,544 5.37 ------------------------- -------------------------- -------------------------- Noninterest-bearing liabilities: Noninterest-bearing demand 93,665 79,739 68,540 Other noninterest-bearing liabilities 705 7,066 6,437 Shareholders' equity 66,089 62,147 47,563 -------- -------- -------- Total liabilities and shareholders' equity $928,255 $771,782 $654,486 ======== ======== ======== Net interest income $35,602 $31,835 $26,456 ======= ======= ======= Interest rate spread 3.33% 3.51% 3.43% ====== ====== ====== Net interest margin 4.03% 4.32% 4.23% ====== ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 115.08% 118.29% 117.56% ====== ====== ======
FINANCIAL CONDITION The Company's total assets increased by $134.2 million, or 16%, from $829.1 million at December 31, 1996 to $963.3 million at December 31, 1997 after increasing by $118.0 million, or 17%, between December 31, 1995 and 1996. The increase in assets in 1997 was attributable to significant increases in both investment securities and outstanding loans. The increase in assets in 1996 was primarily attributable to a significant increase in outstanding loans. 9 The Company's investment securities increased by $40.4 million, or 27%, from $147.3 million at December 31, 1996 to $187.7 million at December 31, 1997 after decreasing by $337,000, or less than 1%, between December 31, 1995 and 1996. The growth during 1997 came mainly from U.S. government and agency securities, which increased by $44.2 million, or 40% from December 31, 1996 to December 31, 1997. Loans were $719.1 million at December 31, 1997, an increase of $74.5 million, or 12%, compared to December 31, 1996. The Company experienced increases in the categories of commercial mortgages ($27.5 million, or 14%), commercial loans ($22.5 million, or 10%), residential mortgages ($18.7 million, or 31%), real estate construction loans ($18.1 million, or 33%), other consumer loans ($6.0 million, or 19%), and government-guaranteed student loans ($2.4 million, or 4%). These increases were offset by a $20.8 million, or 99%, reduction in credit card loans due to the sale of substantially all of that portfolio of loans, described later in this report. The allowance for loan losses increased by $1.1 million, or 16%, from December 31, 1996 to December 31, 1997, after the significant net charge-offs and increased provision for loan losses recorded during the year. (See "Provision for Loan Losses"). At December 31, 1997, the allowance for loan losses was $8.3 million, or 1.15% of total loans, compared to $7.1 million, or 1.11% of total loans, at December 31, 1996. Loans were $644.6 million at December 31, 1996, an increase of $112.7 million, or 21%, compared to December 31, 1995. The Company experienced its most significant increases in the categories of commercial loans ($37.4 million, or 21%), commercial real estate loans ($36.0 million, or 23%), real estate construction loans ($21.2 million, or 64%), and residential mortgages ($18.2 million, or 42%). All major categories of loans increased other than government-guaranteed student loans, which declined $5.4 million, or 8%, as a result of greater sales of loans during 1996, and credit card loans, which declined $1.0 million, or 5%. The Company's deposits increased by $87.5 million, or 12%, from $753.9 million at December 31, 1996 to $841.4 million at December 31, 1997 after increasing by $119.5 million, or 19%, between December 31, 1995 and 1996. Deposit growth during both years came mainly from time deposits. Total time deposits increased by $64.4 million, or 12% from December 31, 1996 to December 31, 1997 and $102.7 million, or 23%, from December 31, 1995 to December 31, 1996. SUMMARY OF EARNINGS NET INCOME Net income for 1997 was $5.0 million, a 34% decrease from the $7.6 million earned in 1996. The substantial reduction in net income during 1997 was due principally to a $9.0 million, or 290%, increase in the provision for loan losses. Net income for 1997 benefited from increases in net interest income ($3.8 million, or 12%) and other income ($3.5 million, or 56%) and a reduction in taxes on income ($1.6 million, or 38%). These increases in income offset a $2.5 million, or 11%, increase in other expenses. Included in other income was the $3.7 million gain on sale of the credit card portfolio. Net income, after dividends on preferred stock, was $3.4 million, a decrease of $2.6 million, or 43%, from 1996. Basic earnings per common share decreased 43% to $0.90 per share for 1997 from $1.59 per share for 1996. Diluted earnings per common share decreased 44% to $0.88 per share for 1997 from $1.56 per share for 1996. The primary reason for the 1997 decline in net income was the deterioration in several large commercial and commercial real estate credits and related provisions for loan losses. The Company believes that it has appropriately identified potential problem loans and has established an appropriate allowance for loan losses at December 31, 1997. Management does not anticipate the need to record such historically large provisions for loan losses in 1998. Net income for 1996 was $7.6 million, a 24% increase over the $6.1 million earned in 1995. The increase in net income during 1996 was due principally to a $5.4 million, or 20%, increase in net interest income. Net income for 1996 also benefited from a $1.5 million, or 30% increase in other income. These increases in income offset a $3.3 million, or 17%, increase in other expenses, a $1.1 million, or 55%, increase in the provision for loan losses, and a $970,000, or 29%, increase in taxes on income. Net income, after dividends on the preferred stock issued in July 1995, was $6.0 million, an increase of $539,000, or 10%, over 1995. Basic earnings per common share increased 10% to $1.59 per share for 1996 from $1.44 per share for 1995. Diluted earnings per common share increased 9% to $1.56 per share for 1996 from $1.43 per share for 1995. 10 NET INTEREST INCOME Years ended December 31, 1997 and 1996 Net interest income increased to $35.6 million in 1997 from $31.8 million for 1996 as continued growth in the loan portfolio enabled the Company to post a $12.2 million increase in interest income that exceeded the $8.4 million increase in interest expense during the year. Yields on the Company's interest- earning assets declined by 8 basis points, and the rates paid on the Company's interest-bearing liabilities increased by 10 basis points, resulting in a reduction in the interest rate spread to 3.33% for 1997 from 3.51% in 1996. The ratio of average interest-earning assets to average interest-bearing liabilities declined to 115.08% for 1997 from 118.29% for 1996, due primarily to a greater increase in interest-bearing liabilities, including time deposits and the Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures ("Subordinated Debentures") issued during the year, than in noninterest-bearing sources of funds, including noninterest-bearing demand deposits and shareholders' equity. Total interest income for 1997 was $76.8 million, up 19% from $64.7 million during 1996. The principal factor providing greater interest income was the $119.5 million, or 21%, increase in the volume of average loans outstanding. The Company's loan yields declined to 9.36% for 1997 from 9.50% in 1996. During the same period, the Company's yield on investment securities increased to 6.20% from 6.12%. Total interest expense for 1997 was $41.2 million, an increase of 26% from $32.8 million for 1996. The increase in total interest expense is mainly the result of an increase in average interest-bearing liabilities of $145.0 million, or 23%. During the same period, the rates paid on average interest-bearing liabilities increased to 5.37% from 5.27%, as a 7 basis point decline in the average rate paid on time deposits (to 5.68%) was more than offset by a 30 basis point increase (to 4.12%) in the average rate paid on money market accounts. The issuance of the Subordinated Debentures on June 4, 1997 increased the rates paid on average interest-bearing liabilities by 7 basis points for 1997. Years ended December 31, 1996 and 1995 Net interest income for 1996 increased to $31.8 million from $26.5 million in 1995, primarily as a result of the increase in the Company's loan portfolio. Yields on the Company's interest-earning assets declined by only 2 basis points during 1996, and the rates paid on the Company's interest-bearing liabilities declined by 10 basis points resulting in an increase in the interest rate spread to 3.51% for 1996 from 3.43% for 1995. Net interest income benefited from an increase in the ratio of average interest-earning assets to average interest- bearing liabilities to 118.30% for 1996 from 117.55% for 1995. The improvement in this ratio reflects an increase in noninterest-bearing demand deposits as well as an increase in the Company's average shareholders' equity from the sale of Preferred Stock in July 1995 and through retention of earnings. Interest income for 1996 was $64.7 million, up from $55.0 million in 1995 primarily as a result of growth in interest-earning assets, which offset the slight decline in yields. Yields on total interest-earning assets were 8.78% in 1996 and 8.80% in 1995. Loan interest and fee income increased $9.6 million because the greater volume of loans outstanding more than offset the effect of the 14 basis point decline in loan yields. The Company generated growth of $107.5 million in average loans to $580.6 million in 1996 from $473.1 million in 1995, a 23% increase. Interest income on investment securities increased by $186,000 despite lower yields earned, due to an increase in the size of the investment portfolio. The yield on the investment portfolio declined 8 basis points. A decrease in interest income on federal funds sold and other short- term investments was caused by slightly lower volumes in those areas. The increase in interest-earning assets was funded by growth in deposits at the Company's existing branches, the proceeds from the July 1995 offering of Series A Preferred Stock and retention of earnings. Total interest expense for 1996 was $32.8 million, a $4.3 million increase from $28.5 million in 1995. The increase in interest expense was primarily due to a $93.5 million, or 18%, increase in average interest-bearing deposits from $527.4 million for the year ended December 31, 1995 to $620.9 million for the year ended December 31, 1996. Growth in average time deposits of $85.7 million, or 21%, accounted for most of the increase in average interest-bearing deposits, although average NOW and money market accounts also increased. Use of federal funds declined significantly for the year. Rates paid on interest-bearing liabilities declined to 5.27% in 1996 from 5.37% in 1995. 11 PROVISION FOR LOAN LOSSES In the first, third and fourth quarters of 1997, and for the year 1997 as a whole, the Company recorded significant increases in loan charge-offs and provisions for loan losses compared with corresponding periods of 1996 and earlier years. The charge-offs were primarily the result of deterioration in the financial position of the borrowers in three large commercial or commercial real estate lending relationships. Net charge-offs for 1997 were approximately $11.0 million, compared with net charge-offs of $1.8 million for 1996. The provision for loan losses was $12.1 million in 1997, compared with $3.1 million for 1996. As a result of the unusually large charge-offs recorded in 1997, management has revised the Bank's credit and loan review policies and standards, has revised individual and committee loan authorities, and has committed additional resources to the credit administration and loan review functions. The Company makes provisions for loan losses in amounts deemed necessary to maintain the allowance for loan losses at an appropriate level. The adequacy of the allowance for loan losses is determined by management based upon a number of factors including, among others, analytical reviews of loan loss experience in relation to outstanding loans and commitments; unfunded loan commitments; problem and nonperforming loans and other loans presenting credit concerns; trends in loan growth, portfolio composition and quality; use of appraisals to estimate the value of collateral; and management's judgment with respect to current and expected economic conditions and their impact on the existing loan portfolio. Changes in the allowance may occur because of changing economic conditions, and economic prospects or the financial position of borrowers. Based upon this review, management established an allowance of $8.3 million, or 1.15% of total loans, at December 31, 1997 compared to an allowance of $7.1 million, or 1.11% of total loans, at December 31, 1996. During fiscal years 1997, 1996 and 1995, the provisions for loan losses were $12.1 million, $3.1 million and $2.0 million, respectively. In establishing the level of the allowance for December 31, 1997, management considered a number of factors that tended to indicate a potential need for an increased allowance level, including the increased risk inherent in the amount and percentage to total loans attributable to commercial and commercial real estate loans, which are viewed as entailing greater risk than certain other categories of loans, charge-off history, and the rapid expansion of the loan portfolio over the last several years. Management also considered other factors, including the levels of types of credits, such as residential mortgage loans, deemed to be of relatively low risk, that tended to indicate the potential need for a lower allowance. At December 31, 1997, total nonperforming loans were $7.1 million, or 0.99% of total loans, compared to $6.6 million, or 1.03% of total loans, at December 31, 1996. The Company determined the level of the allowance for loan losses at December 31, 1997 was appropriate, as a result of its balancing these and other factors it deemed relevant to the adequacy of the allowance. Management conducted a similar analysis in order to determine the appropriate allowance as of December 31, 1996 and 1995. Management strives to carefully monitor credit quality and the adequacy of the allowance for loan losses, 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 the Company, 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, as occurred in 1997, may lead to a material increase in charge-offs and the provision for loan losses. 12 The following table sets forth an analysis of the Company's allowance for loan losses for the periods indicated.
For the Year Ended December 31, -------------------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------------------------------------------------------------------- (dollars in thousands) Balance at beginning of period $ 7,139 $ 5,813 $ 4,959 $ 3,960 $ 3,393 Loans charged-off: Real estate mortgage: Commercial 1,150 68 - 156 14 One-to-four family residential 155 80 7 16 58 Real estate construction - - 1 - 13 Commercial 8,691 1,064 1,101 461 675 Installment and consumer: Guaranteed student loans 1 - - 1 8 Credit cards 829 803 528 370 519 Other consumer 702 286 166 199 129 -------------------------------------------------------------------------- Total charge-offs 11,528 2,301 1,803 1,203 1,416 -------------------------------------------------------------------------- Recoveries: Real estate mortgage: Commercial 6 10 119 34 251 One-to-four family residential 79 15 33 23 15 Real estate construction - - - - - Commercial 300 288 334 94 76 Installment and consumer: Guaranteed student loans 2 - 1 - 3 Credit cards 108 106 111 139 130 Other consumer 72 108 59 112 108 -------------------------------------------------------------------------- Total recoveries 567 527 657 402 583 -------------------------------------------------------------------------- Net loans charged-off 10,961 1,774 1,146 801 833 Provision for loan losses 12,104 3,100 2,000 1,800 1,400 -------------------------------------------------------------------------- Balance at end of period $ 8,282 $ 7,139 $ 5,813 $ 4,959 $ 3,960 ========================================================================== Loans outstanding: Average $700,129 $580,590 $473,080 $356,323 $277,099 End of period 719,113 644,646 531,988 412,614 319,260 Ratio of allowance for loan losses to loans outstanding: Average 1.18% 1.23% 1.23% 1.39% 1.43% End of period 1.15 1.11 1.09 1.20 1.24 Ratio of net charge-offs to average loans outstanding during the period 1.57 0.31 0.24 0.22 0.30
13 The following table sets forth the amounts of nonperforming loans at the end of the periods indicated.
At December 31, -------------------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------------------------------------------------------------------- (dollars in thousands) Real estate mortgage: Commercial: Nonaccrual $ 3,938 $ 191 $ 107 $ 179 $ 261 Past due 90 days or more 179 614 88 - - Restructured terms - 577 608 639 676 One-to-four family residential: Nonaccrual 110 265 18 58 95 Past due 90 days or more 700 363 251 72 37 Restructured terms - - - - - Real estate construction: Nonaccrual - - - 86 101 Past due 90 days or more 603 119 - - - Restructured terms - - - - - Commercial: Nonaccrual 1,403 4,149 567 805 1,473 Past due 90 days or more 195 71 435 241 32 Restructured terms - - 2,996 - 195 Installment and consumer: Guaranteed student loans: Nonaccrual - - - - - Past due 90 days or more - - - - 17 Restructured terms - - - - - Credit cards: Nonaccrual - - - - - Past due 90 days or more - 82 63 138 52 Restructured terms - - - - - Other consumer: Nonaccrual 7 30 32 210 28 Past due 90 days or more - 188 114 62 174 Restructured terms - - - - - -------------------------------------------------------------------------- Total nonperforming loans 7,135 6,649 5,279 2,490 3,141 Other real estate owned 362 64 195 264 472 -------------------------------------------------------------------------- Total nonperforming assets $ 7,497 $ 6,713 $ 5,474 $ 2,754 $ 3,613 ========================================================================== Loans receivable $719,113 $644,646 $531,988 $412,614 $319,260 ========================================================================== Summary: Total nonaccrual $ 5,458 $ 4,635 $ 724 $ 1,338 $ 1,958 Total past due 90 days or more 1,677 1,437 951 513 312 Total restructured - 577 3,604 639 871 -------------------------------------------------------------------------- Total nonperforming loans 7,135 6,649 5,279 2,490 3,141 Other real estate owned 362 64 195 264 472 -------------------------------------------------------------------------- Total nonperforming assets $ 7,497 $ 6,713 $ 5,474 $ 2,754 $ 3,613 ========================================================================== Allowance for loan losses to loans 1.15% 1.11% 1.09% 1.20% 1.24% Nonperforming loans to loans 0.99 1.03 0.99 0.60 0.98 Allowance for loan losses to nonperforming loans 116.08 107.37 110.12 199.16 126.07 Nonperforming assets to loans and other real estate owned 1.04 1.04 1.03 0.67 1.13
14 OTHER INCOME The following table sets forth the Company's other income for the periods indicated.
For the Year Ended December 31, --------------------------------------- 1997 1996 1995 --------------------------------------- (dollars in thousands) Service charges and fees $3,177 $2,985 $2,574 Credit cards 659 869 901 Other noninterest income 360 268 374 Gain on sale of credit card portfolio 3,745 - - Gain on sales of loans receivable 1,936 1,768 1,033 Gain (loss) on sales of investment securities 18 459 (8) --------------------------------------- Total other income $9,895 $6,349 $4,874 =======================================
The Company has sought to develop sources of noninterest income through credit card lending, student lending and mortgage banking, in addition to traditional deposit and loan service charges and fees. Total other income increased by $3.5 million for 1997 compared to 1996 primarily as a result of the gain on sale of the credit card portfolio. During the fourth quarter of 1997, the Bank completed the sale of substantially all of its credit card portfolio at a premium before taxes, but net of other related expenses, of $3.7 million. The Bank continues to offer credit cards and debit cards to its customers. The gain on sale of investment securities of $18,000 occurred when $1.0 million in "held to maturity" and $5.0 million in "available for sale" Agency securities, originally purchased at a discount, were called prior to their stated maturity date. Total other income increased by $1.5 million for fiscal year 1996 compared to 1995 primarily due to increased gains on sales of student loans and residential mortgage loans, increased gains on sales of investment securities and increased service charges attributable to its higher deposit base. During 1996, the Company sold $46.7 million in student loans compared to $40.2 million in such sales during 1995. The Company also was able to increase its gain on sales of student loans by packaging its loans in a manner than allowed it to obtain a higher premium from the Student Loan Marketing Association ("SLMA"). The principal balance of residential mortgage loans sold was $45.1 million during 1996 compared to $33.6 million during 1995. The gain on sales of investment securities during 1996 occurred when $4.6 million in Agency securities classified as "held to maturity", and $11.2 million in Agency securities classified as "available for sale", originally purchased at a discount, were called prior to their stated maturity date, and $150,000 in Corporate Stock classified as "available for sale" was sold. During 1995, a loss on sales of investment securities occurred when the Bank sold securities classified as "held to maturity". The Company concluded that these securities were sold at a time near enough to their maturity dates that interest rate risk was substantially eliminated as a pricing factor. OTHER EXPENSES The following table sets forth the Company's other expenses for the periods indicated.
For the Year Ended December 31, --------------------------------------- 1997 1996 1995 --------------------------------------- (dollars in thousands) Salaries and employee benefits $13,808 $12,164 $10,057 Occupancy 4,681 3,671 3,080 FDIC and other insurance 254 859 856 Credit cards 313 411 547 General and administrative 6,690 6,121 5,362 --------------------------------------- Total other expenses $25,746 $23,226 $19,902 =======================================
15 The Company's other expenses increased to $25.7 million for 1997 compared to $23.2 million for 1996. This $2.5 million increase was primarily the result of an increase in salaries and employee benefits, which increased $1.6 million as a result of a 3% increase in staffing from year-end 1996 to mid-year 1997 and salary increases for current staff, the majority of which are effective at the first of each year. Staffing levels declined 6% during the third and fourth quarters of 1997. In addition, occupancy expense increased $1.0 million and general and administrative expense increased $569,000 compared to 1996. The increase in occupancy expense was due primarily to increased data processing, depreciation and equipment costs as systems, facilities and equipment were upgraded beginning in November 1996 and continuing through 1997. These increases were partially offset by a $605,000 reduction in FDIC and other insurance. The Company's other expenses increased $3.3 million, or 17%, for fiscal year 1996 compared to fiscal year 1995. This increase was primarily the result of an increase in salaries and employee benefits, which increased $2.1 million, or 21%, as a result of a 20% increase in staffing. The increase in staffing is related to the expansion of the Company's asset and deposit bases. In addition, occupancy expense increased $591,000, due primarily to the leasing of additional office space and the depreciation on furniture and equipment purchased to furnish those new offices, and general and administrative expense increased $759,000. Included in general and administrative expense was $139,000 in expenses related to an unsuccessful effort to establish additional branches. Despite the increase in the Company's deposit base, FDIC and other insurance for 1996 increased only $3,000 compared to 1995. Regular deposit insurance premium rates decreased beginning July 1, 1995 as the Bank Insurance Fund ("BIF"), of which the Bank is a member, achieved its statutory reserve ratio. However, legislation enacted by Congress required that the Bank pay a one-time special assessment of $436,000 to the FDIC with respect to deposits it acquired from a savings association in 1991. After the payment of this special assessment, the insurance premiums related to these acquired deposits were also reduced. The Company is constructing a new facility for its Tulsa operations. Groundbreaking on the 42,000 square foot building occurred in the third quarter of 1997, with occupancy anticipated in the third quarter of 1998. When opened, the building will include space for rental to third parties. The total cost of the building is expected to be $9.5 million. A substantial portion of these costs will be capitalized and, except for the cost of the land, will be expensed over the useful life of the property. TAXES ON INCOME The Company's income tax expense for fiscal years 1997, 1996 and 1995 was $2.7 million, $4.3 million and $3.3 million, respectively. The Company's effective tax rates have been lower than the 34% to 35% federal and 6% state statutory rates primarily because of tax-exempt income on municipal obligations and loans. CAPITAL RESOURCES Shareholders' equity increased to $68.0 million at December 31, 1997 from $65.0 million a year earlier. The increase was primarily attributable to earnings retained after common and preferred stock dividend payments. Net unrealized gains on investment securities available for sale (net of tax) increased to $580,000 at December 31, 1997 compared to $205,000 at December 31, 1996. The Corporation also increased common stock and related surplus by $456,000 through the issuance of common stock through the dividend reinvestment plan, the employee stock purchase plan, and the employee stock option plan. During the second quarter of 1997, SBI Capital Trust ("SBI"), a statutory business trust and consolidated subsidiary of the Company, sold 1,000,500 Preferred Securities, having a liquidation amount of $25 per security, for a total price of $25,012,500. The distributions payable on the preferred securities are based on a 9.30% fixed annual rate. The Preferred Securities meet the regulatory criteria for Tier I Capital, subject to Federal Reserve guidelines that limit the amount of the Preferred Securities and cumulative perpetual preferred stock to an aggregate of 25% of Tier I Capital. Proceeds from the Preferred Securities were invested in 9.30% Subordinated Debentures of the Company. The net proceeds to the Company from the sale of the Subordinated Debentures were used for general corporate purposes, including use in investment activities and the Bank's lending activities. The Bank meets the requirements for a well-capitalized institution. See accompanying Notes to Consolidated Financial Statements for additional information. 16 In the first quarter of 1998, the Company adopted a policy which prohibits the declaration of dividends on common stock while the Company is operating at a loss. Dividends on common stock were declared in the third quarter of 1997, prior to the adoption of this policy, although a loss was incurred for that quarter. 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. The Company's portfolio of government-guaranteed student loans and SBA loans are also readily salable. Additional sources of liquidity, including cash flow from the repayment of loans, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of core 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. Core deposits, defined as demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit less than $100,000, were 84%, 84% and 86% of total deposits at December 31, 1997, 1996 and 1995, respectively. The Company has used various forms of short-term borrowings for cash management and liquidity purposes on a limited basis. These forms of borrowings include federal funds purchases, securities sold under agreements to repurchase, and borrowings from the Federal Reserve Bank. The Bank has approved federal funds purchase lines totaling $20.0 million with three other banks. The Bank also carries interest-bearing demand notes issued to the U.S. Treasury as a participant in the Treasury Tax and Loan note program. In addition, the Bank has available a $35.0 million line of credit from the Student Loan Marketing Association ("SLMA") and a $177.0 million line of credit from the Federal Home Loan Bank of Topeka ("FHLB"). Borrowings under the SLMA line would be secured by student loans. Borrowings under the FHLB line would be secured by all other unpledged securities and loans. During 1997 and 1996, no category of borrowings averaged more than 30% of ending shareholders' equity. During 1997, the Company began selling securities under agreements to repurchase with the Company retaining custody of the collateral. Collateral consists of direct obligations of the U.S. Government or U.S. Government Agency issues and the Company retains custody of the security which is designated as pledged with the Company's safekeeping agent. The type of collateral required, and the retention of the collateral and the security sold minimize the Company's risk of exposure to loss. These transactions are for one-to-three day periods and do not materially affect the Company's liquidity or operations. Cash and cash equivalents increased by $13.3 million during 1997. This increase was the result of cash generated from financing activities (primarily increased deposits and the issuance of Subordinated Debentures) of $127.7 million and operating activities of $13.5 million offset by $127.9 million in cash used in investing activities. During 1996, cash and cash equivalents increased by $2.1 million as compared to the year ended December 31, 1995. The increase was the result of cash generated from financing activities (primarily increased deposits) of $109.3 million and operating activities of $7.2 million offset by $114.4 million in cash used in investing activities. ASSET/LIABILITY MANAGEMENT AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's net income is largely dependent on its net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net income. 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. The Bank attempts to manage interest rate risk while enhancing net interest margin by adjusting its asset/liability position. At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the Bank may determine to increase its interest 17 rate risk position somewhat in order to increase its net interest margin. The Bank monitors interest rate risk and adjusts the composition of its interest- related assets and liabilities in order to limit its exposure to changes in interest rates on net interest income over time. The Bank's asset/liability committee reviews its interest rate risk position and profitability, and recommends adjustments. The Bank also reviews the securities portfolio, formulates investment strategies, and oversees the timing and implementation of transactions. Notwithstanding the Bank's interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income. The Bank's results of operations and portfolio market values remain vulnerable to changes in interest rates and to fluctuations in the difference between long- and short-term interest rates. The Bank assesses its interest rate risk exposure by analyzing the Bank's interest rate sensitivity "gap" between its interest rate sensitive assets and liabilities at different repricing intervals and by analyzing the Bank's market risk measured by Market Value ("MV") modeling. Interest Rate Sensitivity Analysis Generally, during a period of rising interest rates, a negative gap position would adversely affect net interest income, while a positive gap would result in an increase in net interest income, while, conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would adversely affect net interest income. Because of the Company's current gap position and the repricing and repayment characteristics of its loan portfolio, which consists primarily of short-term and floating-rate loans, management believes the Company's net interest income will not be materially adversely affected by increases or decreases in market interest rates. The following table sets forth the Company's interest rate sensitivity gap at December 31, 1997.
0 to 3 4 to 12 Over 1 to Over Months Months 5 Years 5 Years Total ------------------------------------------------------- (dollars in thousands) Interest-earning assets: Loans receivable $368,274 $220,655 $ 97,772 $ 32,412 $719,113 Investment securities 12,881 32,859 132,026 9,974 187,740 Federal funds sold 10,000 - - - 10,000 Due from banks 7 - - - 7 ------------------------------------------------------- Total 391,162 253,514 229,798 42,386 916,860 Interest-bearing liabilities: Money market deposit accounts 94,496 - - - 94,496 Time deposits 206,336 340,238 62,692 1 609,267 Savings accounts 3,655 - - - 3,655 NOW accounts 37,447 - - - 37,447 Short-term borrowings 20,548 - - - 20,548 Long-term debt - - - 25,013 25,013 ------------------------------------------------------- Total 362,482 340,238 62,692 25,014 790,426 ------------------------------------------------------- Interest sensitivity gap $ 28,680 $(86,724) $167,106 $ 17,372 $126,434 ======================================================= Cumulative interest sensitivity gap $ 28,680 $(58,044) $109,062 $126,434 $126,434 ======================================================= Percentage of interest-earning assets to interest-bearing liabilities 107.91% 74.51% 366.55% 169.45% 116.00% ======================================================= Percentage of cumulative gap to total assets 2.98% (6.03)% 11.32% 13.13% 13.13% =======================================================
It is the Company's goal to maintain a percentage of rate-sensitive assets to rate-sensitive liabilities of between 75% and 125%. This percentage of rate- sensitive assets to rate-sensitive liabilities presents a static position as of a single day and is not necessarily indicative of the Company'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 18 foregoing analysis assumes that the Company'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 the Company's interest-earning assets. Market Value ("MV") Analysis Generally, MV is the discounted present value of the difference between incoming cash flows on interest-earning assets and other assets and outgoing cash flows on interest-bearing liabilities and other liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the MV which would result from a theoretical 200 and 400 basis point ("bp") (1 basis point equals .01%) change in market interest rates. Both 200 and 400 bp increases in market interest rates and 200 and 400 bp decreases in market interest rates are considered. At December 31, 1997, it was estimated that the Bank's MV would decrease 12.84% and 22.64% in the event of 200 and 400 bp increases in market interest rates, respectively. The Bank's MV at the same date would increase 16.09% and 20.64% in the event of 200 and 400 bp decreases in market interest rates, respectively. Presented below, as of December 31, 1997, is an analysis of the Bank's interest rate risk as measured by changes in MV for instantaneous and sustained parallel shifts of 200 and 400 bp increments in market interest rates.
MV as % of Market Market Present Value (PV) Change Value Value of Assets In Rates $ Amount $ Change % Change MV Ratio Change - ------------------------------------------------------------------------------------- (dollars in thousands) + 400 bp $60,787 $(17,786) (22.64)% 6.58% (1.67) bp + 200 bp 68,483 (10,091) (12.84) 7.31 (0.94) bp + 000 bp 78,574 - - 8.25 - bp - - 200 bp 91,214 12,640 16.09 9.39 1.15 bp - - 400 bp 94,791 16,217 20.64 9.67 1.42 bp Interest Rate Risk Measures: 200 Basis Point Rate Shock Pre-Change MV Ratio: MV as % of PV of Assets 8.25 % Exposure Measuer: Post-Change MV Ratio 7.31 % Sensitivity Measure: Change in MV Ratio (0.94)% Change in MV as % of PV of Assets 12.84 % Interest Rate Risk Capital Component -
Management believes that the MV methodology overcomes three shortcomings of the interest rate sensitivity gap methodology. First, it does not use arbitrary repricing measurement intervals but does account for all expected future cash flows; weighting each by its appropriate discount factor. Second, because the MV method projects cash flows of each financial instrument under different interest-rate environments, it can incorporate the effect of embedded options on an institution's interest rate risk exposure. Third, it allows interest rates on different instruments to change by varying amounts in response to a change in market interest rates, resulting in more accurate estimates of cash flows. However, as with any method of gauging interest rate risk, there are certain shortcomings inherent to the MV methodology. The model assumes interest rate changes are instantaneous, parallel shifts in the yield curve. In reality, rate changes are rarely instantaneous. The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts. Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react the same to changes in rates. In reality, certain types of financial instruments may react in advance of changes in market rates, while the reaction of other types of financial instruments may lag behind the change in general market rates. Additionally, the MV methodology may not reflect the full impact of annual and life-time restrictions on changes in rates for certain assets, such as adjustable-rate mortgage loans. When interest rates change, actual loan prepayments and actual early withdrawals from certificates may deviate significantly from assumptions used in the model. Finally, this methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers' ability to service their debt. All of these factors are considered in monitoring the Bank's exposure to interest rate risk. 19 YEAR 2000 Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. This year 2000 issue affects virtually all enterprises. In recognition of potential adverse effects of the year 2000 issue, management of the Company has created a task force and has established a plan to prevent or mitigate adverse effects of the year 2000 issue on the Company and its customers. Quarterly progress reports are provided to the Board of Directors. The Company's primary supplier of data processing services also has adopted a year 2000 plan and timetable. Management believes that the cost of resolving year 2000 issues relating to the Company's computer programs and those used by its suppliers of significant data processing services will not be material to the Company's business, operations, liquidity, capital resources, or financial condition, based on information developed to date and communications from data processing suppliers. The Company's year 2000 plan required an assessment of year 2000 effects on its commercial lending and other customers. The effect on individual, corporate and governmental customers of the Company and on governmental authorities that regulate the Company and its subsidiaries cannot yet be determined. EFFECTS OF INFLATION The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles and practices within the banking industry that require the measurement of financial position and operating results in terms of historical dollars without considering the changes 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 February 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 129, Disclosure of Information About Capital Structure. SFAS No. 129 establishes standards for disclosure of information regarding an entity's capital structure. The adoption of SFAS No. 129 did not affect the Company's capital structure disclosures. In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which establishes standards for computing and presenting earnings per share. The Company adopted SFAS No. 128 as of December 31, 1997, and restated all per share data as reflected in the consolidated financial statements in accordance with SFAS No. 128. In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125 requires the Company to recognize the financial and servicing assets it controls and liabilities it has incurred, derecognize financial assets when control has been surrendered, and derecognize liabilities when extinguished. The adoption of SFAS No. 125 did not affect the Company's consolidated financial position or results of operations. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED In December of 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125. The Company will adopt SFAS No. 127 on January 1, 1998 as required. Management believes the adoption of SFAS No. 127 will not have a material impact on the Company's consolidated financial position or results of operations. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. In addition, SFAS No. 130 requires the Company to classify items of other 20 comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately in the shareholders' equity section of the statement of financial condition. The Company will adopt SFAS No. 130 on January 1, 1998 as required. Also in June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes reporting standards for public companies concerning annual and interim financial statements of their operating segments and related information. Operating segments are components of a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance. The Standard sets criteria for reporting disclosures about a company's products and services, geographic areas and major customers. The Company will adopt SFAS No. 131 on January 1, 1998 as required, and believes the Company has only one segment, as that term is defined in SFAS No. 131. 21 INDEPENDENT AUDITORS' REPORT 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. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Southwest Bancorp, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Oklahoma City, Oklahoma January 30, 1998 22 SOUTHWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1997 1996 ------------- ------------- ASSETS Cash and due from banks $ 26,259 $ 22,914 Federal funds sold 10,000 - ------------- ------------- Cash and cash equivalents 36,259 22,914 Investment securities: Held to maturity, fair value $87,592 (1997) and $83,963 (1996) 86,994 83,589 Available for sale, amortized cost $99,778 (1997) and $63,419 (1996) 100,746 63,762 Loans receivable, net of allowance for loan losses of $8,282 (1997) and $7,139 (1996) 710,831 637,507 Accrued interest receivable 8,883 7,400 Premises and equipment, net 13,571 9,649 Other assets 6,002 4,296 ------------- ------------- Total assets $963,286 $829,117 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 96,560 $ 83,729 Interest-bearing demand 37,447 34,309 Money market accounts 94,496 86,910 Savings accounts 3,655 4,086 Time deposits 609,267 544,911 ------------- ------------- Total deposits 841,425 753,945 ------------- ------------- Income taxes payable 521 187 Accrued interest payable 6,504 5,061 Other liabilities 1,227 1,907 Short-term borrowings 20,548 2,985 Long-term debt: Guaranteed preferred beneficial interests in the Company's subordinated debentures 25,013 - ------------- ------------- Total liabilities 895,238 764,085 ------------- ------------- Commitments and contingencies - - Shareholders' equity: Serial preferred stock - Series A, 9.20% Redeemable, Cumulative Preferred Stock; $1 par value; 1,000,000 shares authorized; liquidation value $17,250,000; 690,000 shares issued and outstanding 690 690 Series B, $1 par value; 1,000,000 shares authorized; none issued - - Common stock - $1 par value; 10,000,000 shares authorized; issued and outstanding 3,787,839 (1997) and 3,764,216 (1996) 3,788 3,764 Capital surplus 24,764 24,332 Retained earnings 38,226 36,041 Unrealized gain (loss) on investment securities available for sale, net of tax 580 205 ------------- ------------- Total shareholders' equity 68,048 65,032 ------------- ------------- Total liabilities & shareholders' equity $963,286 $829,117 ============= =============
See notes to consolidated financial statements. 23 SOUTHWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1997 1996 1995 ---------------- ---------------- ---------------- Interest income: Interest and fees on loans $65,560 $55,177 $45,591 Investment securities: U.S. Government and agency obligations 8,667 6,815 6,737 State and political subdivisions 508 577 477 Mortgage-backed securities 1,234 1,531 1,535 Other securities 173 76 64 Federal funds sold 707 492 596 ---------------- ---------------- ---------------- Total interest income 76,849 64,668 55,000 Interest expense: Interest-bearing demand 894 838 764 Money market accounts 3,836 3,129 3,161 Savings accounts 96 114 133 Time deposits 34,743 28,647 24,208 Short-term borrowings 340 105 278 Long-term debt 1,338 - - ---------------- ---------------- ---------------- Total interest expense 41,247 32,833 28,544 ---------------- ---------------- ---------------- Net interest income 35,602 31,835 26,456 Provision for loan losses 12,104 3,100 2,000 ---------------- ---------------- ---------------- Net interest income after provision for loan losses 23,498 28,735 24,456 Other income: Service charges and fees 3,177 2,985 2,574 Credit cards 659 869 901 Other noninterest income 360 268 374 Gain on sale of credit card portfolio 3,745 - - Gain on sales of loans receivable 1,936 1,768 1,033 Gain (loss) on sales of investment securities 18 459 (8) ---------------- ---------------- ---------------- Total other income 9,895 6,349 4,874 Other expenses: Salaries and employee benefits 13,808 12,164 10,057 Occupancy 4,681 3,671 3,080 FDIC and other insurance 254 859 856 Credit cards 313 411 547 General and administrative 6,690 6,121 5,362 ---------------- ---------------- ---------------- Total other expenses 25,746 23,226 19,902 ---------------- ---------------- ---------------- Income before taxes 7,647 11,858 9,428 Taxes on income 2,667 4,306 3,336 ---------------- ---------------- ---------------- Net income $ 4,980 $ 7,552 $ 6,092 ================ ================ ================ Net income available to common shareholders $ 3,393 $ 5,965 $ 5,426 ================ ================ ================ Basic earnings per common share $0.90 $1.59 $1.44 ================ ================ ================ Diluted earnings per common share $0.88 $1.56 $1.43 ================ ================ ================
See notes to consolidated financial statements. 24 SOUTHWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED GAIN (LOSS) TOTAL ON AVAILABLE SHARE- PREFERRED STOCK COMMON STOCK CAPITAL RETAINED FOR SALE HOLDERS' SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS SECURITIES EQUITY ----------------------------------------------------------------------------------------------- Balance, January 1, 1995 - - 3,755,228 $3,755 $ 8,539 $26,471 $ (877) $37,888 Cash dividends paid: Common, $0.18 per share - - - - - (676) - (676) Preferred, $0.7731 per share - - - - - (533) - (533) Cash dividends declared: Common, $0.06 per share - - - - - (225) - (225) Issuance of preferred stock, net of offering costs 690,000 $690 - - 15,632 - - 16,322 Change in unrealized gain (loss) on available for sale securities, net of tax - - - - - - 1,489 1,489 Net income - - - - - 6,092 - 6,092 ----------------------------------------------------------------------------------------------- Balance, December 31, 1995 690,000 690 3,755,228 3,755 24,171 31,129 612 60,357 Cash dividends paid: Common, $0.21 per share - - - - - (790) - (790) Preferred, $2.30 per share - - - - - (1,587) - (1,587) Cash dividends declared: Common, $0.07 per share - - - - - (263) - (263) Common stock issued: Employee Stock Purchase Plan - - 3,552 4 64 - - 68 Dividend Reinvestment Plan - - 5,436 5 97 - - 102 Change in unrealized gain (loss) on available for sale securities, net of tax - - - - - - (407) (407) Net income - - - - - 7,552 - 7,552 ----------------------------------------------------------------------------------------------- Balance, December 31, 1996 690,000 690 3,764,216 3,764 24,332 36,041 205 65,032 Cash dividends paid: Common, $0.24 per share - - - - - (905) - (905) Preferred, $2.30 per share - - - - - (1,587) - (1,587) Cash dividends declared: Common, $0.08 per share - - - - - (303) - (303) Common stock issued: Employee Stock Purchase Plan - - 3,767 4 78 - - 82 Dividend Reinvestment Plan - - 5,856 6 117 - - 123 Stock Option Plan - - 14,000 14 237 - - 251 Change in unrealized gain (loss) on available for sale securities, net of tax - - - - - - 375 375 Net income - - - - - 4,980 - 4,980 ----------------------------------------------------------------------------------------------- Balance, December 31, 1997 690,000 $690 3,787,839 $3,788 $24,764 $38,226 $ 580 $68,048 ===============================================================================================
See notes to consolidated financial statements. 25 SOUTHWEST BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Dollars in thousands)
1997 1996 1995 ----------- ----------- ----------- Operating activities: Net income $ 4,980 $ 7,552 $ 6,092 Adjustments to reconcile net income to net cash (used in) provided from operating activities: Provision for loan losses 12,104 3,100 2,000 Depreciation and amortization expense 1,577 1,254 1,026 Amortization of premiums and accretion of discounts on securities, net 113 244 248 Amortization of intangibles 221 174 174 (Gain) Loss on sales of securities (18) (459) 8 (Gain) Loss on sales of loans receivable (1,936) (1,768) (1,033) (Gain) Loss on sale of credit card portfolio (3,745) - - (Gain) Loss on sales of premises/equipment (25) (10) 3 (Gain) Loss on other real estate owned, net 13 (2) (52) Proceeds from sales of residential mortgage loans 71,710 45,519 34,002 Residential mortgage loans originated for resale (69,205) (48,469) (34,947) Changes in assets and liabilities: Accrued interest receivable (1,483) (283) (1,240) Other assets (1,879) (1,188) (986) Income taxes payable 334 (84) 78 Accrued interest payable 1,443 795 1,632 Other liabilities (720) 786 (449) ------------- ------------- ----------- Net cash (used in) provided from operating activities 13,484 7,161 6,556 ------------- ------------- ----------- Investing activities: Proceeds from sales of held to maturity securities - - 5,993 Proceeds from sales of available for sale securities - 438 - Proceeds from principal repayments, calls and maturities: Held to maturity securities 19,649 25,388 17,193 Available for sale securities 18,017 28,969 6,286 Purchases of held to maturity securities (23,178) (34,538) (23,363) Purchases of available for sale securities (54,347) (20,383) (8,054) Loans originated and principal repayments, net (145,116) (157,501) (159,227) Proceeds from sale of credit card portfolio 21,798 - - Proceeds from sales of guaranteed student loans 40,545 47,768 40,738 Purchases of premises and equipment (5,603) (4,693) (1,936) Proceeds from sales of premises and equipment 129 24 18 Proceeds from sales of other real estate 210 152 68 ------------- ------------- ----------- Net cash (used in) provided from investing activities (127,896) (114,376) (122,284) ------------- ------------- ----------- Financing activities: Net increase in deposits 87,480 119,558 108,827 Net increase (decrease) in short-term borrowings 17,563 (7,786) (3,629) Net proceeds from issuance of common stock 456 170 - Net proceeds from issuance of preferred stock - - 16,322 Proceeds from issuance of subordinated debentures 25,013 - - Common stock dividends paid (1,168) (1,015) (864) Preferred stock dividends paid (1,587) (1,587) (533) ------------- ------------- ----------- Net cash (used in) provided from financing activities 127,757 109,340 120,123 ------------- ------------- ----------- Net increase (decrease) in cash and cash equivalents 13,345 2,125 4,395 Cash and cash equivalents, Beginning of period 22,914 20,789 16,394 ------------- ------------- ----------- End of period $ 36,259 $ 22,914 $ 20,789 ============= ============= ===========
See notes to consolidated financial statements. 26 SOUTHWEST BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES Organization and Nature of Operations - Southwest Bancorp, Inc. ("the Company") was incorporated in 1981 as a bank holding company headquartered in Stillwater, Oklahoma engaged primarily in commercial and consumer banking services in the State of Oklahoma. The accompanying consolidated financial statements include the accounts of Stillwater National Bank and Trust Company (the "Bank"), a national bank established in 1894, and SBI Capital Trust, a Delaware Business Trust established in 1997. The Bank and SBI Capital Trust are wholly owned, direct subsidiaries of the Company. The Company has six full- service banking offices, two of which are located in each of Stillwater and Tulsa, Oklahoma, with one each in Oklahoma City and Chickasha, Oklahoma. The Company pursues a decentralized community banking strategy and operates through three regional divisions. All significant intercompany balances and transactions have been eliminated. MANAGEMENT ESTIMATES - In preparing its financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates shown on the consolidated statements of financial position and revenues and expenses during the periods reported. Actual results could differ significantly from those estimates. Changes in economic conditions could impact the determination of material estimates such as the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. INVESTMENT SECURITIES - Investments in debt and equity securities are identified as held to maturity, trading, 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. Under certain circumstances (including the deterioration of the issuer's creditworthiness, a change in tax law, or statutory or regulatory requirements), the Company may change the investment security classification. The classifications the Company utilizes determines the related accounting treatment for each category of investments. Investments classified as trading are accounted for at fair value with unrealized gains and losses included in other income. Available for sale securities are accounted for at fair value with unrealized gains or losses, net of taxes, excluded from earnings and reported as a separate component of shareholders' equity. 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 income over the contractual maturity or estimated life of the individual investment on the level yield method. The Company has the ability and intent to hold to maturity its investment securities classified as held to maturity. Declines in the fair value of securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The related write-down is included in earnings as realized losses. Gain or loss on sale of investments is based upon the specific identification method. Income earned on the Company's investments in state and political subdivisions is not taxable. LOANS RECEIVABLE - Interest on loans is accrued and credited to income 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. The Bank originates real estate mortgage loans and 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. Guaranteed student loans are generally sold after the Company has been notified of the borrower's change from deferment status, which can range from one to five years, or longer. Real estate mortgage loans held for sale and guaranteed student loans are carried at cost, which does not exceed market. Gains or losses recognized upon the sales of loans are determined on a specific identification basis. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through a provision for loan losses charged to expense. Loans which are determined to be impaired are charged against this allowance, to the extent of the impairment, 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 the Company 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 27 identified for evaluation of impairment is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Smaller balance, homogeneous loans, including mortgage, student and consumer, are collectively evaluated for impairment. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. All of the Company's nonaccrual loans have been defined as impaired loans. The adequacy of the allowance for loan losses is determined by management based upon a number of factors including, among others, analytical reviews of loan loss experience in relationship to outstanding loans and commitments; unfunded loan commitments; problem and nonperforming loans and other loans presenting credit concerns; trends in loan growth, portfolio composition and quality; use of appraisals to estimate the value of collateral; and management's judgment with respect to current and expected economic conditions and their impact on the existing loan portfolio. Changes in the allowance may occur because of changing economic conditions and economic prospects or financial positions of borrowers. While there can be no assurance that the allowance for loan losses will be adequate to cover all losses from all loans, management believes that the allowance for loan losses is adequate. While management uses all available information to estimate the adequacy of the allowance for loan losses, the ultimate collectability of a substantial portion of the loan portfolio and the need for future additions to the allowance will be based upon changes in economic conditions and other relevant factors. Recovery of the carrying value of such loans is dependent to a great extent on conditions that may be beyond the Company's control. Actual future losses could differ significantly from the amounts estimated by management adversely affecting net income. DEPOSITS - The total amount of time deposits with a minimum denomination of $100,000 was approximately $132.0 million and $123.1 million at December 31, 1997 and 1996, respectively. The total amount of overdrawn deposit accounts that were reclassified as loans at December 31, 1997 and 1996 was $437,000 and $952,000, respectively. LOAN SERVICING INCOME - The Company 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. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less accumulated depreciation and amortization. Major additions or improvements are charged to the asset account while normal maintenance and repairs are expensed as incurred. Depreciation and amortization are computed using the straight-line and declining-balance methods based on asset lives which vary from three to forty years. OTHER REAL ESTATE OWNED - Other real estate owned is initially recorded at the lesser of the fair value less the estimated costs to sell the asset or the recorded amount of the related loan. Write-downs of carrying value required at the time of foreclosure are recorded as a charge to the allowance for loan losses. Costs related to the development of such real estate are capitalized whereas those related to holding the property are expensed. Foreclosed property is subject to periodic reevaluation 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. The net cost of operating other real estate owned, including provision for losses, rental income, and gains and losses on sales of real estate, is not significant. Profit from sales of foreclosed property by the Company is recognized in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 66, Accounting for Sales of Real Estate. Losses are recognized as incurred. INTANGIBLES - Intangibles consist of a core deposit intangible, goodwill and mortgage servicing rights. The core deposit intangible is amortized over the estimated life of the assumed deposits, ranging from four to seven years using the level yield method. Goodwill is amortized using the straight-line method over 15 years. Mortgage servicing rights are capitalized using an allocated cost of the observable market price at the point of origination. The servicing rights are amortized on an individual loan by loan basis in proportion to, and over the period of, estimated net servicing income. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. The capitalized amounts and amortization of the mortgage servicing rights is not material. At December 31, 1997 and 1996, the Bank had recorded cumulative amortization of $1.2 million and $1.0 million, respectively. LONG-TERM DEBT - The long-term debt consists of the Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures purchased from SBI Capital Trust. See Note 6. TAXES ON INCOME - The Company 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 28 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 - The Company has adopted Financial Accounting Standards Board ("FASB") SFAS No. 128, Earnings Per Share, and has restated earnings per share for all periods presented in accordance with that Statement. Basic earnings per common share is computed based upon net income, after deducting the dividend requirements of preferred stock, divided by the weighted average number of common shares outstanding during each period. Diluted earnings per common share is computed based upon net income, after deducting the preferred stock dividend requirements, divided by the weighted average number of common shares outstanding during each period adjusted for the effect of dilutive potential common shares calculated using the treasury stock method. At December 31, 1997 and 1996, the Company had 3,858 and 302 antidilutive options to purchase common shares, respectively. There were no antidilutive options at December 31, 1995. The following is a reconciliation of the common shares used in the calculations of basic and diluted earnings per common share:
1997 1996 1995 ------------ ------------ ------------ Weighted average common shares outstanding: Basic earnings per share 3,773,037 3,760,370 3,755,228 Effect of dilutive securities: Stock options 99,851 68,011 32,861 ------------ ------------ ------------ Weighted average common shares outstanding: Diluted earnings per share 3,872,888 3,828,381 3,788,089 ============ ============ ============
TRUST - The Company offers trust services to customers through its relationship with the Trust Company of Oklahoma, a trust services company. Property (other than cash on deposit) held by the Bank 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 the Bank. 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 day periods. LIQUIDITY - The Bank 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 $4.6 million and $5.1 million at December 31, 1997 and 1996, respectively. At December 31, 1997, the Bank had available unsecured lines of credit from correspondent banks, the Student Loan Marketing Association ("SLMA"), and the Federal Home Loan Bank of Topeka ("FHLB") totaling $20.0 million, $35.0 million, and $177.0 million, respectively. Short-term borrowings outstanding on these lines of credit totaled $1.8 million, with weighted average rates of 6.70%, at December 31, 1996; there were no borrowings outstanding on these lines of credit at December 31, 1997. The average balances outstanding on these lines of credit were not material for either year. RECLASSIFICATIONS - Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. 29 2. INVESTMENT SECURITIES A summary of the amortized cost and fair values of investment securities follows:
At December 31, 1997 ---------------------------------------------------------------- Amortized Gross Unrealized Fair Cost Gains Losses Value ---------------------------------------------------------------- (dollars in thousands) Held to Maturity: U.S. Government and agency obligations $77,261 $ 677 $ 30 $ 77,908 Obligations of state and political subdivisions 9,733 29 78 9,684 -------------- -------------- -------------- ------------ Total $86,994 $ 706 $ 108 $ 87,592 ============== ============== ============== ============ Available for Sale: U.S. Government and agency obligations $76,277 $ 690 $ 19 $ 76,948 Obligations of state and political subdivisions 1,220 1 1 1,220 Mortgage-backed securities 16,388 72 33 16,427 Other securities 5,893 268 10 6,151 -------------- -------------- -------------- ------------ Total $99,778 $ 1,031 $ 63 $100,746 ============== ============== ============== ============ At December 31, 1996 ---------------------------------------------------------------- Amortized Gross Unrealized Fair Cost Gains Losses Value ---------------------------------------------------------------- (dollars in thousands) Held to Maturity: U.S. Government and agency obligations $72,345 $ 467 $ 100 $ 72,712 Obligations of state and political subdivisions 11,244 52 45 11,251 -------------- -------------- -------------- ------------ Total $83,589 $ 519 $ 145 $ 83,963 ============== ============== ============== ============ Available for Sale: U.S. Government and agency obligations $37,440 $ 253 $ 50 $ 37,643 Obligations of state and political subdivisions 1,892 17 - 1,909 Mortgage-backed securities 23,108 56 103 23,061 Other securities 979 170 - 1,149 -------------- -------------- -------------- ------------ Total $63,419 $ 496 $ 153 $ 63,762 ============== ============== ============== ============
As required by law, investment securities are pledged to secure public and trust deposits. Securities with an amortized cost of $99.7 million and $134.9 million were pledged to meet such requirements of $34.9 million and $15.4 million at December 31, 1997 and 1996, respectively. Any amount overpledged can be released at any time. 30 A comparison of the amortized cost and approximate fair value of the Company's investment securities by maturity date at December 31, 1997 follows. Mortgage-backed securities are included in the period in which they are estimated to prepay.
Available for Sale Held to Maturity ---------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value ---------------------------------------------------------------- (dollars in thousands) One year or less $13,633 $ 13,648 $27,920 $ 27,970 Two years through five years 72,396 72,973 59,074 59,622 Five years through ten years 7,856 7,974 - - More than ten years 2,000 2,000 - - Other securities not due at a single maturity date 3,893 4,151 - - -------------- -------------- -------------- ------------ Total $99,778 $100,746 $86,994 $ 87,592 ============== ============== ============== ============
Realized gross gains/(losses) on sales of investment securities were $18,000, $459,000 and $(8,000) during 1997, 1996 and 1995, respectively. The gross proceeds from such sales of investment securities totaled approximately $0, $438,000 and $6.0 million during 1997, 1996 and 1995, respectively. All of the gain on sales of investment securities during 1997 and a portion of the gain on sales of investment securities during 1996 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. During 1995, a loss on sales of investment securities occurred when the Bank sold securities classified as "held to maturity". The Company concluded that these securities were sold at a time near enough to their maturity dates that interest rate risk was substantially eliminated as a pricing factor. 3. LOANS RECEIVABLE Major classifications of loans are as follows:
At December 31, ------------------------------- 1997 1996 ------------------------------- (dollars in thousands) Real estate mortgage: Commercial $223,672 $196,163 One-to-four family residential 79,843 61,175 Real estate construction 72,454 54,369 Commercial 241,007 218,515 Installment and consumer: Guaranteed student loans 64,390 61,959 Credit cards 73 20,839 Other 37,674 31,626 ------------ -------------- 719,113 644,646 Allowance for loan losses (8,282) (7,139) ------------ -------------- Loans receivable, net $710,831 $637,507 ============ ==============
The Bank extends commercial and consumer credit primarily to customers in the State of Oklahoma which subjects the loan portfolio to the general economic conditions within this area. At December 31, 1997 and 1996, substantially all of the Bank's loans, except for credit cards, 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 approximately $71.1 million, or 10% of total loans. The loan portfolio also includes $17.7 million, or 2% of total loans, in hotel/motel loans, $22.4 million, or 3% of total loans, in residential construction loans, and $14.8 million, or 2% of total loans, in restaurant 31 loans. In the event of total nonperformance by the borrowers, the Company's accounting loss would be limited to the recorded investment in the loans receivable reduced by proceeds received from disposition of the related collateral. The Company had loans which were held for sale of $13.0 million and $12.3 million at December 31, 1997 and 1996, respectively. These loans are carried at cost, which does not exceed market. 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 two servicers. The principal balance of loans for which accrual of interest has been discontinued totaled approximately $5.5 million and $4.6 million at December 31, 1997 and 1996, 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 $144,000, $398,000 and $48,000 for 1997, 1996 and 1995, respectively. The unpaid principal balance of real estate mortgage loans serviced for others totaled $132.8 million and $119.0 million at December 31, 1997 and 1996, respectively. The Bank maintained escrow accounts totaling $547,000 and $366,000 for real estate mortgage loans serviced for others at December 31, 1997 and 1996, respectively. The following table sets forth the remaining maturities for certain loan categories at December 31, 1997. Credit card and 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 $ 10,228 $ 54,713 $158,731 $223,672 One-to-four family residential 11,683 28,615 39,545 79,843 Real estate construction 51,304 11,246 9,904 72,454 Commercial 104,690 87,273 49,044 241,007 Installment and consumer: Guaranteed student loans 64,390 - - 64,390 Credit Cards 73 - - 73 Other 11,332 25,415 927 37,674 ------------- ------------- ------------- ------------- Total $253,700 $207,262 $258,151 $719,113 ============= ============= ============= =============
The following table sets forth at December 31, 1997 the dollar amount of all loans due more than one year after December 31, 1997.
Fixed Variable Total ------------ ----------- ----------- (dollars in thousands) Real estate mortgage: Commercial $ 39,264 $174,180 $213,444 One-to-four family residential 18,857 49,303 68,160 Real estate construction 3,178 17,972 21,150 Commercial 24,921 111,396 136,317 Installment and consumer: Guaranteed student loans - - - Credit Cards - - - Other 24,134 2,208 26,342 ------------ ----------- ----------- Total $110,354 $355,059 $465,413 ============ =========== ===========
32 The allowance for loan losses is summarized as follows:
For the Years Ended December 31, ----------------------------------------------------------------- 1997 1996 1995 ----------------------------------------------------------------- (dollars in thousands) Beginning balance $ 7,139 $ 5,813 $ 4,959 Provision for loan losses 12,104 3,100 2,000 Loans charged off (11,528) (2,301) (1,803) Recoveries 567 527 657 ----------------- ------------------ ------------------ Total $ 8,282 $ 7,139 $ 5,813 ================= ================== ==================
As of December 31, 1997 and 1996, impaired loans totaled $5.5 million and $4.8 million and had been allocated a related allowance for loan loss of $707,000 and $2.0 million, respectively. The average balance of impaired loans totaled $4.1 million and $3.8 million and interest income recognized on impaired loans totaled $187,000 and $37,000, respectively, for the years ended December 31, 1997 and 1996. Directors and officers of the Company and the Bank were customers of, and had transactions with, the Bank in the ordinary course of business, and similar transactions are expected in the future. All loans included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of loss or present other unfavorable features. Certain officers, directors, employees, and companies in which they have partial ownership had indebtedness to the Bank totaling $2.1 million and $1.0 million at December 31, 1997 and 1996, respectively. During 1997, $1.6 million of new loans were made to these persons and repayments totaled $509,000. 4. PREMISES AND EQUIPMENT These consist of the following:
At December 31, ------------------------------------- 1997 1996 ------------------------------------- (dollars in thousands) Land $ 4,397 $ 1,214 Buildings and improvements 4,115 3,869 Furniture, fixtures, and equipment 13,750 12,024 -------------- -------------- 22,262 17,107 Accumulated depreciation and amortization (8,691) (7,458) -------------- -------------- Premises and equipment, net $13,571 $ 9,649 ============== ==============
5. OTHER BORROWED FUNDS During 1997, the Company began selling securities under agreements to repurchase with the Company retaining custody of the collateral. Collateral consists of direct obligations of the U.S. Government or U.S. Government Agency issues and the Company retains custody of the security which is designated as pledged with the Company's safekeeping agent. The type of collateral required, and the retention of the collateral and the security sold, minimizes the Company's risk of exposure to loss. These transactions are for one-to-three day periods and do not materially impact the Company's liquidity or operations. As of December 31, 1997, no material repurchase agreements exist with any one customer. 33 Information concerning securities sold under agreements to repurchase is summarized as follows:
1997 1996 1995 -------------------------------------------------------------- (dollars in thousands) End of period balance $18,953 - - Average balance 4,412 - - Maximum month-end balance 18,953 - - Average interest rate 4.94% - -
6. LONG-TERM DEBT On June 4, 1997, SBI Capital Trust, a newly-formed subsidiary of the Company, issued 1,000,500 of its 9.30% Cumulative Trust Preferred Securities (the "Preferred Securities") in an underwritten public offering for an aggregate price of $25,012,500. Proceeds of the Preferred Securities were invested in the 9.30% Subordinated Debentures (the "Subordinated Debentures") of the Company. After deducting underwriter's compensation and other expenses of the offering, the net proceeds were available to the Company to increase capital and for general corporate purposes, including use in investment activities and the Bank's lending activities, and, after September 1, 1998, possible redemption, in whole or in part, of the Company's 9.20% Redeemable Cumulative Preferred Stock, Series A (the "Series A Preferred Stock"). Unlike interest payments on the Subordinated Debentures, dividends paid on the Series A Preferred Stock are not deductible for federal income tax purposes. The Preferred Securities and the Subordinated Debentures each mature on July 31, 2027. If certain conditions are met, the maturity dates of the Preferred Securities 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 Preferred Securities and the Subordinated Debentures also may be redeemed prior to maturity if certain events occur. The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. The Company 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 Preferred Securities, at any time or from time to time for a period not to exceed 20 consecutive quarters in a deferral period. The Company and SBI Capital Trust believe that, taken together, the obligations of the Company under the Preferred Securities 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 Preferred Securities and the Subordinated Debentures, in the aggregate constitute a full and unconditional guarantee by the Company of the obligations of SBI Capital Trust under the Preferred Securities. SBI Capital Trust is a Delaware business trust created for the purpose of issuing the Preferred Securities and purchasing the Subordinated Debentures, which are its sole assets. The Company owns all of the 30,960 outstanding common securities, liquidation value $25 per share, (the "Common Securities") of SBI Capital Trust. The Preferred Securities meet the regulatory criteria for Tier I capital, subject to Federal Reserve guidelines that limit the amount of the Preferred Securities and cumulative perpetual preferred stock to an aggregate of 25% of Tier I capital. At December 31, 1997, all of the Company's Preferred Stock and $580,000 of the Preferred Securities were included in Tier I Capital. For accounting purposes, the Preferred Securities are presented on the Consolidated Statements of Financial Condition as a separate category of long- term debt entitled "Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures". 34 7. INCOME TAXES The components of taxes on income follow:
For the Years Ended December 31, -------------------------------------------------------------- 1997 1996 1995 -------------------------------------------------------------- (dollars in thousands) Current tax expense: Federal $3,266 $4,275 $3,366 State 366 667 508 Deferred tax benefit: Federal (820) (543) (458) State (145) (93) (80) ---------------- ---------------- ---------------- Taxes on income $2,667 $4,306 $3,336 ================ ================ ================
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, -------------------------------------------------------------- 1997 1996 1995 -------------------------------------------------------------- (dollars in thousands) Computed tax expense at 34% $2,600 $4,032 $3,206 Increase (decrease) in income taxes resulting from: Benefit of income not subject to U.S. Federal income tax (240) (210) (202) State income taxes, net of Federal income tax benefit 146 379 281 Other 161 105 51 ---------------- ---------------- ---------------- Taxes on income $2,667 $4,306 $3,336 ================ ================ ================
Deferred tax expense (benefit) relating to temporary differences includes the following components:
For the Years Ended December 31, -------------------------------------------------------------- 1997 1996 1995 -------------------------------------------------------------- (dollars in thousands) Provision for loan losses $(772) $(754) $(494) Accelerated depreciation 158 135 56 Intangibles (16) (26) (25) Sales of other real estate owned 5 225 - Other (340) (216) (75) ---------------- ---------------- ---------------- Total $(965) $(636) $(538) ================ ================ ================
Net deferred tax assets of $2.9 million and $2.2 million at December 31, 1997 and 1996, respectively, are reflected in the accompanying consolidated statements of financial condition in other assets. There were no valuation allowances at December 31, 1997 or 1996. 35 Temporary differences that give rise to the deferred tax assets and (liabilities) include the following:
At December 31, --------------------------------------- 1997 1996 --------------------------------------- (dollars in thousands) Allowance for loan losses $3,125 $2,353 Accumulated depreciation (834) (676) Write-down on other real estate owned 30 35 Deferred compensation accrual 103 88 Intangibles 178 162 Other 726 401 ---------------- ---------------- 3,328 2,363 Deferred taxes (payable) receivable on investment securities available for sale (387) (137) ---------------- ---------------- Net deferred tax asset $2,941 $2,226 ================ ================
8. SHAREHOLDERS' EQUITY In 1996, the Company's shareholders increased the authorized shares of capital stock from 7,000,000 to 12,000,000, consisting of 10,000,000 shares of common stock, par value $1.00 per share ("Common Stock"), and an aggregate of 2,000,000 shares of serial preferred stock, par value $1.00 per share. The Company's Board of Directors can determine the voting powers, dividend rights, liquidation preferences and other limitations on the preferred stock prior to issuance. On July 31, 1995, the Company issued 690,000 shares of 9.20% Redeemable, Cumulative Preferred Stock, Series A (the "Shares"), and received net proceeds of $16.3 million. The liquidation preference of the Shares is $25 per share plus an amount equal to accrued and unpaid dividends. The Shares may not be redeemed by the Company prior to September 1, 1998. Subject to prior regulatory approval, the Shares may be redeemed at the option of the Company, in whole or in part, on or after September 1, 1998, at a price equal to $25 per share plus accumulated unpaid dividends to the redemption date. Such dividends are cumulative from the date of issuance and payable quarterly at the rate of 9.20% of the original liquidation preference, or $2.30 per annum per share. For the year ended December 31, 1997, the cumulative accrued dividend requirement was $1.6 million, $1.5 million of which was declared and paid. In the first quarter of 1998, the Company adopted a policy which prohibits the declaration of dividends on common stock while the Company is operating at a loss. Dividends on common stock were declared in the third quarter of 1997, prior to the adoption of this policy, although a loss was incurred for that quarter. The Company has reserved for issuance 200,000 shares of common stock pursuant to the terms of 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 the Company. The Employee Stock Purchase Plan allows Company employees to acquire additional common shares through payroll deductions. At December 31, 1997, 18,611 shares had been issued by these plans. 9. CAPITAL REQUIREMENTS The Company and the Bank 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 the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 36 As of December 31, 1997 and 1996, the most recent notifications from the Federal Deposit Insurance Corporation ("FDIC") categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total Capital, Tier I Capital, and Tier I Leverage ratios as set forth in the table below. Since the notifications, management believes there are no conditions or events that have changed the Bank's category. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets and Tier I capital to average assets (all as defined). Management believes the Company and the Bank meet all capital adequacy requirements to which they are subject as of December 31, 1997 and 1996. The Company's and Bank'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, 1997: Total Capital (to risk-weighted assets) Company $100,322 13.30% N/A N/A $60,331 8.00% Bank 80,631 10.72% $75,182 10.00% 60,145 8.00% Tier I Capital (to risk-weighted assets) Company 67,607 8.96% N/A N/A 30,165 4.00% Bank 72,349 9.62% 45,109 6.00% 30,073 4.00% Tier I Leverage (to average assets) Company 67,607 6.95% N/A N/A 38,901 4.00% Bank 72,349 7.57% 47,756 5.00% 38,205 4.00% As of December 31, 1996: Total Capital (to risk-weighted assets) Company $ 71,376 11.40% N/A N/A $50,077 8.00% Bank 69,139 11.06% $62,490 10.00% 49,992 8.00% Tier I Capital (to risk-weighted assets) Company 63,886 10.21% N/A N/A 25,039 4.00% Bank 62,000 9.92% 37,494 6.00% 24,996 4.00% Tier I Leverage (to average assets) Company 63,886 7.77% N/A N/A 32,894 4.00% Bank 62,000 7.56% 41,026 5.00% 32,821 4.00%
The approval of the Comptroller of the Currency is required if the total of all dividends declared by the Bank 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, the Bank may not pay a dividend if, after paying the dividend, the Bank would be under capitalized. The Bank's maximum amount of dividends available for payment totaled approximately $13.2 million at December 31, 1997. Dividends declared by the Bank for the years ended December 31, 1997, 1996 and 1995 did not exceed the threshold requiring regulatory approval. 37 10. STOCK OPTION PLAN The Southwest Bancorp, Inc. 1994 Stock Option Plan (the "Stock Plan") provides selected key employees with the opportunity to acquire common stock. The exercise price of all options granted under the Stock Plan is the fair market value on the grant date The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for the Stock Plan; accordingly, no compensation expense has been recorded in the accompanying consolidated statements of operations. Had compensation cost for the Stock Plan 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, the Company's proforma data would have been as follows:
For the Years Ended December 31, --------------------------------------------- 1997 1996 1995 --------------------------------------------- Proforma net income $4,778,707 $7,382,355 $5,986,700 Proforma net income available to common shareholders $3,191,707 $5,795,355 $5,320,700 Basic earnings per common share $ 0.85 $ 1.54 $ 1.42 Diluted earnings per common share $ 0.82 $ 1.51 $ 1.40 Weighted average fair value at grant date $ 9.24 $ 7.57 $ 5.40
The compensation cost is calculated using the Black-Scholes option pricing model with the following weighted average assumptions:
For the Years Ended December 31, --------------------------------------------- 1997 1996 1995 --------------------------------------------- Expected dividend yield 1.30% 1.47% 1.79% Expected volatility 17.87% 20.66% 25.20% Risk-free interest rate 5.89% 6.90% 6.61% Expected option term (in years) 10 10 10
The Stock Plan's activity follows:
Weighted Number of Average Options Exercise Price ------------------------------- Outstanding at January 1, 1995 182,000 $ 12.75 Granted 30,000 13.38 Exercised - - Canceled/expired - - ------------------------------- Outstanding at December 31, 1995 212,000 12.84 Granted 35,000 18.82 Exercised - - Canceled/expired - - ------------------------------- Outstanding at December 31, 1996 247,000 13.69 Granted 35,000 25.47 Exercised (14,000) 17.95 Canceled/expired (7,500) 18.50 ------------------------------- Outstanding at December 31, 1997 260,500 $ 14.90 =============================== Total exercisable at December 31, 1995 72,000 $ 12.78 Total exercisable at December 31, 1996 116,500 $ 13.36 Total exercisable at December 31, 1997 126,000 $ 13.30
38 At December 31, 1997, the Company had reserved 375,522 shares under the Stock Plan, 260,500 shares of which are under option. The following summarizes the information concerning options outstanding and exercisable at December 31, 1997.
Number of Range of Weighted Average Weighted Exercisable Options Exercise Remaining Average Number Weighted Average Outstanding Prices Contractual Life Exercise Price Exercisable Exercise Price - ---------------------------------------------------------------------------------------------------------- 210,500 $12-75-$13.38 6.51 $ 12.84 119,500 $ 12.79 20,000 $19.25-$21.81 8.74 $ 19.89 3,500 $ 19.62 30,000 $24.75-$26.75 9.91 $ 26.08 3,000 $ 26.08
11. EMPLOYEE BENEFITS The Company sponsors a noncontributory, defined contribution profit sharing plan intended to provide retirement benefits for employees of the Company. 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. The Company made contributions of $588,000, $671,000 and $680,000 in 1997, 1996, and 1995, respectively. 12. OPERATING LEASES The Company leases certain equipment and facilities for its operations. Future minimum annual rental payments required under operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1997 follow:
1998 $1,001,620 1999 746,070 2000 613,093 2001 519,967 2002 368,313
The total rental expense was $1.2 million, $1.0 million and $803,000 in 1997, 1996 and 1995, respectively. 13. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value. INVESTMENT SECURITIES - The fair value of U.S. Government and agency obligations, other securities and mortgage-backed securities is estimated based on quoted market prices or dealer quotes. The fair value for other investments such as obligations of state and political subdivisions is estimated based on quoted market prices. LOANS RECEIVABLE - Fair values are estimated for certain homogeneous categories of loans adjusted for differences in loan characteristics. The Bank's loans have been aggregated by categories consisting of commercial, 39 real estate, student, credit card and other consumer. The fair value estimate for student loans is the current historical cost carrying value as such loans are typically sold in the secondary market at par value. The fair value of all other loans is estimated by discounting the cash flows using credit and interest rate risks inherent in the loan category and interest rates currently offered for loans with similar terms and credit risks. ACCRUED INTEREST RECEIVABLE - The carrying amount is a reasonable estimate of fair value for accrued interest receivable. DEPOSITS - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the statement of financial condition date. The fair value of fixed-maturity certificates of deposits is estimated using the rates currently offered for deposits of similar remaining maturities. SHORT-TERM BORROWINGS - The fair values of short-term borrowings are the amounts payable at the statement of financial condition date, as the carrying amount is a reasonable estimate of fair value. Included in short-term borrowings are federal funds purchased, securities sold under agreements to repurchase, and treasury tax and loan demand notes. LONG-TERM DEBT - The fair value of long-term debt, which consists of the Subordinated Debentures, is estimated based on quoted market prices or dealer quotes. OTHER LIABILITIES AND ACCRUED INTEREST PAYABLE - The estimated fair value of other liabilities, which primarily include trade accounts payable, and accrued interest payable approximates their carrying value. COMMITMENTS - Commitments to extend credit, standby letters of credit and financial guarantees written or other items have short maturities and therefore have no significant fair values. The carrying values and estimated fair values of the Company's financial instruments follow:
At December 31, 1997 At December 31, 1996 ------------------------------------- ------------------------------------- Carrying Fair Carrying Fair Values Values Values Values ------------------------------------------------------------------------------- (dollars in thousands) Cash and cash equivalents $ 36,259 $ 36,259 $ 22,914 $ 22,914 Investment securities: Held to maturity 86,994 87,592 83,589 83,963 Available for sale 100,746 100,746 63,762 63,762 Loans receivable 710,831 731,459 637,507 643,927 Accrued interest receivable 8,883 8,883 7,400 7,400 Deposits 841,425 841,935 753,945 756,093 Accrued interest payable 6,504 6,504 5,061 5,061 Other liabilities 1,227 1,227 1,907 1,907 Short-term borrowings 20,548 20,548 2,985 2,985 Long-term debt 25,013 25,607 - - Commitments - - - -
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Company 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. 40 The following table provides a summary of the Company's off-balance sheet financial instruments:
At December 31, -------------------------------------- 1997 1996 -------------------------------------- (dollars in thousands) Commitments to extend commercial and real estate mortgage credit $242,401 $154,041 Standby and commercial letters of credit 4,505 4,214 Credit card lines of credit 559,261 348,144 ---------------- ---------------- Total $806,167 $506,399 ================ ================
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 the Company to honor a financial commitment by issuing a guarantee to a third party should the Company'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 the Company. 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. The Bank'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. The Bank has an agreement with other financial institutions to purchase $558.1 million and $285.0 million of unadvanced credit card lines of credit at December 31, 1997 and 1996, respectively, if such credit card lines of credit are funded. Such commitments are made with the same terms as similarly funded extensions of credit including collateral, rates and maturities. The Bank does not anticipate any material losses as a result of the commitments. 15. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company 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 the Company's financial position; however, the Company 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 the Company's and the Bank's financial statements as part of their legally prescribed oversight of the banking industry. Based on these examinations, the regulators can direct that the Company's and the Bank's financial statements be adjusted in accordance with their findings. The Bank 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 the Bank by providing severance compensation to them upon their involuntary termination of employment after a change in control of the Bank. At December 31, 1997, the Bank 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 $1.1 million. 41 16. SUPPLEMENTAL CASH FLOWS INFORMATION
For the Years Ended December 31, ---------------------------------------------------- 1997 1996 1995 ---------------------------------------------------- (dollars in thousands) Cash paid for interest $39,804 $32,038 $26,913 Cash paid for taxes on income 2,333 4,390 3,600 Loans originated to finance the sale of other real estate owned - - 68 Loans transferred to other real estate owned 521 21 15 Reclassification of investment securities from held to maturity to available for sale - - 32,672 Unrealized gain/(loss) on investment securities available for sale, net of tax 375 (407) 1,489
17. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED In December of 1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125. The Company will adopt SFAS No. 127 on January 1, 1998 as required. Management believes the adoption of SFAS No. 127 will not have a material impact on the Company's consolidated financial position or results of operations. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. In addition, SFAS No. 130 requires the Company to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately in the shareholders' equity section of the statement of financial condition. The Company will adopt SFAS No. 130 on January 1, 1998 as required. Also in June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes reporting standards for public companies concerning annual and interim financial statements of their operating segments and related information. Operating segments are components of a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance. The Standard sets criteria for reporting disclosures about a company's products and services, geographic areas and major customers. The Company will adopt SFAS No. 131 on January 1, 1998 as required and believes the Company has only one segment, as that term is defined in SFAS No. 131. 42 18. PARENT COMPANY CONDENSED FINANCIAL INFORMATION Following are the condensed financial statements of Southwest Bancorp, Inc. ("Parent Company only") for the periods indicated:
At December 31, --------------------------------------- 1997 1996 --------------------------------------- STATEMENTS OF FINANCIAL CONDITION (dollars in thousands) Assets: Cash and due from banks $ 3,506 $ 754 Investment in subsidiary bank 73,297 62,808 Investment securities, available for sale 15,408 1,446 Other assets 1,603 423 ----------------- ----------------- Total $93,814 $65,431 ================= ================= Liabilities: Subordinated debentures $25,013 - Other liabilities 753 $ 399 Shareholders' Equity: Preferred 17,382 17,382 Common 50,666 47,650 ----------------- ----------------- Total $93,814 $65,431 ================= ================= For the Years Ended December 31, -------------------------------------------------------------- 1997 1996 1995 -------------------------------------------------------------- STATEMENTS OF OPERATIONS (dollars in thousands) Income: Cash dividends from subsidiary bank $1,875 $ 1,053 $ 901 Dividend income - 22 28 Investment income 585 116 98 Other income 2 - - Security gains/(losses) - 288 - ----------------- ----------------- ----------------- Total income 2,462 1,479 1,027 Expense: Interest on subordinated debentures 1,338 - - General and administrative expense 227 150 95 ----------------- ----------------- ----------------- Total expense 1,565 150 95 ----------------- ----------------- ----------------- Total income before tax expense and equity in undistributed income of subsidiary bank 897 1,329 932 Taxes on income (383) 99 4 ----------------- ----------------- ----------------- Income before equity in undistributed income of subsidiary bank 1,280 1,230 928 Equity in undistributed income of subsidiary bank 3,700 6,322 5,164 Net income $4,980 $ 7,552 $ 6,092 ================= ================= ================= Net income available to common shareholders $3,393 $ 5,965 $ 5,426 ================= ================= =================
43
For the Years Ended December 31, ------------------------------------------------------- 1997 1996 1995 ------------------------------------------------------- (dollars in thousands) STATEMENTS OF CASH FLOWS Operating activities: Net income $ 4,980 $ 7,552 $ 6,092 Equity in undistributed income of subsidiary bank (3,700) (6,322) (5,164) Other, net (871) 140 (421) -------------- -------------- --------------- Net cash provided by operating activities 409 1,370 507 -------------- -------------- --------------- Investing activities: Available for sale securities: Purchases (15,506) (1,806) (3,146) Sales - - - Maturities 1,635 3,325 1,245 -------------- -------------- --------------- Net cash provided by (used in) investing activities (13,871) 1,519 (1,901) -------------- -------------- --------------- Financing activities: Proceeds from issuance of: Preferred stock - - 16,322 Common stock 456 170 - Subordinated debentures 25,013 - - Capital contribution to Bank (6,500) - (13,500) Cash dividends paid: Preferred stock (1,587) (1,587) (533) Common stock (1,168) (1,015) (864) -------------- -------------- --------------- Net cash provided by (used in) financing activities 16,214 (2,432) 1,425 -------------- -------------- --------------- Net increase in cash and cash equivalents 2,752 457 31 Cash and cash equivalents, Beginning of year 754 297 266 -------------- -------------- --------------- End of year $ 3,506 $ 754 $ 297 ============== ============== ===============
* * * * * * * * * * 44 MANAGEMENT'S REPORT January 30, 1998 To the Shareholders of Southwest Bancorp, Inc.: FINANCIAL STATEMENTS The management of Southwest Bancorp, Inc. and its subsidiary, Stillwater National Bank and Trust Company, (the "Company") is responsible for the preparation, integrity, and fair presentation of its published financial statements and all other information presented in this annual report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based upon informed judgments and estimates made by management. INTERNAL CONTROL Management is responsible for establishing and maintaining an effective internal control structure over financial reporting, including safeguarding of assets, presented in conformity with both generally accepted accounting principles and the Federal Financial Institutions Examination Council instructions for Consolidated Reports of Condition and Income ("Call Report"). The structure contains monitoring mechanisms, and actions are taken to correct deficiencies identified. There are inherent limitations in the effectiveness of any structure of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control structure can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control structure may vary over time. Management assessed the Company's internal control structure over financial reporting, including safeguarding of assets, presented in conformity with both generally accepted accounting principles and Call Report instructions as of December 31, 1997. This assessment was based on criteria for effective internal control over financial reporting, including safeguarding of assets, described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that the Company maintained an effective internal control structure over financial reporting, including safeguarding of assets, presented in conformity with both generally accepted accounting principles and Call Report instructions as of December 31, 1997. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of Company management. The Audit Committee is responsible for recommending to the Board of Directors the selection of independent auditors. It meets periodically with management, the independent auditors and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company's financial reports. The independent auditors and the internal auditors have full and free access to the Audit Committee, with or without the presence of management, to discuss the adequacy of the internal control structure for financial reporting and any other matters which they believe should be brought to the attention of the Audit Committee. COMPLIANCE WITH LAWS AND REGULATIONS Management is also responsible for ensuring compliance with federal laws and regulations concerning loans to insiders and the federal and state laws and regulations concerning dividend restrictions, both of which are designated by the Federal Deposit Insurance Corporation (the "FDIC") as safety and soundness laws and regulations. Management assessed its compliance with these designated safety and soundness laws and regulations and has maintained records of its determinations and assessments as required by the FDIC. Based on this assessment, management believes that the Company has complied, in all material respects, with the designated safety and soundness laws and regulations for the year ended December 31, 1997.
/s/ /s/ Robert L. McCormick, Jr. Kerby E. Crowell Vice Chairman and President Executive Vice President and Chief Financial Officer
45
BOARD OF DIRECTORS STILLWATER NATIONAL Jim D. Marshall George M. Berry BANK & TRUST COMPANY Senior Vice President Chairman of the Board David W. Pitts Investments SENIOR MANAGEMENT Senior Vice President Joyce Berry Robert L. McCormick W. Ron Rakes Investments Vice Chairman and Chief Senior Vice President Tom D. Berry Executive Officer Ruth E. Walker Investments Stanley R. White Senior Vice President Joe Berry Cannon Executive Vice President and Bill T. Burnett Investments Chief Lending Officer Vice President Haskell Cudd Rick J. Green Larry Collins President, Stillwater Milling Executive Vice President and Vice President Company Chief Operating Officer Barbara P. Franks J. Berry Harrison Thomas E. Bennett, Jr. Vice President Rancher President, Tulsa Division Katrina Jarvis Erd M. Johnson Patrick E. Zimmerman Vice President Petroleum Engineer & President, Stillwater Division Jo McCollom Operating Partner, Johnson Joseph P. Root Vice President Oil Partnership President, Central Oklahoma Division David P. Lambert Kerby E. Crowell, CPA TULSA DIVISION President, Lambert Executive Vice President and Chief Thomas E. Bennett, Jr. Construction Company Financial Officer President, Tulsa Division Robert L. McCormick Kimberly G. Sinclair Danny W. Williams Vice Chairman & Chief Executive Vice President and Executive Vice President Executive Officer, Stillwater Chief Administrative Officer Paul D. Anderson National Bank & Trust Co. Senior Vice President Linford R. Pitts Merle J. Budd President, Stillwater Transfer & Storage Co. EXECUTIVE OFFICE/ELECTRONIC BANKING Senior Vice President Robert B. Rodgers Robert L. McCormick Louis W. Ciucci President, Perry & Rodgers Vice Chairman and Chief Senior Vice President Motor Co. Executive Officer Lew E. Erikson James B. Wise, M.D. Rick J. Green Senior Vice President Ophthalmologist and Eye Executive Vice President and Roger D. Freeman Surgeon Chief Operating Officer Senior Vice President Lee Wise Terry M. Almon Evans C. Rector Attorney Senior Vice President, Senior Vice President Electronic Banking Joe E. Staires Senior Vice President LENDING DIVISION Stephen V. Bradshaw SOUTHWEST BANCORP, INC. Stanley R. White Vice President Robert L. McCormick Executive Vice President and W. Craig Caldwell President Chief Lending Officer Vice President Kerby E. Crowell, CPA Jerry L. Lanier Sandra K. Crooch Executive Vice President Senior Vice President, Vice President Deborah T. Bradley Credit Administration Elaine M. Dishman Secretary Cleo L. Fowler Vice President Kay W. Smith Vice President, Special Assets Jim L. Fischer Vice President and Vice President Comptroller STILLWATER DIVISION Janet W. Gotwals Patrick E. Zimmerman Vice President President, Stillwater Division Dian S. Hardin Senior Vice President
46
CENTRAL OKLAHOMA DIVISION OPERATIONS/STUDENT LOANS/ CORPORATE INFORMATION Joseph P. Root HUMAN RESOURCES/ MORTGAGE LOANS/SUPPORT President, Central Oklahoma Division Kimberly G. Sinclair INDEPENDENT AUDITORS R. Charles Smith Executive Vice President Deloitte & Touche LLP Executive Vice President and Chief Administrative 20 N. Broadway, Suite 900 G. Johnson Hightower Officer Oklahoma City, OK 73102-8203 Senior Vice President Darlene Anderson Shannan K. Cowden Vice President, Mortgage SPECIAL COUNSEL Vice President Loans Kennedy, Baris & Lundy, L.L.P. Sean C. Fuller Wayne C. Bland 4719 Hampden Lane Vice President Vice President, Mortgage Suite 300 Derek B. Gill Loans Bethesda, MD 20814 Vice President David Dietz B. Lynn Kelly Vice President and GENERAL COUNSEL Vice President Chief Information Officer Hert & Baker Keith T. Kersten Kathy Heil 222 E. 7th Avenue Vice President Vice President, Mortgage Loans Stillwater, OK 74074 Lynn C. Lax Vicki S. Keen Vice President Vice President, Human TRANSFER AGENTS AND REGISTRARS Tom L. Messick Resources Harris Trust & Savings Bank Vice President Teresa Kerby 111 W. Monroe St. Cindy J. Nunley Vice President, Mortgage Loans Chicago, IL 60690 Vice President Sharon L. Knight W. Chris Palmer Vice President, Loan Services State Street Bank and Trust Company Vice President Debra Lee Two International Place Kristine Stejskal Vice President, Mortgage Loans Boston, MA 02110 Vice President Lydia Owens Cathy S. Westmoreland Vice President, Mortgage ANNUAL MEETING Vice President Loans Daryl E. Ross The 1998 Annual Meeting of FINANCE & AUDITING Vice President, Shareholders will be held on Kerby E. Crowell, CPA Facilities Management April 23, 1998 at 11:00 Executive Vice President Elaine E. Skillman a.m. in the Auditorium (Room 215) at and Chief Financial Officer Vice President, Student the Stillwater Public Library, Charles Westerheide Loans & Operations 1107 S. Duck, Stillwater, Vice President and Gary Teel Oklahoma. Treasury Manager Vice President, ATM Network Brady Shuler Bruce F. Webber Vice President and Division Controller Vice President, Student Loan Sales Kay W. Smith Vice President and MARKETING Comptroller Scott Jones Senior Vice President and Director of Marketing
47 STILLWATER NATIONAL BANK & TRUST COMPANY LOCATIONS
Corporate Headquarters Drive-in & Mortgage Lending 6305 Waterford Blvd., 608 S. Main Street 3rd & Main Suite 205 Stillwater, Oklahoma 74074 Stillwater, Oklahoma 74074 Oklahoma City, 405-372-2230 405-372-2230 Oklahoma 73118 405-427-4000 500 W. Grand Avenue 2547 E. 21st 2431 E. 61st, Suite 170 Chickasha, Oklahoma 73018 Tulsa, Oklahoma 74114 Tulsa, Oklahoma 74136 405-222-1272 918-523-3900 918-523-3600 Website Address www.banksnb.com
STOCK INFORMATION NASDAQ National Market Symbols: Common Stock - OKSB Preferred Stock - OKSBP Trust Preferred Securities - OKSBO The following table sets forth the common stock dividends paid for each quarter during 1997 and 1996 and the range of high and low closing trade prices for the common stock for those periods.
1997 1996 --------------------------------------------------------------------------------------------------- Dividend Dividend High Low Declared High Low Declared ---------------------------------------------- ---------------------------------------------- For the Quarter Ending: March 31 $23.000 $19.500 $0.08 $19.250 $17.750 $0.07 June 30 25.875 21.250 0.08 19.750 18.250 0.07 September 30 26.750 20.500 0.08 20.000 18.000 0.07 December 31 28.500 21.375 0.08 20.750 19.000 0.07
48 ANNUAL REPORT ON FORM 10-K COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED BY SHAREHOLDERS AS OF THE RECORD DATE AT NO CHARGE BY WRITING TO KERBY E. CROWELL, CHIEF FINANCIAL OFFICER, SOUTHWEST BANCORP, INC., 608 S. MAIN STREET, STILLWATER, OKLAHOMA 74074. 49 EX-21 4 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a list of all subsidiaries of the Registrant. NAME JURISDICTION OF INCORPORATION -------------------------------------------------------------------- SBI Capital Trust Delaware Stillwater National Bank & Trust Company United States Stillwater National Building Corporation* Oklahoma CRK Properties, Inc.* Oklahoma Stillwater Properties, Inc.* Oklahoma Cash Source, Inc.* Oklahoma * Direct subsidiaries of Stillwater National Bank & Trust Company. EX-23 5 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33- 81276 (1994 Stock Option Plan) and 33-97850 (Employee Stock Purchase Plan), each on Form S-8, and Registration Statement No. 33-94378 (Dividend Reinvestment Plan) on Form S-3, of our report dated January 30, 1998, appearing in this Annual Report on Form 10-K of Southwest Bancorp, Inc. for the year ended December 31, 1997. /s/ DELOITTE & TOUCHE LLP OKLAHOMA CITY, OKLAHOMA MARCH 26, 1998 EX-24 6 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY We, the undersigned directors of the Registrant, hereby severally constitute and appoint Robert L. McCormick our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said person may deem necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the annual report on Form 10-K for the year ended December 31, 1997, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the annual report and any amendments thereto; and we hereby approve, ratify and confirm all that said person shall do or cause to be done by virtue thereof. /s/ George M. Berry February 26, 1998 - ------------------------------ George M. Berry Director /s/ Joyce P. Berry February 26, 1998 - ------------------------------ Joyce P. Berry Director /s/ Thomas D. Berry February 26, 1998 - ------------------------------ Thomas D. Berry Director /s/ Joe Berry Cannon February 26, 1998 - ------------------------------ Joe Berry Cannon Director /s/ W. Haskell Cudd February 26, 1998 - ------------------------------ W. Haskell Cudd Director /s/ J. Berry Harrison February 26, 1998 - ------------------------------ J. Berry Harrison Director /s/ Erd M. Johnson February 26, 1998 - ------------------------------ Erd M. Johnson Director /s/ David P. Lambert February 26, 1998 - ------------------------------ David P. Lambert Director EX-27.1 7 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST BANCORP'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 26,252 7 10,000 0 100,746 86,994 87,592 719,113 8,282 963,286 841,425 20,548 8,252 25,013 0 690 3,788 63,570 963,286 65,560 10,582 707 76,849 39,569 41,247 35,602 12,104 18 25,746 7,647 7,647 0 0 4,980 0.90 0.88 870.00 5,458 1,677 0 27,010 7,139 11,528 567 8,282 8,282 0 938
EX-27.2 8 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST BANCORPS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED _____ __, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 28,212 31,271 32,285 0 0 0 15,800 4,000 4,700 0 0 0 64,897 91,903 97,686 84,787 86,780 90,905 84,598 87,105 91,434 676,499 711,894 723,971 8,484 8,669 8,142 887,809 967,972 971,176 314,537 847,292 869,299 1,500 1,500 3,046 7,233 7,968 8,390 0 25,013 25,013 0 0 0 690 690 690 3,767 3,769 3,771 60,082 61,740 60,967 887,809 947,972 971,176 15,516 31,807 48,724 2,254 4,777 7,650 81 270 442 17,851 36,854 56,816 9,189 19,214 29,475 9,259 19,479 30,339 8,592 17,375 26,477 3,001 3,802 8,903 0 0 7 6,359 12,943 19,340 646 3,606 2,809 646 3,606 2,809 0 0 0 0 0 0 460 2,363 1,923 0.02 0.42 0.20 0.02 0.41 0.19 8.79 8.76 8.75 4,745 5,942 752 1,748 3,960 2,665 568 560 552 20,734 19,682 21,640 7,139 7,139 7,139 1,772 2,535 8,348 116 263 448 8,484 8,669 8,142 8,484 8,669 8,142 0 0 0 1,131 425 1,570
EX-27.3 9 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS 9-MOS 12-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 28,691 22,674 22,914 0 0 0 10,600 16,400 0 0 0 0 60,666 66,064 63,762 81,538 88,410 83,589 81,157 88,099 83,963 578,902 614,183 644,646 6,513 7,005 7,139 773,362 821,793 829,117 703,694 749,712 753,945 1,500 1,500 2,985 6,006 7,365 7,155 0 0 0 0 0 0 690 690 690 3,759 3,762 3,764 57,713 58,764 60,578 773,362 821,793 829,117 26,103 40,343 55,177 4,390 6,676 8,999 218 388 492 30,711 47,407 64,668 15,284 23,829 32,728 15,355 23,916 32,833 15,356 23,491 31,835 1,650 2,425 3,100 171 172 459 10,684 17,137 23,226 6,102 8,601 11,858 6,102 8,601 11,858 0 0 0 0 0 0 3,908 5,509 7,552 0.83 1.15 1.59 0.81 1.13 1.56 8.82 8.79 8.78 3,180 4,513 4,635 895 966 1,437 3,467 2,702 577 11,203 10,028 13,114 5,813 5,813 5,813 1,257 1,685 2,301 307 1,233 527 6,513 7,005 7,139 6,373 6,511 7,139 0 0 0 140 494 274
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