10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-23064

SOUTHWEST BANCORP, INC.

(Exact name of registrant as specified in its charter)


Oklahoma		73-1136584
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

608 South Main Street		74074
Stillwater, Oklahoma		(Zip Code)
(Address of principal executive office)

Registrant’s telephone number, including area code: (405) 372-2230

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ YES o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o YES þ NO

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

14,353,284

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


	September 30,			December 31,
(Dollars in thousands)	2007			2006

Assets
Cash and due from banks	$	30,604		$	46,618
Federal funds sold		—			11,000

Cash and cash equivalents		30,604			57,618
Investment securities:
Held to maturity, fair value $5,301 (2007) and $1,621 (2006)		5,335			1,630
Available for sale, amortized cost $274,561 (2007) and $258,742 (2006)		274,896			255,904
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost		12,991			12,315
Loans held for sale		78,417			188,464
Loans receivable, net of allowance for loan losses of $28,314 (2007) and $27,293 (2006)		1,904,909			1,575,433
Accrued interest receivable		22,561			24,269
Premises and equipment, net		24,064			21,818
Other real estate		1,654			1,873
Goodwill		6,742			1,213
Other intangible assets, net		4,335			3,069
Other assets		20,344			27,022

Total assets	$	2,386,852		$	2,170,628


Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing demand	$	261,634		$	254,415
Interest-bearing demand		63,145			55,396
Money market accounts		505,192			371,912
Savings accounts		14,830			11,273
Time deposits of $100,000 or more		580,850			648,664
Other time deposits		487,068			423,951

Total deposits		1,912,719			1,765,611
Accrued interest payable		11,201			13,260
Income tax payable		2,078			1,136
Other liabilities		9,776			8,624
Other borrowings		190,847			138,094
Subordinated debentures		46,393			46,393

Total liabilities		2,173,014			1,973,118
Shareholders’ equity:
Common stock — $1 par value; 20,000,000 shares authorized; 14,658,042 shares issued and outstanding		14,658			14,658
Paid in capital		46,490			45,901
Retained earnings		158,279			146,197
Accumulated other comprehensive income (loss)		209			(1,738	)
Treasury stock, at cost; 321,991 (2007) and 417,535 (2006) shares		(5,798	)		(7,508	)

Total shareholders’ equity		213,838			197,510

Total liabilities & shareholders’ equity	$	2,386,852		$	2,170,628

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months					For the nine months
	ended September 30,					ended September 30,
(Dollars in thousands, except earnings per share data)	2007			2006		2007			2006

Interest income:
Interest and fees on loans	$	42,346		$	41,074	$	122,210		$	116,839
Investment securities:
U.S. government and agency obligations		2,196			2,183		6,476			6,571
Mortgage-backed securities		370			270		996			761
State and political subdivisions		85			24		177			90
Other securities		165			209		693			639
Other interest-earning assets		39			57		219			137

Total interest income		45,201			43,817		130,771			125,037

Interest expense:
Interest-bearing demand		82			79		261			220
Money market accounts		5,589			4,066		14,294			12,041
Savings accounts		24			19		65			30
Time deposits of $100,000 or more		7,445			8,106		23,358			21,766
Other time deposits		5,684			4,578		15,962			11,928
Other borrowings		1,715			2,281		4,935			7,445
Subordinated debentures		986			992		2,923			2,808

Total interest expense		21,525			20,121		61,798			56,238


Net interest income		23,676			23,696		68,973			68,799

Provision for loan losses		2,149			3,006		6,117			8,998

Other income:
Service charges and fees		2,548			2,872		7,089			8,655
Other noninterest income		452			411		1,226			1,490
Gain on sales of loans		548			616		2,556			2,561
Gain (loss) on securities		108			60		1,579			(274	)

Total other income		3,656			3,959		12,450			12,432

Other expense:
Salaries and employee benefits		8,966			7,477		25,449			22,505
Occupancy		2,514			2,520		7,305			7,517
FDIC and other insurance		134			128		397			379
Other real estate (net)		(12	)		122		(122	)		256
General and administrative		4,560			3,663		14,772			10,295

Total other expense		16,162			13,910		47,801			40,952

Income before taxes		9,021			10,739		27,505			31,281
Taxes on income		3,505			4,100		10,648			11,737

Net income	$	5,516		$	6,639	$	16,857		$	19,544


Basic earnings per share	$	0.38		$	0.47	$	1.18		$	1.38
Diluted earnings per share	$	0.38		$	0.46	$	1.15		$	1.35
Cash dividends declared per share	$	0.0925		$	0.0825	$	0.2775		$	0.2475

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the nine months
	ended September 30,
(Dollars in thousands)	2007			2006

Operating activities:
Net income	$	16,857		$	19,544
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		6,117			8,998
Deferred tax benefit		(1,371	)		(1,687	)
Fixed asset depreciation and amortization		2,123			2,160
Securities premium amortization (discount accretion), net		(157	)		38
Amortization of intangibles		488			330
Stock based compensation expense		787			789
Net (gain) loss on investment securities		(1,579	)		274
Net gain on sales of loans		(2,556	)		(2,561	)
Net (gain) loss on sales of premises/equipment		11			(24	)
Net gain on other real estate owned, net		(11	)		(220	)
Proceeds from sales of residential mortgage loans		40,386			52,650
Residential mortgage loans originated for resale		(39,145	)		(51,700	)
Proceeds from sales of student loans		237,057			641,769
Student loans originated for resale		(127,500	)		(515,610	)
Net change in assets and liabilities:
Accrued interest receivable		1,952			(6,824	)
Other assets		5,510			567
Income taxes payable		1,381			1,182
Excess tax benefit from share-based payment arrangements		(439	)		(918	)
Accrued interest payable		(2,399	)		2,483
Other liabilities		43			(1,238	)

Net cash provided by operating activities		137,555			150,002

Investing activities:
Proceeds from sales of available for sale securities		9,955			19,691
Proceeds from principal repayments, calls and maturities:
Held to maturity securities		—			999
Available for sale securities		11,457			6,974
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock		(676	)		(2,379	)
Purchases of held to maturity securities		(3,700	)		(1,095	)
Purchases of available for sale securities		(15,998	)		(9,502	)
Loans originated and principal repayments, net		(291,315	)		(180,785	)
Net Acquisition Bank of Kansas (2007), McMullen Bank (2006)		(4,057	)		(67	)
Purchases of premises and equipment		(2,343	)		(2,182	)
Proceeds from sales of premises and equipment		62			126
Proceeds from sales of other real estate owned		449			6,072

Net cash used in investing activities		(296,166	)		(162,148	)

Financing activities:
Net increase in deposits		81,332			50,198
Net increase (decrease) in other borrowings		52,753			(46,768	)
Net proceeds from issuance of common stock		893			1,932
Excess tax benefit from share-based payment arrangements		439			918
Common stock dividends paid		(3,820	)		(3,387	)

Net cash provided from financing activities		131,597			2,893

Net decrease in cash and cash equivalents		(27,014	)		(9,253	)
Cash and cash equivalents,
Beginning of period		57,618			50,277

End of period	$	30,604		$	41,024

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


											Accumulated
											Other						Total
	Common Stock				Paid in			Retained			Comprehensive			Treasury			Shareholders’
(Dollars in thousands)	Shares		Amount		Capital			Earnings			Income (Loss)			Stock			Equity

Balance, January 1, 2007		14,658,042	$	14,658	$	45,901		$	146,197		$	(1,738	)	$	(7,508	)	$	197,510

Cash dividends declared:
Common, $0.2775 per share, and other dividends		—		—		—			(3,972	)		—			—			(3,972	)
Common stock issued:
Employee Stock Option Plan		—		—		(622	)		—			—			1,369			747
Employee Stock Purchase Plan		—		—		20			—			—			54			74
Dividend Reinvestment Plan		—		—		22			—			—			50			72
Restricted Stock		—		—		108			—			—			237			345
Adjustment related to adoption of FIN 48		—		—		—			(803	)		—			—			(803	)
Tax benefit related to exercise of stock options		—		—		439			—			—			—			439
Stock Compensation Expense		—		—		622			—			—			—			622
Other comprehensive income, net of tax		—		—		—			—			1,947			—			1,947
Net income		—		—		—			16,857			—			—			16,857


Balance, September 30, 2007		14,658,042	$	14,658	$	46,490		$	158,279		$	209		$	(5,798	)	$	213,838

The accompanying notes are an integral part of this statement.

SOUTHWEST BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

NOTE 1: GENERAL

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, shareholders’ equity, cash flows, and comprehensive income in conformity with accounting principles generally accepted in the United States of America. However, the unaudited consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation. Those adjustments consist of normal recurring adjustments. The results of operations for the three and nine months ended September 30, 2007, and the cash flows for the nine months ended September 30, 2007, should not be considered indicative of the results to be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Southwest Bancorp, Inc. Annual Report on Form 10-K for the year ended December 31, 2006.

NOTE 2: PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements include the accounts of Southwest Bancorp, Inc. (“Southwest”), its wholly owned financial institution subsidiaries, the Stillwater National Bank and Trust Company (“Stillwater National”), SNB Bank of Wichita (“SNB Wichita”), Bank of Kansas (“SNB Kansas”), and its management consulting subsidiaries, Healthcare Strategic Support, Inc. (“HSSI”), and Business Consulting Group, Inc. (“BCG”). All significant intercompany transactions and balances have been eliminated in consolidation.

NOTE 3: RECLASSIFICATIONS

Amounts in the prior year’s consolidated financial statements are reclassified whenever necessary to conform to the current year’s presentation.

NOTE 4: ACQUISITION

On July 27, 2007, Southwest acquired all of the assets and liabilities of SNB Kansas in a stock acquisition for cash consideration of $15.6 million. SNB Kansas was a privately held bank which operated two banking offices in the Hutchinson, Kansas area. The acquisition of SNB Kansas is part of Southwest’s announced community banking strategy.

The acquisition was accounted for under the purchase method of accounting and accordingly, the purchase price has been allocated to the tangible and identified intangible assets purchased and liabilities assumed based on the estimated fair value at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill, none of which is expected to be deductible for tax purposes. Goodwill will not be amortized, but will be reviewed for impairment on an annual basis.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The purchase price allocation is preliminary and is subject to change based on the final determination of fair value.


(Dollars in thousands)	Amount
Cash and cash equivalents	$	11,560
Loans		41,838
Securities		19,266
Premises and equipment		2,084
Core deposit intangibles		1,477
Other assets		174

Total assets acquired	$	76,399

Deposits		66,116
Other liabilities		195

Net assets acquired	$	10,088

Less: purchase price		15,617

Goodwill	$	5,529

The results of operations of SNB Kansas since the acquisition are included in the financial statements within this document. Proforma information of SNB Kansas on the financial condition and results of operations since the beginning of the period is not material.

Core deposit intangibles (“CDI”) are amortized using an economic life method based on deposit attrition. As a result, amortization will decline over time with most of the amortization occurring during the initial years. The weighted average amortization period for core deposit intangibles related to the SNB Kansas acquisition is approximately ten years.

Southwest applied the guidance required under the American Institute of Certified Public Accountants Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). This guidance addresses accounting for differences between contractual cash flows and expected cash flows from loans or securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 is applicable to loans and debt securities acquired individually, in pools or as a part of a business combination. It is not applicable to loans originated by the lender. The yield that may be accreted to income is limited to the excess of estimated undiscounted cash flows over the investor’s investment in the asset. Subsequent increases in expected cash flows should be recognized prospectively through a yield adjustment. Subsequent decreases in expected cash flows should be recognized as impairment. SOP 03-3 prohibits the carry-over or creation of valuation allowances related to acquired assets, including assets acquired in a business combination that have evidence of deterioration since origination. SOP 03-3 is effective for loans and debt securities acquired in fiscal years beginning after December 15, 2004. Southwest does not anticipate any material differences in contractual cash flows and expected cash flows.

NOTE 5: INVESTMENT SECURITIES

The following table presents securities with gross unrealized losses and fair value by length of time that the individual securities had been in a continuous unrealized loss position at September 30, 2007. Securities whose market values exceed cost are excluded from this table.


					Continuous Unrealized
					Loss Existing for:
	Number of		Amortized		Less Than			More Than			Fair
(Dollars in thousands)	Securities		Cost		12 Months			12 Months			Value

Held to Maturity:
Obligations of state and political subdivisions		4		4,335		(28	)		(12	)		4,295

Total		4		4,335		(28	)		(12	)		4,295


Available for Sale:
Federal agency securities		81		203,486		—			(1,230	)		202,256
Obligations of state and political subdivisions		1		2,005		—			(20	)		1,985
Mortgage-backed securities		30		11,804		(20	)		(58	)		11,726

Total		112		217,295		(20	)		(1,308	)		215,967

Southwest evaluates securities on an individual basis for other-than-temporary impairment on at least a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of Southwest to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Because the declines in fair value noted in the table above were attributable to increases in interest rates and not attributable to credit quality, and because Southwest has the ability and intent to hold all of these investments until a market price recovery or maturity, the impairment of these investments is not deemed to be other-than-temporary.

NOTE 6: LOANS AND OTHER REAL ESTATE

Southwest extends commercial and consumer credit primarily to customers in the states of Oklahoma, Texas, and Kansas. Its commercial lending operations are concentrated in the Oklahoma City, Stillwater, and Tulsa areas of Oklahoma; in the Austin, Dallas, Houston, and San Antonio areas of Texas; and in the Hutchinson, Kansas City, and Wichita areas of Kansas. As a result, the collectibility of Southwest’s loan portfolio can be affected by changes in the economic conditions in these three states and in those metropolitan areas. At September 30, 2007 and December 31, 2006, substantially all of Southwest’s loans were collateralized with real estate, inventory, accounts receivable, and/or other assets, or were guaranteed by agencies of the United States government or, in the case of private student loans, insured by a private insurer.

As of September 30, 2007, approximately $547.2 million, or 28%, of Southwest’s loan portfolio consisted of loans to individuals and businesses in the healthcare industry. Southwest does not have any other concentrations of loans to individuals or businesses involved in a single industry totaling 5% or more of total loans.

Nonperforming assets and other risk elements of the loan portfolio are shown below as of the indicated dates. Total nonaccrual loans decreased $444,000 from December 31, 2006, and total nonperforming loans decreased $263,000. Total nonperforming assets of $30.7 million (which includes other real estate owned) decreased $482,000 from year-end 2006.


	At			At
(Dollars in thousands)	September 30, 2007			December 31, 2006

Nonaccrual loans (1)	$	26,291		$	26,735
Past due 90 days or more		2,803			2,622

Total nonperforming loans		29,094			29,357
Other real estate owned		1,654			1,873

Total nonperforming assets	$	30,748		$	31,230


Nonperforming loans to loans receivable		1.45	%		1.64	%
Allowance for loan losses to nonperforming loans		97.32	%		92.97	%
Nonperforming assets to loans receivable and other real estate owned		1.53	%		1.74	%


(1)		The government-guaranteed portion of loans included in these totals was $1.4 million for both periods presented.

All of the nonaccruing assets are subject to regular tests for impairment as part of Southwest’s allowance for loan losses methodology (see Note 7).

During the first nine months of 2007, $4,000 of interest income was received on nonaccruing loans. If interest on those loans had been accrued for the nine months ended September 30, 2007, additional total interest income of $1.1 million would have been recorded.

NOTE 7: ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR UNFUNDED LOAN COMMITMENTS

Activity in the allowance for loan losses is shown below for the indicated periods.


	For the nine			For the			For the nine
	months ended			year ended			months ended
(Dollars in thousands)	September 30, 2007			December 31, 2006			September 30, 2006

Balance at beginning of period	$	27,293		$	23,812		$	23,812
Loans charged-off:
Real estate mortgage		1,774			708			553
Real estate construction		54			445			445
Commercial		3,600			7,393			3,967
Installment and consumer		281			379			317

Total charge-offs		5,709			8,925			5,282
Recoveries:
Real estate mortgage		28			414			263
Commercial		550			403			258
Installment and consumer		35			24			15

Total recoveries		613			841			536

Net loans charged-off		5,096			8,084			4,746
Provision for loan losses		6,117			11,565			8,998

Balance at end of period	$	28,314		$	27,293		$	28,064

Loans outstanding:
Average	$	1,856,068		$	1,830,996		$	1,820,764
End of period		2,011,640			1,791,190			1,799,427
Net charge-offs to total average loans (annualized)		0.37	%		0.44	%		0.35	%
Allowance for loan losses to total loans (end of period)		1.41	%		1.52	%		1.56	%

The allowance for loan losses is established through a provision for loan losses charged to operations. Loan amounts which are determined to be uncollectible are charged against this allowance, and recoveries, if any, are added to the allowance. The appropriate amount of the allowance is based on continuous review and evaluation

of the loan portfolio and ongoing, quarterly assessments of the probable losses inherent in the loan and lease portfolio using a systematic methodology. Southwest’s methodology for assessing the appropriateness of the allowance includes determination of a formula allowance, specific allowances, and an unallocated allowance.

The formula allowance is calculated by applying loss factors to corresponding categories of outstanding loans and leases. Loss factors generally are based on Southwest’s historical loss experience in the various portfolio categories over the prior eighteen months or twelve months, but may be adjusted for categories where eighteen and twelve month loss experience is historically unusual. The use of these loss factors is intended to reduce the differences between estimated losses inherent in the portfolio and observed losses. Formula allowances also are established for loans that do not have specific allowances according to the application of credit risk factors. These factors are set by management to reflect its assessment of the relative level of risk inherent in each credit grade.

Specific allowances are established in cases where management has identified significant conditions or circumstances related to individual loans that management believes indicate the probability that losses may be incurred in an amount different from the amounts determined by application of the formula allowance. Specific allowances include amounts related to loans that are identified for evaluation of impairment. A loan is considered to be impaired when, based on current information and events, it is probable that Southwest will be unable to collect all amounts due according to the contractual terms of the loan agreement. The allowance for loan losses related to loans that are evaluated for impairment is based either on the discounted cash flows using the loan’s initial effective interest rate or on the fair value of the collateral for certain collateral dependent loans. Smaller balance homogeneous loans, including mortgage and consumer loans, are collectively evaluated for impairment. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. All of Southwest’s nonaccrual loans are considered to be impaired loans.

The unallocated allowance is based upon management’s evaluation of various factors that are not directly measured in the determination of the formula and specific allowances. These factors may include general economic and business conditions affecting lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examination results, findings of internal credit examiners, and management’s judgment with respect to various and other conditions including credit administration and management and the quality of risk identification systems. Management reviews these conditions quarterly.

There were no changes in estimation methods or assumptions that affected the methodology for assessing the appropriateness of the allowance during the first nine months of 2007. Southwest determined the level of the allowance for loan losses at September 30, 2007 was appropriate, based on that methodology.

Management strives to carefully monitor credit quality and to identify loans that may become nonperforming. At any time, however, there are loans included in the portfolio that will result in losses to Southwest, but that have not been identified as nonperforming or potential problem loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the unexpected deterioration of one or a few such loans may cause a significant increase in nonperforming assets, and may lead to a material increase in charge-offs and the provision for loan losses in future periods.

The reserve for unfunded loan commitments was $2.7 million, $1.9 million and $1.6 million at September 30, 2007, December 31, 2006, and September 30, 2006, respectively. The reserve, which is included in other liabilities on Southwest’s statement of financial condition, is computed using a methodology similar to that used to determine the allowance for loan losses, modified to take into account the probability of a drawdown on the commitment.

NOTE 8: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Fair Value Hedges

Southwest uses interest rate swaps in order to offset changes in fair value of fixed rate deposits that occur during periods of interest rate volatility. Southwest is able to demonstrate an effective hedging relationship between derivatives and matched items by proving that their changes in fair values substantially offset. Southwest enters

into interest rate swap agreements with the objective of converting the fixed interest rate on retail brokered CDs to a variable interest rate. The swap agreements require Southwest to pay a variable rate of interest based on a spread to the one-month London Interbank Offered Rate (“LIBOR”) and to receive a fixed rate of interest equal to that of the retail brokered CD (hedged item). Under the swap agreements, Southwest is to pay variable interest payments on a monthly basis; fixed interest payments are to be received on the maturity date of the swap agreement, except for agreements that pay semi-annually. Amounts to be paid or received under these swap agreements are accounted for on an accrual basis and recorded as an adjustment of interest expense of the hedged item. The net cash flows related to fair value hedges increased interest expense on certificates of deposit by $113,000 for the nine months ended September 30, 2007. All of the interest rate swaps outstanding at September 30, 2007 will expire within a twelve month period.

The following table provides information on Southwest’s derivative portfolio as of September 30, 2007 and December 31, 2006. Gross unrealized losses on derivatives are included in other liabilities.


				Gross Unrealized					Estimated
(Dollars in thousands)	Notional Amt			Gains		Losses			Fair Value

At September 30, 2007:

Fair-value hedges
Interest-rate swaps
Pay floating, receive fixed	$	179,958		$	—	$	(69	)	$	(69	)

	$	179,958		$	—	$	(69	)	$	(69	)


Weighted average floating pay rate		5.46	%
Weighted average fixed receive rate		5.31	%
Weighted average maturity in months		5

At December 31, 2006:

Fair-value hedges
Interest-rate swaps
Pay floating, receive fixed	$	239,261		$	—	$	(166	)	$	(166	)

	$	239,261		$	—	$	(166	)	$	(166	)


Weighted average floating pay rate		5.17	%
Weighted average fixed receive rate		5.13	%
Weighted average maturity in months		5

Southwest is exposed to credit risk on derivative instruments if the counterparty should fail to perform under the terms of the contract. Southwest manages credit risk through the use of comprehensive credit approval processes, the selection of only creditworthy counterparties, and effective collateral administration. The amount of credit exposure is limited to the net interest receivable and the fair market value of the derivative contracts in gain positions reduced by the value of any collateral pledged by the counterparty. As of September 30, 2007, the net credit exposure associated with derivative instruments totaled $5.6 million. The maximum net exposure to any one counterparty is $3.6 million. The notional amount of the swap position at September 30, 2007 is with two counterparties.

NOTE 9: SHARE-BASED COMPENSATION

The Southwest Bancorp, Inc. 1994 Stock Option Plan and 1999 Stock Option Plan (the “Stock Plans”) provide directors and selected key employees with the opportunity to acquire common stock through grants of options exercisable for common stock and other stock based awards.

Stock Options

The exercise price of all stock options granted under the Stock Plans is the fair market value on the grant date. Depending upon terms of the stock option agreements, stock options generally become exercisable on an annual basis and expire from five to ten years after the date of grant.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), Southwest recorded $622,000 of share-based compensation expense for the nine month period ended September 30, 2007 related to outstanding stock options.

The share-based compensation is calculated using the accrual method, which treats each vesting tranche as a separate award and amortizes expense evenly from grant date to vest date. This charge had no impact on Southwest’s reported cash flows. The deferred tax asset that was recorded related to this compensation expense was approximately $165,000.

For purposes of the disclosure in the following table and for purposes of determining estimated fair value under SFAS No. 123(R), Southwest has computed the estimated fair values of all share-based compensation using the Black-Scholes option pricing model and has applied the assumptions set forth in the table. Southwest will continue to monitor the actual expected term of stock options and will adjust the expected term used in the valuation process when the difference is determined to be significant.


										Expected
	Risk-Free			Expected						Option
	Interest			Dividend			Expected			Term
	Rate			Yield			Volatility			(in years)

Third quarter 2007		4.55	%		1.81	%		29.20	%		2.50
Second quarter 2007		4.73	%		1.48	%		29.60	%		2.50
First quarter 2007		4.51	%		1.40	%		29.58	%		2.50
Third quarter 2006		4.89	%		1.28	%		30.39	%		2.50
Second quarter 2006		5.00	%		1.39	%		32.88	%		2.50
First quarter 2006		4.75	%		1.49	%		24.48	%		2.50

A summary of option activity under the Stock Plans as of September 30, 2007, and changes during the nine month period then ended, is presented below.


						Weighted
				Weighted		Average Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value (dollars
	Options			Price		Life (Years)		in thousands)

Outstanding at December 31, 2006		860,010		$	13.50

Granted		119,431			26.07
Exercised		(77,588	)		9.98
Canceled/expired		(2,666	)		25.46

Outstanding at September 30, 2007		899,187		$	15.44		2.55	$	13,880


Total exercisable at September 30, 2007		673,704		$	14.64		2.24	$	9,866

The weighted average grant date fair value of options granted during the nine month period ended September 30, 2007 was $5.48 per share. The total intrinsic value of options exercised during the nine month period was $1.2 million; the amount of cash received from those exercises was $747,000. All shares issued upon exercise of options during the nine month period ended September 30, 2007 were issued out of treasury shares. The fair value of options that became vested during the nine month period was $688,000.

A summary of the status of Southwest’s nonvested stock options as of September 30, 2007 and changes during the nine month period then ended is presented below.


	Shares			Weighted
	Issuable			Average
	Upon Exercise			Grant Date
	of Options			Fair Value

Nonvested Balance at December 31, 2006		238,300		$	4.34

Granted		119,431			5.48
Vested		(129,582	)		5.31
Forfeited		(2,666	)		5.59

Nonvested Balance at September 30, 2007		225,483		$	4.37

As of September 30, 2007, there was $378,000 of total unrecognized compensation expense related to stock option arrangements granted under the Stock Plans. This unrecognized expense is expected to be recognized during the next 2.25 years.

Restricted Stock

In March 2005, January 2006, and January 2007, nonemployee directors were awarded shares in restricted common shares (28,110 total shares) at grant date fair values of $19.75, $21.725, and $26.985, respectively. In March 2007, an employee was awarded 4,868 shares in restricted stock at grant date fair value of $26.395. During the first nine months of 2007, $101,000 in compensation expense, net of tax, was recorded related to all restricted shares outstanding and is included in the compensation expense amounts for 2007; $73,000 in compensation expense, net of tax, was recorded in the first nine months of 2006.

The restricted stock grants vest one-third on the first, second and third annual anniversaries of the date of grant provided the director or employee remains a director or employee of Southwest or a subsidiary on those dates. The restrictions on the shares expire three years after the award date. Southwest will continue to recognize compensation expense over the restricted periods.

NOTE 10: TAXES ON INCOME

FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, was adopted on January 1, 2007. As a result of the implementation of Interpretation No. 48, Southwest recognized a cumulative effect adjustment of approximately $803,000 as a decrease in retained earnings. Including the cumulative effect adjustment, at the beginning of 2007, Southwest had approximately $1.8 million (net of federal benefit on state issues) of total unrecognized tax benefits. The balance of unrecognized tax benefits at September 30, 2007 was $2.5 million (net of federal benefit on state issues), that if recognized, would favorably affect the effective tax rate in any future periods.

Southwest recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of date of adoption, Southwest had accrued $562,000 in interest and penalties. For the first three quarters of the year, an additional $237,000 has been accrued in interest and penalties.

Southwest or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, Southwest is no longer subject to U.S. federal or state tax examinations for years before 2002.

Southwest is currently under audit by the State of Oklahoma for the 2002 tax year. It is likely that the examination phase of the audit will conclude in the next twelve months, and it is possible that a reduction in the unrecognized tax benefits may occur; however, quantification of an estimated range cannot be made at this time.

NOTE 11: EARNINGS PER SHARE

Basic earnings per share is computed based upon net income divided by the weighted average number of shares outstanding during each period. Diluted earnings per share is computed based upon net income divided by the weighted average number of shares outstanding during each period adjusted for the effect of dilutive potential

shares calculated using the treasury method. At September 30, 2007 and 2006, there were 395,617 and 7,500 antidilutive options to purchase common shares, respectively.

The following is a reconciliation of the shares used in the calculations of basic and diluted earnings per share:


	For the three months				For the nine months
	ended September 30,				ended September 30,
	2007		2006		2007		2006

Weighted average common shares outstanding		14,335,008		14,206,947		14,299,534		14,145,275
Effect of dilutive securities		277,724		326,626		332,867		325,923

For calculation of diluted earnings per share		14,612,732		14,533,573		14,632,401		14,471,198

NOTE 12: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business, Southwest makes use of a number of different financial instruments to help meet the financial needs of its customers. In accordance with generally accepted accounting principles, these transactions are not presented in the accompanying consolidated financial statements and are referred to as off-balance sheet instruments. These transactions and activities include commitments to extend lines of commercial and real estate mortgage credit, and standby and commercial letters of credit.

The following table provides a summary of Southwest’s off-balance sheet financial instruments:


	For the nine		For the
	months ended		year ended
(Dollars in thousands)	September 30, 2007		December 31, 2006

Commitments to extend commercial and real estate mortgage credit	$	804,776	$	572,182
Standby and commercial letters of credit		17,433		12,215

Total	$	822,209	$	584,397

A loan commitment is a binding contract to lend up to a maximum amount for a specified period of time provided there is no violation of any financial, economic, or other terms of the contract. A standby letter of credit obligates Southwest to honor a financial commitment to a third party should Southwest’s customer fail to perform. Many loan commitments and most standby letters of credit expire unfunded, and, therefore, total commitments do not represent future funding obligations of Southwest. Loan commitments and letters of credit are made under normal credit terms, including interest rates and collateral prevailing at the time, and usually require the payment of a fee by the customer. Commercial letters of credit are commitments generally issued to finance the movement of goods between buyers and sellers. Southwest’s exposure to credit loss, assuming commitments are funded, in the event of nonperformance by the other party to the financial instrument is represented by the contractual amount of those instruments. Southwest does not anticipate any material losses as a result of the commitments.

NOTE 13: OPERATING SEGMENTS

Southwest operates four principal segments: Oklahoma Banking, Other States Banking, Secondary Market, and Other Operations. The Oklahoma Banking segment consists of three operating units that provide lending and deposit services to customers in the state of Oklahoma. The Other States Banking segment consists of several operating units that provide lending and deposit services to the customers in the states of Texas and Kansas, and other markets outside Southwest’s primary territory. The Secondary Market segment consists of two operating units: one that provides student lending services to post-secondary students in Oklahoma and several other states and the other that provides residential mortgage lending services to customers in Oklahoma, Texas, and Kansas. Other Operations includes Southwest’s fund management unit.

The primary purpose of the fund management unit is to manage Southwest’s overall liquidity needs and interest rate risk. Each segment borrows funds from and provides funds to the fund management unit as needed to support its operations. The value of funds provided and cost of funds borrowed from the funds management unit by each segment are internally priced at rates that approximate market rates for funds with similar duration.

The Other Operations segment also includes SNB Investor Services and nonbank cash machine operations; these operations are discussed more fully in the 2006 Annual Report.

Southwest identifies reportable segments by type of service provided and geographic location. Operating results are adjusted for intercompany loan participations and borrowings, allocated service costs, and management fees.

The accounting policies of each reportable segment are the same as those of Southwest. Expenses for consolidated back-office operations are allocated to operating segments based on estimated uses of those services. General overhead expenses such as executive administration, accounting, and internal audit are allocated based on the direct expense and/or deposit and loan volumes of the operating segment. Income tax expense for the operating segments is calculated essentially at statutory rates. The Other Operations segment records the tax expense or benefit necessary to reconcile to the consolidated financial statements.

Beginning in the first quarter of 2007, capital is assigned and the credit allocated to each of the segments rather than remaining in the Other Operating Segment. The amounts for the three and nine months ending September 30, 2006 have been restated using the capital pricing methodology. Capital is assigned to each of the segments using a risk-based capital pricing methodology that assigns capital ratios by asset, deposit, or revenue category based on Credit Risk, Interest Rate Risk, Market Risk, Operational Risk and Liquidity Risk.

By including capital as a funding component, each operating segment’s performance is more accurately reported leaving fewer unallocated dollars in the fund management unit.

The following table summarizes financial results by operating segment:


For the Three Months Ended September 30, 2007
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	13,154	$	10,663	$	190	$	(331	)	$	23,676
Provision for loan losses		241		1,908		—		—			2,149
Other income		1,949		742		769		196			3,656
Other expenses		7,807		6,166		882		1,307			16,162

Income (loss) before taxes		7,055		3,331		77		(1,442	)		9,021
Taxes on income		2,789		1,190		43		(517	)		3,505

Net income (loss)	$	4,266	$	2,141	$	34	$	(925	)	$	5,516


For the Three Months Ended September 30, 2006
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	13,596	$	7,816	$	2,185	$	99		$	23,696
Provision for loan losses		1,951		1,055		—		—			3,006
Other income		1,806		131		742		1,280			3,959
Other expenses		7,269		4,166		1,006		1,469			13,910

Income (loss) before taxes		6,182		2,726		1,921		(90	)		10,739
Taxes on income		2,194		1,247		566		93			4,100

Net income (loss)	$	3,988	$	1,479	$	1,355	$	(183	)	$	6,639


For the Nine Months Ended September 30, 2007
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	39,532	$	28,998	$	1,392	$	(949	)	$	68,973
Provision for loan losses		1,423		4,694		—		—			6,117
Other income		7,461		1,538		2,826		625			12,450
Other expenses		22,636		15,796		2,623		6,746			47,801

Income (loss) before taxes		22,934		10,046		1,595		(7,070	)		27,505
Taxes on income		8,782		3,777		612		(2,523	)		10,648

Net income (loss)	$	14,152	$	6,269	$	983	$	(4,547	)	$	16,857


Fixed asset expenditures	$	933	$	907	$	57	$	446		$	2,343
Total loans at period end		947,354		985,869		78,417		—			2,011,640
Total assets at period end		956,011		1,086,552		84,677		259,612			2,386,852
Total deposits at period end (1)		1,265,130		237,815		3,275		406,499			1,912,719


(1)		Brokered Deposits are included in the Oklahoma Banking Segment.


For the Nine Months Ended September 30, 2006
	Oklahoma		Other States		Secondary		Other			Total
(Dollars in thousands)	Banking		Banking		Market		Operations			Company

Net interest income	$	39,570	$	21,707	$	7,691	$	(169	)	$	68,799
Provision for loan losses		5,705		3,293		—		—			8,998
Other income		5,694		575		2,828		3,335			12,432
Other expenses		22,022		10,967		3,238		4,725			40,952

Income (loss) before taxes		17,537		8,022		7,281		(1,559	)		31,281
Taxes on income		6,235		3,151		2,493		(142	)		11,737

Net income (loss)	$	11,302	$	4,871	$	4,788	$	(1,417	)	$	19,544


Fixed asset expenditures	$	314	$	411	$	—	$	1,458		$	2,183
Total loans at period end		889,453		652,285		257,689		—			1,799,427
Total assets at period end		890,618		654,961		271,785		340,374			2,157,738
Total deposits at period end (1)		1,166,943		139,978		4,602		429,041			1,740,564


(1)		Brokered Deposits are included in the Oklahoma Banking Segment.

NOTE 14: ACCOUNTING STANDARD ISSUED BUT NOT YET ADOPTED

In September 2006, the Financial Accounting Standards Board issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies only to fair value measurements that are already required or permitted by other generally accepted accounting principles. SFAS 157 also nullifies EITF guidance that prohibited recognition of gains or losses at inception of derivative transactions whose fair value is estimated by modeling. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be independent, knowledgeable buyers and sellers transacting business in the principal or most advantageous market for the asset or liability. Management continues to evaluate the impact and anticipates the adoption of the statement effective January 1, 2008.

In February 2007, the Financial Accounting Standards Board issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, (ii) is irrevocable (unless a new

election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. Management continues to evaluate the impact and anticipates the adoption of the statement effective January 1, 2008.

NOTE 15: CASH RECEIVABLE

Southwest previously disclosed that in December 2006 an armored transportation company failed to deliver to Stillwater National approximately $1.3 million in cash then due to it from certain ATMs owned by Cash Source, Inc. (“CSI”), a subsidiary of Stillwater National. CSI discovered other cash shortages arising from the same armored transportation company and Stillwater National removed all cash from the other CSI ATMs for which that company provided cash transportation. Earlier this year, Southwest determined that the maximum total potential cash receivable was $2.5 million.

Stillwater National and CSI have filed legal action against the armored transportation company, its owners and others for the recovery of their funds and damages, have notified law enforcement and bank regulatory authorities and their insurers, and continue to pursue means of recovery. Southwest has estimated the amount of the loss to be the total amount of the receivable and has recorded a complete write-off of that amount as reflected in the financial statements for the first quarter of 2007. This amount does not reflect any potential recoveries or insurance proceeds. The financial statements also reflect related legal expenses incurred by Southwest in the first nine months of approximately $720,000. Southwest continues to vigorously pursue its investigation and efforts to recover the missing cash or otherwise mitigate its damages. Southwest filed its proof of loss with the insurer on August 6, 2007.

NOTE 16: PARTIAL DISPOSITION OF EQUITY SECURITIES

During the second quarter of 2007, Stillwater National sold 1,500,000 shares of common stock of a public corporation. This transaction was in response to an unsolicited offer to purchase such shares received in late April 2007. Stillwater National obtained these shares in connection with the restructuring of a problem credit in October 2005. The sale of these shares resulted in a realization of a pre-tax gain of $1.9 million. Stillwater National continues to hold 868,000 shares of the public corporation’s common stock.

SOUTHWEST BANCORP, INC.

Management’s Discussion and Analysis
of Financial Condition and Results of Operations

Forward-Looking Statements. This management’s discussion and analysis of financial condition and results of operations, the notes to Southwest’s unaudited consolidated financial statements, and other portions of this report include forward-looking statements such as: statements of Southwest’s goals, intentions, and expectations; estimates of risks and of future costs and benefits; expectations regarding future financial performance of Southwest and its operating segments; assessments of loan quality, probable loan losses, and the amount and timing of loan payoffs; liquidity, contractual obligations, off-balance sheet risk, and market or interest rate risk; and statements of Southwest’s ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon: the amount and timing of future changes in interest rates, market behavior, and other economic conditions; future laws, regulations, and accounting principles; and a variety of other matters. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward-looking statements. In addition, Southwest’s past growth and performance do not necessarily indicate its future results.

Management’s discussion and analysis of Southwest’s consolidated financial condition and results of operations should be read in conjunction with Southwest’s unaudited consolidated financial statements and the accompanying notes.

GENERAL

Southwest Bancorp, Inc. (“Southwest”) is a financial holding company for the Stillwater National Bank and Trust Company (“Stillwater National”), SNB Bank of Wichita (“SNB Wichita”), Bank of Kansas (“SNB Kansas”), Healthcare Strategic Support, Inc. (“HSSI”), and Business Consulting Group, Inc. (“BCG”). Through its subsidiaries, Southwest offers commercial and consumer lending, deposit and investment services, and specialized cash management, consulting and other financial services from offices in Oklahoma City, Stillwater, Tulsa, and Chickasha, Oklahoma; Austin, Dallas, Houston and San Antonio, Texas; and Hutchinson, Kansas City, and Wichita, Kansas; and on the Internet, through SNB DirectBanker®. Southwest’s banking philosophy is to provide a high level of customer service, a wide range of financial services, and products responsive to customer needs with a focus on serving healthcare and health professionals, businesses and their managers and owners, and commercial and commercial real estate borrowers. This philosophy has led to the development of a line of deposit, lending, and other financial products that respond to professional and commercial customer needs for speed, efficiency, and information, and complement more traditional banking products. Such specialized financial services include integrated document imaging and cash management services designed to help our customers in the healthcare industry and other record-intensive enterprises operate more efficiently, and management consulting services through Southwest’s management consulting subsidiaries: HSSI, which serves physicians, hospitals, and healthcare groups, and BCG, which serves small and large commercial enterprises. Information regarding Southwest is available on line at www.oksb.com. Information regarding the products and services of Southwest’s financial institution subsidiaries is available on line at www.banksnb.com, www.snbwichita.com, and www.bankofkansas.com. The information on these websites is not a part of this report on form 10-Q.

Southwest’s strategic focus includes expansion in carefully selected geographic markets. This geographic expansion is based on identification of markets with concentrations of customers in Southwest’s traditional areas of expertise (healthcare and health professionals, businesses and their managers and owners, and commercial and commercial real estate lending) and makes use of traditional and specialized financial services.

Southwest’s expansion outside Oklahoma began in 2002. At September 30, 2007, these offices accounted for $985.9 million in loans (51% of portfolio loans and 49% of total loans, which include loans held for sale). During the first nine months of 2007, the offices in other states produced $6.3 million in net income (37% of the consolidated total), and $392.2 million in asset growth.

During the third quarter, Southwest completed the acquisition of the SNB Kansas, which provided two full-service banking offices in the Hutchinson, Kansas area. In the second quarter of 2006, Southwest opened a loan production office in Houston, Texas which it plans to convert it into a branch consistent with its established

expansion strategy. In July 2006, Southwest completed the acquisition of the McMullen Bank, which added branches in San Antonio and Tilden, Texas. Southwest is actively seeking additional acquisitions consistent with its strategies, although currently it does not have any agreements or understandings to do so.

The Oklahoma Banking segment accounted for $14.2 million, or 84%, of consolidated year-to-date net income, up twenty-six percentage points from 58% for the first nine months of 2006. The increase in the segment’s net income contribution was primarily the result of a decrease in the required provision for loan losses and an increase in other income, which is partly attributable to the gain on the sale of shares of common stock acquired in connection with a debt restructuring in 2005, that were held as available for sale securities, offset by increases in other expenses and taxes on income. Outstanding loans in the Oklahoma Banking Segment totaled $947.4 million at quarter end and increased by $34.5 million, or approximately 4%, from December 31, 2006.

Southwest has a long history of student and residential mortgage lending. These operations comprise the Secondary Market business segment. During the first nine months of 2007, this segment produced $983,000 in net income. Secondary Market assets declined during the first nine months of the year because, while originations of student loans totaled $127.5 million, sales proceeds, net of gains, totaled $235.1 million resulting in a 59% reduction in the balance of loans outstanding as of September 30, 2007. This decline is consistent with Southwest’s previously announced expectations. The gain on sales of student loans for the first three quarters was $1.9 million. Loan volumes in the Secondary Market segment may vary significantly from period to period.

Southwest also conducts general consumer banking operations, and may establish or acquire additional community banking offices in selected markets.

For additional information on Southwest’s operating segments, please see Note 13, “Operating Segments”, in the Notes to Unaudited Consolidated Financial Statements. The total of net income of the segments discussed above does not equal consolidated net income for the first nine months of 2007 due to income and expenses allocated to the Other Operations segment, which provides funding and liquidity services to the rest of the organization

Southwest was organized in 1981 as the holding company for Stillwater National, which was chartered in 1894. Southwest has established and pursued a strategy of independent operation for the benefit of all of its shareholders. Southwest became a public company in late 1993 with assets of approximately $434 million. At September 30, 2007, Southwest had total assets of $2.4 billion, deposits of $1.9 billion, and shareholders’ equity of $213.8 million.

FINANCIAL CONDITION

Total Assets and Investment Securities

Southwest’s total assets were $2.4 billion at September 30, 2007, and $2.2 billion at December 31, 2006.

Southwest’s investment security portfolio increased $23.4 million, or 9%, from $269.8 million at December 31, 2006, to $293.2 million at September 30, 2007. The increase is primarily in U.S. government and agency securities, mortgage backed securities and tax exempt securities, which increased $6.4 million (3%), $10.3 million (42%) and $7.7 million (269%), respectively, during the first nine months of 2007.

Loans

Total loans, including loans held for sale, were $2.0 billion at September 30, 2007, a 12% increase from $1.8 billion at December 31, 2006. One-to-four family residential, real estate construction, commercial and other consumer loans increased, while commercial real estate mortgage and student loans decreased.

The following table presents the trends in the composition of the loan portfolio at the dates indicated:


	September 30,		December 31,
(Dollars in thousands)	2007		2006		$ Change			% Change

Real estate mortgage
Commercial	$	608,409	$	609,271	$	(862	)		(0.14	)%
One-to-four family residential		112,407		91,441		20,966			22.93
Real estate construction		659,214		453,750		205,464			45.28
Commercial		517,658		424,189		93,469			22.03
Installment and consumer
Student loans		73,810		181,458		(107,648	)		(59.32	)
Other		40,142		31,081		9,061			29.15

Total loans	$	2,011,640	$	1,791,190	$	220,450			12.31	%

The composition of loans held for sale and reconciliation to total loans is shown in the following table.


	September 30,		December 31,
(Dollars in thousands)	2007		2006		$ Change			% Change

Loans held for sale:
Student loans	$	73,810	$	181,458	$	(107,648	)		(59.32	)%
One-to-four family residential		3,293		4,654		(1,361	)		(29.24	)
Other loans held for sale		1,314		2,352		(1,038	)		(44.13	)

Total loans held for sale		78,417		188,464		(110,047	)		(58.39	)
Portfolio loans		1,933,223		1,602,726		330,497			20.62

Total loans	$	2,011,640	$	1,791,190	$	220,450			12.31	%

Subprime lending has never been a part of Southwest’s business strategy and its direct and indirect exposure to subprime loans and subprime lenders is minimal.

Management determines the appropriate level of the allowance for loan losses using a systematic methodology. (See Note 7: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments”, in the Notes to Unaudited Consolidated Financial Statements.) At September 30, 2007, the allowance for loan losses was $28.3 million, an increase of $1.0 million, or 4%, from the allowance for loan losses at December 31, 2006. This change is a result of growth in performing commercial and commercial real estate loans and an increase in potential problem loans offset in part by decreases in the allowance related to impaired loans and in the general allowance. The allowance was 1.41% and 1.52% of total loans at September 30, 2007 and December 31, 2006, respectively. Management believes the amount of the allowance is appropriate, given its systematic methodology for calculation. Changes in the amount of the allowance resulted from the application of that methodology, which is designed to estimate inherent losses on total loans in the portfolio, including those on nonperforming loans.

At September 30, 2007, the allowance for loan losses was $28.3 million, or 97.32% of nonperforming loans, compared to $27.3 million, or 92.97% of nonperforming loans, at December 31, 2006. (See “Results of Operations-Provision for Loan Losses.”)

Performing loans considered potential problem loans (loans that are not included in the past due, nonaccrual or restructured categories, but for which known information about possible credit problems cause management to have concerns as to the ability of the borrowers to comply with the present loan repayment terms and which may become problems in the future) amounted to approximately $70.4 million at September 30, 2007, compared to $50.6 million at December 31, 2006. Loans may be monitored by management and reported as potential problem 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.

At September 30, 2007, the reserve for unfunded loan commitments was $2.7 million, a $761,000, or 39%, increase from the amount at December 31, 2006. This change is due to an increase in commitments and the reserve on commitments related to potential problem loans.

Deposits and Other Borrowings

Southwest’s deposits were $1.9 billion at September 30, 2007, an increase of $147.1 million, or 8%, from $1.8 billion at December 31, 2006. Increases occurred in noninterest-bearing demand, interest-bearing demand, money market accounts, savings accounts, and other time deposits.

The following table presents the trends in the composition of deposits at the dates indicated:


	September 30,		December 31,
(Dollars in thousands)	2007		2006		$ Change			% Change

Noninterest-bearing demand	$	261,634	$	254,415	$	7,219			2.84	%
Interest-bearing demand		63,145		55,396		7,749			13.99
Money market accounts		505,192		371,912		133,280			35.84
Savings accounts		14,830		11,273		3,557			31.55
Time deposits of $100,000 or more		580,850		648,664		(67,814	)		(10.45	)
Other time deposits		487,068		423,951		63,117			14.89

Total deposits	$	1,912,719	$	1,765,611	$	147,108			8.33	%

In connection with its retail certificate of deposit program, Stillwater National has substantial unused borrowing availability in the form of unsecured brokered certificate of deposits from Merrill Lynch & Co., Citigroup Global Markets, Inc., Wachovia Securities LLC, UBS Financial Services, Inc., RBC Dain Rauscher, Morgan Stanley & Co., Inc., and CountryWide Securities. At September 30, 2007, $239.9 million in these retail certificates of deposit were included in time deposits of $100,000 or more, a decrease of $124.9 million, or 34%, from year-end 2006.

As of September 30, 2007, Stillwater National has brokered certificates of deposit issued in amounts under $100,000 totaling $388,000 which are included in other time deposits in the above table. Stillwater National had no brokered certificates of deposit under $100,000 as of year-end 2006.

Other borrowings increased $52.8 million, or 38%, to $190.8 million during the first nine months of 2007. The increase reflects the changes in the need for funding based on loan and deposit activities for the period.

Shareholders’ Equity

Shareholders’ equity increased $16.3 million, or 8%, due primarily to earnings of $16.9 million for the first nine months of 2007, offset by dividends declared totaling $4.0 million. Sales of common stock through the dividend reinvestment plan, the employee stock purchase plan, and share based compensation plans, including tax benefits realized, contributed an additional $2.3 million to shareholders’ equity in the first nine months of 2007. Implementation of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, reduced shareholders’ equity by $803,000. Net unrealized holding gains and losses on available for sale investment securities (net of tax) increased to a gain of $209,000 at September 30, 2007, compared to a loss of $1.7 million at December 31, 2006.

At September 30, 2007, Southwest, Stillwater National, SNB Wichita, and SNB Kansas continued to exceed all applicable regulatory capital requirements. See “Capital Resources” on page 35.

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2007 and 2006

Net income for the third quarter of 2007 of $5.5 million represented a decrease of $1.1 million, or 17%, from the $6.6 million earned in the third quarter of 2006. Diluted earnings per share were $0.38 compared to $0.46, a 17%

decrease. The decrease in quarterly net income was the result of a $2.3 million, or 16%, increase in other expense and a $303,000, or 8%, decrease in other income offset in part by an $857,000, 29%, decrease in the provision for loan losses and a $595,000, or 15%, decrease in income taxes. The decline in general interest rates led to a slight decrease in net interest income in spite of significantly greater loan volume.

The $20,000 decrease in net interest income for the quarter was primarily the result of decreased loan yields and higher rates on interest bearing deposits. Provision for loan losses are booked in the amounts necessary to increase the allowance for loan losses to an appropriate level at period end after charge-offs for the period. The necessary provision for the third quarter 2007 was $857,000 less than the provision required for third quarter of 2006. (See Note 7: “Allowance for Loan Losses and Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

The decrease in other income was mainly the result of decreased service charges and lower gains on the sale of loans. The increase in other expense consists of a $1.5 million increase in personnel expense, a $720,000 increase in the provision for unfunded loan commitments, a $177,000 increase in general and administrative expenses offset in part by a decrease of $134,000 in other real estate expense.

On an operating segment basis, the decrease in net income was the result of a $1.3 million reduction from the Secondary Market segment, attributable to lower volumes of guaranteed student loans, and a $742,000 decrease from the Other Operations segment, offset in part by a $278,000 increase from the Oklahoma Banking segment and a $662,000 increase from the Other States Banking segment.

Net Interest Income


	For the three months
	ended September 30,
(Dollars in thousands)	2007		2006		$ Change			% Change

Interest income:
Loans	$	42,346	$	41,074	$	1,272			3.10	%
Investment securities:
U.S. government and agency obligations		2,196		2,183		13			0.60
Mortgage-backed securities		370		270		100			37.04
State and political subdivisions		85		24		61			254.17
Other securities		165		209		(44	)		(21.05	)
Other interest-earning assets		39		57		(18	)		(31.58	)

Total interest income		45,201		43,817		1,384			3.16

Interest expense:
Interest-bearing demand deposits		82		79		3			3.80
Money market accounts		5,589		4,066		1,523			37.46
Savings accounts		24		19		5			26.32
Time deposits of $100,000 or more		7,445		8,106		(661	)		(8.15	)
Other time deposits		5,684		4,578		1,106			24.16
Other borrowings		1,715		2,281		(566	)		(24.81	)
Subordinated debentures		986		992		(6	)		(0.60	)

Total interest expense		21,525		20,121		1,404			6.98


Net interest income	$	23,676	$	23,696	$	(20	)		(0.08	)%

Net interest income is the difference between the interest income Southwest earns on its loans, investments, and other interest-earning assets, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Because different types of assets and liabilities owned by Southwest may react differently, and at different times, to changes in market interest rates, net interest income is affected by changes in market interest rates. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an increase of market rates of interest could reduce net interest income. Similarly, when interest-earning assets

mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income.

Yields on Southwest’s interest-earning assets decreased 19 basis points, and the rates paid on Southwest’s interest-bearing liabilities increased 16 basis points, resulting in a decrease in the interest rate spread to 3.36% for the third quarter of 2007 from 3.71% for the third quarter of 2006. During the same periods, annualized net interest margin was 4.23% and 4.47%, respectively, and the ratio of average interest-earning assets to average interest-bearing liabilities increased to 122.61% from 120.05%.

The decrease in interest income was the result of the 19 basis point decrease in the yield earned on interest-earning assets, which was offset in part by the effects of a $117.6 million, or 6%, increase in average interest-earning assets. Southwest’s average loans increased $98.1 million, or 5%; however, the related yield decreased to 8.73% for the third quarter of 2007 from 8.92% in 2006. During the same period, average investment securities increased $15.0 million, or 6%, and the related yield decreased slightly to 3.93% from 3.96% in 2006.

The increase in total interest expense can be attributed to the 16 basis point increase in the rates paid on interest-bearing liabilities and the effects of a $59.5 million, or 3%, increase in average interest-bearing liabilities. Although the general level of interest rates declined, rates paid on deposits increased 25 basis points as the pricing actions of competitors did not allow Southwest to reduce the rates paid on deposits. For the period, the average interest-bearing deposits increased $90.0 million, or 6%.

UNAUDITED RATE VOLUME TABLE

The following table analyzes changes in interest income and interest expense of Southwest 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 (changes 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.


	For the three months ended September 30,
(Dollars in thousands)	2007 vs. 2006

	Increase			Due to Change
	Or			In Average:
	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	1,272		$	2,170		$	(898	)
Investment securities		130			148			(18	)
Other interest-earning assets		(18	)		36			(54	)

Total interest income		1,384			2,414			(1,030	)

Interest paid on:
Interest-bearing demand		3			5			(2	)
Money market accounts		1,523			1,352			171
Savings accounts		5			6			(1	)
Time deposits		445			(496	)		941
Other borrowings		(566	)		(352	)		(214	)
Subordinated debentures		(6	)		—			(6	)

Total interest expense		1,404			696			708


Net interest income	$	(20	)	$	1,718		$	(1,738	)


(1)		Average balances include nonaccrual loans. Fees included in interest income on loans receivable are not considered material. Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.

SOUTHWEST BANCORP, INC.

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

The following table sets forth average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated.


	For the three months ended September 30,
(Dollars in thousands)	2007						2006

	Average			Average			Average			Average
	Balance			Yield/Rate			Balance			Yield/Rate

Assets
Total loans	$	1,925,468			8.73	%	$	1,827,417			8.92	%
Investment securities		284,098			3.93			269,135			3.96
Other interest-earning assets		8,931			1.73			4,300			5.26

Total interest-earning assets		2,218,497			8.08			2,100,852			8.27
Other assets		73,076						92,155

Total assets	$	2,291,573					$	2,193,007


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	62,667			0.52	%	$	58,885			0.53	%
Money market accounts		489,514			4.53			370,564			4.35
Savings accounts		13,263			0.72			10,194			0.74
Time deposits		1,042,096			5.00			1,077,852			4.67

Total interest-bearing deposits		1,607,540			4.65			1,517,495			4.40
Other borrowings		155,468			4.38			186,043			4.86
Subordinated debentures		46,393			8.50			46,393			8.55

Total interest-bearing liabilities		1,809,401			4.72			1,749,931			4.56
Noninterest-bearing demand deposits		246,607						231,280
Other liabilities		22,904						22,841
Shareholders’ equity		212,661						188,955

Total liabilities and shareholders’ equity	$	2,291,573					$	2,193,007


Interest rate spread					3.36	%					3.71	%

Net interest margin (1)					4.23	%					4.47	%

Ratio of average interest-earning assets to average interest-bearing liabilities		122.61	%					120.05	%


(1)		Net interest margin = annualized net interest income / average interest-earning assets

Other Income


	For the three months
	ended September 30,
(Dollars in thousands)	2007		2006		$ Change			% Change

Other income:
ATM service charges	$	317	$	913	$	(596	)		(65.28	)%
Other service charges		1,710		1,595		115			7.21
Other customer fees		521		364		157			43.13
Other noninterest income		452		411		41			9.98
Gain on sales of loans:
Student loan sales		353		373		(20	)		(5.36	)
Mortgage loan sales		165		236		(71	)		(30.08	)
All other loan sales		30		7		23			328.57
Gain (loss) on sales of securities		108		60		48			80.00

Total other income	$	3,656	$	3,959	$	(303	)		(7.65	)%

The decline in ATM service charges related to the substantially reduced operations of CSI. Although CSI’s ATM fees decreased from third quarter 2006, CSI did not provide a significant contribution to net income in any of the reported periods, and the reduction in its owned ATMs will not have a significant effect on future net income.

The increase in other service charges is the result of increases in commercial account service charges and overdraft fees, the increase in other customer fees is the result of increased letter of credit fees and brokerage fees, while the increase in other noninterest income is primarily the result of increased consulting income.

Gain on sales of loans is a reflection of the activity in the student, mortgage and commercial lending areas discussed elsewhere in this report.

Other Expense


	For the three months
	ended September 30,
(Dollars in thousands)	2007			2006			$ Change			% Change

Other expense:
Salaries and employee benefits	$	8,966		$	7,477		$	1,489			19.91	%
Occupancy		2,514			2,520			(6	)		(0.24	)
FDIC and other insurance		134			128			6			4.69
Other real estate (net)		(12	)		122			(134	)		(109.84	)
Unfunded loan commitment reserve		675			(45	)		720			(1,600.00	)
General and administrative		3,885			3,708			177			4.77

Total other expense	$	16,162		$	13,910		$	2,252			16.19	%

Salaries and employee benefits increased $1.5 million primarily as a result of normal compensation increases, an increase in the number of employees, and recruitment expenses in connection with the market expansion. The number of full-time equivalent employees for the quarter increased from 457 at the beginning of the quarter to 484 as of September 30, 2007. For the third quarter of 2006, the number of full-time equivalent employees for the quarter increased from 409 at the beginning of the quarter to 430 as of September 30, 2006.

The unfunded loan commitment reserve increased $720,000 due to an increase both in commitments and the reserve on commitments related to potential problem loans.

Under the Deposit Insurance Reform Act of 2005, depository institutions in all risk categories must pay FDIC insurance premiums effective this year, but the payments otherwise due are offset by a one-time assessment credit. Southwest expects that its assessment credit will substantially offset the FDIC insurance premiums

otherwise payable for the remainder of 2007. Quarterly FDIC insurance premiums have been approximately $280,000 each for the first three quarters of 2007, before offset by the assessment credit.

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006

Net income for the first nine months of 2007 of $16.9 million represented a decrease of $2.7 million or 14%, from the $19.5 million earned in the first nine months of 2006. Diluted earnings per share were $1.15 compared to $1.35, a 15% decrease. The decline in net income was primarily the result of a $6.8 million, or 17%, increase in other expense, offset in part by a $2.9 million, or 32%, decrease in provision for loan losses and a $1.1 million, or 9%, decrease in income taxes.

On an operating segment basis, the decrease in net income was led by a $3.8 million reduction from the Secondary Market segment, attributable to decreased volume in guaranteed student loans, and a $3.1 million decrease from the Other Operations segment, primarily the result of the write-off of the cash receivable (see Note 15: “Cash Receivable” in the Notes to Unaudited Consolidated Financial Statements). These decreases were partially offset by a $2.9 million increase from the Oklahoma Banking segment, which includes the $1.9 million pre-tax gain realized on the securities sale, and a $1.4 million increase from the Other States Banking segment.

Net Interest Income


	For the nine months
	ended September 30,
(Dollars in thousands)	2007		2006		$ Change			% Change

Interest income:
Loans	$	122,210	$	116,839	$	5,371			4.60	%
Investment securities:
U.S. government and agency obligations		6,476		6,571		(95	)		(1.45	)
Mortgage-backed securities		996		761		235			30.88
State and political subdivisions		177		90		87			96.67
Other securities		693		639		54			8.45
Other interest-earning assets		219		137		82			59.85

Total interest income		130,771		125,037		5,734			4.59

Interest expense:
Interest-bearing demand deposits		261		220		41			18.64
Money market accounts		14,294		12,041		2,253			18.71
Savings accounts		65		30		35			116.67
Time deposits of $100,000 or more		23,358		21,766		1,592			7.31
Other time deposits		15,962		11,928		4,034			33.82
Other borrowings		4,935		7,445		(2,510	)		(33.71	)
Subordinated debentures		2,923		2,808		115			4.10

Total interest expense		61,798		56,238		5,560			9.89


Net interest income	$	68,973	$	68,799	$	174			0.25	%

Net interest income is the difference between the interest income Southwest earns on its loans, investments and other interest-earning assets, and the interest paid on interest-bearing liabilities, such as deposits and borrowings. Because different types of assets and liabilities owned by Southwest may react differently, and at different times, to changes in market interest rates, net interest income is affected by changes in market interest rates. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an increase of market rates of interest could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income.

Yields on Southwest’s interest-earning assets increased 18 basis points, and the rates paid on Southwest’s interest-bearing liabilities increased 46 basis points, resulting in a decrease in the interest rate spread to 3.43% for the first nine months of 2007 from 3.71% for the first nine months of 2006. During the same periods, annualized net interest margin declined slightly to 4.31% from 4.39%. The ratio of average interest-earning assets to average interest-bearing liabilities increased to 122.64% for the first nine months of 2007 from 118.96% for the first nine months of 2006.

The principal factor in the increased interest income was the 18 basis point increase in the yield earned on interest-earning assets and the $46.5 million, or 2%, increase in average interest-earning assets. Southwest’s average loans increased $35.3 million, or 2%, and the related yield increased to 8.80% for the first nine months of 2007 from 8.58% in 2006. During the same period, average investment securities increased $7.1 million, or 3%, and the related yield increased to 4.02% from 3.98% in 2006.

The increase in total interest expense can be attributed to the 46 basis point increase in the rates paid on interest-bearing liabilities, which was offset in part by a $14.8 million, or less than 1% decrease in average interest-bearing liabilities. Rates paid on deposits increased 53 basis points, while average deposits increased $60.1 million, or 4%.

UNAUDITED RATE VOLUME TABLE


	For the nine months ended September 30,
(Dollars in thousands)	2007 vs. 2006

	Increase			Due to Change
	Or			In Average:
	(Decrease)			Volume			Rate

Interest earned on:
Loans receivable ⁽¹⁾	$	5,371		$	2,291		$	3,080
Investment securities		281			214			67
Other interest-earning assets		82			120			(38	)

Total interest income		5,734			2,807			2,927

Interest paid on:
Interest-bearing demand		41			20			21
Money market accounts		2,253			1,189			1,064
Savings accounts		35			9			26
Time deposits		5,626			462			5,164
Other borrowings		(2,510	)		(2,601	)		91
Subordinated debentures		115			—			115

Total interest expense		5,560			(477	)		6,037


Net interest income	$	174		$	3,284		$	(3,110	)


(1)		Average balances include nonaccrual loans. Fees included in interest income on loans receivable are not considered material. Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.

SOUTHWEST BANCORP, INC.

UNAUDITED AVERAGE BALANCES, YIELDS AND RATES

The following table sets forth average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated.


	For the nine months ended September 30,
(Dollars in thousands)	2007						2006

	Average			Average			Average			Average
	Balance			Yield/Rate			Balance			Yield/Rate

Assets
Total loans	$	1,856,068			8.80	%	$	1,820,764			8.58	%
Investment securities		277,660			4.02			270,531			3.98
Other interest-earning assets		7,845			3.73			3,765			4.87

Total interest-earning assets		2,141,573			8.16			2,095,060			7.98
Other assets		73,774						92,258

Total assets	$	2,215,347					$	2,187,318


Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	62,367			0.56	%	$	57,439			0.51	%
Money market accounts		428,597			4.46			391,580			4.11
Savings accounts		11,795			0.74			9,356			0.43
Time deposits		1,055,156			4.98			1,039,490			4.33

Total interest-bearing deposits		1,557,915			4.63			1,497,865			4.10
Other borrowings		141,968			4.65			216,826			4.59
Subordinated debentures		46,393			8.40			46,393			8.07

Total interest-bearing liabilities		1,746,276			4.73			1,761,084			4.27
Noninterest-bearing demand deposits		240,688						224,372
Other liabilities		21,159						19,470
Shareholders’ equity		207,224						182,392

Total liabilities and shareholders’ equity	$	2,215,347					$	2,187,318


Interest rate spread					3.43	%					3.71	%

Net interest margin (1)					4.31	%					4.39	%

Ratio of average interest-earning assets to average interest-bearing liabilities		122.64	%					118.96	%


(1)		Net interest margin = annualized net interest income / average interest-earning assets

Other Income


	For the nine months
	ended September 30,
(Dollars in thousands)	2007		2006			$ Change			% Change

Other income:
ATM service charges	$	938	$	2,741		$	(1,803	)		(65.78	)%
Other service charges		4,812		4,793			19			0.40
Other customer fees		1,339		1,121			218			19.45
Other noninterest income		1,226		1,490			(264	)		(17.72	)
Gain on sales of loans:
Student loan sales		1,911		1,733			178			10.27
Mortgage loan sales		522		659			(137	)		(20.79	)
All other loan sales		123		169			(46	)		(27.22	)
Gain (loss) on sales of investment securities		1,579		(274	)		1,853			(676.28	)

Total other income	$	12,450	$	12,432		$	18			0.14	%

ATM service charges decreased $1.8 million mainly due to the previously described decrease in CSI operations. [See three month Other Income discussion on page 28.]

Other customer fees increased primarily as a result of increased brokerage fees and letter of credit fees. Gain on sales of loans is a reflection of the activity in the student, mortgage and commercial lending areas as discussed elsewhere in this document.

Southwest recorded a securities gain of $1.9 million due to the sale of 1,500,000 shares of common stock of a public corporation in the second quarter of 2007, which was offset in part by a securities loss of $448,000 recorded in the first quarter due to the other than temporary impairment of certain equity securities of one issuer.

Other Expense


	For the nine months
	ended September 30,
(Dollars in thousands)	2007			2006			$ Change			% Change

Other expense:
Salaries and employee benefits	$	25,449		$	22,505		$	2,944			13.08	%
Occupancy		7,305			7,517			(212	)		(2.82	)
FDIC and other insurance		397			379			18			4.75
Other real estate (net)		(122	)		256			(378	)		(147.66	)
Unfunded loan commitment reserve		761			(338	)		1,099			(325.15	)
General and administrative		14,011			10,633			3,378			31.77

Total other expense	$	47,801		$	40,952		$	6,849			16.72	%

Salaries and employee benefits increased $2.9 million primarily as a result of normal compensation increases, incentive based accruals, an increase in the number of employees, and recruitment expenses in connection with the market expansion. The number of full-time equivalent employees for the first nine months increased from 429 at the beginning of the year to 484 as of September 30, 2007, primarily due to market expansion. For the first nine months of 2006, the number of full-time equivalent employees increased from 381 at the beginning of 2006 to 430 as of September 30, 2006.

Occupancy expense decreased due to a decrease in data processing of $371,000, decreased amortization of maintenance contracts of $237,000 and decreased depreciation of $36,000 offset in part by increases in building rental expense of $274,000 and utilities and other services of $159,000.

The unfunded loan commitment reserve increased $1.1 million due to an increase both in commitments and the reserve on commitments related to potential problem loans.

General and administrative expense increased as a result of increases in professional fees of $931,000, supplies and printing of $146,000, amortization of intangibles of $151,000, charitable contributions of $79,000, and miscellaneous expense of $2.4 million, offset in part by decreased postage expense of $339,000. Approximately $3.2 million of the total increase in general and administrative expenses is the result of the write-off of $2.5 million of the cash receivable and the associated legal fees of approximately $720,000 (see Note 15: “Cash Receivable” in the Notes to Unaudited Consolidated Financial Statements).

Deposit Insurance expense is expected to increase in 2008. See discussion of Other Expense for the quarter on page 28.

* * * * * * *

Provisions for Loan Losses and for Unfunded Loan Commitments

Southwest makes provisions for loan losses in amounts necessary to maintain the allowance for loan losses and the reserve for unfunded loan commitments at the levels Southwest determines are appropriate based on a systematic methodology. (See Note 7: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

The allowance for loan losses of $28.3 million increased $1.0 million, or 4%, from year-end 2006. A provision for loan losses of $6.1 million was recorded in the first nine months of 2007, a decrease of $2.9 million or 32%, from the first nine months of 2006. The decrease in the provision for loan losses was the result of the calculations of the appropriate allowance at each period end using Southwest’s systematic methodology. This change in the period end allowance is the result of growth in performing commercial and commercial real estate loans and an increase in potential problem loans offset in part by decreases in the allowance related to impaired loans and in the general allowance. (See Note 7: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

At September 30, 2007, the reserve for unfunded loan commitments was $2.7 million, a $761,000, or 39%, increase from the amount reported at December 31, 2006. This reserve is included in other liabilities. The related provision for unfunded loan commitments is a component of general and administrative expense. (See Note 7: “Allowance for Loan Losses and Reserve for Unfunded Loan Commitments,” in the Notes to Unaudited Consolidated Financial Statements.)

Taxes on Income

Southwest’s income tax expense was $10.6 million and $11.7 million for the first nine months of 2007 and 2006, respectively, a decrease of $1.1 million, or 9%. The effective tax rate for the first nine months of 2007 was 38.71% while the effective tax rate for the first nine months of 2006 was 37.52%.

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 student loans, residential mortgage loans, and SBA loans, and available for sale investments. Additional sources of liquidity, including cash flow from the repayment of loans and the sale of participations in outstanding loans, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of deposits, reductions in liquid assets, and accessibility to the capital and money markets. These funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans, and operate the organization.

Southwest, Stillwater National, SNB Wichita, and SNB Kansas have available various forms of short-term borrowings for cash management and liquidity purposes. These forms of borrowings include federal funds purchased, securities sold under agreements to repurchase, and borrowings from the Federal Reserve Bank (“FRB”), the Student Loan Marketing Association (“Sallie Mae”), the Federal Home Loan Bank of Topeka (“FHLB”), and an unaffiliated commercial bank.

Stillwater National also carries interest-bearing demand notes issued by the U.S. Treasury in connection with the Treasury Tax and Loan note program; the outstanding balance of those notes was $1.3 million at September 30, 2007. Stillwater National has approved federal funds purchase lines totaling $370.0 million with twelve banks; $90.5 million was outstanding on these lines at September 30, 2007. Stillwater National has available a $403.1 million line of credit and SNB Wichita has a $20.3 million line of credit from the FHLB. Borrowings under the FHLB lines are secured by investment securities and loans. At September 30, 2007, the Stillwater National FHLB line of credit had an outstanding balance of $36.5 million and the SNB Wichita line of credit had no amount outstanding. Previously Stillwater National had available a line of credit from Sallie Mae, with borrowings secured by student loans. However, the Sallie Mae line expired April 30, 2007. In conjunction with the Sallie Mae consolidation loan program, a new agreement with a limit of $75 million became effective March 1, 2007. The funds borrowed through this line are exclusively to be used to fund disbursements in the consolidation loan program. As of September 30, 2007, $2.0 million had been borrowed on this line of credit.

See also “Deposits and Other Borrowings” on page 23 for funds available on brokered certificate of deposit lines of credit.

Stillwater National sells securities under agreements to repurchase with Stillwater National retaining custody of the collateral. Collateral consists of U.S. government agency obligations, which are designated as pledged with Stillwater National’s safekeeping agent. These transactions are for one to four day periods. Outstanding balances under this program were $53.0 million and $53.5 million as of September 30, 2007 and 2006, respectively.

During the first nine months of 2007, the only categories of other borrowings whose averages exceeded 30% of ending shareholders’ equity were funds borrowed from the FHLB.


	September 30, 2007			September 30, 2006

	Funds			Funds
	Borrowed			Borrowed
(Dollars in thousands)	from the FHLB			from the FHLB

Amount outstanding at end of period	$	36,500		$	86,500
Weighted average rate paid at end of period		4.39	%		4.88	%
Average Balance:
For the three months ended	$	30,633		$	99,435
For the nine months ended	$	47,466		$	129,890
Average Rate Paid:
For the three months ended		4.59	%		4.99	%
For the nine months ended		4.87	%		4.72	%
Maximum amount outstanding at any month end	$	86,500		$	185,040

During the first nine months of 2007, cash and cash equivalents decreased by $27.0 million, or 47%, to $30.6 million. This decrease was the net result of cash used in investing activities of $296.2 million, (primarily from net loans originated and principal repayments), offset in part by cash provided from operating activities of $137.6 million, and cash provided by financing activities of $131.6 million.

During the first nine months of 2006, cash and cash equivalents decreased by $9.3 million, or 18%, to $41.0 million. This decrease was the net result of cash provided from financing activities of $2.9 million, (primarily from an increase in deposits, partially offset by a decline in borrowings) and cash provided from operating activities of $150.0 million, offset in part by cash used in net loan origination and other investing activities of $162.1 million.

CAPITAL RESOURCES

Bank holding companies are required to maintain capital ratios in accordance with guidelines adopted by the Federal Reserve Board (“FRB”). The guidelines are commonly known as Risk-Based Capital Guidelines. At September 30, 2007, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 11.77%, a Tier I risk-based capital ratio of 10.49%, and a leverage ratio of 10.92%. As of September 30, 2007, Stillwater National, SNB Wichita, and SNB Kansas also met the criteria for classification as “well-capitalized” institutions under the prompt corrective action rules of the Federal Deposit Insurance Act.

Designation as a well-capitalized institution under these regulations does not constitute a recommendation or endorsement of Southwest, Stillwater National, SNB Wichita, or SNB Kansas by bank or thrift regulators.

On August 27, 2007, Southwest declared a dividend of $.0925 per common share payable on October 1, 2007 to shareholders of record as of September 17, 2007.

EFFECTS OF INFLATION

The unaudited consolidated financial statements and related unaudited consolidated financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering fluctuations in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than do the effects of general levels of inflation.

* * * * * * *

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Southwest’s net income is largely dependent on its net interest income. Southwest seeks to maximize its net interest margin within an acceptable level of interest rate risk. Interest rate risk can be defined as the amount of forecasted net interest income that may be gained or lost due to favorable or unfavorable movements in interest rates. Interest rate risk, or sensitivity, arises when the maturity or repricing characteristics of assets differ significantly from the maturity or repricing characteristics of liabilities. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and shareholders’ equity.

Southwest attempts to manage interest rate risk while enhancing net interest margin by adjusting its asset/liability position. At times, depending on the level of general interest rates, the relationship between long-term and other interest rates, market conditions and competitive factors, Southwest may determine to increase its interest rate risk position in order to increase its net interest margin. Southwest monitors interest rate risk and adjusts the composition of its rate-sensitive assets and liabilities in order to limit its exposure to changes in interest rates on net interest income over time. Southwest’s asset/liability committee reviews its interest rate risk position and profitability, and recommends adjustments. The asset/liability committee also reviews the securities portfolio, formulates investment strategies, and oversees the timing and implementation of transactions. Notwithstanding Southwest’s interest rate risk management activities, the actual magnitude, direction, and relationship of future interest rates are uncertain, and can have adverse effects on net income and liquidity.

A principal objective of Southwest’s asset/liability management effort is to balance the various factors that generate interest rate risk, thereby maintaining the interest rate sensitivity of Southwest within acceptable risk levels. To measure its interest rate sensitivity position, Southwest utilizes a simulation model that facilitates the forecasting of net interest income over the next twelve month period under a variety of interest rate and growth scenarios.

The earnings simulation model uses numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows, and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate the effect of rate changes on net interest income or the economic value of equity. Actual results differ from simulated results due to timing, cash flows, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.

The balance sheet is subject to quarterly testing for six alternative interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, and 300 basis points (“bp”), although Southwest may elect not to use particular scenarios that it determines are impractical in a current rate environment. It is management’s goal to structure the balance sheet so that net interest earnings at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.

Estimated Changes in Net Interest Income



Changes in Interest Rates:	+ 300 bp			+200 bp			+100 bp			(100) bp			(200) bp			(300) bp

Policy Limit		(18.00	)%		(10.00	)%		(5.00	)%		(5.00	)%		(10.00	)%		(18.00	)%
September 30, 2007		+ 9.99	%		+ 4.35	%		+ 0.80	%		(2.24	)%		(4.73	)%		(7.19	)%
December 31, 2006		+ 12.02	%		+ 6.15	%		+ 1.96	%		(2.80	)%		(6.56	)%		(11.14	)%

The Net Interest Income at Risk position improved in all decreasing interest rate scenarios when compared to the December 31, 2006 risk position. In a rising interest rate environment, Southwest’s net interest income improves in all interest rate scenarios. When the rising interest rate scenarios are compared to December 31, 2006, the percentage of increase in net interest income declined modestly in all interest rate scenarios. All of the above measures of net interest income at risk remain well within prescribed policy limits. Although assumed unlikely by Southwest’s asset/liability committee, Southwest’s largest exposure to changes in interest rate is in the (300 bp) scenario with a measure of (7.19%) at September 30, 2007, an improvement of 3.95 percentage points from the December 31, 2006 level of (11.14%). The reduction in net interest income at risk is a result of Southwest’s asset/liability committee’s efforts to improve the stability of net interest margin due to changes in interest rates.

The measures of equity value at risk indicate the ongoing economic value of Southwest by considering the effects of changes in interest rates on all of Southwest’s cash flows, and discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in theory, approximates the fair value of Southwest’s net assets.

Estimated Changes in Economic Value of Equity (EVE)



Changes in Interest Rates:	+300 bp			+200 bp			+100 bp			(100) bp			(200) bp			(300) bp

Policy Limit		(35.00	)%		(20.00	)%		(10.00	)%		(10.00	)%		(20.00	)%		(35.00	)%
September 30, 2007		(11.45	)%		(6.10	)%		(2.18	)%		+ 0.72	%		+ 1.60	%		+ 2.63	%
December 31, 2006		(7.68	)%		(4.90	)%		(1.52	)%		+ 0.97	%		+ 1.40	%		+ 1.10	%

As of September 30, 2007, the economic value of equity measure improved in two of the three decreasing interest rate scenarios when compared to the December 31, 2006 percentages. In an increasing interest rate environment the economic value of equity decreased in all scenarios. Southwest’s largest economic value of equity exposure is the +300 bp scenario which declined 3.77 percentage points to (11.45%) on September 30, 2007 from the December 31, 2006 value of (7.68%). The economic value of equity ratio in all scenarios remains well within Southwest’s Asset and Liability Management Policy limits.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by SEC rules, Southwest’s management evaluated the effectiveness of Southwest’s disclosure controls and procedures as of September 30, 2007. Southwest’s Chief Executive Officer and Chief Financial Officer participated in the evaluation. Based on this evaluation, Southwest’s Chief Executive Officer and Chief Financial Officer concluded that Southwest’s disclosure controls and procedures were effective as of September 30, 2007.

First Nine Months 2007 Changes in Internal Control over Financial Reporting

No change occurred during the first nine months of 2007 that has materially affected, or is reasonably likely to materially affect, Southwest’s internal control over financial reporting.

NON-GAAP FINANCIAL MEASURES

None of the financial measures used in this report are defined as non-GAAP financial measures under federal securities regulations. Other banking organizations, however, may present such non-GAAP financial measures, which differ from measures based upon accounting principles generally accepted in the United States. For example, such non-GAAP measures may exclude certain income or expense items in calculating operating income or efficiency ratios, or may increase yields and margins to reflect the benefits of tax-exempt interest-earning assets. Readers of this report should be aware that non-GAAP ratios and other measures presented by some banking organizations or financial analysts may not be directly comparable to similarly named ratios or other measures used by Southwest or other banking organizations.

PART II: OTHER INFORMATION

Item 1: Legal proceedings

None

Item 1A: Risk Factors

In our annual report on Form 10-K we stated that we may be unable to recover $2.5 million in cash that an armored transportation company failed to deliver, and that failure to recover this cash could result in a loss to us that was not reflected in our 2006 financial statements. Due to our investigation, we recorded that loss in our results for the quarter ended March 31, 2007. We have not recorded an estimate of potential recoveries or insurance proceeds, however. We cannot yet reasonably estimate the amount of any such recoveries or proceeds that may ultimately result from our efforts.

There were no other material changes in risk factors during the first nine months of 2007 from those disclosed in Southwest’s Form 10-K for the year ended December 31, 2006.

Item 2: Unregistered sales of equity securities and use of proceeds

There were no unregistered sales of equity securities by Southwest during the quarter ended September 30, 2007.

There were no purchases of Southwest’s common stock by or on behalf of Southwest or any affiliated purchasers of Southwest (as defined in Securities and Exchange Commission Rule 10b-18) during the nine months ended September 30, 2007.

Item 3: Defaults upon senior securities

None

Item 4: Submission of matters to a vote of security holders

None

Item 5: Other information

None

Item 6: Exhibits


		Exhibit 31(a),(b)		Rule 13a-14(a)/15d-14(a) Certifications

		Exhibit 32(a),(b)		18 U.S.C. Section 1350 Certifications


PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Financial Condition at September 30, 2007 and December 31, 2006			3

Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006			4

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006			5

Unaudited Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2007			6

Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2007 and 2006			7

Notes to Unaudited Consolidated Financial Statements			8

ITEM 2. MANGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36

ITEM 4. CONTROLS AND PROCEDURES			37

PART II. OTHER INFORMATION			39

SIGNATURES			40
EX-31.A: CERTIFICATION
EX-31.B: CERTIFICATION
EX-32.A: CERTIFICATION
EX-32.B: CERTIFICATION


	For the three months						For the nine months
	ended September 30,						ended September 30,
(Dollars in thousands)	2007			2006			2007			2006

Net income	$	5,516		$	6,639		$	16,857		$	19,544

Other comprehensive income:
Unrealized holding gain on available for sale securities		1,947			3,437			4,752			1,385
Reclassification adjustment for (gains) losses arising during the period		(108	)		(60	)		(1,579	)		274

Other comprehensive income, before tax		1,839			3,377			3,173			1,659
Tax expense related to items of other comprehensive income		(673	)		(1,310	)		(1,226	)		(643	)

Other comprehensive income, net of tax		1,166			2,067			1,947			1,016

Comprehensive income	$	6,682		$	8,706		$	18,804		$	20,560



SOUTHWEST BANCORP, INC.
(Registrant)


By:	/s/ Rick Green Rick Green	November 6, 2007 Date
	President and Chief Executive Officer
	(Principal Executive Officer)

By:	/s/ Kerby Crowell Kerby Crowell	November 6, 2007 Date
	Executive Vice President, Chief Financial
	Officer and Secretary
	(Principal Financial Officer)

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