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EX-99.A - EX-99.A - SOUTHWEST BANCORP INCy83148exv99wa.htm
Table of Contents

 
 
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2009
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
incorporation or organization)
  (I.R.S. Employer Identification No.)
     
608 South Main Street, Stillwater,Oklahoma
(Address of principal executive office)
  74074
(Zip Code)
Registrant’s telephone number, including area code: (405) 742-1800
Securities registered pursuant to Section 12(b) of the Act:
     
Title of Each Class   Name of Each Exchange on which Registered
     
Common Stock, par value $1.00 per share   The NASDAQ Stock Market
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o YES      þ NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o YES      þ NO*
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o YES      o NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by a check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o Accelerated filer þ  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company 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
The registrant’s Common Stock is traded on the NASDAQ Global Select Market under the symbol OKSB. The aggregate market value of approximately 13,671,233 shares of Common Stock of the registrant issued and outstanding held by nonaffiliates on June 30, 2009, the last day of the registrant’s most recently completed second fiscal quarter, was approximately $133.4 million based on the closing sales price of $9.76 per share of the registrant’s Common Stock on that date. Solely for purposes of this calculation, it is assumed that directors, officers, and 5% stockholders of the registrant (other than institutional investors) are affiliates.
As of the close of business on March 1, 2010, 14,779,778 shares of the registrant’s Common Stock were outstanding.
Documents Incorporated by Reference
Part III:    Portions of the definitive proxy statement for the Annual Meeting of Shareholders to be held on April 22, 2010 (the “Proxy Statement”).
*The registrant is required to file reports pursuant to Section 13 of the Act.
 
 

 


 

SOUTHWEST BANCORP, INC.
         
Index
 
       
  ii  
 
       
  ii  
 
       
  iv  
 
       
  iv  
 
       
    1  
 
       
    3  
 
       
    5  
 
       
    30  
 
       
    31  
 
       
    33  
 
       
    38  
 
       
    73  
 
       
    73  
 
       
    83  
 
       
    84  
 
       
    87  
 
       
    94  
 
       
    97  
 
       
    100  
 EX-21
 EX-23
 EX-24
 EX-31.A
 EX-31.B
 EX-32.A
 EX-32.B
 EX-99.A
 EX-99.B

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FORWARD-LOOKING STATEMENTS
Southwest Bancorp, Inc. (“Southwest”) makes forward-looking statements in this Annual Report on Form 10-K that are subject to risks and uncertainties. These forward-looking statements include: 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 interest rate risk; estimates of value of acquired assets, deposits, and other liabilities; 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 and 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. Please see the discussion of Risk Factors on page 87 and Critical Accounting Policies on page 28.
SOUTHWEST BANCORP, INC.
Form 10-K Cross Reference Sheet of Material Incorporated by Reference
The following table shows the location in this Annual Report on Form 10-K or the accompanying Proxy Statement of the information required to be disclosed by the United States Securities and Exchange Commission (“SEC”) Form 10-K. Where indicated below, information has been incorporated by reference in this Report from the Proxy Statement that accompanies it. Other portions of the Proxy Statement are not included in this Report. This Report is not part of the Proxy Statement. References are to pages in this report unless otherwise indicated.
         
                         Item of Form 10-K   Location
Part I
       
Item 1.
  Business   “Forward-Looking Statements” on page ii, “Southwest Bancorp, Inc.” on page iv, “About this Report” on page iv, and “Business” on pages 73 through 82.
Item 1A.
  Risk Factors   “Risk Factors” on pages 87 through 91.
Item 1B.
  Unresolved Staff Comments   None.
Item 2.
  Properties   “Properties” on pages 94 through 96.
Item 3.
  Legal Proceedings   Note 18 “Commitments and Contingencies” on page 66.
Item 4.
  Submission of Matters to a Vote of Security Holders   Not applicable. No matter was submitted to a vote of security holders during the fourth quarter of 2009.
 
       
PART II
       
Item 5.
  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities   “Securities Listing, Prices, and Dividends” on page 3.
Item 6.
  Selected Financial Data   “Five Year Summary of Selected Financial Data” on pages 1 and 2.
Item 7.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations   “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 5 through 30.
Item 7A.
  Quantitative and Qualitative Disclosures about Market Risk   The section titled “Asset/Liability Management Quantitative and Qualitative Disclosures about Market Risk” on pages 24 through 26.
Item 8.
  Financial Statements and Supplementary Data   Pages 33 through 72

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Table of Contents

         
                         Item of Form 10-K   Location
Item 9.
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures   Not applicable. During the past two years or any subsequent period there has been no change in or reportable disagreement with the independent registered public accounting firm for Southwest or any of its subsidiaries.
Item 9A.
  Controls and Procedures   “Controls and Procedures” on page 30.
Item 9B.
  Other Information   Not applicable. The registrant reported all items required to be reported in a Form 8-K during the fourth quarter of 2009.
Part III
       
Item 10.
  Directors, Executive Officers and Corporate Governance   The material labeled “Election of Directors” on pages 3 through 6 , “Board Meetings and Committee” on pages 6 through 10, “Section 16(a) Beneficial Ownership Reporting Compliance” on page 29, “Code of Ethics” on page 33, “Shareholder Proposals and Communications” on page 33, and “Report of the Audit Committee” on page 30 of the Proxy Statement is incorporated by reference in this Report.
Item 11.
  Executive Compensation   The material labeled “Director Compensation” on page 12, “Executive Compensation” on pages 24 through 27, “Compensation Discussion and Analysis” on pages 15 through 22, and “Compensation Committee Report” on page 23 of the Proxy Statement is incorporated by reference in this Report.
Item 12.
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   The material labeled “Common Stock Owned by Directors and Executive Officers” on pages 13 and 14 and “Owners of More than 5% of Southwest’s Common Stock” on page 14 of the Proxy Statement is incorporated by reference in this Report. Information regarding securities authorized for issuance under equity compensation plans is included under “Equity Compensation Plan Information” on page 4 of this report.
Item 13.
  Certain Relationships and Related Transactions and Director Independence   The material labeled “Director Independence” on pages 10 through 11, and “Certain Transactions” on pages 28 and 29 of the Proxy Statement is incorporated by reference in this Report.
Item 14.
  Principal Accountant Fees and Services   The material labeled “Relationship with Independent Public Accountants” on pages 29 and 30 of the Proxy Statement is incorporated by reference in this Report.
Part IV
       
Item 15.
  Exhibits, Financial Statement Schedules    

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Southwest Bancorp, Inc.
Southwest Bancorp, Inc. (“Southwest”) is the bank holding company for the Stillwater National Bank and Trust Company (“Stillwater National”) and Bank of Kansas. Through its subsidiaries, Southwest offers commercial and consumer lending, deposit and investment services, and specialized cash management and other financial services from offices in Oklahoma, Texas, and Kansas, and on the internet through SNB DirectBanker®.
Southwest focuses on converting its strategic vision into long-term shareholder value. Our vision includes a commercial banking model and a community banking model focused on more traditional banking operations in our three-state market.
Southwest’s banking philosophy has led to the development of a line of deposit, lending, and other financial products that respond to professional and commercial customers’ needs for speed, efficiency, and information and complement more traditional banking products. Southwest has developed a highly automated lockbox, imaging, and information service for commercial customers called “SNB Digital Lockbox”, and deposit products that automatically sweep excess funds from commercial demand deposit accounts and invest them in interest bearing funds. Other 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.
Southwest maintains close relationships with businesses, professionals, and their principals to fulfill their banking needs throughout their business development and professional lives.
Southwest was organized in 1981 as the holding company for Stillwater National, which was chartered in 1894. Southwest became a public company in late 1993 with assets of approximately $434.0 million. At December 31, 2009, Southwest had total assets of $3.1 billion, deposits of $2.6 billion, and shareholders’ equity of $309.8 million.
Southwest’s common stock is traded on the NASDAQ Global Select Market under the symbol OKSB. Southwest Capital Trust II’s public offering of trust preferred securities are traded on the NASDAQ Global Select Market under the symbol OKSBP.
About This Report
This report comprises the entire 2009 Form 10-K, other than exhibits, as filed with the SEC. The 2009 annual report to shareholders, including this report, and the annual proxy materials for the 2010 annual meeting are being distributed together to shareholders. Copies of exhibits and additional copies of the Form 10-K can be obtained free of charge by writing to Kerby E. Crowell, Executive Vice President, Chief Financial Officer and Secretary, Southwest Bancorp, Inc., P.O. Box 1988, Stillwater, OK 74076. This report is provided along with the annual proxy statement for convenience of use and to decrease costs, but is not part of the proxy materials.
The SEC has not approved or disapproved this Report or passed upon its accuracy or adequacy.

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FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
The following table presents Southwest’s selected consolidated financial data for each of the five years in the period ended December 31, 2009. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of Southwest, including the accompanying Notes, presented elsewhere in this report.
                                         
    For the Year Ended December 31,
(Dollars in thousands, except per share data)   2009   2008   2007   2006   2005
 
Operations Data
                                       
Interest income
  $ 150,399     $ 162,794     $ 177,068     $ 169,760     $ 137,344  
Interest expense
    51,708       73,075       84,471       76,808       52,115  
 
Net interest income
    98,691       89,719       92,597       92,952       85,229  
Provision for loan losses
    39,176       18,979       8,947       12,187       16,155  
Gain on sales of loans and securities, net (1)
    5,888       3,566       4,923       3,689       4,915  
Noninterest income (2)
    16,048       12,572       11,510       12,973       12,368  
Noninterest expense (3)
    60,858       62,488       65,108       56,021       51,503  
 
Income before taxes
    20,593       24,390       34,975       41,406       34,854  
Taxes on income
    7,611       9,489       13,597       15,409       13,840  
 
Net income
  $ 12,982     $ 14,901     $ 21,378     $ 25,997     $ 21,014  
 
 
                                       
Net income available to common shareholders
  $ 8,837     $ 14,658     $ 21,378     $ 25,997     $ 21,014  
 
 
                                       
Dividends
                                       
Preferred Stock
  $ 3,500     $ 243     $     $     $  
Common stock
    1,398       5,519       5,299       4,681       4,035  
Ratio of total dividends to net income
    37.73 %     38.67 %     24.79 %     18.00 %     19.20 %
Per Share Data
                                       
Basic earnings per common share
  $ 0.60     $ 1.01     $ 1.49     $ 1.84     $ 1.60  
Diluted earnings per common share
    0.60       1.00       1.46       1.79       1.55  
Common stock cash dividends
    0.0952       0.3800       0.3700       0.3300       0.3000  
Book value per common share (4)
    16.46       16.18       15.16       13.87       12.16  
Weighted average common shares outstanding:
                                       
Basic, net of unvested restricted stock
    14,625,847       14,471,242       14,291,041       14,151,624       13,155,742  
Diluted, net of unvested restricted stock
    14,689,517       14,641,521       14,606,149       14,483,941       13,559,885  
Financial Condition Data (4)
                                       
Investment securities
  $ 263,439     $ 264,166     $ 256,608     $ 270,519     $ 268,763  
Noncovered portfolio loans (5)
    2,539,294       2,494,506       2,145,557       1,602,726       1,352,433  
Loans held for sale (5)
    43,134       56,941       66,275       188,464       383,447  
Total noncovered loans (5) (6)
    2,582,428       2,551,447       2,211,832       1,791,190       1,735,880  
Covered portfolio loans (7)
    85,405                          
Interest-earning assets
    2,933,856       2,817,496       2,478,429       2,079,380       2,007,248  
Total assets
    3,108,291       2,879,762       2,564,298       2,170,628       2,099,639  
Interest-bearing deposits
    2,267,901       1,918,181       1,801,512       1,511,196       1,433,265  
Total deposits
    2,592,730       2,180,122       2,058,579       1,765,611       1,657,820  
Other borrowings
    103,022       295,138       218,356       138,094       204,508  
Subordinated debentures
    81,963       81,963       46,393       46,393       46,393  
Total shareholders’ equity (8)
    309,778       302,203       217,609       197,510       170,444  
Common shareholders’ equity
    242,741       235,811       217,609       197,510       170,444  
Mortgage servicing portfolio
    237,459       158,143       141,680       135,904       133,470  
Selected Ratios
                                       
Return on average assets
    0.43 %     0.54 %     0.94 %     1.18 %     1.01 %
Return on average total shareholders’ equity
    4.20       6.40       10.19       13.99       13.78  
Return on average common equity
    3.65       6.44       10.19       13.99       13.78  
Tangible common equity to tangible assets
    7.61       7.96       8.23       9.05       8.11  
Net interest margin
    3.38       3.36       4.20       4.42       4.30  
Efficiency ratio (9)
    50.45       59.03       59.72       51.11       50.24  
Average assets per employee (10)
  $ 6,411     $ 6,206     $ 4,661     $ 5,117     $ 5,448  

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SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
                                         
    At December 31,
(Dollars in thousands, except per share data)   2009   2008   2007   2006   2005
 
Asset Quality Ratios
                                       
Allowance for loan losses (4)
  $ 62,413     $ 39,773     $ 29,584     $ 27,293     $ 23,812  
Allowance for loan losses to noncovered portfolio loans
    2.46 %     1.59 %     1.38 %     1.70 %     1.76 %
Noncovered nonperforming loans (4) (11)
  $ 106,197     $ 63,983     $ 29,571     $ 29,357     $ 23,585  
Noncovered nonperforming loans to noncovered portfolio loans
    4.18 %     2.56 %     1.38 %     1.83 %     1.74 %
Allowance for loan losses to noncovered nonperforming loans
    58.77       62.16       100.04       92.97       100.96  
Noncovered nonperforming assets (4) (12)
  $ 124,629     $ 70,075     $ 32,250     $ 31,230     $ 30,715  
Noncovered nonperforming assets to noncovered portfolio loans and noncovered other real estate
    4.87 %     2.80 %     1.50 %     1.95 %     2.26 %
Net noncovered loan charge-offs (4)
  $ 16,754     $ 8,790     $ 6,656     $ 8,706     $ 11,334  
Net noncovered loan charge-offs to average noncovered portfolio loans
    0.64 %     0.37 %     0.37 %     0.59 %     0.87 %
Covered nonperforming loans (4) (7) (11)
  $ 13,458                          
Covered nonperforming loans to covered portfolio loans
    15.76 %                        
Covered nonperforming assets (4) (7) (12)
  $ 18,206                          
Covered nonperforming assets to covered portfolio loans and covered other real estate
    20.19 %                        
Capital Ratios
                                       
Average shareholders’ equity to average assets
                                       
Total
    10.34       8.49       9.21       8.47       7.34  
Common
    8.11       8.30       9.21       8.47       7.34  
Tier I capital to risk-weighted assets (4) (13)
    13.28       13.01       9.71       12.25       12.95  
Total capital to risk-weighted assets (4) (13)
    14.55       14.26       10.97       13.50       14.21  
Leverage ratio (4) (13)
    12.42       13.06       10.23       10.91       10.24  
 
(1)   Gain on sales includes $1.2 million gain due to the redemption of certain VISA USA common shares in 2008 and a $1.9 million gain on a partial disposition of an equity security in 2007. Please see Note 19 to the Consolidated Financial Statements.
 
(2)   Noninterest income in 2009 includes $3.3 million resulting from the gain on acquisition related to the FDIC-assisted acquisition. Please see Note 2 to the Consolidated Financial Statements.
 
(3)   Noninterest expenses in 2007 include $3.3 million resulting from the ATM-related write-off and associated legal fees and $713,000 in litigation and settlement costs related to VISA USA. Please see Note 19 to the Consolidated Financial Statements.
 
(4)   At period end.
 
(5)   Net of unearned discounts but before deduction of allowance for loan losses.
 
(6)   Total loans include loans held for sale.
 
(7)   These loans are covered by the FDIC loss share agreements, including the amount of expected reimbursements from the FDIC, and are shown net of unearned discounts. Please see Note 2 to the Consolidated Financial Statements.
 
(8)   Reflects the issuance of preferred stock in 2008 and the common stock offering and repurchases of common shares in 2005. Please see “Capital Resources” on page 22 and Note 11 to the Consolidated Financial Statements.
 
(9)   The efficiency ratio = noninterest expenses / (net interest income + total noninterest income) as shown on the Consolidated Statements of Operations.
 
(10)   Ratio = average assets for year divided by the number of full-time equivalent employees at year-end.
 
(11)   Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more, and loans with restructured terms.
 
(12)   Nonperforming assets consist of nonperforming loans and other real estate owned.
 
(13)   2008 reflects the effects of capital raised through the sale of securities. Please see Notes 9 and 11 to the Consolidated Financial Statements.

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SECURITIES LISTING, PRICES, AND DIVIDENDS
Stock Listing
Common shares of Southwest Bancorp, Inc. are traded on the National Association of Security Dealers (NASDAQ) Global Select Market under the symbol OKSB.
Trust preferred securities of Southwest Capital Trust II are traded on the NASDAQ Global Select Market under the symbol OKSBP.
Transfer Agents and Registrars
     
For Southwest Bancorp, Inc.:
  For Southwest Capital Trust II:
Computershare Investor Services, LLC
  U.S. Bank Trust National Association
2 North LaSalle St.
  300 East Delaware Avenue
Chicago, IL 60602
  Wilmington, DE 19801
Recent Stock Prices, Dividends, and Equity Compensation Plan Information
Shareholders received quarterly cash dividends totaling $2.4 million in 2009 and $5.5 million in 2008.
The Board of Directors decides whether or not to pay dividends on common stock, and the amount of any such dividends, each quarter. In making its decision on dividends, the Board considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns, and other factors. The ability of Southwest to pay dividends depends upon regulatory approval and cash resources which includes dividend payments from its subsidiaries. For information regarding the ability of Stillwater National and Bank of Kansas to pay dividends to Southwest and the restrictions on bank dividends under federal banking laws, see “Note 13 Capital Requirements & Regulatory Matters” to the Consolidated Financial Statements on page 61 of this report, “Certain Regulatory Matters” on page 27 of this report, and “Risk Factors” beginning on page 87 of this report.
Shares issued under the employee stock purchase plan, which commenced on January 1, 1996, totaled 8,158 in 2009 and 6,221 in 2008, while issuances pursuant to the stock option plans were 164,895 and 193,758 in the respective years.
As of March 1, 2010, there were approximately 5,400 holders of record of Southwest’s common stock. The following table sets forth the common stock dividends declared for each quarter during 2009 and 2008, and the range of high and low closing trade prices for the common stock for those periods.
                                                 
    2009   2008
                    Dividend                   Dividend
    High   Low   Declared   High   Low   Declared
         
For the Quarter Ending:
                                               
March 31
  $ 12.51     $ 5.48     $ 0.0238     $ 18.52     $ 14.08     $ 0.0950  
June 30
    10.50       6.47       0.0238       18.29       11.49       0.0950  
September 30
    14.70       8.71       0.0238       23.53       9.83       0.0950  
December 31
    14.00       6.12       0.0238       19.55       11.16       0.0950  

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The following table compares the cumulative total return on a hypothetical investment of $100 in Southwest’s common stock at the closing price on December 31, 2004 through December 31, 2009, with the hypothetical cumulative total return on the NASDAQ Stock Market Index (U.S. Companies) and the NASDAQ Bank Index for the comparable period.
(PERFORMANCE GRAPH)
                                                                 
                                         
        12/31/04     12/31/05     12/31/06     12/31/07     12/31/08     12/31/09  
                                         
 
Southwest
    $ 100       $ 83       $ 117       $ 78       $ 57       $ 31    
                                         
 
NASDAQ Bank Index
      100         98         110         87         63         53    
                                         
 
NASDAQ Stock Market Index (U.S.)
      100         102         112         122         59         84    
                                         
The following table presents disclosure regarding equity compensation plans in existence at December 31, 2009, consisting of the 1994 stock option plan, the 1999 stock option plan (both expired but having outstanding options that may still be exercised), and the 2008 stock based award plan, all of which were approved by the shareholders.
Equity Compensation Plan Information
                         
                    Number of securities
    Number of securities           available for future
    to be issued upon   Weighted average   issuance under equity
    exercise of   exercise price of   compensation plans
    outstanding options   outstanding options,   excluding securities
    warrants and rights   warrants and rights   reflected in column (a)
Plan category   (a)   (b)   (c)
Plans approved by shareholders
    379,324     $ 20.98       773,600  
Plans not approved by shareholders
    0       0       0  
Total
    379,324     $ 20.98       773,600  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
In 2009, Southwest Bancorp, Inc.’s (“Southwest”) loans, deposits, and assets reached their highest levels in our history. Southwest’s shareholders’ equity increased as a result of current year results of operations. Southwest’s net income declined primarily as a result of increased provision for loan losses.
    Net income available to common shareholders for 2009 was $8.8 million, down from $14.7 million in 2008 and from $21.4 million in 2007.
 
    Diluted earnings per common share decreased to $0.60 in 2009, compared to $1.00 in 2008 and $1.46 in 2007.
 
    Total loans grew to $2.67 billion at December 31, 2009, compared to $2.55 billion at December 31, 2008 and $2.21 billion at December 31, 2007.
 
    Total deposits grew to $2.59 billion at December 31, 2009, compared to $2.18 billion at December 31, 2008 and $2.06 billion at December 31, 2007.
 
    Total shareholders’ equity at year-end 2009 increased 3% to $309.8 million, compared to $302.2 million for 2008 and $217.6 million for 2007.
 
    Total assets at year-end 2009 increased 8%, ending the year at $3.11 billion, compared to $2.88 billion at year-end 2008 and $2.56 billion at year-end 2007.
 
    Portfolio loans at year-end 2009 increased by $130.2 million, or 5%, to $2.62 billion at December 31, 2009, compared to $2.49 billion at December 31, 2008 and $2.15 billion at December 31, 2007.
On June 19, 2009, Bank of Kansas entered into a purchase and assumption agreement with loss share with the Federal Deposit Insurance Corporation (“FDIC”) to acquire deposits, loans, and certain other liabilities and assets of First National Bank of Anthony, Anthony, Kansas (“FNBA”), in an FDIC-assisted transaction. FNBA was a full service commercial bank that had been placed in receivership with the FDIC. Bank of Kansas acquired assets with a fair value of approximately $149.8 million, including $117.1 million of loans, $20.6 million of investment securities, $6.0 million of cash and cash equivalents, $2.9 million in other real estate owned (“OREO”), and $157.7 million in liabilities, including $135.0 million of deposits and $21.7 million of FHLB advances. Bank of Kansas recorded a core deposit intangible asset of $2.0 million and received a cash payment from the FDIC of approximately $11.1 million. Bank of Kansas entered into loss share agreements with the FDIC and recorded a loss share receivable of $33.1 million. Loans covered under the loss share agreements, including the amount of expected reimbursement from the FDIC, are reported in loans and referred to as “covered” loans. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. The transaction resulted in a gain on acquisition of $3.3 million, which is included in noninterest income.
This transaction provides Southwest with five additional banking offices in Kansas. Please see “Note 2 Acquisitions” to the Consolidated Financial Statements on page 43 for additional information related to the details of the transaction.
Southwest Bancorp continues a strategic focus on building long-term shareholder value. As explained further in this report, the 2009 decrease in our earnings is linked to current economic conditions that have required increases in our allowance for loan losses. Consistent with our strategy, in the face of these conditions, we took important steps that we believe will make Southwest better positioned both now and when the economy improves. These include:
    An emphasis on prudent lending in carefully selected markets in Texas, Oklahoma, and Kansas. We reduced our growth rate in portfolio loans to 5% in 2009, of which 3% is attributable to the FDIC-assisted transaction. At year-end, Texas and Kansas together accounted for over half of portfolio loans. Southwest has had a traditional focus on commercial real estate loans. We will continue to make commercial real estate loans, but have determined to reduce our concentration in them in light of economic conditions.

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    A focus on capital to support lending and other activities. At December 31, 2009, our capital levels substantially exceed all regulatory capital requirements and the amounts necessary to qualify as “well capitalized” for regulatory purposes. Please see “Note 13 Capital Requirements & Regulatory Matters” to the consolidated financial statements on page 61.
Results of Operations
For the year ended December 31, 2009, Southwest reported net income of $13.0 million, a $1.9 million, or 13%, decrease from the $14.9 million earned in 2008. Basic earnings per common share decreased by 41% to $0.60 per share for 2009 from $1.01 per share for 2008. Diluted earnings per common share decreased by 40% to $0.60 per share for 2009 from $1.00 per share for 2008.
For the year ended December 31, 2008, Southwest reported net income of $14.9 million, a $6.5 million, or 30%, decrease from the $21.4 million earned in 2007. Basic earnings per common share decreased by 32% to $1.01 per share for 2008 from $1.49 per share for 2007. Diluted earnings per common share decreased by 32% to $1.00 per share for 2008 from $1.46 per share for 2007.
For the year ended December 31, 2007, Southwest reported net income of $21.4 million, a $4.6 million, or 18%, decrease from the $26.0 million earned in 2006. Basic earnings per common share decreased by 19% to $1.49 per share for 2008 from $1.84 per share for 2006. Diluted earnings per common share decreased by 18% to $1.46 per share for 2008 from $1.79 per share for 2006.
These factors are discussed in more detail in the sections that follow.

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Summary of Annual Changes in Selected Consolidated Financial Data
The following table presents selected consolidated financial data for the years 2009, 2008, and 2007 and the annual changes between those years.
                                                 
            2009 Change           2008 Change           2007 Change
(Dollars in thousands, except per share data)   2009   From 2008   2008   From 2007   2007   From 2006
 
 
Operations Data
                                               
Interest income
  $ 150,399     $ (12,395 )   $ 162,794     $ (14,274 )   $ 177,068     $ 7,308  
Interest expense
    51,708       (21,367 )     73,075       (11,396 )     84,471       7,663  
 
Net interest income
    98,691       8,972       89,719       (2,878 )     92,597       (355 )
Provision for loan losses
    39,176       20,197       18,979       10,032       8,947       (3,240 )
Gain on sales of loans and securities, net
    5,888       2,322       3,566       (1,357 )     4,923       1,234  
Noninterest income
    16,048       3,476       12,572       1,062       11,510       (1,463 )
Noninterest expense
    60,858       (1,630 )     62,488       (2,620 )     65,108       9,087  
 
Income before taxes
    20,593       (3,797 )     24,390       (10,585 )     34,975       (6,431 )
Taxes on income
    7,611       (1,878 )     9,489       (4,108 )     13,597       (1,812 )
 
Net income
  $ 12,982     $ (1,919 )   $ 14,901     $ (6,477 )   $ 21,378     $ (4,619 )
 
Net income available to common shareholders
  $ 8,837     $ (5,821 )   $ 14,658     $ (6,720 )   $ 21,378     $ (4,619 )
 
 
                                               
Per Share Data
                                               
Basic earnings per common share
  $ 0.60     $ (0.41 )   $ 1.01     $ (0.48 )   $ 1.49     $ (0.35 )
Diluted earnings per common share
    0.60       (0.40 )     1.00       (0.46 )     1.46       (0.33 )
Financial Condition Data — Averages
                                               
Investment securities
  $ 245,456     $ 6,803     $ 238,653     $ (38,610 )   $ 277,263     $ 6,241  
Total loans
    2,667,771       238,642       2,429,129       506,262       1,922,867       91,871  
Interest-earning assets
    2,919,040       247,404       2,671,636       466,370       2,205,266       99,906  
Total assets
    2,987,470       244,571       2,742,899       463,474       2,279,425       84,330  
Interest-bearing deposits
    2,108,844       227,759       1,881,085       285,719       1,595,366       97,233  
Total deposits
    2,394,028       244,173       2,149,855       310,030       1,839,825       112,012  
Other borrowings
    181,682       (92,424 )     274,106       112,422       161,684       (52,993 )
Subordinated debentures
    81,963       17,899       64,064       17,671       46,393        
Total shareholders’ equity
    308,952       76,121       232,831       22,946       209,885       24,068  
Selected Ratios
                                               
Return on average assets
    0.43 %     (0.11 )%     0.54 %     (0.40 )%     0.94 %     (0.24 )%
Return on average total shareholders’ equity
    4.20       (2.20 )     6.40       (3.79 )     10.19       (3.80 )
Return on average common equity
    3.65       (2.79 )     6.44       (3.75 )     10.19       (3.80 )
Net interest margin
    3.38       0.02       3.36       (0.84 )     4.20       (0.22 )
Asset Quality Ratios
                                               
Noncovered
                                               
Allowance for loan losses to portfolio loans
    2.46 %     0.87 %     1.59 %     0.21 %     1.38 %     (0.32 )%
Nonperforming loans to portfolio loans
    4.18       1.62       2.56       1.18       1.38       (0.45 )
Allowance for loan losses to nonperforming loans
    58.77       (3.39 )     62.16       (37.88 )     100.04       7.07  
Nonperforming assets to portfolio loans and other real estate owned
    4.87       2.07       2.80       1.30       1.50       (0.45 )
Net loan charge-offs to average portfolio loans
    0.64       0.28       0.36       0.01       0.35       (0.13 )
Covered
                                               
Nonperforming loans to portfolio loans
    15.76       15.76                          
Nonperforming assets to portfolio loans and other real estate owned
    20.19       20.19                          

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Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is Southwest’s largest source of revenue representing 82% of total revenue in 2009. Net interest margin is net interest income as a percentage of average earning assets for the period. Net interest income and net interest margin increase or decrease as a result of changes in the levels of interest rates, the volume and the mix of earning assets and interest-bearing liabilities, and the percentage of interest-earning assets funded by noninterest-bearing funding sources.
Net interest income for 2009 was $98.7 million, an increase of $9.0 million, or 10%, from the $89.7 million earned in 2008. The net interest margin was 3.38% for the year ended December 31, 2009, an increase of two basis points from 2008.
The 2009 increase in net interest income and net interest margin from 2008 is the result of a one-time recovery of $1.9 million in interest from the successful resolution of a nonperforming loan. Net interest margin would have been 6 basis points lower without this recovery. Also included in net interest income is the recognition of discount income of $822,000 due to prepayment and collection of loans acquired in the FNBA transaction in excess of the recorded value at the date of the acquisition. This increased net margin by 3 basis points.
For further analysis of asset sensitivity please see tables showing the effects of changes in interest rates and changes in the volume of interest related assets and liabilities on page 9 of this report and the discussion of Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk on pages 24 through 26 of this report.
The table on the next page provides information relating to Southwest’s average consolidated statements of financial condition and reflects the interest income on interest-earning assets, interest expense of interest-bearing liabilities, and the average yields earned and rates paid for the periods indicated. Yields and rates are derived by dividing income or expense reflected in the Consolidated Statements of Operations by the average daily balance of the related assets or liabilities, respectively, for the periods presented. Nonaccrual loans have been included in the average balances of total loans.
The changes in the composition of interest-earning assets and their funding sources reflect market demand and management’s efforts to maximize net interest margin while controlling interest rate, credit, and other risks.

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Consolidated Average Balances, Yields and Rates
                                                                         
    For the Year Ended December 31,
 
(Dollars in thousands)   2009           2008                   2007    
 
    Average           Yield/   Average           Yield/   Average           Yield/
    Balance   Interest   Rate(1)   Balance   Interest   Rate (1)   Balance   Interest   Rate (1)
     
Assets
                                                                       
Total loans and leases (3)
  $ 2,667,771     $ 141,239       5.29 %   $ 2,429,129     $ 152,719       6.29 %   $ 1,922,867     $ 165,759       8.62 %
Investment securities
    245,456       9,146       3.73       238,653       9,986       4.18       277,263       11,055       3.99  
Other interest-earning assets
    5,813       14       0.24       3,854       89       2.31       5,136       254       4.95  
                                 
Total interest-earning assets
    2,919,040       150,399       5.15       2,671,636       162,794       6.09       2,205,266       177,068       8.03  
Other assets
    68,430                       71,263                       74,159                  
 
Total assets
  $ 2,987,470                     $ 2,742,899                     $ 2,279,425                  
 
 
                                                                       
Liabilities and Shareholders’ Equity
                                                                       
Interest-bearing demand deposits
  $ 83,813     $ 476       0.57 %   $ 75,950     $ 584       0.77 %   $ 62,038     $ 355       0.57 %
Money market accounts
    485,383       4,954       1.02       538,148       12,620       2.35       449,266       19,664       4.38  
Savings accounts
    21,010       78       0.37       13,930       69       0.50       12,274       87       0.71  
                                 
Time deposits
    1,518,638       36,811       2.42       1,253,057       47,749       3.81       1,071,788       53,033       4.95  
Total interest-bearing deposits
    2,108,844       42,319       2.01       1,881,085       61,022       3.24       1,595,366       73,139       4.58  
Other borrowings
    181,682       4,049       2.23       274,106       7,242       2.64       161,684       7,555       4.67  
Subordinated debentures
    81,963       5,340       6.52       64,064       4,811       7.51       46,393       3,777       8.14  
                                 
Total interest-bearing liabilities
    2,372,489       51,708       2.18       2,219,255       73,075       3.29       1,803,443       84,471       4.68  
                                     
Noninterest-bearing demand deposits
    285,184                       268,770                       244,459                  
Other liabilities
    20,845                       22,043                       21,638                  
Shareholders’ equity
    308,952                       232,831                       209,885                  
 
Total liabilities and shareholders’ equity
  $ 2,987,470                     $ 2,742,899                     $ 2,279,425                  
 
Net interest income
          $ 98,691                     $ 89,719                     $ 92,597          
 
Interest rate spread
                    2.97 %                     2.80 %                     3.35 %
 
Net interest margin (2)
                    3.38 %                     3.36 %                     4.20 %
 
Ratio of average interest- earning assets to average interest-bearing liabilities
                    123.04 %                     120.38 %                     122.28 %
 
(1)   Yields, interest rate spreads, and net interest margins are calculated using income recorded in accordance with U.S. generally accepted accounting principles (“GAAP”) and are not shown on the higher, non-GAAP tax-equivalent basis.
 
(2)   Net interest margin = net interest income / total average interest-earning assets.
 
(3)   Information regarding noncovered and covered loans for the period shown is not readily available.
The following table analyzes changes in interest income and interest expense of Southwest for the periods indicated. Information is provided on changes attributable to changes in average volumes and changes in rates for each category of interest-earning asset and interest-bearing liability.

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Effect of Volume and Rate Changes on Net Interest Income
                                                 
    2009 vs. 2008   2008 vs. 2007
 
    Increase   Due to Change   Increase   Due to Change
    Or   In Average:   Or   In Average:
(Dollars in thousands)   (Decrease)   Volume   Rate   (Decrease)   Volume   Rate
 
Interest earned on:
                                               
Loans receivable (1) (2)
  $ (11,480 )   $ 14,095     $ (25,575 )   $ (13,040 )   $ 37,817     $ (50,857 )
Investment securities
    (840 )     278       (1,118 )     (1,069 )     (1,596 )     527  
Other interest-earning assets
    (75 )     31       (106 )     (165 )     (53 )     (112 )
                                         
Total interest income
    (12,395 )     14,203       (26,598 )     (14,274 )     33,228       (47,502 )
Interest paid on:
                                               
Interest-bearing demand
    (108 )     56       (164 )     229       90       139  
Money market accounts
    (7,666 )     (1,134 )     (6,532 )     (7,044 )     3,351       (10,395 )
Savings accounts
    9       29       (20 )     (18 )     11       (29 )
Time deposits
    (10,938 )     8,728       (19,666 )     (5,284 )     8,095       (13,379 )
Other borrowings
    (3,193 )     (2,181 )     (1,012 )     (313 )     3,848       (4,161 )
Subordinated debentures
    529       1,223       (694 )     1,034       1,346       (312 )
                                         
Total interest expense
    (21,367 )     4,756       (26,123 )     (11,396 )     16,948       (28,344 )
         
 
Net interest income
  $ 8,972     $ 9,447     $ (475 )   $ (2,878 )   $ 16,280     $ (19,158 )
         
(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. Changes in rate-volume (changes in rate multiplied by changes in volume) are allocated between changes in rate and changes in volume in proportion to the relative contribution of each.
 
(2)   Information regarding noncovered and covered loans for the period shown is not readily available.
Net interest income for 2009 was $98.7 million, an increase of $9.0 million, or 10%, from the $89.7 million earned in 2008. Net interest margin was 3.38% for the year ended December 31, 2009, an increase of two basis points from 2008.
Net interest income for 2008 was $89.7 million, a decrease of $2.9 million, or 3%, from the $92.6 million earned in 2007. Net interest margin was 3.36% for the year ended December 31, 2008, a decrease of eighty-four basis points from 2007.
Net interest income for 2007 was $92.6 million, a decrease of $355,000, or less than 1%, from the $93.0 million earned in 2006. Net interest margin was 4.20% for the year ended December 31, 2007, a decrease of twenty-two basis points from 2006.
Interest rate spread, which represents the difference between the rate earned on interest-earning assets and the rates paid on interest-bearing liabilities, was 2.97% for 2009, compared to 2.80% for 2008 and 3.35% for 2007.
Southwest has seen growth in noninterest-bearing deposit accounts which are an alternative funding source to interest-bearing deposits and other borrowings. The average balance of noninterest-bearing deposit accounts increased to $285.2 million in 2009 from $268.8 million in 2008 and $244.5 million in 2007.
Provision and Allowance for Loan Losses
Southwest makes provisions for loan losses in amounts necessary to maintain the allowance for loan losses at the level Southwest determines is appropriate. The amount of the allowance is based on careful, continuous review and evaluation of the loan portfolio and ongoing quarterly assessments of the probable losses inherent in the loan and lease portfolio. The allowance for loan losses is determined in accordance with regulatory guidelines and generally accepted accounting principles. See “Allowance for Loan Losses” in Note 1 to the Consolidated

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Financial Statements on page 38 of this report for a description of Southwest’s allowance for loan losses methodology.
Based upon this methodology, management established an allowance of $62.4 million, or 2.46% of total noncovered portfolio loans, at December 31, 2009, compared to an allowance of $39.8 million, or 1.59% of total noncovered portfolio loans, at December 31, 2008. This represents an increase in the allowance of $22.6 million, or 57%, from year-end 2008.
Changes in the amount of the allowance resulted from the application of the methodology, which is designed to estimate inherent losses on total noncovered portfolio loans, including nonperforming loans. At December 31, 2009, the allowance on the $105.9 million in noncovered nonaccrual loans was $13.3 million (12.6%), compared with an allowance on $59.3 million in noncovered nonaccrual loans at December 31, 2008 of $5.4 million (9.1%), creating an increase in the allowance of $7.9 million, or 147%. At December 31, 2009, the allowance for other noncovered loans was $49.1 million (2.0%), compared to $34.4 million (1.4%) at December 31, 2008, creating an increase in the allowance of $14.7 million, or 43%. The increase in the allowance related to these other noncovered loans mainly resulted from consideration of certain trends and qualitative factors. These included increases in adjusted loss rates made due to increased net loss ratios, management’s assessment of increased economic risk (particularly with respect to commercial and commercial real estate loans), asset quality trends, including increased levels of potential problem loans, and loan concentrations in commercial real estate and construction loans, which together comprised approximately 72% of our noncovered portfolio loans at December 31, 2009. Based on its analysis management believes the amount of the allowance is appropriate. Covered portfolio loans of $85.4 million were acquired in the FNBA transaction, but based upon applicable accounting rules no allowance was established for these loans as of the acquisition date, as these loans were recorded at fair value which includes an estimate of projected losses. (See “Note 2 Acquisitions” to the Consolidated Financial Statements on page 43 of this report.)
The amount of the loan loss provision for a period is based solely upon the amount needed to cause the allowance to reach the level deemed appropriate, after the effects of net charge-offs for the period. Noncovered net charge-offs for the year ended December 31, 2009 were $16.8 million, an increase of $8.0 million (91%) over the $8.8 million recorded for the year ended December 31, 2008. The provision for loan losses for the year ended December 31, 2009 was $39.2 million, representing an increase of $20.2 million (106%) over the $19.0 million recorded for the year ended December 31, 2008.
At December 31, 2009, the allowance for loan losses was 58.77% of noncovered nonperforming loans, compared to 62.16% of noncovered nonperforming loans at December 31, 2008. Noncovered nonaccrual loans, which comprise the majority of noncovered nonperforming loans, were $105.9 million as of December 31, 2009, an increase of $46.6 million, or 79%, from December 31, 2008. Noncovered nonaccrual loans at December 31, 2009 were comprised of 52 relationships and were primarily concentrated in real estate construction (54%), commercial real estate (27%), and commercial loans (10%). All noncovered nonaccrual loans are considered impaired and are carried at their estimated collectible amounts. Noncovered loans 90 days or more past due, another component of noncovered nonperforming loans, decreased $4.4 million, or 93%, from December 31, 2008. These noncovered loans are believed to have sufficient collateral and are in the process of being collected and are not considered impaired. Covered nonperforming loans of $13.5 million were acquired from FNBA and are subject to protection under the loss share agreements with the FDIC.
Performing loans considered potential problem loans, loans which are not included in the past due, nonaccrual, or restructured categories, but for which known information about possible credit problems cause management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms, amounted to approximately $267.3 million at December 31, 2009, compared to $131.5 million at December 31, 2008. Included are $8.9 million of potential problem loans acquired from FNBA, which are subject to protection under the loss share agreements with the FDIC. Loans may be monitored by management and reported in 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 continued management attention and are considered by management in determining the level of the allowance for loan losses.

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Both the dollar amount of the allowance and the percentage of the allowance to noncovered loans increased during 2009 and 2008. The increases were primarily the result of increased net charge offs, an increase in the allowance related to impaired loans, as well as increases in other risk factors including increases in potential problem loans and national and local economic trends.
Management strives to carefully monitor credit quality and to identify loans that may become nonperforming. At any time, however, there are loans included in the portfolio that will result in losses to Southwest but that have not been identified as nonperforming or potential problem loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the unexpected deterioration of one or a few of such loans may cause a significant increase in nonperforming assets, the provision for loan losses, and charge-offs.
At December 31, 2009, the reserve for unfunded loan commitments was $3.5 million, down from the $3.7 million reserve as of December 31, 2008. 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.
The following table presents a five-year history of the allocation of the allowance for loan losses along with the percentage of total loans in each category.
Allowance for Loan and Lease Losses
                                                                                 
    At December 31,
 
(Dollars in thousands)   2009   2008   2007   2006   2005
 
Real estate mortgage - Commercial
  $ 26,670       47 %   $ 13,200       44 %   $ 10,126       34 %   $ 9,641       34 %   $ 8,186       32 %
One to four family residential
    2,454       5       1,332       4       693       5       492       5       584       5  
Real estate construction
    22,241       25       12,795       26       5,649       33       1,790       25       1,547       17  
Commercial
    10,052       20       11,401       22       10,369       23       12,321       24       10,922       22  
Installment and consumer - Guaranteed student loans
          1             2       31       3       90       10       189       22  
Other
    996       2       1,045       2       804       2       536       2       311       2  
Unallocated*
                            1,912             2,423             2,073        
                     
Total
  $ 62,413       100 %   $ 39,773       100 %   $ 29,584       100 %   $ 27,293       100 %   $ 23,812       100 %
                     
 
*   Under current methodology, allowance is allocated among respective loan types.

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The following table analyzes Southwest’s allowance for loan losses for the periods indicated.
Analysis of Loans and Leases
                                         
    For the Year Ended December 31,
 
(Dollars in thousands)   2009*   2008   2007   2006   2005
 
Balance at beginning of period
  $ 39,773     $ 29,584     $ 27,293     $ 23,812     $ 18,991  
 
                                       
Loans charged-off:
                                       
Commercial real estate
    3,622       1,379       1,540       452       2,531  
One-to-four family residential
    1,476       746       337       256       341  
Real estate construction
    7,464       2,209       129       445       155  
Commercial
    5,223       4,552       4,663       7,606       8,639  
Other consumer
    1,128       1,056       696       788       724  
 
Total charge-offs
    18,913       9,942       7,365       9,547       12,390  
 
 
                                       
Recoveries:
                                       
Commercial real estate
    438       8       22       387       15  
One-to-four family residential
    430       49       10       27       171  
Real estate construction
    344       2                   1  
Commercial
    893       962       606       403       706  
Other consumer
    272       131       71       24       163  
 
Total recoveries
    2,377       1,152       709       841       1,056  
 
 
                                       
Net loans charged-off (recovered)
    16,536       8,790       6,656       8,706       11,334  
Provision for loan losses
    39,176       18,979       8,947       12,187       16,155  
 
Balance at end of period
  $ 62,413     $ 39,773     $ 29,584     $ 27,293     $ 23,812  
 
 
                                       
*     There was no significant amount of charge-offs or recoveries to covered loans in 2009.
 
                                       
Ratio of allowance for loan losses to portfolio loans at end of period
    2.46 %     1.59 %     1.38 %     1.70 %     1.76 %
Ratio of net charge-offs to average portfolio loans during the period
    0.64 %     0.37 %     0.37 %     0.59 %     0.87 %

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The following table shows the amounts of nonperforming assets at the end of the periods indicated. Please see Note 1 to the Notes to Consolidated Financial Statements on page 38 of this report for a description of Southwest’s policy for placing loans on nonaccrual status.
Nonperforming Assets
                                                 
    At December 31,
 
    2009                
(Dollars in thousands)   Noncovered   Covered   2008*   2007*   2006*   2005*
 
Nonaccrual loans:
                                               
Commercial real estate
  $ 28,351     $ 1,847     $ 9,881     $ 5,274     $ 6,118     $ 802  
One-to-four family residential
    9,387       2,243       474       740       484       311  
Real estate construction
    57,586       7,525       37,346       2,910       3,398        
Commercial
    10,404       665       11,598       10,517       16,673       20,891  
Other consumer
    159       42       11       93       62       95  
 
Total nonaccrual loans
    105,887       12,322       59,310       19,534       26,735       22,099  
 
 
                                               
Past due 90 days or more:
                                               
Commercial real estate
  $ 100     $ 542     $ 9     $ 8,214     $ 1,133     $  
One-to-four family residential
    76             39       74       310       637  
Real estate construction
          574       4,005       3       556       634  
Commercial
    18             547       1,456       534       215  
Other consumer
    116       20       73       290       89        
 
Total past due 90 days or more
    310       1,136       4,673       10,037       2,622       1,486  
 
Total nonperforming loans
    106,197       13,458       63,983       29,571       29,357       23,585  
Other real estate owned
    18,432       4,748       6,092       2,679       1,873       7,130  
 
Total nonperforming assets
  $ 124,629     $ 18,206     $ 70,075     $ 32,250     $ 31,230     $ 30,715  
 
*   There were no covered loans as of December 31, 2008, 2007, 2006, or 2005.
 
                                               
Nonperforming assets to portfolio loans and other real estate owned
    4.87 %     20.19 %     2.80 %     1.50 %     1.95 %     2.26 %
Nonperforming loans to portfolio loans
    4.18 %     15.76 %     2.56 %     1.38 %     1.83 %     1.74 %
Allowance for loan losses to nonperforming loans
    58.77 %           62.16 %     100.04 %     92.97 %     100.96 %
Government-guaranteed portion of nonperforming loans
  $ 277     $ 3,853     $ 1,072     $ 1,337     $ 1,629     $ 1,602  
At December 31, 2009, a majority of noncovered nonperforming assets were real estate construction, commercial real estate, and commercial loans. At December 31, 2009, seven credit relationships represented 66% of noncovered nonperforming loans and 57% of noncovered nonperforming assets, while at December 31, 2008, six credit relationships represented 82% of noncovered nonperforming loans and 75% of noncovered nonperforming assets.
Included in noncovered nonaccrual loans as of December 31, 2009 are five collateral dependent lending relationships with aggregate principal balances of approximately $59.0 million and related impairment reserves of $4.9 million which were established based on recent appraisal values obtained for the respective properties. All five of these lending relationships are in the real estate industry and include a residential condominium construction project with three loans outstanding, an office building project with one loan outstanding, a lending relationship consisting of three loans that includes a residential land development and two retail commercial real estate buildings for lease, and two residential land development lending relationships, one with two loans outstanding and the other with one loan outstanding.
Included in nonaccrual loans as of December 31, 2008 are two collateral dependent lending relationships with aggregate principal balances of approximately $27.9 million and related impairment reserves of $1.9 million which were established based on appraisal values obtained for the respective properties. Both of these lending

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relationships are in the real estate industry and include a residential condominium construction project with two loans outstanding and an apartment complex rehabilitation project with two loans outstanding.
If interest on the nonaccrual loans had been accrued during 2009, 2008, and 2007, the interest income reported in the accompanying consolidated statement of operations would have increased by approximately $4.8 million, $2.6 million, and $1.4 million, respectively. Interest income recognized on impaired loans totaled $2.1 million for the year ended December 31, 2009, $578,000 for the year ended December 31, 2008, and $10,000 for the year ended December 31, 2007.
Noninterest Income
Noninterest income was $21.9 million for 2009, a 36% increase when compared with 2008. Noninterest income in 2008 decreased 2% when compared with 2007.
COMPARISON SUMMARY-NONINTEREST INCOME
                                         
            2009 Change           2008 Change    
(Dollars in thousands)   2009   From 2008   2008   From 2007   2007
 
Service charges and fees
  $ 11,704     $ 678     $ 11,026     $ 1,106     $ 9,920  
Other noninterest income
    4,344       2,798       1,546       (44 )     1,590  
Gain on sales of loans
    2,963       299       2,664       (675 )     3,339  
Gain on sales of investment securities
    2,925       2,023       902       (682 )     1,584  
 
Total noninterest income
  $ 21,936     $ 5,798     $ 16,138     $ (295 )   $ 16,433  
 
Service charges and fees. Service charges and fees increased $678,000, or 6%, in 2009 as a result of increased commercial account service charges due to a reduction in earnings credits on balances caused by decreased interest rates and the acquisition of FNBA, offset in part by decreased brokerage fees.
Service charges and fees increased $1.1 million, or 11%, in 2008 as a result of growth in commercial account service charges due to a reduction in earnings credits on balances caused by decreased interest rates and an increase in ATM & Visa Debit Card interchange revenue, offset in part by $557,000 in impairment charges on mortgage loan servicing rights.
Other noninterest income. Other noninterest income includes consulting fees and other miscellaneous income items. The increase of $2.8 million, or 186%, in 2009 is the result of the $3.3 million gain recognized on the FDIC-assisted acquisition of FNBA, offset in part by decreased consulting fees.
Gain on sales of loans. Gain on sales of loans includes the net gains recognized from the sale of student loans, mortgage loans, and other commercial loans that are classified as held for sale. For 2009, the increase is the result of increased sales of mortgage loans, offset in part by a reduction in student loans. For 2008, the decrease is the result of the reduction in student loans.
Gain on sales of investment securities. The 2009 gain on sales of investment securities includes a $2.9 million gain recognized as the result of the restructuring of the investment portfolio. The 2008 gain on sales of investment securities includes a $1.2 million gain due to the redemption of certain VISA USA common shares, offset in part by a securities loss of $400,000 recorded due to the other than temporary impairment of two investment securities during the year.
Noninterest expense
Noninterest expense was $60.9 million for 2009, a decrease of $1.6 million, or 3%, from 2008. Noninterest expense decreased $2.6 million, or 4%, in 2008 from 2007.

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COMPARISON SUMMARY-NONINTEREST EXPENSE
                                         
            2009 Change           2008 Change    
(Dollars in thousands)   2009   From 2008   2008   From 2007   2007
 
Salaries and employee benefits
  $ 29,299     $ (4,031 )   $ 33,330     $ (1,957 )   $ 35,287  
Occupancy
    11,637       765       10,872       1,027       9,845  
FDIC and other insurance
    5,545       3,457       2,088       1,466       622  
Other real estate, net
    130       (16 )     146       204       (58 )
Provision for unfunded loan commitments
    (230 )     (865 )     635       (494 )     1,129  
Other general and administrative
    14,477       (940 )     15,417       (2,866 )     18,283  
 
Total noninterest expense
  $ 60,858     $ (1,630 )   $ 62,488     $ (2,620 )   $ 65,108  
 
Salaries and employee benefits. Salaries and employee benefits decreased $4.0 million, or 12%, in 2009 primarily as a result of decreased salary expense and decreased profit sharing and bonus accruals.
Salaries and employee benefits decreased $2.0 million, or 6%, in 2008 primarily as a result of a decrease in the number of employees and decreased bonus and profit sharing accruals.
Occupancy expense. Occupancy expense increased $765,000, or 7%, in 2009 due to increased building rental expense, depreciation expense, security service expense, and janitorial service expense. Approximately $500,000 of the increase is the result of the FNBA acquisition.
Occupancy expense increased $1.0 million, or 10%, in 2008 due to increased maintenance costs, building rental expense, and data processing fees associated with the operating system.
FDIC and other insurance. Southwest’s bank subsidiaries pay deposit insurance premiums to the FDIC based on assessment rates. The increase from prior year is due to a special assessment of 5 basis points, resulting in an additional $1.4 million. The FDIC raised the current assessment rates uniformly by 7 basis points for the 2009 assessment, and an additional 10 basis point assessment is paid on transaction accounts exceeding $250,000 under the Temporary Liquidity Guaranty Program.
In February 2009, the FDIC issued final rules that changed the risk-based assessment system and set assessment rates to begin in the second quarter of 2009. Four risk categories (I-IV), each subject to different premium rates, were established, based upon an institution’s status as well capitalized, adequately capitalized, or undercapitalized, and the institution’s supervisory rating. Until April 1, 2009, insured depository institutions paid deposit insurance premiums that ranged from 5 to 7 basis points on an institution’s assessment base for institutions in Risk Category I (well capitalized institutions perceived as posing the least risk to the insurance fund), and 10, 28, and 43 basis points for institutions in Risk Categories II, III, and IV. Stillwater National and Bank of Kansas are in Risk Category I at December 31 2009. Beginning on April 1, 2009, three new factors result in adjustments to an institution’s initial base assessment rate: (1) a potential decrease for long-term unsecured debt, including senior and subordinated debt and, for small institutions, a portion of Tier I capital; (2) a potential increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I institutions, a potential increase for brokered deposits above a threshold amount, other than those received through a deposit placement network on a reciprocal basis. Beginning April 1, 2009, the adjusted premium rates increased to range from 7 to 24 basis points for Risk Category I and from 17 to 77.5 for Risk Categories II through IV.
On May 22, 2009, the FDIC adopted a final rule levying a special assessment on insured institutions as part of the agency’s efforts to rebuild the Deposit Insurance Fund and help maintain public confidence in the banking system. The final rule established a special assessment of 5 basis points on each FDIC-insured depository institution. The assessment was paid on September 30, 2009.
On November 12, 2009, the FDIC adopted a final rule requiring insured institutions to prepay three years of premiums in order to restore the Deposit Insurance Fund. By prepaying three years of premiums, banks will be

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allowed to defer recognition of the insurance expense until the payments are recognized by the FDIC on a quarterly basis. Under this rule, on December 30, 2009, Stillwater National and Bank of Kansas prepaid their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. Under the rule, banks will be assessed through 2010 according to the risk-based premium schedule adopted earlier this year. We are expecting an increase in FDIC insurance expense in 2010 due to a change in Risk Category. The base rate will increase by an additional 3 basis points beginning January 1, 2011.
The increase in FDIC and other insurance expense for 2008 was the result of the full utilization of available assessment credits that had substantially offset the FDIC insurance premiums through June 30, 2008.
Other real estate, net. The decreased other real estate expenses in 2009 occurred as Southwest received income from previously acquired properties. During 2008, Southwest acquired properties that caused an increase in other real estate expenses.
Provision for unfunded loan commitments. The provision for unfunded loan commitments 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. The $865,000 and $494,000 decreases in 2009 and 2008, respectively, are due to declines in the level of commitments when compared to prior years.
Other general and administrative. Other general and administrative expenses decreased $940,000, or 6%, in 2009 and $2.9 million, or 16%, in 2008. The decline in 2009 is primarily the result of an increase in deferred expense recognition related to loan origination costs. The decline in 2008 is primarily the result of the non-recurrence of expenses that were incurred in 2007.

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Operating Segments
                         
CONTRIBUTION OF OPERATING SEGMENTS   FOR THE YEAR ENDED DECEMBER 31,
(Dollars in thousands)   2009   2008   2007
 
Oklahoma banking
  $ 12,160     $ 12,505     $ 15,937  
Texas banking
    10,722       7,551       6,550  
Kansas banking
    424       (1,122 )     859  
Other states banking
    (1,618 )     2,756       2,163  
Secondary market
    (148 )     (144 )     1,097  
Other operations
    (8,558 )     (6,645 )     (5,228 )
 
Consolidated net income
  $ 12,982     $ 14,901     $ 21,378  
 
 
                       
Oklahoma banking
  $ 933,150     $ 966,243     $ 876,085  
Texas banking
    1,054,404       947,603       759,389  
Kansas banking
    359,633       304,855       282,846  
Other states banking
    277,512       275,805       227,237  
Secondary market
    43,134       56,941       66,275  
 
Consolidated total loans
  $ 2,667,833     $ 2,551,447     $ 2,211,832  
 
 
                       
Oklahoma banking
  $ 950,355     $ 984,298     $ 883,156  
Texas banking
    1,044,324       945,907       759,837  
Kansas banking
    441,114       310,503       294,927  
Other states banking
    275,653       272,599       230,109  
Secondary market
    45,148       61,149       71,843  
Other operations
    351,697       305,306       324,426  
 
Consolidated total assets
  $ 3,108,291     $ 2,879,762     $ 2,564,298  
 
 
                       
Oklahoma banking
  $ 1,640,839     $ 1,394,008     $ 1,278,954  
Texas banking
    160,064       133,745       127,053  
Kansas banking
    283,506       146,182       120,754  
Secondary market
    1,527       1,550       1,346  
Other operations
    506,794       504,637       530,472  
 
Consolidated total deposits
  $ 2,592,730     $ 2,180,122     $ 2,058,579  
 
Southwest has six reportable operating segments: Oklahoma Banking, Texas Banking, Kansas Banking, Other States Banking, loans originated for sale in the secondary market (“Secondary Market”), and Other Operations. These business segments were identified through the products and services that are offered within each segment and the geographic area they serve.
Portfolio loans are allocated based upon the state of the borrower or the location of the real estate in the case of real estate loans. Loans included in the Other States Banking segment are portfolio loans attributable to states other than Oklahoma, Texas, or Kansas and primarily consist of healthcare and commercial real estate credits. These out of state loans are administered by offices in Oklahoma, Texas, or Kansas.
Capital is assigned to each of the segments using a risk-based capital pricing methodology that assigns capital by asset, deposit, or revenue category based on Credit, Interest Rate, Market, Operational, and Liquidity Risks.
The contribution of the Oklahoma Banking segment decreased $345,000, or 3%, in 2009, primarily as a result of a $3.6 million decrease in net interest income and a $2.6 million increase in the provision for loan losses, offset in part by a decrease of $4.8 million in noninterest expense and a decrease of $747,000 in income taxes. Oklahoma Banking segment net income decreased $3.4 million, or 22%, in 2008, primarily as a result of an increase in the provision for loan losses of $3.0 million, an increase in noninterest expense of $1.4 million, and a decrease in noninterest income of $898,000, offset in part by decreased taxes of $1.8 million.

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The contribution of the Texas Banking segment increased $3.2 million, or 42%, in 2009, primarily as a result of an $8.4 million increase in net interest income and decreased noninterest expenses of $1.9 million, offset in part by an increased provision for loan losses of $5.2 million and increased taxes of $1.8 million. Texas Banking segment net income increased $1.0 million, or 15%, in 2008, primarily as a result of a $7.1 million increase in net interest income, offset in part by an increased provision for loan losses of $3.4 million, increased noninterest expenses of $2.3 million, and increased taxes of $699,000.
The contribution of the Kansas Banking segment increased $1.5 million, or 138%, in 2009 primarily as a result of a $6.0 million increase in noninterest income, which includes the $3.3 million recognized gain on the FDIC-assisted acquisition of FNBA, and a $5.4 million increase in net interest income. These increases were offset in part by a $5.7 million increase in noninterest expense and a $3.7 million increase in the provision for loan losses. At December 31, 2008, the Kansas Banking segment incurred a loss of $1.1 million, a decrease of $2.0 million, or 231%, from 2007. The decline in 2008 occurred primarily as a result of an increase of $3.1 million in the provision for loan losses and a decrease of $1.1 million in net interest income, offset in part by a decrease of $1.6 million in noninterest expenses and an $853,000 decrease in taxes.
The contribution of the Other States Banking segment decreased by $4.4 million, or 159%, in 2009 primarily as a result of an $8.7 million increased provision for loan losses, offset in part by a $3.0 million decrease in taxes and a $1.1 million decrease in noninterest expenses. Other states banking net income increased by $593,000, or 27%, in 2008 primarily as a result of a $2.6 million increase in net interest income, offset in part by a $1.0 million increase in noninterest expenses, a $664,000 increase in taxes, and a $421,000 increased provision for loan losses.
At December 31, 2009, Southwest’s eleven Oklahoma offices accounted for $933.2 million in loans, or 36% of total portfolio loans, the seven Texas offices accounted for $1.1 billion in loans, or 40% of total portfolio loans, the nine Kansas offices accounted for $359.6 million in loans, or 14% of total portfolio loans, and the Other States Banking segment accounted for $277.5 million in loans, or 11% of total portfolio loans.
For 2009, the Secondary Market segment incurred a loss of $148,000, which is essentially unchanged when compared with 2008. The Secondary Market segment incurred a loss of $144,000, or a decrease of $1.2 million, or 113%, in 2008. The reduction occurred primarily in noninterest income which decreased $1.9 million due to decreased gain on sale of student loans and an impairment charge for mortgage loan servicing rights. See “Business — Secondary Market Segment” on page 74.
For 2009 and 2008, the Other Operations segment, which includes Southwest’s fund management unit, incurred a loss of $8.6 million and $6.6 million, respectively. The value of funds provided and cost of funds borrowed from the funds management unit by the operating segments are internally priced at rates that approximate market rates for funds with similar duration.
The segment disclosures above and in Note 21 to the Consolidated Financial Statements show that the Oklahoma Banking, Texas Banking, Kansas Banking, and Other States Banking segments provide the majority of consolidated net interest income and net income and for the year ended December 31, 2009, accounted for approximately $2.7 billion, or 87%, of total assets.
The segment disclosures are based upon a number of assumptions and allocations of expense. Southwest allocates resources and evaluates performance of its segments after allocation of funds, indirect expenses, taxes, and capital costs.
Taxes on Income
Southwest’s income tax expense for fiscal years 2009, 2008, and 2007 was $7.6 million, $9.5 million, and $13.6 million, respectively. Southwest’s effective tax rates have been lower than statutory federal and state statutory rates primarily because of the organization of a real estate investment trust in July 2001, as well as tax credits generated by certain lending and investment activities, and tax-exempt income on municipal obligations and loans.

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Financial Condition
Southwest’s total assets increased by $228.5 million, or 8%, to $3.1 billion at December 31, 2009, compared to $2.9 billion at December 31, 2008 after increasing by $315.5 million, or 12%, between December 31, 2008 and 2007. The growth in assets in 2009 was primarily attributable to the $116.4 million, or 5%, increase in total loans, which includes the $85.4 million remaining covered loans acquired from FNBA, and the $91.6 million, or 336%, increase in cash.
Southwest’s investment securities decreased $727,000, or less than 1%, to $263.4 million at December 31, 2009 from $264.2 million at December 31, 2008. The decrease in 2009 came from decreases in federal agency securities of $3.8 million, or 5%, and tax-exempt municipal securities, which decreased $2.6 million, or 26%, offset in part by increased mortgage-backed securities, which increased $5.1 million, or 3%, and other investments, which increased $426,000, or 2%. Mortgage-backed securities consist of agency securities underwritten and guaranteed by Government National Mortgage Association (“Ginnie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), and Federal National Mortgage Association (“Fannie Mae”).
Southwest’s investment securities increased by $7.6 million, or 3%, to $264.2 million at December 31, 2008 from $256.6 million at December 31, 2007. The increase in 2008 came from mortgage-backed securities, which increased $115.7 million, or 302%, tax-exempt municipal securities, which increased $927,000, or 10%, and other investments, which increased $896,000, or 5%, offset in part by decreases in federal agency securities of $109.9 million, or 58%.
Analysis of Securities
                         
    At December 31,
 
(Dollars in thousands)   2009   2008   2007
 
U.S. Government obligations
  $ 1,100     $ 999     $ 1,000  
Federal agency securities
    75,385       79,197       189,127  
Obligations of states and political subdivisions
    7,523       10,098       9,171  
Residential mortgage-backed securities
    159,146       154,013       38,347  
Other investments
    20,285       19,859       18,963  
                         
Total investment securities
  $ 263,439     $ 264,166     $ 256,608  
                         
 
                       
Available for sale (fair value)
  $ 237,703     $ 238,037     $ 233,531  
Held to maturity (amortized cost)
    6,670       7,343       5,838  
Other investments (cost)
    19,066       18,786       17,239  
                         
Total investment securities
  $ 263,439     $ 264,166     $ 256,608  
                         
Southwest does not have any material amounts of investment securities or other interest-earning assets, other than loans, that would have been classified as nonperforming if such assets were loans or which were recognized by management as potential problem assets based upon known information about possible credit problems of the borrower or issuer.
The following table shows the maturities, carrying value (amortized cost for investment securities being held to maturity or estimated fair value for investment securities available for sale), estimated fair market values, and average yields for Southwest’s investment portfolio at December 31, 2009. Yields are not presented on a tax-equivalent basis. Maturities of mortgage-backed securities are based on expected maturities. Expected maturities differ from contractual maturities because borrowers of the underlying mortgages may have the right to call or prepay obligations with or without prepayment penalties. The securities of no single issuer (other than the United States or its agencies), or in the case of securities issued by state and political subdivisions, no source or group of sources of repayment, accounted for more than 10% of shareholders’ equity of Southwest at December 31, 2009.

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Maturity Table for Investment Securities
                                                                                         
                    After One     After Five              
    One Year     Year through     Years through     After     Total Investment  
    or Less     Five Years     Ten Years     Ten Years     Securities  
(Dollars in thousands)   Cost     Yield     Cost     Yield     Cost     Yield     Cost     Yield     Cost     Market     Yield  
Held to Maturity:
                                                                                       
Obligations of states and political subdivisions
  $ 2,825       3.54 %   $ 3,845       3.12 %   $       %   $       %   $ 6,670     $ 6,754       3.30 %
 
                                                                           
Total
  $ 2,825       3.54 %   $ 3,845       3.12 %   $       %   $       %   $ 6,670     $ 6,754       3.30 %
 
                                                                           
 
                                                                                       
Available for Sale:
                                                                                       
U.S. government obligations
  $       %   $ 1,098       1.20 %   $       %   $       %   $ 1,098     $ 1,100       1.20 %
Federal agency securities
    2,857       1.34 %     20,184       2.72 %     39,670       3.36 %     13,078       4.19 %     75,789       75,385       3.26 %
Obligations of states and political subdivisions
    601       3.99 %     181       3.77 %           %     55       6.72 %     837       853       4.12 %
Residential mortgage-backed securities
    13,838       3.56 %     99,247       3.44 %     38,161       2.93 %     6,293       4.37 %     157,539       159,146       3.37 %
Other securities
          %     20,002       %           %           %     20,002       20,285       0.00 %
 
                                                                           
Total
  $ 17,296       3.21 %   $ 140,712       2.83 %   $ 77,831       3.15 %   $ 19,426       4.26 %   $ 255,265     $ 256,769       3.06 %
 
                                                                           
 
                                                                                       
Total
  $ 20,121             $ 144,557             $ 77,831             $ 19,426             $ 261,935     $ 263,523          
 
                                                                           
Note: Average yield for investments held for sale is based on amortized cost
Analysis of Loans
Total noncovered loans were $2.6 billion at December 31, 2009, an increase of $31.0 million, or 1%, compared to December 31, 2008. The allowance for loan losses increased by $22.6 million, or 57%, from December 31, 2008 to December 31, 2009. At December 31, 2009, the allowance for loan losses was $62.4 million, or 2.42% of total noncovered loans, compared to $39.8 million, or 1.56% of total noncovered loans, at December 31, 2008.
Total noncovered loans were $2.6 billion at December 31, 2008, an increase of $339.6 million, or 15%, compared to December 31, 2007. The allowance for loan losses increased by $10.2 million, or 34%, from December 31, 2007 to December 31, 2008. At December 31, 2008, the allowance for loan losses was $39.8 million, or 1.56% of total noncovered loans, compared to $29.6 million, or 1.34% of total noncovered loans, at December 31, 2007. (See “Provision and Allowance for Loan Losses” on page 10.)

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This table presents the trends in the composition of the loan portfolio over the previous five years.
Trends in the Composition of the Loan Portfolio
                                                 
    At December 31,
    2009                
(Dollars in thousands)   Noncovered   Covered   2008*   2007*   2006*   2005*
 
Real estate mortgage - Commercial
  $ 1,212,409     $ 39,836     $ 1,118,828     $ 750,047     $ 609,271     $ 563,074  
One to four family residential
    114,614       12,630       113,665       111,085       91,441       93,478  
Real estate construction - Commercial
    618,078       12,515       579,795       643,656       384,072       258,275  
One to four family residential
    41,109       5,324       79,565       81,273       69,678       41,069  
Commercial
    520,505       13,412       564,670       521,501       424,189       374,101  
Installment and consumer - Guaranteed student loans
    36,163             54,057       61,555       181,458       377,110  
Other
    39,550       1,688       40,867       42,715       31,081       28,773  
                                                 
 
    2,582,428       85,405       2,551,447       2,211,832       1,791,190       1,735,880  
Less: Allowance for loan losses
    (62,413 )           (39,773 )     (29,584 )     (27,293 )     (23,812 )
                                                 
Total loans, net
  $ 2,520,015     $ 85,405     $ 2,511,674     $ 2,182,248     $ 1,763,897     $ 1,712,068  
                                                 
 
*   There were no covered loans as of December 31, 2008, 2007, 2006, or 2005.
Included in covered loans above is $23.9 million of loss share receivable from the FDIC.
Southwest has a strategic focus on providing loans and other services to healthcare and health professionals, businesses and their managers and owners, and commercial and commercial real estate borrowers. At December 31, 2009 and December 31, 2008, loans to individuals and businesses in the healthcare industry totaled $697.7 million, or 27%, and $661.6 million, or 27%, of noncovered portfolio loans, respectively.
Capital Resources
In late 2008, Southwest elected to participate in the Capital Purchase Program of the United States Department of the Treasury (the “Treasury Department”). On December 5, 2008, Southwest issued to the Treasury Department 70,000 shares of Fixed Rate Cumulative Preferred Stock, Series B (the “Series B Preferred Stock”), and a ten-year warrant to purchase 703,753 shares of Southwest common stock at an initial per share exercise price of $14.92, for a total price of $70.0 million.
At December 31, 2009, total shareholders’ equity was $309.8 million, compared to $302.2 million at December 31, 2008. Earnings, net of common and preferred dividends, contributed $8.1 million to shareholders’ equity. Sales of common stock through the employee stock purchase plan and the employee stock option plan contributed an additional $1.5 million to shareholders’ equity in 2009, including stock option exercises and restricted stock grants and tax benefits realized by Southwest relating to option exercises. Under U.S. generally accepted accounting principles, these tax benefits increase shareholders’ equity but do not affect net income. Net unrealized holding gains on investment securities available for sale (net of tax) decreased to $945,000 million at December 31, 2009, from $2.9 million at December 31, 2008.
At December 31, 2008, total shareholders’ equity was $302.2 million, compared to $217.6 million at December 31, 2007. Earnings, net of common and preferred dividends, contributed $9.1 million to shareholders’ equity. Issuance of preferred shares and the warrant to purchase common shares contributed $70.0 million to shareholders’ equity. Sales of common stock through the dividend reinvestment plan, the employee stock purchase plan, and the employee stock option plan contributed an additional $2.9 million to shareholders’ equity in 2008, including stock option exercises and restricted stock grants and tax benefits realized by Southwest relating to option exercises. Under U.S. generally accepted accounting principles, these tax benefits increase shareholders’ equity, but do not affect net income. Net unrealized holding gains on investment securities available for sale (net of tax) increased to $2.9 million at December 31, 2008, from $408,000 at December 31, 2007.

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Bank holding companies are required to maintain capital ratios in accordance with guidelines adopted by the Federal Reserve Board. The guidelines are commonly known as Risk-Based Capital Guidelines. On December 31, 2009, Southwest exceeded all applicable capital requirements, having a total risk-based capital ratio of 14.55%, a Tier 1 risk-based capital ratio of 13.28%, and a leverage ratio of 12.42%. Banking subsidiaries are also required to maintain capital ratios in accordance with guidelines adopted by their primary regulators. The general regulatory minimums to be well-capitalized are a total capital to risk weighted assets ratio of 10.00%, a Tier I risk based capital ratio of 6.00%, and a Tier 1 leverage ratio of 5.00%. As of December 31, 2009, Southwest, Stillwater National, and Bank of Kansas each met the criteria for classification as a “well-capitalized” institution under the prompt corrective action rules promulgated under the Federal Deposit Insurance Act. Designation as a well-capitalized institution under these regulations does not constitute a recommendation or endorsement of Southwest, Stillwater National, or Bank of Kansas by Federal bank regulators. See “Certain Regulatory Matters” on page 27 of this report.
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 available for sale investments, in order to meet current and future cash flow needs as they become due. Southwest’s portfolio of guaranteed student loans is also readily salable. Additional sources of liquidity, including cash flow from the repayment of loans and maturities of investment securities, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of deposits and liquid assets and accessibility to the capital and money markets. These funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans, purchase securities, and operate the organization.
The following table indicates the amount of Southwest’s certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2009:
         
(Dollars in thousands)   Amount
 
Three months or less(1)
  $ 61,571  
Over three through six months(1)
    177,699  
Over six through 12 months(1)
    487,825  
Over 12 months
    277,344  
         
Total
  $ 1,004,439  
         
 
(1)   The amount of certificates of deposit of $100,000 and more that mature within 12 months is $727.1 million.

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The following table illustrates, during the years presented, the mix of Southwest’s funding sources and the assets in which those funds are invested as a percentage of Southwest’s average total assets for the period indicated. Average assets totaled $3.0 billion in 2009 compared to $2.7 billion in 2008 and $2.3 billion in 2007.
                         
    Percentage of Total Average Assets
    2009   2008   2007
 
Sources of Funds:
                       
Deposits:
                       
Noninterest-bearing demand
    9.55 %     9.80 %     10.72 %
Interest-bearing demand and money market accounts
    19.05       22.39       22.43  
Time and savings deposits
    51.54       46.19       47.56  
Other borrowings
    6.08       9.99       7.09  
Subordinated debentures
    2.74       2.34       2.04  
Other liabilities
    0.70       0.80       0.95  
Equity capital
    10.34       8.49       9.21  
 
Total
    100.00 %     100.00 %     100.00 %
 
 
                       
Uses of Funds:
                       
Loans
    89.30 %     88.56 %     84.36 %
Investment securities
    8.22       8.70       12.15  
Other interest-earning assets
    0.19       0.14       0.22  
Noninterest-earning assets
    2.29       2.60       3.27  
 
Total
    100.00 %     100.00 %     100.00 %
 
Sources and uses of cash are presented in the Consolidated Statements of Cash Flows on page 24 of this report. Total cash and cash equivalents increased by $91.6 million, or 336%, to $118.8 million in 2009 from $27.3 million at year-end 2008. This increase was the net result of cash provided from financing activities of $59.3 million and cash provided from operating activities of $44.4 million, offset by cash used in investing activities of $12.2 million.
Total cash and cash equivalents decreased by $18.4 million, or 40%, to $27.3 million in 2008 from $45.7 million at year-end 2007. This decrease was the net result of cash used in investing activities of $364.0 million, primarily net loans originated net of principal repayments, offset by cash provided from financing activities of $299.8 million, primarily from increased deposits and capital raising, and cash provided from operating activities of $45.8 million.
Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk
Southwest’s net income is largely dependent on its net interest income. Southwest seeks to maximize its net interest margin within an acceptable level of interest rate risk. Interest rate risk can be defined as the amount of forecasted net interest income that may be gained or lost due to favorable or unfavorable movements in interest rates. Interest rate risk, or sensitivity, arises when the maturity or repricing characteristics of assets differ significantly from the maturity or repricing characteristics of liabilities. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds such as noninterest-bearing deposits and shareholders’ equity.
Southwest attempts to manage interest rate risk while enhancing net interest margin by adjusting its asset/liability position. At times, depending on the level of general interest rates, the relationship between long-term and other interest rates, market conditions, and competitive factors, Southwest may 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

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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.
Interest rate sensitivity analysis measures the cumulative differences between the amounts of assets and liabilities maturing or repricing within various time periods.
The following table shows Southwest’s interest rate sensitivity gaps for selected maturity periods at December 31, 2009:
                                         
    0 to 3   4 to 12   Over 1 to   Over    
(Dollars in thousands)   Months   Months   5 Years   5 Years   Total
 
Rate-sensitive assets:
                                       
Total loans
  $ 1,005,577     $ 310,310     $ 1,018,444     $ 333,502     $ 2,667,833  
Investment securities
    22,067       4,527       23,441       213,404       263,439  
Due from banks
    2,584                         2,584  
 
Total
    1,030,228       314,837       1,041,885       546,906       2,933,856  
 
                                       
Rate-sensitive liabilities:
                                       
Money market deposit accounts
    505,521                         505,521  
Time deposits
    600,356       928,962       133,131             1,662,449  
Savings accounts
    25,730                         25,730  
Interest-bearing demand
    74,201                         74,201  
Other borrowings
    34,522       12,000       31,500       25,000       103,022  
Subordinated debentures
                      81,963       81,963  
 
Total
    1,240,330       940,962       164,631       106,963       2,452,886  
 
 
                                       
Interest sensitivity gap
  $ (210,102 )   $ (626,125 )   $ 877,254     $ 439,943     $ 480,970  
 
 
                                       
Cumulative interest sensitivity gap
  $ (210,102 )   $ (836,227 )   $ 41,027     $ 480,970     $ 480,970  
 
Percentage of rate-sensitive assets to rate-sensitive liabilities
    83.06 %     33.46 %     632.86 %     511.30 %     119.61 %
 
Percentage of cumulative gap to total assets
    (6.76 )%     (26.90 )%     1.32 %     15.47 %     15.47 %
 
The percentage of rate-sensitive assets to rate-sensitive liabilities presents a static position as of a single day, is not necessarily indicative of Southwest’s position at any other point in time, and does not take into account the sensitivity of yields and costs of specific assets and liabilities to changes in market rates. The foregoing analysis assumes that Southwest’s mortgage-backed securities mature during the period in which they are estimated to prepay. No other prepayment or repricing assumptions have been applied to Southwest’s interest-earning assets for this analysis.
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 net income. Actual results differ from simulated results due to the timing, magnitude, and frequency of interest rate changes and changes in market conditions, cash flows, 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”),

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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 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
 
Policy Limit
    (18.00 )%     (10.00 )%     (5.00 )%
December 31, 2009
    1.98 %     (2.33 )%     (1.91 )%
December 31, 2008
    (2.26 )%     (4.08 )%     (3.81 )%
On December 16, 2008 the Federal Open Market Committee established the overnight rate as a range of 0% to 0.25%. Southwest believes that all down rate scenarios are impractical since they would result in rates of less than 0%. As a result, the down 100 bp, down 200 bp, and down 300 bp scenarios have been excluded. The Net Interest Income at Risk position improved in each of the increasing interest rate scenarios when compared to the December 31, 2008 risk position. Southwest’s largest exposure to changes in interest rate is in the +200 bp scenario with a measure of (2.33)% at December 31, 2009, a decline of 1.75 percentage points from December 31, 2008 level of (4.08)%. All of the above measures of net interest income at risk remain well within prescribed policy limits.
The measure of equity value at risk indicates 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
 
Policy Limit
    (35.00 )%     (20.00 )%     (10.00 )%
December 31, 2009
    (9.55 )%     (4.78 )%     (0.27 )%
December 31, 2008
    (8.48 )%     (4.03 )%     (0.82 )%
As of December 31, 2009, the economic value of equity measure decreased in the +200 bp and +300 bp scenarios while increasing in the +100 bp scenario when compared to December 31, 2008. Southwest’s largest economic value of equity exposure is the +300 bp scenario which declined 1.07 percentage points to (9.55)% on December 31, 2009 from December 31, 2008 value of (8.48)%. The economic value of equity ratio in all scenarios remains well within Southwest’s Asset and Liability Management Policy limits.
Off-Balance Sheet Arrangements
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 accounting principles generally accepted in the United States, the full notional amounts of these transactions are not recorded 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 and are discussed further in Note 17 to the Consolidated Financial Statements on page 65 of this report.

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Off-balance sheet arrangements also include Trust Preferred Securities, which have been de-consolidated in this report. Further information regarding Trust Preferred Securities can be found in Note 9 to the Consolidated Financial Statements on page 56 of this report.
Effects of Inflation
The consolidated financial statements and related consolidated financial data in this report have been prepared in accordance with accounting principles generally accepted in the United States and practices within the banking industry that require the measurement of financial position and operating results in terms of historical dollars without considering fluctuations in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.
Contractual Obligations
Southwest has various contractual obligations that require future cash payment. The following table presents, as of December 31, 2009, significant fixed and determinable contractual obligations to third parties by payment date.
                                         
    Payments due by period
 
    Less than   1-3   3-5   Over    
(Dollars in thousands)   1 Year   Years   Years   5 Years   Total
 
Deposits without stated maturity:(1)
                                       
Noninterest bearing
  $ 324,829     $     $     $     $ 324,829  
Interest bearing
    605,452                         605,452  
Time deposits(2)
    1,542,315       126,144       12,149       5       1,680,613  
Other borrowings(2)
    34,002       35,024       2,644       53,626       125,296  
Subordinated debentures(2)
    2,872       5,745       5,745       99,919       114,281  
Operating leases
    2,655       3,639       1,991       1,735       10,020  
 
Total
  $ 2,512,125     $ 170,552     $ 22,529     $ 155,285     $ 2,860,491  
 
 
(1)   Excludes interest.
 
(2)   Includes interest. Interest on variable rate obligations is shown at rates in effect at December 31, 2009. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.
Southwest adopted ASC 740, Income Taxes, on January 1, 2007. The obligation associated with uncertain tax positions is $4.9 million. The payment period for this obligation is not estimable at this time.
At December 31, 2009, Southwest’s purchase obligations are not reflected on the Consolidated Statements of Condition, and its other long-term liabilities are not considered material.
For additional information regarding contractual obligations, please also see “Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk” on page 24, “Off-Balance Sheet Arrangements” on page 26, and in the Notes to the Consolidated Financial Statements in this report, “Note 8 Other Borrowed Funds” on page 55, “Note 9 Subordinated Debentures” on page 56, “Note 16 Operating Leases” on page 65, “Note 17 Financial Instruments with Off-Balance Sheet Risk” on page 65, and “Note 18 Commitments and Contingencies” on page 66.
Certain Regulatory Matters
Our levels of nonperforming assets and our concentrations in commercial real estate loans have led to agreements with and commitments to our banking regulators. Please see “Trends in the Composition of the Loan Portfolio” on page 22, “Provision and Allowance for Loan Losses” beginning on page 10, “Nonperforming Assets” beginning on page 14, and “Risk Factors” beginning on page 87.

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Under the terms of a January 27, 2010 Agreement with the Office of the Comptroller of the Currency (“OCC”), Stillwater National, is required to submit written plans to the OCC and to take action required relating to the following items:
    Establishing and ensuring compliance with a plan to reduce credit risk and improve loan portfolio management;
 
    Eliminating credit weaknesses in nonperforming and potential problem loans;
 
    On-going review and grading of the Stillwater National’s loan portfolio;
 
    Improving Stillwater National’s position regarding nonperforming and potential problem loans and other real estate owned;
 
    Improving loan portfolio concentration risk management; and
 
    Establishing and operating a loan workout department.
In addition, Stillwater National is required to prepare a three-year capital plan and to obtain OCC approval before increasing its use of brokered deposits or declaring dividends.
The compliance committee of the Board of Directors of Stillwater National will submit quarterly reports to the OCC setting forth a description of the actions needed to achieve full compliance with the formal agreement, actions taken to comply, and the results and status of these actions.
The agreement with the OCC does not require that Stillwater National maintain any specific capital ratios; however, Stillwater National has informally agreed to maintain at least a Tier 1 leverage ratio of 8.5% and a total capital to risk weighted assets ratio of 12.5%.
Stillwater National remains well-capitalized for regulatory purposes and exceeds the general minimum ratios for well-capitalized status and the higher level to which we have committed. At December 31, 2009, Stillwater National had a Tier 1 leverage ratio of 11.37%, a Tier 1 risk based capital ratio of 12.00%, and a total capital to risk weighted assets ratio of 13.84%. Generally regulatory minimums to be well-capitalized are a Tier 1 leverage ratio of 5.00%, a Tier 1 risk based capital ratio of 6%, and a total capital to risk weighted assets ratio of 10.00%.
Southwest has made informal commitments to the Federal Reserve, which include providing prior notice of the declaration and payment of dividends on trust preferred securities, preferred stock issued under the Treasury Department’s Capital Purchase Program, and common stock, and of planned receipt of dividends from its banking subsidiaries. Southwest also has agreed to submit a capital plan to the Federal Reserve and to obtain Federal Reserve approval for any additional borrowings at the holding company level. Southwest does not intend to increase its borrowings.
Southwest is firmly committed to our regulatory compliance efforts. We have taken actions to reduce our concentrations in commercial real estate, and will continue to do so, and are diligently working to reduce levels of nonperforming assets.
Critical Accounting Policies
Southwest’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information that is subject to change. Certain policies inherently rely more on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management is required to use estimates, assumptions, and judgments when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation allowance to be established, or when an asset or liability must be recorded contingent upon a future event. Carrying assets and liabilities at fair

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value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when readily available.
The most significant accounting policies followed by Southwest are presented in Note 1 to the Consolidated Financial Statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the Loans Acquired through Transfer, Allowance for Loan Losses, and Goodwill and Intangible Assets accounting policies to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revisions as new information becomes available.
Loans Acquired through Transfer — To determine the fair value of loans acquired through transfer, management made assumptions about the collectibility of acquired loans, including the creditworthiness of the borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. In accordance with the accounting guidance of ASC 310.30, Loan and Debt Securities Acquired with Deteriorated Credit Quality, the estimation of fair value is required for the acquisition of loans that have evidence of deterioration of credit quality since origination and for which it is probable that not all of the contractually required payments will be collected. The corresponding income associated with the accretion of the discounts on the loan portfolio will be recorded in net interest income.
Allowance for Loan Losses - The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (1) ASC 450, Contingencies, which requires that losses be accrued when they are probable of occurring and estimable, and (2) ASC 310.10.35, Receivables: Subsequent Measurement, which requires that losses be accrued when it is probable that Southwest will not collect all principal and interest payments according to the loan’s contractual terms.
The allowance determination process requires significant judgment. Estimates of probable losses inherent in the loan portfolio can vary significantly from the amounts that actually occur. While management uses available information to recognize probable losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, and independent consultants engaged by Southwest, periodically review the loan portfolio and the allowance. These reviews may result in additional provisions based on the agencies’ judgments based upon information available at the time of each examination. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the unexpected deterioration of one or a few of such loans may cause a significant increase in the provision for loan losses and nonperforming assets, and may lead to a material increase in charge-offs and the provision for loan losses in future periods.
Southwest’s methodology for assessing the appropriateness of the allowance is in accordance with regulatory guidelines and generally accepted accounting principles, as described in “Provision and Allowance for Loan Losses” on page 10 and in Note 1 to the Consolidated Financial Statements on page 38.
Goodwill and Intangible Assets — Goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently if circumstances indicate their value may not be recoverable. Goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of each of Southwest’s reporting units compared with its carrying value. Southwest defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed. As of December 31, 2009, Southwest has eight reporting units, for which three have goodwill allocated to them. If the carrying value amount exceeds the fair value of a reporting unit, a second test is completed comparing the implied fair value of the reporting unit’s goodwill to its carrying value to measure the amount of impairment. Intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values of those assets to their carrying values. Other identifiable intangible assets that are subject to amortization are

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amortized on an accelerated basis over the years expected to be benefited, which Southwest believes are up to ten years. These amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value. Based on Southwest’s annual goodwill impairment test as of October 1, 2009 and updated through December 31, 2009, management does not believe any of its goodwill is impaired as of December 31, 2009. The test includes an analysis of estimated fair value of reporting units to the aggregate market capitalization of Southwest. While Southwest believes no impairment existed at December 31, 2009, different conditions or assumptions used to measure fair value of reporting units, or changes in cash flows or profitability if significantly negative or unfavorable, could have a material adverse effect on the outcome of Southwest’s impairment evaluation and financial condition or future results of operations. Approximately $5.6 million of Southwest’s total goodwill of $6.8 million came from its acquisition of Bank of Kansas during 2007. Bank of Kansas is a separate reporting unit as defined above.
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 U.S. generally accepted accounting principles. For example, such non-GAAP measures may exclude certain income or expense items in calculating operating income or efficiency ratios or may increase yields and margins to reflect the benefits of tax-exempt earning assets. Readers of this report should be aware that 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.
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 December 31, 2009. 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 December 31, 2009.
Management’s Report on Internal Control over Financial Reporting
Southwest’s management is responsible for establishing and maintaining adequate internal control over financial reporting. As required by SEC rules, Southwest’s management evaluated the effectiveness of Southwest’s internal control over financial reporting as defined in SEC Rule 13a-15 as of December 31, 2009. Southwest’s Chief Executive Officer and Chief Financial Officer participated in the evaluation, which was based upon the criteria for effective internal control over financial reporting included in the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, Southwest’s management concluded that Southwest’s internal control over financial reporting was effective as of December 31, 2009.
The report by Southwest’s independent registered public accounting firm, Ernst & Young LLP, on Southwest’s internal control over financial reporting is included on page 31.
Fourth Quarter 2009 Changes in Internal Control over Financial Reporting
No change occurred during the fourth quarter of 2009 that has materially affected, or is reasonably likely to materially affect, Southwest’s internal control over financial reporting.

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Report on Effectiveness of Internal Control over Financial Reporting
The Board of Directors and Shareholders of Southwest Bancorp, Inc.
We have audited Southwest Bancorp, Inc.’s internal control over financial reporting as of December 31, 2009 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Southwest Bancorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Southwest Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2009 consolidated financial statements of Southwest Bancorp, Inc. and our report dated March 5, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
March 5, 2010

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Reports of Independent Registered Public Accounting Firm
Report on Consolidated Financial Statements
The Board of Directors and Shareholders of Southwest Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition of Southwest Bancorp, Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Southwest Bancorp, Inc. at December 31, 2009 and 2008 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Southwest Bancorp, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 5, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
March 5, 2010

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SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 
    AT DECEMBER 31,
 
(Dollars in thousands)   2009   2008
 
Assets
               
Cash and cash equivalents
  $ 118,847     $ 27,287  
Investment securities:
               
Held to maturity, fair value $6,754 and $7,293, respectively
    6,670       7,343  
Available for sale, amortized cost $236,199 and $233,293, respectively
    237,703       238,037  
Other investments at cost
    19,066       18,786  
Loans held for sale
    43,134       56,941  
Noncovered loans receivable
    2,539,294       2,494,506  
Less: Allowance for loan losses
    (62,413 )     (39,773 )
 
Net noncovered loans receivable
    2,476,881       2,454,733  
Covered loans receivable (includes loss share receivable of $23.9 million)
    85,405        
 
Net loans receivable
    2,562,286       2,454,733  
Accrued interest receivable
    10,806       11,512  
Premises and equipment, net
    26,536       24,580  
Noncovered other real estate
    18,432       6,092  
Covered other real estate
    4,748        
Goodwill
    6,811       7,071  
Other intangible assets, net
    5,779       3,764  
Prepaid FDIC insurance premium
    14,581        
Other assets
    32,892       23,616  
 
Total assets
  $ 3,108,291     $ 2,879,762  
 
 
               
Liabilities & shareholders’ equity
               
Deposits:
               
Noninterest-bearing demand
  $ 324,829     $ 261,940  
Interest-bearing demand
    74,201       76,027  
Money market accounts
    505,521       454,250  
Savings accounts
    25,730       14,135  
Time deposits of $100,000 or more
    1,004,439       802,244  
Other time deposits
    658,010       571,526  
 
Total deposits
    2,592,730       2,180,122  
Accrued interest payable
    3,191       7,018  
Income tax payable
    4,486       3,651  
Other liabilities
    13,121       9,667  
Other borrowings
    103,022       295,138  
Subordinated debentures
    81,963       81,963  
 
Total liabilities
    2,798,513       2,577,559  
 
               
Shareholders’ equity:
               
Preferred stock, Series B — $1 par value; 1,000,000 shares authorized; 70,000 shares issued
    67,037       66,392  
Common stock — $1 par value; 20,000,000 shares authorized; 14,750,713 and 14,658,042 shares issued, respectively
    14,751       14,658  
Paid in capital
    49,029       49,101  
Retained earnings
    178,016       170,579  
Accumulated other comprehensive gain
    945       2,921  
Treasury stock, at cost; 0 and 80,383 shares, respectively
          (1,448 )
 
Total shareholders’ equity
    309,778       302,203  
 
Total liabilities & shareholders’ equity
  $ 3,108,291     $ 2,879,762  
 
The accompanying notes are an integral part of this statement.

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SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                         
    FOR THE YEAR ENDED DECEMBER 31,
 
(Dollars in thousands, except per share data)   2009   2008   2007
 
Interest income:
                       
Interest and fees on loans
  $ 141,239     $ 152,719     $ 165,759  
Investment securities:
                       
U.S. Government and agency obligations
    1,960       3,552       8,506  
Mortgage-backed securities
    6,257       5,514       1,444  
State and political subdivisions
    299       375       260  
Other securities
    630       545       845  
Other interest-earning assets
    14       89       254  
 
Total interest income
    150,399       162,794       177,068  
 
                       
Interest expense:
                       
Interest-bearing demand
    476       584       355  
Money market accounts
    4,954       12,620       19,664  
Savings accounts
    78       69       87  
Time deposits of $100,000 or more
    20,864       28,214       31,231  
Other time deposits
    15,947       19,535       21,802  
Other borrowings
    4,049       7,242       7,555  
Subordinated debentures
    5,340       4,811       3,777  
 
Total interest expense
    51,708       73,075       84,471  
 
Net interest income
    98,691       89,719       92,597  
 
                       
Provision for loan losses
    39,176       18,979       8,947  
 
Net interest income after provision for loan losses
    59,515       70,740       83,650  
 
 
                       
Noninterest income:
                       
Service charges and fees
    11,704       11,026       9,920  
Other noninterest income
    1,063       1,546       1,590  
Gain on acquisition
    3,281              
Gain on sales of loans
    2,963       2,664       3,339  
Gain on sale/call of investment securities
    2,925       902       1,584  
 
Total noninterest income
    21,936       16,138       16,433  
 
                       
Noninterest expense:
                       
Salaries and employee benefits
    29,299       33,330       35,287  
Occupancy
    11,637       10,872       9,845  
FDIC and other insurance
    5,545       2,088       622  
Other real estate, net
    130       146       (58 )
General and administrative
    14,247       16,052       19,412  
 
Total noninterest expense
    60,858       62,488       65,108  
 
Income before taxes
    20,593       24,390       34,975  
Taxes on income
    7,611       9,489       13,597  
 
Net income
  $ 12,982     $ 14,901     $ 21,378  
 
Net income available to common shareholders
  $ 8,837     $ 14,658     $ 21,378  
 
 
                       
Basic earnings per common share
  $ 0.60     $ 1.01     $ 1.49  
Diluted earnings per common share
    0.60       1.00       1.46  
Common dividends declared per share
    0.0952       0.3800       0.3700  
The accompanying notes are an integral part of this statement.

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SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                         
    FOR THE YEAR ENDED DECEMBER 31,
 
(Dollars in thousands)   2009   2008   2007
 
Net income
  $ 12,982     $ 14,901     $ 21,378  
 
                       
Other comprehensive income:
                       
Unrealized holding gain (loss) on available for sale securities
    (315 )     4,995       5,073  
Reclassification adjustment for net gains realized during the period
    (2,925 )     (902 )     (1,584 )
 
Other comprehensive income (loss), before tax
    (3,240 )     4,093       3,489  
Tax benefit (expense) related to items of other comprehensive income
    1,264       (1,580 )     (1,343 )
 
Other comprehensive income (loss), net of tax
    (1,976 )     2,513       2,146  
 
Comprehensive income
  $ 11,006     $ 17,414     $ 23,524  
 
The accompanying notes are an integral part of this statement.

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SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                                                                 
                                            Accumulated           Total
                                            Other           Share-
    Preferred   Common Stock   Paid in   Retained   Comprehensive   Treasury   holders’
    Stock   Shares   Amount   Capital   Earnings   Income (Loss)   Stock   Equity
 
(Dollars in thousands, except per share data)                                
 
Balance, December 31, 2006
          14,658,042     $ 14,658     $ 45,901     $ 146,197     $ (1,738 )   $ (7,508 )   $ 197,510  
 
Cash dividends:
                                                               
Common, $0.37 per share, and other dividends
                            (5,290 )                 (5,290 )
Common stock issued:
                                                               
Employee Stock Option Plan
                      (782 )                 1,707       925  
Employee Stock Purchase Plan
                      20                   76       96  
Dividend Reinvestment Plan
                      23                   71       94  
Restricted Stock
                      108                   237       345  
Adjustment related to adoption of FIN 48
                            (803 )                 (803 )
Tax benefit related to exercise of stock options
                      474                         474  
Stock compensation expense
                      734                         734  
Other comprehensive income, net of tax
                                  2,146             2,146  
Net income
                            21,378                   21,378  
 
Balance, December 31, 2007
          14,658,042       14,658       46,478       161,482       408       (5,417 )     217,609  
 
Cash dividends:
                                                               
Preferred
                            (243 )                 (243 )
Common, $0.38 per share, and other dividends
                            (5,517 )                 (5,517 )
Preferred stock
    66,348                   3,652                         70,000  
Warrant amortization
    44                         (44 )                  
Common stock issued:
                                                               
Employee Stock Option Plan
                      (1,554 )                 3,489       1,935  
Employee Stock Purchase Plan
                      (13 )                 106       93  
Dividend Reinvestment Plan
                      (2 )                 28       26  
Restricted Stock
                      (21 )                 346       325  
Tax benefit related to exercise of stock options
                      339                         339  
Stock compensation expense
                      222                         222  
Other comprehensive income, net of tax
                                  2,513             2,513  
Net income
                            14,901                   14,901  
 
Balance, December 31, 2008
  $ 66,392       14,658,042     $ 14,658     $ 49,101     $ 170,579     $ 2,921     $ (1,448 )   $ 302,203  
 
Cash dividends:
                                                               
Preferred
                            (3,500 )                 (3,500 )
Common, $0.0952 per share, and other dividends
                            (1,400 )                 (1,400 )
Warrant amortization
    645                         (645 )                  
Common stock issued:
                                                               
Employee Stock Option Plan
          89,705       90       (87 )                 883       886  
Employee Stock Purchase Plan
          2,966       3       (21 )                 102       84  
Restricted Stock
                      (240 )                 463       223  
Tax benefit related to exercise of stock options
                      244                         244  
Stock compensation expense
                      32                         32  
Other comprehensive loss, net of tax
                                  (1,976 )           (1,976 )
Net income
                            12,982                   12,982  
 
Balance, December 31, 2009
  $ 67,037       14,750,713     $ 14,751     $ 49,029     $ 178,016     $ 945     $ 0     $ 309,778  
 
The accompanying notes are an integral part of this statement.

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SOUTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    FOR THE YEAR ENDED DECEMBER 31,
 
(Dollars in thousands)   2008   2008   2007
 
Operating activities:
                       
Net income
  $ 12,982     $ 14,901     $ 21,378  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Provision for loan losses
    39,176       18,979       8,947  
Deferred tax benefit
    (5,843 )     (2,788 )     (839 )
Asset depreciation
    3,187       2,963       2,812  
Securities premium amortization (discount accretion), net
    1,718       118       (205 )
Amortization of intangibles
    1,650       1,456       646  
Stock based compensation
    321       512       959  
Net gain on sale/call of investment securities
    (2,925 )     (902 )     (1,584 )
Net gain on sales of available for sale loans
    (2,963 )     (2,664 )     (3,339 )
Net loss on sales of premises/equipment
    62       258       11  
Net gain on other real estate
    (636 )     (571 )     (11 )
Gain from FDIC assisted acquisition
    (3,281 )            
Proceeds from sales of residential mortgage loans
    153,541       63,479       55,274  
Residential mortgage loans originated for resale
    (154,964 )     (61,195 )     (54,276 )
Proceeds from sales of student loans
    88,105       104,946       271,798  
Student loans originated for resale
    (69,817 )     (96,257 )     (149,629 )
Net changes in assets and liabilities:
                       
Accrued interest receivable
    706       11,605       1,396  
Other assets
    (17,097 )     (5,012 )     5,884  
Income taxes payable
    1,079       2,217       1,104  
Excess tax benefit from share-based payment arrangements
    (244 )     (339 )     (474 )
Accrued interest payable
    (3,827 )     (4,423 )     (2,159 )
Other liabilities
    3,518       (1,424 )     51  
 
Net cash provided by operating activities
    44,448       45,859       157,744  
 
Investing activities:
                       
Proceeds from sales of available for sale securities
    123,458       7,839       10,204  
Proceeds from principal repayments, calls and maturities:
                       
Held to maturity securities
    1,675       1,000        
Available for sale securities
    68,828       193,958       55,212  
Proceeds from redemptions of Federal Home Loan Bank stock
    1,081              
Purchases of other investments
    (1,361 )     (1,947 )     (801 )
Purchases of held to maturity securities
          (2,500 )     (4,202 )
Purchases of available for sale securities
    (174,343 )     (201,031 )     (22,096 )
Loans originated and principal repayments, net
    (50,572 )     (370,558 )     (505,335 )
Acquisitions, net, FDIC assisted (2009), Bank of Kansas (2007)
    17,161             (4,057 )
Investment in subsidiary
          1,070        
Purchases of premises and equipment
    (5,245 )     (3,655 )     (3,287 )
Proceeds from sales of premises and equipment
    90       219       63  
Proceeds from sales of other real estate
    7,050       11,595       469  
 
Net cash used in investing activities
    (12,178 )     (364,010 )     (473,830 )
 
Financing activities:
                       
Net increase in deposits
    277,601       121,543       227,431  
Net increase (decrease) in other borrowings
    (213,788 )     76,782       80,262  
Net proceeds from issuance of preferred stock
          70,000        
Net proceeds from issuance of common stock
    970       2,054       1,115  
Net proceeds from issuance of subordinated debentures
          34,500        
Excess tax benefit from share-based payment arrangements
    244       339       474  
Preferred stock dividends paid
    (3,305 )     (243 )      
Common stock dividends paid
    (2,432 )     (5,215 )     (5,136 )
 
Net cash provided from financing activities
    59,290       299,760       304,146  
 
Net increase (decrease) in cash and cash equivalents
    91,560       (18,391 )     (11,940 )
Cash and cash equivalents beginning of period
    27,287       45,678       57,618  
 
Cash and cash equivalents end of period
  $ 118,847     $ 27,287     $ 45,678  
 
The accompanying notes are an integral part of this statement.

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SOUTHWEST BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
1. Summary of Significant Accounting and Reporting Policies
Organization and Nature of Operations - Southwest, incorporated in 1981, is a bank holding company headquartered in Stillwater, Oklahoma engaged primarily in commercial and consumer banking services in the states of Oklahoma, Texas, and Kansas. The accompanying consolidated financial statements include the accounts of Stillwater National, a national bank established in 1894, Bank of Kansas, a state-chartered commercial bank established in 1907, Business Consulting Group, Inc. (“BCG”), a business consulting company established in 2002, Healthcare Strategic Support, Inc. (“HSSI”), a healthcare consulting company established in 2003, SNB Capital Corporation a lending and loan workout subsidiary established in 2009, and consolidated subsidiaries of Stillwater National, including SNB Real Estate Holdings, Inc. Stillwater National, Bank of Kansas, BCG, HSSI, and SNB Capital Corporation are wholly owned, direct subsidiaries of Southwest. All significant intercompany balances and transactions have been eliminated in consolidation. In 2010, Southwest decided and subsequently sold the stock of HSSI.
Basis of Presentation - The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles (“GAAP”) applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative.
ASC 855, Subsequent Events (formerly SFAS No. 165) became effective for Southwest for reporting periods ending after June 15, 2009. This ASC establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC 855.10.05-1 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. In accordance with ASC 855, Southwest has evaluated subsequent events for potential recognitions and disclosure through the date the consolidated financial statements included in this Annual Report on Form 10-K were issued.
Management Estimates - In preparing Southwest’s financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates shown on the consolidated statements of financial condition and revenues and expenses during the periods reported. Actual results could differ significantly from those estimates. Changes in economic conditions could affect the determination of material estimates such as the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, income taxes, and the fair value of financial instruments.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from depository institutions, and federal funds sold. Interest-bearing balances held at depository institutions were $84.6 million at December 31, 2009 and $1.9 million at December 31, 2008. Federal funds sold are sold for one-to-four day periods.

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Investment Securities - Investments in debt and equity securities are identified as held to maturity or available for sale based on management considerations of asset/liability strategy, changes in interest rates and prepayment risk, the need to increase liquidity, and other factors, including management’s intent and ability to hold securities to maturity. Southwest has the ability and intent to hold to maturity its investment securities classified as held to maturity. Southwest had no investments held for trading purposes for any period presented. Under certain circumstances (including the deterioration of the issuer’s creditworthiness, a change in tax law, or statutory or regulatory requirements), Southwest may change the investment security classification. The classifications Southwest utilizes determine the related accounting treatment for each category of investments. Available for sale securities are accounted for at fair value with unrealized gains or losses, net of taxes, excluded from operations and reported as accumulated other comprehensive income or loss. Held to maturity securities are accounted for at amortized cost.
All investment securities are adjusted for amortization of premiums and accretion of discounts. Amortization of premiums and accretion of discounts are recorded to operations over the contractual maturity or estimated life of the individual investment on the level yield method. Gain or loss on sale of investments is based upon the specific identification method. Income earned on Southwest’s investments in state and political subdivisions generally is not subject to ordinary Federal income tax.
Southwest periodically reviews all individual securities for which the fair values are below the book values. If it is determined that Southwest does not have the ability and intent to hold these securities for a period of time sufficient for a forecasted market price recovery up to (or beyond) the cost of the investment, or to maturity when the full cost will be recovered, then an other than temporary loss will be recognized in the consolidated statements of operations. For 2009, 2008, and 2007, Southwest recognized impairment charges of $0, $400,000, and $448,000, respectively, upon determining that declines in the value of securities were other than temporary.
Federal Reserve Bank (“FRB”) stock, Federal Home Loan Bank (“FHLB”) stock, and certain other investments are not readily marketable; therefore these investments are carried at cost.
Loans - Interest on loans is accrued and credited to operations based upon the principal amount outstanding. Loan origination fees and certain costs of originated loans are amortized as an adjustment to the yield over the term of the loan. Net unamortized deferred loan fees were $2.1 million and $4.4 million at December 31, 2009 and 2008, respectively.
Southwest generally places loans, except for consumer loans, on nonaccrual when any portion of the principal or interest is ninety days past due and collateral is insufficient to discharge the debt in full. Interest accrual may also be discontinued earlier if, in management’s opinion, collection is unlikely. Generally, consumer installment loans are not placed on nonaccrual but are charged-off when they are four months past due. Accrued interest is written off when a loan is placed on nonaccrual status. Loans are returned to accrual status: when none of its principal and interest is due and unpaid, repayment is expected and there has been a sustained period (at least six months) of repayment performance; when the loan is not brought current, but there is a sustained period of performance and repayment within a reasonable period is reasonably assured; or when the loan otherwise becomes well secured and in process of collection. Purchased impaired loans also may be returned to accrual status without becoming fully current. Loans that have been restructured because of weakened financial positions of the borrowers also may be returned to accrual status if repayment is reasonably assured under the revised terms and there has been a sustained period of repayment performance.
In general, accrued interest income on impaired loans is written off after the loan is 90 days past due; subsequent interest income is recorded when cash receipts are received from the borrower. Southwest identifies past due loans based on contractual terms on a loan by loan basis.
Southwest originates real estate mortgage loans and guaranteed student loans for either portfolio investment or sale in the secondary market. During the period of origination, real estate mortgage loans are designated as held either for investment purposes or sale. Mortgage loans held for sale are generally sold within a one-month period from

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loan closing at amounts determined by the investor commitment based upon the pricing of the loan. Guaranteed student loans have typically been sold at the time the student graduates or withdraws from school. Gains or losses recognized upon the sale of loans are determined on a specific identification basis.
Loans Acquired through Transfer - The accounting guidance of ASC 310.30, Loan and Debt Securities Acquired with Deteriorated Credit Quality, applies to loans acquired through the completion of a transfer, including loans acquired in a business combination that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that Southwest will be unable to collect all contractually required payment receivables. In accordance with this guidance, these loans are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield”, is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference”, are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition
Loss Share Receivable - Bank of Kansas and the FDIC entered into loss sharing agreements that provide Bank of Kansas with significant protection against credit losses from loans and related assets acquired in the FNBA FDIC-assisted transaction, see Note 2 Acquisitions. Under these agreements, the FDIC will reimburse Bank of Kansas 80% of net losses up to $35.0 million on covered assets, primarily acquired loans and other real estate, and 95% of any net losses above $35.0 million. Bank of Kansas services the covered assets. The loss sharing agreements have terms of ten years for one-to-four family residential loans and eight years for all other loan types. The expected payments from the FDIC under the loss sharing agreements were recorded as part of the loans acquired at their fair value as of June 19, 2009. (Assets subject to these agreements are referred to as “covered”.)
The difference between the undiscounted expected recoveries at acquisition and the fair value of the loss share receivable is the “accretable portion” and is recognized as interest income over the estimated life of the acquired loan portfolio. The initially recorded loss share receivable represented 85% of the aggregate loan discount related to the acquired loan portfolio. Because of the relationship of the loss share receivable to the loan discount, when an adjustment is made to a loan discount to reflect changes in the expected cash flows of the loan, an adjustment to the corresponding loss share receivable attributable to that loan will also occur.
Allowance for Loan Losses - The allowance for loan losses is a reserve 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. The allowance for loan and lease losses is determined in accordance with regulatory guidelines and generally accepted accounting principles and is comprised of two primary components. Loans deemed to be impaired are evaluated on an individual basis consistent with ASC 310.10.35, Receivables: Subsequent Measurement. The amount and level of the impairment allowance is ultimately determined by management’s estimate of the amount of expected future cash flows or, if the loan is collateral dependent, on the value of the collateral, which may vary from period to period depending on changes in the financial condition of the borrower or changes in the estimated value of the collateral. Charge-offs against the allowance of impaired loans are made when and to the extent the loan is deemed uncollectible. The remaining portion of the allowance is calculated based on ASC 450, Contingencies. Loans not evaluated for specific allowance are segmented into loan pools by type of loan. Estimated allowances are based on historical loss trends with adjustments factored in based on qualitative risk factors both internal and external to Southwest. These factors include but are not limited to, economic and business conditions, changes in lending staff, lending policies and procedures, quality of loan review, changes in the nature and volume of the portfolios, loss and recovery trends, asset quality trends, and legal and regulatory considerations.

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A loan is considered to be impaired when, based on current information and events, it is probable that Southwest will be unable to collect all amounts due according to the contractual terms of the loan agreement. The allowance for loan losses related to loans that are evaluated for impairment is based either on the discounted cash flows using the loan’s initial effective interest rate or on the fair value of the collateral for certain collateral dependent loans. Smaller balance, homogeneous loans, including mortgage, student, and consumer, are collectively evaluated for impairment. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. All of Southwest’s nonaccrual loans are considered to be impaired loans.
Independent appraisals on real estate collateral securing loans are obtained at origination. New appraisals are obtained periodically and upon discovery of factors that may significantly affect the value of the collateral. Appraisals usually are received within 30 days of request. Results of appraisals on nonperforming and potential problem loans are reviewed promptly upon receipt and also are reviewed monthly and considered in the determination of the allowance for loan losses. Southwest is not aware of any significant time lapses in the process that have resulted, or would result in, a significant delay in determination of a credit weakness, the identification of a loan as nonperforming, or the measurement of an impairment.
Management strives to carefully monitor credit quality and to identify loans that may become nonperforming. At any time, however, there are loans included in the portfolio that will result in losses to Southwest but that have not been identified as nonperforming or potential problem loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the unexpected deterioration of one or a few of such loans may cause a significant increase in nonperforming assets and may lead to a material increase in charge-offs and the provision for loan losses in future periods.
Reserve for Unfunded Loan Commitments - The reserve for unfunded loan commitments is a liability on Southwest’s statement of financial condition. The reserve 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.
Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straight-line basis over the estimated useful life of each asset. Useful lives range from 10 years to 40 years for buildings and improvements, and 3 years to 10 years for furniture, fixtures, and equipment. Southwest reviews the carrying value of long-lived assets used in operations when changes in events or circumstances indicate that the assets might have become impaired. This review initially includes a comparison of carrying value to the undiscounted cash flows estimated to be generated by those assets. If this review indicates that an asset is impaired, Southwest records a charge to operations to reduce the asset’s carrying value to fair value, which is based on estimated discounted cash flows. Long-lived assets that are held for disposal are valued at the lower of the carrying amount or fair value less costs to sell.
Other Real Estate Owned - Other real estate owned is initially recorded at the lesser of the carrying value or fair value less the estimated costs to sell the asset. Write-downs of carrying value required at the time of foreclosure are recorded as a charge to the allowance for loan losses. Costs related to the development of such real estate are capitalized, and costs related to holding the property are expensed. Foreclosed property is subject to periodic revaluation based upon estimates of fair value. In determining the valuation of other real estate owned, management obtains independent appraisals for significant properties. Valuation adjustments are provided, as necessary, by charges to operations. Profits and losses from sales of foreclosed property are recognized as incurred. At December 31, 2009 and 2008, the balances of noncovered other real estate owned were $18.4 million and $6.1 million, respectively.
Goodwill and Other Intangible Assets - Intangible assets consist of goodwill, core deposit intangibles, and loan servicing rights. Goodwill and core deposit intangibles, which generally result from a business combination, are accounted for under the provisions of ASC 350, Intangibles - Goodwill and Other, and ASC 805, Business Combinations. Loan servicing rights are accounted for under the provisions of ASC 860, Transfers and Servicing.

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Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired and is assigned to reporting units. Goodwill is not amortized, but is tested for impairment at least annually or more frequently if conditions indicate impairment. The evaluation of possible impairment involves significant judgment based upon short-term and long-term projections of future performance of each reporting unit.
Core deposit intangibles 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 net book value of core deposit intangibles is evaluated for impairment when economic conditions indicate impairment may exist.
Loan servicing rights are capitalized based on estimated fair value at the point of origination. The servicing rights are amortized on an individual loan by loan basis over the period of estimated net servicing income. Impairment of loan servicing rights is assessed based on the fair value of those rights. Southwest reviews the carrying value of loan servicing rights quarterly for impairment. At least annually, we obtain estimates of fair value from outside sources to corroborate the results of the valuation model. Assets are considered impaired when the balances are not recoverable from estimated future cash flows. At December 31, 2009, the fair value of loan servicing rights was $1.7 million, which approximates book value.
Prepaid FDIC Insurance Premium - On November 12, 2009, the FDIC adopted a final rule requiring insured institutions to prepay three years of premiums in order to restore the Deposit Insurance Fund. By prepaying three years of premiums, banks will be allowed to defer recognition of the insurance expense until the payments are recognized by the FDIC on a quarterly basis. Under this rule, on December 30, 2009, Stillwater National and Bank of Kansas prepaid their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. Under the rule, banks will be assessed through 2010 according to the risk-based premium schedule adopted earlier this year. However, beginning January 1, 2011, the base rate will increase by 3 basis points.
Fair Value Measurements - Effective January 1, 2008, Southwest adopted the provisions of ASC 820, Fair Value Measurements and Disclosure, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and Southwest’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
Deposits - The total amount of time deposits with a minimum denomination of $100,000 was approximately $1.0 billion and $802.2 million at December 31, 2009 and 2008, respectively. The total amount of overdrawn deposit accounts that were reclassified as loans at December 31, 2009 and 2008 was $779,000 and $1.0 million, respectively. Time deposit maturities are as follows: $1.5 billion in 2010, $117.1 million in 2011, $5.0 million in 2012, $6.9 million in 2013, and $3.9 million in 2014.
Loan Servicing Income - Southwest earns fees for servicing real estate mortgages and other loans owned by others. These fees are generally calculated on the outstanding principal balance of the loans serviced and are recorded as income when earned.
Taxes on Income - Southwest and its subsidiaries file consolidated income tax returns. Income tax expense is based on the results of operations, adjusted for permanent differences between items of income or expense reported in the financial statements and those reported for tax purposes. Under the liability method, deferred income taxes are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance will be established if it is more likely than not that some portion of the deferred tax asset will not be realized.

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Earnings per Common Share - Basic earnings per common share is computed based upon net income, after deducting the dividend requirements of preferred stock, divided by the weighted average number of common shares outstanding during each period, excluding non-vested stock. Diluted earnings per common share is computed based upon net income, after deducting the dividend requirements of preferred stock, divided by the weighted average number of common shares outstanding during each period, excluding non-vested stock and adjusted for the effect of dilutive potential common shares calculated using the treasury stock method. A reconciliation of the weighted-average common shares used in the calculations of basic and diluted earnings per common share for the reported periods is provided in Note 11 Shareholders’ Equity and Note 12 Earnings per Common Share.
For the years ended December 31, 2009, 2008, and 2007, Southwest had 380,390, 469,941, and 403,950 antidilutive options to purchase common shares, respectively.
Share-Based Compensation - The Southwest Bancorp, Inc. 1994 Stock Option Plan (the “1994 Plan”), the 1999 Stock Option Plan (the “1999 Plan”), and the 2008 Stock Based Award Plan (the “2008 Stock Plan”), collectively the “Stock Plans”, provide selected key employees with the opportunity to acquire common stock. The exercise price of all options granted under the Stock Plans is the fair market value on the grant date. Depending upon terms of the stock option agreements, stock options generally become exercisable on an annual basis and expire from five to ten years after the date of grant.
The 2008 Stock Plan replaced the1999 Plan, as amended. Options issued under the 1999 Plan and the 1994 Plan will continue in effect and will be subject to the requirements of those plans, but no new options will be granted under them. The 2008 Stock Plan authorized awards for up to 800,000 shares of Southwest common stock over its ten-year term.
Comprehensive Income - Southwest’s comprehensive income (net income plus all other changes in shareholders’ equity from non-equity sources) consists of its net income and unrealized holding gains (losses) in its available for sale securities.
Trust - Southwest offers trust services to customers through its relationship with the Heritage Trust Company, a trust services company, and directly through the trust department of Bank of Kansas. Property (other than cash on deposit) held by Southwest in a fiduciary or agency capacity for its customers is not included in the consolidated statements of financial condition as it is not an asset or liability of Southwest. Assets held in trust were $77.0 million and $74.9 million at December 31, 2009 and 2008, respectively.
Liquidity - Stillwater National and Bank of Kansas are required by the FRB to maintain average reserve balances. Cash and due from banks in the consolidated statements of financial condition include restricted amounts of $1.3 million and $627,000 at December 31, 2009 and 2008, respectively.
2. Acquisitions
On June 19, 2009, Bank of Kansas entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire substantially all deposits and loans as well as certain other liabilities and assets of First National Bank of Anthony, Anthony, Kansas (“FNBA”) in an FDIC-assisted transaction. FNBA was a full service commercial bank that had been placed in receivership with the FDIC. In this transaction, Bank of Kansas acquired the following assets and liabilities at their respective fair values on the date of acquisition:

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(Dollars in thousands)   Amount
 
Cash and cash equivalents
  $ 6,039  
Loans
    117,096  
Investment securities
    20,644  
Core deposit intangibles
    1,983  
Other real estate owned
    2,938  
Other assets
    1,141  
 
Total assets acquired
  $ 149,841  
 
Deposits
    135,007  
Borrowings
    21,672  
Other liabilities
    1,003  
 
Net assets acquired
  $ (7,841 )
Plus: cash received from FDIC
    11,122  
 
Gain on acquisition
  $ 3,281  
 
The acquisition of these assets and liabilities constitute a business as defined by ASC 805, Business Combinations, because they are capable of being operated as a business. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. The resulting gain of $3.3 million on the acquisition is included in noninterest income in the Consolidated Statement of Operations.
Bank of Kansas elected to exercise its option to acquire four former FNBA branch offices from the FDIC. As of December 31, 2009, the four branch offices were acquired for $2.0 million and equipment was acquired for $214,000.
The carrying value of the FDIC covered assets at December 31, 2009 consisted of loans accounted for in accordance with ASC 310.30 and other assets, as follows:
                         
    ASC 310.30        
(Dollars in thousands)   Loans   Other   Total
 
Commercial real estate
  $ 30,186     $     $ 30,186  
1-4 family residential
    8,394             8,394  
Real Estate Construction
    12,475             12,475  
Commercial
    9,247             9,247  
Consumer
    1,158             1,158  
Other real estate owned
          4,748       4,748  
Estimated loss reimbursement from the FDIC
    23,945             23,945  
 
Total covered assets
  $ 85,405     $ 4,748     $ 90,153  
 
As of the acquisition date, the preliminary estimate of the contractually required payments receivable for the ASC 310.30 loans was $123.2 million, the cash flows expected to be collected were $84.0 million including interest, and the estimated fair value of the loans was $117.1 million, including the loss share receivable. These amounts were determined based upon the estimated remaining life of the underlying loans, which included the effects of estimated prepayments.
Based upon the analysis performed by an outside valuation firm, Bank of Kansas initially recorded a loan discount of $39.1 million on the date of acquisition. Included was $37.5 million related to projected credit losses (the credit component) and a $1.6 million accretable portion related to the discount rate used in the valuations (the interest component). The accretable portion is recognized in interest income on a monthly basis and periodically adjusted to reflect changes in expected cash flows. There was $324,000 of loan discount accretion during 2009.
The nonaccretable portion of the loan discount, to the extent available, is used to offset applicable loan charge-offs. There was $3.9 million in applicable loan discounts used to offset charge-offs during 2009. Charge-offs in excess of the nonaccretable portion will be charged against the allowance for loan losses. There were no such

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charges against the allowance in 2009. When a loan has been charged off, paid off, or paid down to a level where the remaining amount of the nonaccretable discount is no longer appropriate, based on the future expected cash flows of the underlying loans, adjustments will be made to reduce the carrying value of the nonaccretable discount through a combination of interest income and the loss share receivable. During 2009, Southwest recognized $822,000 in interest income as a result of a $5.4 million reduction in loan discount due to payoffs and charge-offs offset by a $4.5 million reduction in the applicable loss share receivable.
The initial loss share receivable recorded at the date of acquisition was $33.1 million, based on the discounted cash flow of expected recoveries. The undiscounted expected recoveries, using the FDIC loss share agreements reimbursement rates, initially aggregated $35.2 million. The $2.1 million accretable portion is being recognized in interest income on a monthly basis and periodically adjusted to reflect changes in expected cash flows. There was $264,000 of loss share receivable accretion during 2009. Bank of Kansas has identified $7.6 million in net losses to submit to the FDIC under the loss sharing agreements for the period from June 19, 2009 through December 31, 2009.
Should a covered loan be renewed, the loan discount and related loss share receivable (net loan discount) will stay with that loan and be amortized over the expected future recovery period of the loan. Changes in covered loan balances, due to collections, paydowns, payoffs, or charge-offs are assessed on at least a quarterly basis and the related loan discounts and the allocated loss share receivable are adjusted to reflect the changes in the expected cash flows.
When a loan is foreclosed, any residual loan discount net of the related loss share receivable is transferred along with the applicable loan balance to the other real estate owned or repossessed asset account. There were $553,000 of net loan discounts transferred to other real estate owned during 2009.
Changes in the carrying amount and accretable amounts for ASC 310.30 loans were as follows through December 31, 2009:
                 
    2009
    Net   Carrying
    accretable   amount
(Dollars in thousands)   amount   of loans
 
Fair value of acquired loans at beginning of period (or date of acquisition)
  $ 3,743     $ 117,096  
Payments received
          (32,240 )
Charge-offs
    (81 )      
Amortization
    (588 )     549  
 
Balance at end of period
  $ 3,074     $ 85,405  
 
The results of operations of FNBA are included with Southwest’s results of operations since the date of acquisition. The results of operations of FNBA were not significant to Southwest’s consolidated results of operations during the pre-acquisition periods of 2009 and 2008.
On July 27, 2007, Southwest acquired all of the assets and liabilities of Bank of Kansas in a stock acquisition for cash consideration of $15.6 million. Bank of Kansas was a privately held bank which operated two banking offices in the Hutchinson, Kansas area. The acquisition was accounted for under the purchase method of accounting, and accordingly, the purchase price was 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 deductible for tax purposes. Goodwill will not be amortized, but will be reviewed for impairment. This transaction produced goodwill of $5.9 million and a core deposit intangible of $1.7 million. Upon completion of this acquisition, Bank of Kansas was fully integrated into Southwest.

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3. Investment Securities
Effective April 1, 2009, Southwest adopted the provisions of new authoritative accounting guidance under ASC 320, Debt and Equity Securities. The provisions (i) change existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under this section, declines in fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. Adoption of the new guidance did not have a material impact on our financial condition and results of operations.
A summary of the amortized cost and fair values of investment securities follows:
                                 
    At December 31, 2009
    Amortized   Gross Unrealized   Fair
(Dollars in thousands)   Cost   Gains   Losses   Value
 
Held to Maturity:
                               
Obligations of state and political subdivisions
  $ 6,670     $ 84     $     $ 6,754  
 
Total
  $ 6,670     $ 84     $     $ 6,754  
 
 
                               
Available for Sale:
                               
U.S. Government obligations
  $ 1,098     $ 2     $     $ 1,100  
Federal agency securities
    75,789       445       (849 )     75,385  
Obligations of state and political subdivisions
    837       16             853  
Residential mortgage-backed securities
    157,539       2,241       (634 )     159,146  
Equity securities
    936       283             1,219  
 
Total
  $ 236,199     $ 2,987     $ (1,483 )   $ 237,703  
 
                                 
    At December 31, 2008
    Amortized   Gross Unrealized   Fair
(Dollars in thousands)   Cost   Gains   Losses   Value
 
Held to Maturity:
                               
Obligations of state and political subdivisions
  $ 7,343     $ 10     $ (60 )   $ 7,293  
 
Total
  $ 7,343     $ 10     $ (60 )   $ 7,293  
 
 
                               
Available for Sale:
                               
U.S. Government obligations
  $ 986     $ 13     $     $ 999  
Federal agency securities
    77,543       1,663       (9 )     79,197  
Obligations of state and political subdivisions
    2,736       19             2,755  
Residential mortgage-backed securities
    151,130       2,897       (14 )     154,013  
Equity securities
    898       175             1,073  
 
Total
  $ 233,293     $ 4,767     $ (23 )   $ 238,037  
 
Federal Reserve Bank stock, Federal Home Loan Bank stock, and certain other investments are not readily marketable and are carried at cost. Total investments carried at cost were $19.1 million and $18.8 million at December 31, 2009 and 2008, respectively. There are no identified events or changes in circumstances that may have a significant adverse effect on these investments carried at cost.

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Gross unrealized losses and fair value by length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2009 and 2008 are as follows:
                                         
            Continuous Unrealized Losses Existing for:
            Amortized cost of                   Fair value of
    Number of   securities with   Less Than   More Than   securities with
(Dollars in thousands)   Securities   unrealized losses   12 Months   12 Months   unrealized losses
 
At December 31, 2009:
                                       
 
                                       
Available for Sale:
                                       
Federal agency securities
    14     $ 38,710     $ (849 )   $  —     $ 37,861  
Obligations of state and political subdivisions
    1       55                   55  
Residential mortgage-backed securities
    20       59,327       (634 )           58,693  
 
Total
    35     $ 98,092     $ (1,483 )   $     $ 96,609  
 
 
                                       
At December 31, 2008:
                                       
 
                                       
Held to Maturity:
                                       
Obligations of state and political subdivisions
    5     $ 2,875     $ (60 )   $     $ 2,815  
 
Total
    5     $ 2,875     $ (60 )   $     $ 2,815  
 
 
                                       
Available for Sale:
                                       
Federal agency securities
    2     $ 5,962     $ (9 )   $     $ 5,953  
Obligations of state and political subdivisions
    1       1,250                   1,250  
Residential mortgage-backed securities
    8       3,608       (14 )           3,594  
 
Total
    11     $ 10,820     $ (23 )   $     $ 10,797  
 
Residential mortgage-backed securities consist of agency securities underwritten and guaranteed by Government National Mortgage Association (“Ginnie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), and Federal National Mortgage Association (“Fannie Mae”).
Southwest evaluates all 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.
Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time Southwest will receive full value for the securities. Furthermore, as of December 31, 2009, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that Southwest will not have to sell any such securities before a recovery of cost. The declines in fair value were attributable to increases in market interest rates over the yields available at the time the underlying securities were purchased or increases in spreads over market interest rates. Management does not believe any of the securities are impaired due to credit quality. Accordingly, as of December 31 2009, management believes the impairment of these investments is not deemed to be other-than-temporary.
As required by law, investment securities are pledged to secure public and trust deposits, as well as the Sweep Agreement product and borrowings from the FHLB. Securities with an amortized cost of $241.9 million and $239.7 million were pledged to meet such requirements of $62.6 million and $109.9 million at December 31, 2009 and 2008, respectively. Any amount over pledged can be released at any time.

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A comparison of the amortized cost and approximate fair value of Southwest’s debt securities by maturity date at December 31, 2009 follows in the next table.
                                 
    Available for Sale   Held to Maturity
    Amortized   Fair   Amortized   Fair
(Dollars in thousands)   Cost   Value   Cost   Value
 
One year or less
  $ 17,296     $ 17,539     $ 2,825     $ 2,853  
More than one year through five years
    121,646       123,881       3,845       3,901  
More than five years through ten years
    77,831       77,173              
More than ten years
    19,426       19,110              
 
Total
  $ 236,199     $ 237,703     $ 6,670     $ 6,754  
 
The foregoing analysis assumes that Southwest’s residential mortgage-backed securities mature during the period in which they are estimated to prepay. No other prepayment or repricing assumptions have been applied to Southwest’s debt securities for this analysis.
Gross realized gains on sales and calls of investment securities were $2.9 million during 2009, $1.3 million during 2008, and $2.0 million during 2007. Gross realized losses on sales and write-down of investment securities were $0 during 2009, $400,000 during 2008, and $448,000 during 2007. The gross proceeds from such sales and calls of investment securities totaled approximately $141.2 million, $7.8 million, and $10.2 during 2009, 2008, and 2007, respectively.
4. Loans
Major classifications of loans are as follows:
                         
    At December 31,
    2009   2008*
(Dollars in thousands)   Noncovered   Covered        
 
Real estate mortgage:
                       
Commercial
  $ 1,212,409     $ 39,836     $ 1,118,828  
One-to-four family residential
    114,614       12,630       113,665  
Real estate construction
                       
Commercial
    618,078       12,515       579,795  
One-to-four family residential
    41,109       5,324       79,565  
Commercial
    520,505       13,412       564,670  
Installment and consumer:
                       
Guaranteed student loans
    36,163             54,057  
Other
    39,550       1,688       40,867  
 
 
    2,582,428       85,405       2,551,447  
Allowance for loan losses
    (62,413 )           (39,773 )
 
Total loans, net
  $ 2,520,015     $ 85,405     $ 2,511,674  
 
*   There were no covered loans as of December 31, 2008.
Southwest extends commercial and consumer credit primarily to customers in the states of Oklahoma, Texas, and Kansas which subjects the loan portfolio to the general economic conditions within these areas. At December 31, 2009 and 2008, substantially all of Southwest’s loans were collateralized with real estate, inventory, accounts receivable, and/or other assets or are guaranteed by agencies of the United States Government or, in the case of private student loans, insured by a private insurer.
Loans covered under the loss sharing agreements with the FDIC including the amounts of expected reimbursements from the FDIC under these agreements are reported in loans and are referred to as “covered” loans. Covered loans were initially recorded at fair value at the acquisition date. Subsequent decreases in the amount expected to be collected result in a provision for loan losses equal to the portion of the loss retained by the bank and an increase in the estimated FDIC reimbursement equal to the portion of the loss reimbursable by the

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FDIC. Interest is accrued daily on the outstanding principal balances. Covered loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other covered loans on which full recovery of principal or interest is in doubt are placed on nonaccrual status. Interest previously accrued on covered loans placed on nonaccrual status is charged against interest income, net of estimated FDIC reimbursements of such accrued interest. When the ability to fully collect nonaccrual loan principal is in doubt, payments received are applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected. Any additional interest payments received after that time are recorded as interest income on a cash basis.
As of December 31, 2009, approximately $697.7 million, or 27%, of Southwest’s noncovered portfolio loans 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 of more than 10% of portfolio loans other than referred to in the table above. In the event of total nonperformance by the borrowers or guarantors, Southwest’s accounting loss would be limited to the recorded investment in the loans reduced by proceeds received from disposition of the related collateral.
Southwest had loans which were held for sale of $43.1 million and $56.9 million at December 31, 2009 and 2008, respectively. These loans are carried at the lower of cost or market. Guaranteed student loans are generally sold to a single servicer. A substantial portion of the one-to-four family residential loans and loan servicing rights are sold to four investors.
The principal balance of loans for which accrual of interest has been discontinued totaled approximately $118.2 million and $59.3 million at December 31, 2009 and 2008, respectively. If interest on those loans had been accrued, the interest income as reported in the accompanying consolidated statements of operations would have increased by approximately $4.8 million, $2.6 million, and $1.4 million, for 2009, 2008, and 2007, respectively.
The principal balance of loans past due ninety days or more for which Southwest was still accruing interest totaled $1.4 million and $4.7 million at December 31, 2009 and 2008, respectively.
The unpaid principal balance of real estate mortgage loans serviced for others totaled $237.5 million, $158.1 million, and $141.7 million at December 31, 2009, 2008, and 2007, respectively. Southwest maintained escrow accounts totaling $934,000 and $718,000 for real estate mortgage loans serviced for others at December 31, 2009 and 2008, respectively.
The following table sets forth the remaining maturities for certain loan categories (including loans held for sale) at December 31, 2009. Student loans that do not have stated maturities are treated as due in one year or less. Real estate construction includes certain loans which will convert to permanent financing at the point when construction is completed; these loans are reported according to their final maturity.

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            After one        
    One year   year through   After    
(Dollars in thousands)   or less   five years   five years   Total
 
Noncovered:
                               
Real estate mortgage:
                               
Commercial
  $ 232,021     $ 801,680     $ 178,708     $ 1,212,409  
One-to-four family residential
    12,025       53,205       49,384       114,614  
Real estate construction
    367,477       270,879       20,831       659,187  
Commercial
    144,459       211,424       164,622       520,505  
Installment and consumer:
                               
Guaranteed student loans
    36,163                   36,163  
Other
    16,111       21,688       1,751       39,550  
 
Total — noncovered
    808,256       1,358,876       415,296       2,582,428  
Covered:
                               
Real estate mortgage:
                               
Commercial
    2,162       11,366       26,308       39,836  
One-to-four family residential
    3,293       2,407       6,930       12,630  
Real estate construction
    15,420       513       1,906       17,839  
Commercial
    6,592       4,228       2,592       13,412  
Installment and consumer:
    253       1,375       60       1,688  
 
Total — covered
    27,720       19,889       37,796       85,405  
 
Total
  $ 835,976     $ 1,378,765     $ 453,092     $ 2,667,833  
 
The following table sets forth at December 31, 2009 the dollar amount of all loans due more than one year after December 31, 2009.
                 
(Dollars in thousands)   Fixed   Variable
 
Noncovered:
               
Real estate mortgage:
               
Commercial
  $ 333,438     $ 646,950  
One-to-four family residential
    50,460       52,129  
Real estate construction
    59,086       232,624  
Commercial
    121,756       254,290  
Installment and consumer
    9,546       13,893  
 
Total — noncovered
    574,286       1,199,886  
Covered:
               
Real estate mortgage:
               
Commercial
    5,794       31,880  
One-to-four family residential
    1,939       7,398  
Real estate construction
    550       1,869  
Commercial
    2,674       4,146  
Installment and consumer
    1,429       6  
 
Total — covered
    12,386       45,299  
 
Total
  $ 586,672     $ 1,245,185  
 
Activity in the allowance for loan losses is summarized as follows:
                         
    For the Year Ended December 31,
(Dollars in thousands)   2009   2008   2007
 
Beginning balance
  $ 39,773     $ 29,584     $ 27,293  
Provision for loan losses
    39,176       18,979       8,947  
Loans charged off
    (18,913 )     (9,942 )     (7,365 )
Recoveries
    2,377       1,152       709  
 
Total
  $ 62,413     $ 39,773     $ 29,584  
 
As of December 31, 2009 and 2008, noncovered impaired loans totaled $105.9 million and $59.3 million and had a related allowance for loan loss of $13.3 million and $5.4 million, respectively. The average balance of noncovered

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impaired loans totaled $61.6 million, $35.2 million, and $19.8 million for the years ended December 31, 2009, 2008, and 2007, respectively. Interest income recognized on impaired loans totaled $2.1 million, $578,000, and $10,000, respectively, for the years ended December 31, 2009, 2008, and 2007.
5. Premises and Equipment
These consist of the following:
                 
    At December 31,
(Dollars in thousands)   2009   2008
 
Land
  $ 6,841     $ 5,830  
Buildings and improvements
    17,872       15,210  
Furniture, fixtures, and equipment
    32,463       30,907  
Construction/Remodeling in progress
    139       380  
 
 
    57,315       52,327  
Accumulated depreciation and amortization
    (30,779 )     (27,747 )
 
Premises and equipment, net
  $ 26,536     $ 24,580  
 
6. Goodwill and Other Intangible Assets
Goodwill totaled $6.8 million and $7.1 million at December 31, 2009 and 2008, respectively. During 2007, Southwest recorded goodwill totaling $5.9 million in connection with the acquisition of Bank of Kansas. During 2009, we discovered an error in the entries made to record the Bank of Kansas acquisition and recorded the correction. The adjustment was recorded to reduce goodwill by $260,000 to properly record other asset balances that were established at the time of the acquisition. This adjustment is not material to previous fiscal years, and accordingly, Southwest has included the correction in the period in which it was identified.
As of year-end, approximately $200,000 of goodwill is reported in the Oklahoma Banking segment, $5.6 million is reported in the Kansas Banking segment, and $1.0 million is reported in the Texas Banking segment. Further information regarding operating segments can be found in Note 21 to the Consolidated Financial Statements.
The following tables present the original cost and accumulated amortization of other intangible assets:
                 
    At December 31,
(Dollars in thousands)   2009   2008
 
Core deposit premiums
  $ 6,353     $ 4,370  
Less accumulated amortization
    2,249       1,774  
 
Core deposit premiums, net
  $ 4,104     $ 2,596  
 
               
Loan servicing rights
  $ 6,687     $ 5,004  
Less accumulated amortization
    5,012       3,836  
 
Loan servicing rights, net
  $ 1,675     $ 1,168  
 
               
 
Other intangible assets, net
  $ 5,779     $ 3,764  
 
During 2009, Bank of Kansas recorded core deposit intangibles totaling $2.0 million in connection with the FNBA acquisition.
Core deposit intangibles 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 is approximately 10 years. Amortization expense related to core deposit intangibles totaled $475,000 and $457,000, in 2009 and 2008, respectively.

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During 2009 and 2008, Southwest had recorded loan servicing right amortization expense of $847,000 and $441,000, respectively. During 2009 and 2008, mortgage loan servicing rights were written down $329,000 and $557,000 to their respective fair values.
The estimated aggregate future amortization expense for other intangible assets remaining as of December 31, 2009 is as follows:
                         
    Core Deposit   Loan Servicing    
(Dollars in thousands)   Premiums   Rights   Total
 
2010
    547       637       1,184  
2011
    527       465       992  
2012
    488       317       805  
2013
    484       183       667  
Thereafter
    2,058       73       2,131  
 
 
  $ 4,104     $ 1,675     $ 5,779  
 
7. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In estimating fair value, Southwest utilizes valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability.
ASC 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
     
Level 1
  Quoted prices in active markets for identical assets or liabilities: Level 1 assets and liabilities include debt and equity securities that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.
 
   
Level 2
  Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments. This category includes U.S. Government and agency mortgage-backed debt securities, municipal obligation securities, loans held for sale, and certain private equity investments.
 
   
Level 3
  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 assets include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes other real estate owned, goodwill, and other intangible assets.
The estimated fair value amounts have been determined by Southwest using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts Southwest could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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A description of the valuation methodology used for financial assets measured at fair value on a recurring basis is as follows:
     Loans held for sale - Real estate mortgage loans held for sale are carried at the lower of cost or market, which is determined on an individual loan basis. Guaranteed student loans held for sale are carried at the lower of cost or market, which is determined on an aggregate basis.
     Available for sale securities - The fair value of U.S. Government and federal agency obligations, other securities, and mortgage-backed securities is estimated based on quoted market prices or dealer quotes. The fair value for other investments such as obligations of state and political subdivisions is estimated based on quoted market prices. The fair value of the certain private equity investments is estimated based on Southwest’s proportionate share of net asset value. These investments have a quarterly redemption with sixty-five days’ notice.
As of December 31, 2009, assets measured at fair value on a recurring basis are summarized below:
                                 
            Fair Value Measurement at December 31, 2009 Using
            Quoted Prices in        
            Active Markets for   Significant Other   Significant
            Identical Assets   Observable Inputs   Unobservable Inputs
(Dollars in thousands)   Total   (Level 1)   (Level 2)   (Level 3)
 
Loans held for sale
  $ 43,134     $     $ 43,134     $  
Available for sale securities
    237,703       1,241       236,462        
 
Total
  $ 280,837     $ 1,241     $ 279,596     $  
 
Certain financial assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These assets are recorded at the lower of cost or fair value. Valuation methodologies for assets measured on a nonrecurring basis are as follows:
     Impaired loans - Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. Collateral values are estimated using Level 2 inputs based on third-party appraisals. Certain impaired loans are remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair value of the underlying collateral.
     Other real estate owned - For other real estate owned, the fair value is based on third-party appraisals for significant properties.
     Goodwill - Fair value of goodwill is based on the fair value of each of Southwest’s eight reporting units compared with their respective carrying value. There was no impairment during 2009 or 2008; therefore, no fair value adjustments were recorded in earnings.
     Core deposit premiums - The fair value of core deposit premiums are based on third-party appraisals. There was no impairment during 2009 or 2008; therefore no fair value adjustments were recorded in earnings.
     Mortgage loan servicing rights - There is no active trading market for loan servicing rights. The fair value of loan servicing rights is estimated by calculating the present value of net servicing revenue over the anticipated life of each loan. A cash flow model is used to determine fair value. Key assumptions and estimates, including projected prepayments speeds and assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates, used by this model are based on current market sources. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated for changes in market conditions.

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During the year ended December 31, 2009, assets and liabilities measured at fair value on a nonrecurring basis are summarized below:
                                         
            Fair Value Measurements Using
            Quoted Prices in       Significant    
    Year ended   Active Markets for   Significant Other   Unobservable    
    December 31,   Identical Assets   Observable Inputs   Inputs   Total Gains
(Dollars in thousands)   2009   (Level 1)   (Level 2)   (Level 3)   (Losses)
 
Acquired assets and liabilities:
                                       
Investment securities
  $ 20,644     $     $ 20,644     $     $  
Loans
    117,096                     117,096        
Core deposit intangible
    1,983             1,983              
Other real estate owned
    2,938                   2,938        
Deposits
    135,007                   135,007        
Borrowings
    21,672             21672              
 
                                       
Noncovered impaired loans at fair value
    65,505             65,505             (14,006 )
Mortgage loan servicing rights
    1,850                   1,850       (329 )
 
Total
  $ 366,695     $     $ 109,804     $ 256,891     $ (14,335 )
 
In accordance with ASC 805, acquired assets and liabilities were measured at fair value on the date of acquisition. For more information please see Note 2.
Noncovered impaired loans measured at fair value with a carrying amount of $84.9 million were written down to their fair value of $65.5 million, resulting in a life-to-date impairment charge of $19.4 million, of which $14.0 million was included in the provision for loan losses for the year ended December 31, 2009.
Mortgage loan servicing rights were written down to their fair value, resulting in an impairment charge of $329,000, which was included in noninterest income for the year ended December 31, 2009.
ASC 825, Financial Instruments, requires an entity to provide disclosures about fair value of financial instruments, including those that are not measured and reported at fair value on a recurring or nonrecurring basis. The methodologies for estimating the fair value of financial instruments that are measured on a recurring or nonrecurring basis are discussed above. The methodologies for other financial instruments are discussed below:
     Cash and cash equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
     Investment securities - The investment securities held to maturity and the other investment securities are carried at cost. The fair value of held to maturity securities is estimated based on quoted market prices or dealer quotes.
     Loans - Fair values are estimated for certain homogeneous categories of loans adjusted for differences in loan characteristics. Southwest’s loans have been aggregated by categories consisting of commercial, real estate, student, and other consumer. The fair value of loans is estimated by discounting the cash flows using risks inherent in the loan category and interest rates currently offered for loans with similar terms and credit risks.
     Accrued interest receivable - The carrying amount is a reasonable estimate of fair value for accrued interest receivable.
     Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the statement of financial condition date. The fair value of fixed maturity certificates of deposits is estimated using the rates currently offered for deposits of similar remaining maturities.
     Other borrowings - The fair value for fixed rate FHLB advances is based upon discounted cash flow analysis using interest rates currently being offered for similar instruments. The fair values of other borrowings are the amounts payable at the statement of financial condition date, as the carrying amount is a reasonable estimate of fair value due to the short-term maturity rates. Included in other borrowings are federal funds

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purchased, FHLB advances, securities sold under agreements to repurchase, and treasury tax and loan demand notes.
     Subordinated debentures - Two subordinated debentures have floating rates that reset quarterly and the third Subordinated debenture has a fixed rate. The fair value of the floating rate Subordinated debentures is based on current book value. The fixed rate Subordinated debenture is based on market price.
     Other liabilities and accrued interest payable - The estimated fair value of other liabilities, which primarily includes trade accounts payable, and accrued interest payable approximates their carrying value.
     Commitments - Commitments to extend credit, standby letters of credit, and financial guarantees written or other items have short maturities and therefore have no significant fair values.
The carrying values and estimated fair values of Southwest’s financial instruments follow:
                                 
    At December 31, 2009   At December 31, 2008
    Carrying   Fair   Carrying   Fair
(Dollars in thousands)   Values   Values   Values   Values
 
Cash and cash equivalents
  $ 118,847     $ 118,847     $ 27,287     $ 27,287  
Investment securities:
                               
Held to maturity
    6,670       6,754       7,343       7,293  
Available for sale
    237,703       237,703       238,037       238,037  
Other investments
    19,066       19,066       18,786       18,786  
Total loans
    2,605,420       2,567,369       2,511,674       2,541,424  
Accrued interest receivable
    10,806       10,806       11,512       11,512  
Deposits
    2,592,730       2,583,691       2,180,122       2,190,988  
Accrued interest payable
    3,191       3,191       7,018       7,018  
Other liabilities
    13,121       13,121       9,667       9,667  
Other borrowings
    103,022       103,527       295,138       298,175  
Subordinated debentures
    81,963       83,343       81,963       82,653  
8. Other Borrowed Funds
Southwest has available various forms of other 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 FHLB, and the FRB. Southwest also carries interest-bearing demand notes issued by the U.S. Treasury in connection with the Treasury Tax and Loan note program. The following table summarizes borrowed funds of Southwest for the periods indicated:
                                                 
    2009     2008  
    Balance at     Average     Weighted     Balance at     Average     Weighted  
(Dollars in thousands)   December 31,     Balance     Average Rate     December 31,     Balance     Average Rate  
 
Federal funds purchased
  $ 10,060     $ 36,732       0.20 %   $ 89,534     $ 91,173       2.25 %
Securities sold under repurchase agreements
    23,259       27,174       0.32       38,034       33,718       1.36  
Federal Home Loan Bank advances
    68,560       103,510       3.04       151,500       128,687       3.13  
Federal Reserve Bank borrowings
                            7,650       5.05  
Treasury, tax and loan note option
    1,143       1,115             1,070       622       2.71  
Other
          13,151       5.36       15,000       12,213       4.83  
 
                                           
 
  $ 103,022                     $ 295,138                  
 
                                           
Southwest has approved federal funds purchase lines totaling $362.4 million with ten financial entities. Southwest sells securities under agreements to repurchase with Southwest retaining custody of the collateral. Collateral consists of direct obligations of U.S. Government and Federal Agency issues, which are designated as pledged with Southwest’s safekeeping agent. The type of collateral required, the retention of the collateral, and the security sold minimize Southwest’s risk of exposure to loss. These transactions are for one-to-four day periods. At December 31, 2009, no repurchase agreement exceeded 10% of equity capital.

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Southwest has entered into an agreement with the FHLB to obtain advances from the FHLB from time to time. Currently the line of credit totals $539.0 million. The terms of the agreement are set forth in the Advance, Pledge and Security Agreement (the “Agreement”). The FHLB requires that Southwest pledge collateral on such advances. Under the terms of the Agreement, the discounted value of the collateral, as defined by the FHLB, should at all times be at least equal to the amount borrowed by Southwest. Such advances outstanding are subject to a blanket collateral arrangement, which requires the pledging of eligible collateral to secure such advances. Such collateral principally includes certain loans and securities. At December 31, 2009 and 2008, loans pledged under the Agreement were $862.4 million and $822.9 million, and investment securities pledged (at carrying value) were $77.5 million and $36.8 million, respectively. Scheduled minimum future principal payments on the FHLB line of credit as of December 31, 2009 are as follows: $12.0 million in 2010, $31.5 million in 2011, $0 in 2012, $0 in 2013, $0 in 2014, and $25.0 million thereafter.
Southwest is qualified to borrow funds from the FRB through their Borrower-In-Custody (“BIC”) program. Collateral under this program consists of pledged selected commercial and industrial loans. Currently the collateral will allow Southwest to borrow up to $84.9 million. Southwest also has substantial unused borrowing availability in the form of unsecured brokered certificate of deposits program from Merrill Lynch & Co., Morgan Stanley & Co., Inc., Citigroup Global Markets, Inc., Wachovia Securities LLC, UBS Financial Services, Inc., and RBC Capital Markets Corp. In conjunction with these lines of credit, $330.0 million in retail certificates of deposit were included in total deposits at December 31, 2009.
During 2009, the categories of other borrowings whose average exceeded 30% of ending shareholders’ equity were advances from the FHLB.
                         
    At December 31,
(Dollars in thousands)   2009   2008   2007
 
Amounts outstanding at end of period
  $ 68,560     $ 151,500     $ 51,500  
Weighted average rate at end of period
    2.91 %     2.63 %     4.10 %
Maximum amount outstanding at any month-end
  $ 151,500     $ 156,600     $ 101,500  
Approximate average outstanding for the year
    103,510       128,687       52,853  
Approximate weighted average rate for the year
    3.04 %     3.13 %     4.74 %
9. Subordinated Debentures
At December 31, 2009, Southwest had the following issues of trust preferred securities outstanding and subordinated debentures owed to the Trusts.
                                 
    Subordinated     Trust Preferred              
    Debentures Owed     Securities of the     Interest Rates at        
(Dollars in thousands)   to Trusts     Trusts     December 31, 2009     Final Maturity Date  
 
OKSB Statutory I
  $ 20,619     $ 20,000       3.35 %   June 26, 2033
SBI Capital Trust II
    25,774       25,000       3.13 %   October 7, 2033
Soutwest Capital Trust II
    35,570       34,500       10.50 %   September 15, 2038
 
                           
 
  $ 81,963     $ 79,500                  
 
                           
On June 26, 2003, Southwest’s subsidiary, OKSB Statutory Trust I, sold to investors in a private placement offering $20.0 million of adjustable rate trust preferred securities (the “OKSB Trust Preferred”). The OKSB Trust Preferred bear interest, adjustable quarterly, at 90-day LIBOR plus 3.10%. In addition to these adjustable rate securities, OKSB Statutory Trust I sold $619,000 of trust common equity to Southwest. The aggregate proceeds of $20.6 million were used to purchase an equal principal amount of adjustable rate subordinated debentures of Southwest that bear interest, adjustable quarterly, at 90-day LIBOR plus 3.10% (the “OKSB Subordinated Debentures”). After deducting underwriter’s compensation and noninterest expenses of the offering, the net proceeds were available to Southwest to increase capital and for general corporate purposes. Interest payments on the OKSB Subordinated Debentures are deductible for federal income tax purposes.

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On October 14, 2003, Southwest’s subsidiary, SBI Capital Trust II, sold to investors in a private placement offering $25.0 million of adjustable rate trust preferred securities (the “SBI II Trust Preferred”). The SBI II Trust Preferred bear interest, adjustable quarterly, at 90-day LIBOR plus 2.85%. In addition to these adjustable rate securities, SBI Capital Trust II sold $774,000 of trust common equity to Southwest. The aggregate proceeds of $25.8 million were used to purchase an equal principal amount of adjustable rate subordinated debentures of Southwest that bear interest, adjustable quarterly 90-day LIBOR plus 2.85% (the “SBI II Subordinated Debentures”). The proceeds were available to Southwest to increase capital and for general corporate purposes. Interest payments on the SBI II Subordinated Debentures are deductible for federal income tax purposes.
In July 2008, Southwest’s subsidiary, Southwest Capital Trust II, sold to investors in a public offering $34.5 million of 10.50% trust preferred securities (the “OKSBP Trust Preferred”). In addition to these trust preferred securities, Southwest Capital Trust II sold $1.1 million of trust common equity to Southwest. The aggregated proceeds of $35.6 million were used to purchase an equal amount of 10.50% subordinated debentures of Southwest (the “OKSBP Subordinated Debentures”).
At December 31, 2009, Southwest had an aggregate of $82.0 million of subordinated debentures outstanding and had an asset of $2.5 million representing its total investment in the common equity issued by the Trusts. The sole assets of the Trusts are the subordinated debentures and the liabilities of the Trusts of the OKSB Trust Preferred, the SBI II Trust Preferred, and the OKSBP Trust Preferred. Southwest has, through various contractual arrangements, unconditionally guaranteed payment of all obligations of the Trusts with respect to the OKSB Trust Preferred, the SBI II Trust Preferred, and the OKSBP Trust Preferred.
The OKSB Trust Preferred, the OKSB Subordinated Debentures, the SBI II Trust Preferred, the SBI II Subordinated Debentures, the OKSBP Trust Preferred, and the OKSBP Subordinated Debentures mature at or near the thirtieth anniversary date of their issuance. However, if certain conditions are met, the OKSB Trust Preferred and the OKSB Subordinated Debentures and the SBI II Trust Preferred and the SBI II Subordinated Debentures may be called at Southwest’s discretion with thirty days notice, and the maturity dates of the OKSBP Trust Preferred and the OKSBP Subordinated Debentures may be shortened at Southwest’s discretion to a date not earlier than September 15, 2013.
Southwest, OKSB Statutory Trust I, SBI Capital Trust II, and Southwest Capital Trust II believe that, taken together, the obligations of Southwest under the Trust Preferred Guarantee Agreements, the Amended and Restated Trust Agreements, the Subordinated Debentures, the Indentures and the Agreements as to Expenses and Liabilities, entered into in connection with the offering of the Trust Preferred and the Subordinated Debentures, in the aggregate constitute a full and unconditional guarantee by Southwest of the obligations of OKSB Statutory Trust I, SBI Capital Trust II, and Southwest Capital Trust II under the Trust Preferred.
OKSB Statutory Trust I is a Connecticut statutory trust created for the purpose of issuing the OKSB Trust Preferred and purchasing the OKSB Subordinated Debentures, which are its sole assets. Southwest owns all of the 619 outstanding common securities of OKSB Statutory Trust I; the liquidation value is $1,000 per share.
SBI Capital Trust II is a Delaware statutory trust created for the purpose of issuing the SBI II Trust Preferred and purchasing the SBI II Subordinated Debentures, which are its sole assets. Southwest owns all of the 774 outstanding common securities of SBI Capital Trust II; the liquidation value is $1,000 per share.
Southwest Capital Trust II is a Delaware statutory trust created for the purpose of issuing the OKSBP Trust Preferred and purchasing the OKSBP Subordinated Debentures, which are its sole assets. Southwest owns all of the 42,800 outstanding common securities of Southwest Capital Trust II; the liquidation value is $25 per share.
Each of the Trust Preferred issuances meets the regulatory criteria for Tier I capital, subject to Federal Reserve guidelines that limit the amount of the Trust Preferred and cumulative perpetual preferred stock to an aggregate of 25% of Tier I capital. At December 31, 2009, $79.5 million of the Trust Preferred was included in Tier I capital.

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In accordance with current accounting guidance under ASC 810, Consolidation, Southwest de-consolidates its investments in OKSB Statutory Trust I, SBI Capital Trust II, and Southwest Capital Trust II (the “Trusts”) in this Annual Report and all future reports. Due to this required de-consolidation, the Trust Preferred Securities are not presented on the Consolidated Statements of Financial Condition and the Subordinated Debentures are presented on the Consolidated Statements of Financial Condition as a separate liability category.
10. Income Taxes
The components of taxes on income follow:
                         
    For the Year Ended December 31,
(Dollars in thousands)   2009   2008   2007
 
Current tax expense:
                       
Federal
  $ 13,032     $ 9,604     $ 13,311  
State
    1,134       1,961       1,925  
Deferred tax benefit:
                       
Federal
    (6,158 )     (1,747 )     (1,371 )
State
    (397 )     (329 )     (268 )
 
Taxes on income
  $ 7,611     $ 9,489     $ 13,597  
 
The amounts of taxes on income in the consolidated statements of operations in this report are different from the expected outcomes using the U.S. Federal income tax rate of 35% for the following reasons:
                         
    For the Year Ended December 31,
(Dollars in thousands)   2009   2008   2007
 
Computed tax expense at statutory rates
  $ 7,207     $ 8,537     $ 12,293  
Increase (decrease) in income taxes resulting from:
                       
Benefit of income not subject to U.S. Federal income tax
    (142 )     (174 )     (137 )
Expenses not deductible for U.S. Federal income tax
    178       372       475  
State income taxes, net of Federal income tax benefit
    165       405       396  
New markets tax credit
    (151 )     (151 )     (151 )
Expiration of capital loss carryforward
          37        
Other
    354       463       721  
 
Taxes on income
  $ 7,611     $ 9,489     $ 13,597  
 
Net deferred tax assets of $19.5 million and $14.3 million at December 31, 2009 and 2008, respectively, are reflected in the accompanying Consolidated Statements of Financial Condition in other assets. There were no valuation allowances at December 31, 2009 or 2008.

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Temporary differences that give rise to the deferred tax assets (liabilities) include the following:
                 
    At December 31,
(Dollars in thousands)   2009   2008
 
Provision for loan losses
  $ 24,751     $ 16,907  
Accumulated depreciation
    (3,486 )     (3,280 )
Prepaid maintenance
    (359 )     (300 )
Nonaccrual loan interest
    792       214  
Deferred compensation accrual
    261       233  
Mark-to-market adjustments
    47       221  
FHLB stock dividends
    (989 )     (922 )
Write-downs on other real estate
    10       10  
Amortizable assets
    (404 )     (485 )
Stock-based compensation
    177       177  
Litigation and settlement
    2       135  
New markets tax credit
    (460 )     (379 )
Dividend — equity vs cost method
    (209 )     (217 )
Section 597 gain — FNBA FDIC-assisted acquisition
    (589 )      
Inside basis difference on acquired loans
    (562 )      
Other
    (58 )     56  
 
 
    18,924       12,370  
Deferred taxes (payable) receivable on investment securities available for sale
    568       1,885  
 
Net deferred tax asset
  $ 19,492     $ 14,255  
 
At the beginning and end of 2009, Southwest had approximately $4.0 million and $4.6 million of total gross unrecognized tax benefits, respectively. Of these totals, $1.6 million and $1.4 million (net of the federal benefit on state issues) represent the amounts of unrecognized tax benefits that if recognized would affect the effective income tax rate in any future periods. Southwest recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the year ended December 31, 2009, Southwest recognized approximately $594,000 in interest and penalties. Southwest had approximately $2.5 million accrued for interest and penalties at December 31, 2009.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
                 
(Dollars in thousands)   2009   2008
 
Balance at January 1
  $ 3,966     $ 3,216  
Increases in unrecognized tax benefits as a result of tax positions taken during current period
    631       750  
Increases in unrecognized tax benefits as a result of tax positions taken during prior period
           
Amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities
           
Reductions to unrecognized tax benefits — lapse of the applicable statute of limitations
           
 
Balance at December 31
  $ 4,597     $ 3,966  
 
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 2003.
Southwest is currently under audit by the State of Oklahoma for the 2002 through 2006 tax years. During the third quarter of 2008, Southwest received a Notice of Assessment from the Oklahoma Tax Commission related to 2002 and 2003. During the fourth quarter of 2008, a formal Notice of Protest was filed. 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.

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11. Shareholders’ Equity
On December 5, 2008, Southwest issued to the United States Department of the Treasury (the “Treasury Department”) 70,000 shares of Fixed Rate Cumulative Preferred Stock, Series B, par value $1.00 per share (the “Series B Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total price of $70.0 million. The Series B Preferred Stock pays cumulative dividends at a rate of 5% per year for the first 5 years and thereafter at a rate of 9% per year. Southwest may not redeem the Series B Preferred Stock during the first three years except with the proceeds from a qualified equity offering. After three years, Southwest, may, at their option, redeem the Series B Preferred Stock at par value plus accrued and unpaid dividends.
As part of its purchase of the Series B Preferred Stock, the Treasury Department received a warrant to purchase 703,753 shares of common stock at an initial per share exercise price of $14.92. The warrant expires in ten years from the issuance date. Pursuant to the Securities Purchase Agreement, the Treasury Department has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrant.
Southwest allocated $66.3 million to the Series B Preferred Stock and $3.7 million to the warrant based on their relative fair values at the issue date. The amount allocated to the warrant is accreted over the estimated life of the Series B Preferred Stock using five years. Such accretion for the year ended December 31, 2009 was $645,000.
Southwest has reserved for issuance 150,000 shares of common stock pursuant to the terms of the Employee Stock Purchase Plan. The Employee Stock Purchase Plan allows Southwest’s employees to acquire additional common shares through payroll deductions. From July 1999 to August 2009, shares issued out of this plan came from treasury shares, subsequently shares issued came from the reserved shares. At December 31, 2009, 35,950 new shares had been issued and 52,500 treasury shares had been reissued under this plan.
Southwest had reserved 1,960,000 shares of common stock pursuant to the terms of the 1999 Stock Option Plan, which expired during 2008. The 1999 Plan provided selected key employees with the opportunity to acquire common stock. At December 31, 2009, 180,155 new shares and 1,622,385 treasury shares had been reissued by this plan. Options issued under this plan will continue in effect and will be subject to the requirements of the plan, but no new options will be granted under this plan.
Southwest has reserved 800,000 shares of common stock pursuant to the terms of the 2008 Stock Based Award Plan. The 2008 Stock Plan provides selected key employees with the opportunity to acquire common stock. At December 31, 2009, no new shares and 25,725 treasury shares had been reissued by this plan. See “Share-Based Compensation” in Note 1 to the Consolidated Financial Statements beginning on page 43 for additional information on Southwest’s stock option plans.
12. Earnings Per Common Share
Effective January 1, 2009, Southwest adopted new authoritative accounting guidance under ASC 260, Earnings Per Share, which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Southwest has determined that its unvested restricted stock awards are participating securities. Accordingly, effective January 1, 2009, earnings per common share is computed using the two-class method prescribed by ASC 260. All previously reported earnings per share data has been retroactively adjusted to conform to the new computation method and no previously reported earnings per share amounts changed as a result of adoption.
Using the two-class method, basic earnings per common share is computed based upon net income available to common shareholders divided by the weighted average number of common shares outstanding during each period, which exclude the outstanding unvested restricted stock. Diluted earnings per share is computed using the weighted average number of common shares determined for the basic earnings per common share computation plus the dilutive effect of stock options using the treasury stock method. Stock options and warrants, where the exercise price was greater than the average market price of common shares, were not included in the computation of earnings per diluted

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share as they would have been antidilutive. On December 31, 2009 and 2008, there were 375,083 and 403,950 antidilutive stock options to purchase common shares, respectively. An antidilutive warrant to purchase 703,753 shares of common stock was also outstanding on December 31, 2009.
The following table sets forth the computation of basic and diluted earnings per common share:
                         
(Dollars in thousands, except earnings per share data)   2009   2008   2007
 
Numerator:
                       
Net income
  $ 12,982     $ 14,901     $ 21,378  
Preferred dividend
    (3,500 )     (243 )      
Warrant amortization
    (645 )            
 
Net income available to common shareholders
  $ 8,837     $ 14,658     $ 21,378  
Earnings allocated to participating securities
    (26 )     (31 )     (33 )
 
Numerator for basic earnings per common share
  $ 8,811     $ 14,627     $ 21,345  
Effect of reallocating undistributed earnings of participating securities
    (22 )     (19 )     (24 )
 
Numerator for diluted earnings per common share
  $ 8,789     $ 14,608     $ 21,321  
 
                       
Denominator:
                       
Denominator for basic earnings per common share — Weighted average common shares outstanding
    14,625,847       14,471,242       14,291,041  
Effect of dilutive securities:
                       
Stock options
    48,279       157,037       304,474  
Warrant
                 
 
Denominator for diluted earnings per common share
    14,674,126       14,628,279       14,595,515  
Earnings per common share:
                       
Basic
  $ 0.60     $ 1.01     $ 1.49  
 
Diluted
  $ 0.60     $ 1.00     $ 1.46  
 
13. Capital Requirements & Regulatory Matters
Southwest, Stillwater National, and Bank of Kansas are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Southwest’s, Stillwater National’s, and Bank of Kansas’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Southwest, Stillwater National, and Bank of Kansas must meet specific capital guidelines that involve quantitative measures of Southwest’s, Stillwater National’s, and Bank of Kansas’ assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Southwest’s, Stillwater National’s, and Bank of Kansas’ capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require Southwest, Stillwater National, and Bank of Kansas to maintain minimum amounts and of Total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I Capital (as defined) to average assets (as defined). Management believes, as of December 31, 2009 and 2008, that Southwest, Stillwater National, and Bank of Kansas met all capital adequacy requirements to which they are subject.
As of December 31, 2009 and 2008, the most recent notification from the Office of the Comptroller of the Currency (“OCC”) categorized Stillwater National as well-capitalized under the regulatory framework for prompt corrective action. As of December 31, 2009 and 2008, the most recent notification from the Federal Deposit Insurance Corporation (“FDIC”) categorized Bank of Kansas as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, Stillwater National and Bank of Kansas must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since these notifications that management believes have changed Stillwater National’s or Bank of Kansas’ categories.

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On January 27, 2010, Stillwater National informally agreed with the OCC, its primary federal regulator, to maintain a ratio of total capital to risk weighted assets of at least 12.5% and a Tier 1 leverage ratio of at least 8.5%.
Southwest’s, Stillwater National’s, and Bank of Kansas’ actual capital amounts and ratios are presented below.
                                                 
                    To Be Well Capitalized        
                    Under Prompt Corrective     For Capital  
    Actual     Action Provisions     Adequacy Purposes  
 
(Dollars in thousands)   Amount     Ratio     Amount     Ratio     Amount     Ratio  
 
As of December 31, 2009:
                                               
Total Capital (to risk-weighted assets)
                                               
Southwest
  $ 413,438       14.55 %     N/A       N/A     $ 227,318       8.00 %
Stillwater National
    357,219       13.84     $ 258,032       10.00 %     206,426       8.00  
Bank of Kansas
    28,476       11.39       24,991       10.00       19,993       8.00  
Tier I Capital (to risk-weighted assets)
                                               
Southwest
    377,418       13.28       N/A       N/A       113,659       4.00  
Stillwater National
    309,530       12.00       154,819       6.00       103,213       4.00  
Bank of Kansas
    25,352       10.14       14,994       6.00       9,996       4.00  
Tier I Leverage (to average assets)
                                               
Southwest
    377,418       12.42       N/A       N/A       121,561       4.00  
Stillwater National
    309,530       11.37       136,115       5.00       108,892       4.00  
Bank of Kansas
    25,352       7.13       17,771       5.00       14,217       4.00  
 
                                               
As of December 31, 2008:
                                               
Total Capital (to risk-weighted assets)
                                               
Southwest
  $ 404,695       14.26 %     N/A       N/A     $ 226,998       8.00 %
Stillwater National
    351,957       12.89     $ 273,111       10.00 %     218,489       8.00  
SNB Wichita*
    7,372       12.81       5,756       10.00       4,604       8.00  
SNB Kansas*
    8,763       17.18       5,102       10.00       4,081       8.00  
Tier I Capital (to risk-weighted assets)
                                               
Southwest
    369,049       13.01       N/A       N/A       113,499       4.00  
Stillwater National
    302,641       11.08       163,867       6.00       109,244       4.00  
SNB Wichita*
    6,652       11.56       3,453       6.00       2,302       4.00  
SNB Kansas*
    8,125       15.93       3,061       6.00       2,041       4.00  
Tier I Leverage (to average assets)
                                               
Southwest
    369,049       13.06       N/A       N/A       113,059       4.00  
Stillwater National
    302,641       11.23       134,774       5.00       107,819       4.00  
SNB Wichita*
    6,652       8.33       3,995       5.00       3,196       4.00  
SNB Kansas*
    8,125       9.24       4,339       5.00       3,519       4.00  
 
*   SNB Wichita and SNB Kansas were merged to form Bank of Kansas on January 23, 2009.
The approval of the OCC is required if the total of all dividends declared by Stillwater National in any calendar year exceeds the total of its net profits of that year combined with its retained net profits of the preceding two years. In addition, Stillwater National may not pay a dividend if, after paying the dividend, Stillwater National would be under capitalized. Stillwater National’s maximum amount of dividends available for payment totaled approximately $40.5 million at December 31, 2009. Dividends declared by Stillwater National for the years ended December 31, 2009, 2008, and 2007 did not exceed the threshold requiring regulatory approval.
The same dividend restrictions apply to Bank of Kansas with approval required from the FDIC. Bank of Kansas had $3.4 million available for dividend payment at December 31, 2009.
On January 27, 2010, Stillwater National executed a written formal agreement with the OCC relating to its levels of commercial real estate lending and problem assets.

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14. Employee Benefits
Southwest sponsors a noncontributory, defined contribution profit sharing plan intended to provide retirement benefits for employees of Southwest. The plan covers all employees who have completed one year of service and have attained the age of 21. The plan is subject to the Employee Retirement Income Security Act of 1974, as amended. Southwest’s contributions are made at the discretion of the Board of Directors; however, the annual contribution may not exceed 15% of the total annual compensation of all participants. Southwest made contributions of $1.0 million, $1.2 million, and $2.2 million in 2009, 2008, and 2007, respectively.
Stock Options — In accordance with current accounting guidance, Southwest recorded $32,000, $222,000, and $734,000 of total share-based compensation expense for the periods ended December 31, 2009, December 31, 2008, and December 31, 2007, respectively. 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 for each tranche. The deferred tax asset that was recorded related to this compensation expense was approximately $177,000 for both tax years 2009 and 2008 and $171,000 for 2007.
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 following table. In 2007, Southwest evaluated the options granted in 2002 and the average life was 2.5 years. In 2008, Southwest evaluated the options granted in 2003 and the average life was 3.0 years. In 2009, Southwest evaluated the options granted in 2004 and the average life was 3.0 years. 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. No options were granted in 2009.
                         
    2009   2008   2007
     
Expected dividend yield
    N/A       2.24 %     1.45 %
Expected volatility
    N/A       34.36 %     29.70 %
Risk-free interest rate
    N/A       2.30 %     4.48 %
Expected option term (in years)
    N/A       3.00       2.50  
The Black-Scholes option pricing model requires the input of highly subjective assumptions. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which result in changes to these assumptions and methodologies, which could materially impact Southwest’s fair value determination.
The amortization of stock-based compensation reflects actual forfeitures.

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A summary of option activity under the Stock Plans as of December 31, 2009 and changes during the 36 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
    124,431       25.78                  
Exercised
    (96,338 )     9.88                  
Canceled/expired
    (4,333 )     26.58                  
                 
Outstanding at December 31, 2007
    883,770     $ 15.56                  
                 
Granted
    5,000       16.93                  
Exercised
    (193,758 )     9.99                  
Canceled/expired
    (3,901 )     21.39                  
                 
Outstanding at December 31, 2008
    691,111     $ 17.10                  
                 
Granted
                           
Exercised
    (139,170 )     6.39                  
Canceled/expired
    (172,617 )     17.20                  
 
Outstanding at December 31, 2009
    379,324     $ 20.98       1.22     $ 69  
 
 
                               
Total exercisable at December 31, 2007
    705,670     $ 14.56                  
Total exercisable at December 31, 2008
    634,451     $ 16.85                  
Total exercisable at December 31, 2009
    377,657     $ 21.00       1.21     $ 69  
The weighted average grant date fair value of options granted during the twelve month period ended December 31, 2009 and 2008 was $0 and $3.71, respectively. The total intrinsic value of options exercised during the twelve month period ended December 31, 2009 and 2008 was $748,000 and $1.1 million, respectively. The amount of cash received from exercises in 2009 was $889,000. The fair value of options that became vested during 2009 and 2008 was $241,000 and $565,000, respectively.
Shares issued in connection with the exercise of options are issued from available treasury shares. If no treasury shares are available, new share are issued from available authorized shares. During 2009, 90,155 shares issued in connection with stock option exercises were new shares issued from available authorized shares, while 49,015 were issued from available treasury stock. During 2008 and 2007, all shares issued in connection with stock option exercises were issued from available treasury stock.
A summary of the status of Southwest’s nonvested shares as of December 31, 2009 and changes during the twelve month period then ended is presented below.
                 
    Shares   Weighted
    Issuable   Average
    Upon Exercise   Grant Date
    of Options   Fair Value
     
Nonvested Balance at December 31, 2008
    56,660     $ 4.36  
         
Granted
           
Vested
    (54,993 )     4.38  
Forfeited
           
         
Nonvested Balance at December 31, 2009
    1,667     $ 3.71  
         
As of December 31, 2009, there was approximately $200 of total unrecognized compensation expense related to stock option arrangements granted under the Stock Plans. This expense is expected to be recognized during the next year.

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Restricted Stock - Restricted shares granted as of December 31, 2009 and 2008 were 77,917 and 52,192, respectively. For both years 2009 and 2008, Southwest recognized $177,000 in compensation expense, net of tax, related to all restricted shares outstanding. At December 31, 2009, there was $277,000 of total unrecognized compensation expense related to restricted shares granted under the Stock Plans. This unrecognized expense is expected to be recognized during the next three years.
The restricted stock grants vest one-third on the first, second and third 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 provided that all restrictions will end, and the awards will be fully vested, upon a change in control of Southwest or the permanent and total disability or death of the participant. Southwest will continue to recognize compensation expense over the restricted periods.
15. Related Party Transactions
Directors and officers of Southwest, Stillwater National, and Bank of Kansas were customers of, and had transactions with, Southwest in the ordinary course of business, and similar transactions are expected in the future. All loans included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of loss or present other unfavorable features. Certain directors, and companies in which they have ownership interests, had indebtedness to Southwest totaling $2.9 million, and $2.2 million at December 31, 2009 and 2008, respectively. During 2009, $14.0 million of new loans and advances on existing loans were made to these persons and repayments totaled $13.3 million.
At December 31, 2009 and 2008, directors, officers and other related interest parties had demand, non-interest bearing deposits of $5.4 million and $5.9 million, respectively, savings and interest-bearing transaction accounts of $2.2 million and $2.6 million, respectively, and time certificates of deposit of $670,000 and $1.3 million, respectively.
16. Operating Leases
Southwest leases certain equipment and facilities for its operations. Future minimum annual rental payments required under operating leases, net of sublease agreements, that have initial or remaining lease terms in excess of one year as of December 31, 2009 follow:
         
2010
  $2.7 million
2011
  $2.1 million
2012
  $1.6 million
2013
  $1.1 million
2014
  $0.9 million
Thereafter
  $1.7 million
The total rental expense was $2.8 million, $2.6 million, and $2.4 million, in 2009, 2008, and 2007, respectively.
17. 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.

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The following table provides a summary of Southwest’s off-balance sheet financial instruments:
                 
    At December 31,
 
(Dollars in thousands)   2009   2008
 
Commitments to extend commercial and real estate mortgage credit
  $ 387,486     $ 649,830  
Standby and commercial letters of credit
    5,105       7,752  
 
Total
  $ 392,591     $ 657,582  
 
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.
18. Commitments and Contingencies
In the normal course of business, Southwest is at all times subject to various pending and threatened legal actions. The relief or damages sought in some of these actions may be substantial. After reviewing pending and threatened actions with counsel, management considers that the outcome of such actions will not have a material adverse effect on Southwest’s financial position; however, Southwest is not able to predict whether the outcome of such actions may or may not have a material adverse effect on results of operations in a particular future period as the timing and amount of any resolution of such actions and relationship to the future results of operations are not known.
At periodic intervals, the FRB, the OCC, the FDIC, and the State of Kansas, routinely examine Southwest’s, Stillwater National’s, and Bank of Kansas’ financial statements as part of their legally prescribed oversight of the banking industry. Based on these examinations, the regulators can direct that Southwest’s, Stillwater National’s, and Bank of Kansas’ financial statements be adjusted in accordance with their findings.
Southwest has adopted a Severance Compensation Plan (the “Plan”) for the benefit of certain officers and key members of management. The Plan’s purpose is to protect and retain certain qualified employees in the event of a change in control (as defined) and to reward those qualified employees for loyal service to Southwest by providing severance compensation to them upon their involuntary termination of employment after a change in control of Southwest. At December 31, 2009, Southwest has not recorded any amounts in the consolidated financial statements relating to the Plan. If a change of control were to occur, the maximum amount payable to certain officers and key members of management would approximate $689,000.
19. VISA USA Shares
Stillwater National and other VISA USA member banks are obligated to share in costs resulting from litigation against VISA USA, including the costs of the November 9, 2007 settlement of an antitrust lawsuit brought by American Express and potential costs of certain other pending litigation. In March 2008, Visa, Inc. (“Visa”) completed an initial public offering. This transaction allowed Visa to place part of the cash proceeds into an escrow account that will be utilized to pay litigation and settlement expenses. Stillwater National previously estimated the settlement costs of such litigation and recorded its proportionate share of that estimated liability, reduced by its proportionate share of the escrow account established by Visa. In the second quarter of 2009, Visa announced another deposit into the litigation escrow account. As a result of this funding, Stillwater National reduced their estimated settlement costs by approximately $340,000. As of December 31, 2009, Stillwater National has a payable

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of $6,000 recorded on the books based on our review of the outstanding litigation. This amount is an estimate and further adjustments may be required.
As a result of Visa’s public offering in March 2008, Stillwater National recorded a gain of $1.2 million before tax expense for the redemption for cash of 29,212 shares of VISA USA shares owned by Stillwater National and carried at a zero dollar basis. Stillwater National owns an additional 46,348 shares of Class B Visa stock carried at a zero dollar basis. These remaining shares will be held in escrow by Visa until the later of the third anniversary of the public offering date or the final resolution of the litigation discussed above.
20. Supplemental Cash Flow Information
                         
    For the Years Ended December 31,
 
(Dollars in thousands)   2009   2008   2007
 
Cash paid for interest
  $ 55,535     $ 77,498     $ 86,407  
Cash paid for taxes on income
    12,434       9,774       14,808  
Loans transferred to other real estate owned
    23,552       14,479       1,284  
21. Operating Segments
Southwest operates six principal segments: Oklahoma Banking, Texas Banking, Kansas Banking, Other States Banking, Secondary Market, and Other Operations. The Oklahoma Banking segment, Texas Banking segment, and the Kansas Banking segment provide lending and deposit services to customers in the states of Oklahoma, Texas, and Kansas. The Other States Banking segment provides lending services to customers outside Oklahoma, Texas, and Kansas. 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 funds management unit is to manage Southwest’s overall liquidity needs and interest rate risk. Each segment borrows funds from and provides funds to the funds management unit as needed to support its operations. The value of funds provided to and the 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 yield curve used in the funds transfer pricing curve is a blend of rates based on the volume usage of retail and brokered certificates of deposit, capital market certificates of deposit, and Federal Home Loan Bank advances.
The Other Operations segment also includes SNB Wealth Management, corporate investments, consulting subsidiaries, and nonbank cash machine operations.
Southwest identifies reportable segments by type of service provided and geographic location. Operating results are adjusted for borrowings, allocated service costs, and management fees.
The accounting policies of each reportable segment are the same as those of Southwest as described in Note 1. 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 at statutory rates. The Other Operations segment records the tax expense or benefit necessary to reconcile to the consolidated financial statements.
Portfolio loans are allocated based upon the state of the borrower, or the location of the real estate in the case of real estate loans. Loans included in the Other State Banking segment are portfolio loans attributable to thirty-seven states other than Oklahoma, Texas, or Kansas, and primarily consist of healthcare and commercial real estate credits. These out of state loans are administered by offices in Oklahoma, Texas, or Kansas.

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The following table summarizes financial results by operating segment:
                                                         
For the Year Ended December 31, 2009
    Oklahoma   Texas   Kansas   Other States   Secondary   Other   Total
(Dollars in thousands)   Banking   Banking   Banking**   Banking   Market   Operations*   Company
 
Net interest income
  $ 44,651     $ 42,236     $ 14,518     $ 9,424     $ 1,139     $ (13,277 )   $ 98,691  
Provision for loan losses
    7,977       12,838       8,053       10,308                   39,176  
Noninterest income
    8,899       1,805       6,020       422       2,063       2,727       21,936  
Noninterest expenses
    25,993       13,877       11,918       2,146       3,439       3,485       60,858  
 
Income before taxes
    19,580       17,326       567       (2,608 )     (237 )     (14,035 )     20,593  
Taxes on income
    7,420       6,604       143       (990 )     (89 )     (5,477 )     7,611  
 
Net income
  $ 12,160     $ 10,722     $ 424     $ (1,618 )   $ (148 )   $ (8,558 )   $ 12,982  
 
 
*   Includes externally generated revenue of $9.6 million, primarily from investing services, and an internally generated loss of $20.2 million from the funds management unit
 
**   Noninterest income includes the $3.3 million gain on acquisition previously described.
                                                         
Fixed asset expenditures
  $ 2,290     $ 10     $ 2,419     $     $     $ 526     $ 5,245  
Total loans at period end
    933,150       1,054,404       359,633       277,512       43,134             2,667,833  
Total assets at period end
    950,355       1,044,324       441,114       275,653       45,148       351,697       3,108,291  
Total deposits at period end
    1,640,839       160,064       283,506             1,527       506,794       2,592,730  
                                                         
For the Year Ended December 31, 2008
    Oklahoma   Texas   Kansas   Other States   Secondary   Other   Total
(Dollars in thousands)   Banking   Banking   Banking   Banking   Market   Operations *   Company
 
Net interest income
  $ 48,218     $ 33,802     $ 9,090     $ 9,486     $ 1,392     $ (12,269 )   $ 89,719  
Provision for loan losses
    5,359       7,615       4,396       1,609                   18,979  
Noninterest income
    8,607       1,920       12       187       1,500       3,912       16,138  
Noninterest expenses
    30,794       15,731       6,261       3,281       3,132       3,289       62,488  
 
Income before taxes
    20,672       12,376       (1,555 )     4,783       (240 )     (11,646 )     24,390  
Taxes on income
    8,167       4,825       (433 )     2,027       (96 )     (5,001 )     9,489  
 
Net income
  $ 12,505     $ 7,551     $ (1,122 )   $ 2,756     $ (144 )   $ (6,645 )   $ 14,901  
 
 
*   Includes externally generated revenue of $9.6 million, primarily from investing services, and an internally generated loss of $18.0 million from the funds management unit
                                                         
Fixed asset expenditures
  $ 1,678     $ 765     $ 306     $ 29     $     $ 878     $ 3,656  
Total loans at period end
    966,243       947,603       304,855       275,805       56,941             2,551,447  
Total assets at period end
    984,298       945,907       310,503       272,599       61,149       305,306       2,879,762  
Total deposits at period end
    1,394,008       133,745       146,182             1,550       504,637       2,180,122  

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For the Year Ended December 31, 2007
    Oklahoma   Texas   Kansas   Other States   Secondary   Other   Total
(Dollars in thousands)   Banking   Banking   Banking   Banking   Market   Operations *   Company
 
Net interest income
  $ 48,103     $ 26,711     $ 10,209     $ 6,850     $ 1,738     $ (1,014 )   $ 92,597  
Provision for loan losses
    2,317       4,189       1,253       1,188                   8,947  
Noninterest income
    9,505       1,616       181       119       3,403       1,609       16,433  
Noninterest expenses
    29,408       13,462       7,858       2,255       3,360       8,765       65,108  
 
Income before taxes
    25,883       10,676       1,279       3,526       1,781       (8,170 )     34,975  
Taxes on income
    9,946       4,126       420       1,363       684       (2,942 )     13,597  
 
Net income
  $ 15,937     $ 6,550     $ 859     $ 2,163     $ 1,097     $ (5,228 )   $ 21,378  
 
 
*   Includes externally generated revenue of $4.4 million, primarily from consulting services, and an internally generated loss of $3.8 million from the funds management unit
                                                         
Fixed asset expenditures
  $ 1,169     $ 728     $ 545     $     $ 57     $ 788     $ 3,287  
Total loans at period end
    876,085       759,389       282,846       227,237       66,275             2,211,832  
Total assets at period end
    883,156       759,837       294,927       230,109       71,843       324,426       2,564,298  
Total deposits at period end
    1,278,954       127,053       120,754             1,346       530,472       2,058,579  
22. Parent Company Condensed Financial Information
Following are the condensed financial statements of Southwest Bancorp, Inc. (“Parent Company only”) for the periods indicated:
                 
    At December 31,
 
(Dollars in thousands)   2009   2008
 
Statements of Financial Condition
               
Assets:
               
Cash and due from banks
  $ 13,918     $ 48,086  
Investment in subsidiary banks
    361,748       338,454  
Investments in other subsidiaries
    13,360       10,153  
Investment securities, available for sale
    1,079       888  
Other assets
    2,560       4,063  
 
Total
  $ 392,665     $ 401,644  
 
 
               
Liabilities:
               
Subordinated debentures
  $ 81,963     $ 81,963  
Notes payable
          15,000  
Other liabilities
    924       2,478  
Shareholders’ Equity:
               
Preferred stock and related accounts
    67,037       66,392  
Common stock and related accounts
    242,741       235,811  
 
Total
  $ 392,665     $ 401,644  
 

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    For the Year Ended December 31,
 
(Dollars in thousands)   2009   2008   2007
 
Statements of Operations
                       
Income:
                       
Cash dividends from subsidiaries
  $ 6,655     $ 2,149     $ 7,117  
Noninterest income
    1,091       995        
Investment income
    101       (275 )     389  
 
Total income
    7,847       2,869       7,506  
Expense:
                       
Interest on subordinated debentures
    5,495       4,961       3,894  
Noninterest expense
    2,273       2,001       2,492  
 
Total expense
    7,768       6,962       6,386  
 
Total income (loss) before taxes and equity in undistributed income of subsidiaries
    79       (4,093 )     1,120  
Taxes on income
    (2,440 )     (2,303 )     (2,036 )
 
Income before equity in undistributed income of subsidiaries
    2,519       (1,790 )     3,156  
Equity in undistributed income of subsidiaries
    10,463       16,691       18,222  
 
Net income
  $ 12,982     $ 14,901     $ 21,378  
 
                         
    For the Year Ended December 31,
 
(Dollars in thousands)   2009   2008   2007
 
Statements of Cash Flows
                       
Operating activities:
                       
Net income
  $ 12,982     $ 14,901     $ 21,378  
Equity in undistributed income of subsidiaries
    (10,463 )     (16,691 )     (18,222 )
Other, net
    1,301       (2,548 )     1,343  
 
Net cash provided by (used in) operating activities
    3,820       (4,338 )     4,499  
 
Investing activities:
                       
Available for sale securities:
                       
Purchases
    (156 )     (2 )     (35 )
Sales / Maturities
    118       12,124       13,124  
Capital contribution to Banks
    (8,500 )     (77,000 )     (15,510 )
Investment in/capital contribution to other subsidiaries
    (10,010 )     (1,070 )      
Return of capital/advances from other subsidiaries
    100             450  
 
Net cash used in investing activities
    (18,448 )     (65,948 )     (1,971 )
 
Financing activities:
                       
Net increase (decrease) in short-term borrowings
    (15,000 )     12,500       2,500  
Net proceeds from issuance of common stock
    1,193       2,380       1,460  
Proceeds from issuance of subordinated debentures
          35,570        
Proceeds from issuance of preferred stock
          70,000        
Preferred stock dividend
    (3,940 )     (243 )      
Common stock dividends
    (1,793 )     (5,219 )     (5,145 )
 
Net cash provided by (used in) financing activities
    (19,540 )     114,988       (1,185 )
 
Net increase (decrease) in cash and cash equivalents
    (34,168 )     44,702       1,343  
Cash and cash equivalents, Beginning of year
    48,086       3,384       2,041  
 
End of year
  $ 13,918     $ 48,086     $ 3,384  
 

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23. Selected Quarterly Financial Data (Unaudited)
                                 
    For the Quarter Ended
 
(Dollars in thousands, except per share data)   12-31-09   09-30-09   06-30-09   03-31-09
 
Operations Data
                               
Interest income
  $ 38,789     $ 37,733     $ 38,091     $ 35,786  
Interest expense
    10,992       12,333       13,635       14,748  
 
Net interest income
    27,797       25,400       24,456       21,038  
Provision for loan losses
    10,640       10,177       7,477       10,882  
Gain on sales of securities and loans
    936       396       917       3,639  
Noninterest income
    3,552       3,314       6,344       2,838  
Noninterest expenses
    16,041       15,528       14,690       14,599  
 
Income before taxes
    5,604       3,405       9,550       2,034  
Taxes on income
    2,030       1,271       3,605       705  
 
Net income
  $ 3,574     $ 2,134     $ 5,945     $ 1,329  
 
Per Share Data
                               
Basic earnings per common share
  $ 0.17     $ 0.07     $ 0.34     $ 0.02  
Diluted earnings per common share
    0.17       0.07       0.33       0.02  
Dividends declared per common share
    0.0238       0.0238       0.0238       0.0238  
Weighted average common shares outstanding
                               
Basic
    14,706,718       14,649,061       14,586,025       14,555,058  
Diluted
    14,740,449       14,709,134       14,626,952       14,631,471  
                                 
    For the Quarter Ended
 
(Dollars in thousands, except per share data)   12-31-08   09-30-08   06-30-08   03-31-08
 
Operations Data
                               
Interest income
  $ 38,895     $ 40,994     $ 39,931     $ 42,974  
Interest expense
    16,481       17,806       17,647       21,141  
 
Net interest income
    22,414       23,188       22,284       21,833  
Provision for loan losses
    6,698       6,855       3,190       2,236  
Gain on sales of securities and loans
    324       551       606       2,085  
Noninterest income
    3,105       3,511       3,353       2,603  
Noninterest expenses
    13,793       16,533       16,332       15,830  
 
Income before taxes
    5,352       3,862       6,721       8,455  
Taxes on income
    2,127       1,556       2,559       3,247  
 
Net income
  $ 3,225     $ 2,306     $ 4,162     $ 5,208  
 
Per Share Data
                               
Basic earnings per common share
  $ 0.21     $ 0.16     $ 0.29     $ 0.36  
Diluted earnings per common share
    0.20       0.16       0.28       0.36  
Dividends declared per common share
    0.0950       0.0950       0.0950       0.0950  
Weighted average common shares outstanding
                               
Basic
    14,450,733       14,527,893       14,526,038       14,413,686  
Diluted
    14,673,616       14,676,082       14,680,262       14,608,190  

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24. Accounting Standard Issued But Not Yet Adopted
New authoritative accounting guidance under ASC 860, Transfers and Servicing, amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new guidance eliminates the concept of a qualifying special-purpose entity (“SPE”) and changes the requirements for derecognizing financial assets. It also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC 860 is effective for Southwest on January 1, 2010 and is not expected to have a significant impact on Southwest’s financial statements.
New authoritative accounting guidance under ASC 810, Consolidation, amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purposes and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement, as well as its effect on the entity’s financial statements. The new authoritative accounting guidance under ASC 810 is effective for Southwest on January 1, 2010 and is not expected to have a significant impact on Southwest’s financial statements.

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OTHER MATERIAL REQUIRED BY FORM 10-K
Business
General
Southwest is a bank holding company headquartered in Stillwater, Oklahoma which provides commercial and consumer banking services through its banking subsidiaries, Stillwater National and Bank of Kansas. Southwest was organized in 1981 as the holding company for Stillwater National, which was chartered in 1894. Southwest is registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the “Holding Company Act”). As such, Southwest is subject to supervision and regulation by the Federal Reserve. Stillwater National is a national bank subject to supervision and regulation by the OCC. Bank of Kansas, headquartered in South Hutchinson, Kansas, is a state chartered commercial bank and is subject to supervision and regulation by the FDIC and Kansas banking authorities. The deposit accounts of Southwest’s banking subsidiaries are insured by the FDIC to the maximum permitted by law.
Products and Services
Southwest offers a wide variety of commercial and consumer lending and deposit services. Southwest has developed internet banking services, called SNB DirectBanker®, for consumer and commercial customers, a highly automated lockbox, imaging, and information service for commercial customers called “SNB Digital Lockbox,” and deposit products that automatically sweep excess funds from commercial demand deposit accounts and invest them in interest bearing funds (“Sweep Agreements”). The commercial loans offered by Southwest include (i) commercial real estate loans, (ii) working capital and other commercial loans, (iii) construction loans, and (iv) Small Business Administration (“SBA”) guaranteed loans. Consumer lending services include (i) student loans, (ii) residential real estate loans and mortgage banking services, and (iii) personal lines of credit and other installment loans. Southwest also offers deposit and personal banking services, including (i) commercial deposit services such as SNB Digital Lockbox, commercial checking, money market, and other deposit accounts, and (ii) retail deposit services such as certificates of deposit, money market accounts, checking accounts, NOW accounts, savings accounts, and automatic teller machine (“ATM”) access. Insurance, benefit, and annuity products are offered through SNB Insurance Agency, Inc., a wholly owned subsidiary of Stillwater National. Trust services, personal brokerage, and credit cards are offered through relationships with independent institutions and Bank of Kansas.
Strategic Focus
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. 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. These include Southwest’s Sweep Agreements, SNB Digital Lockbox, and SNB DirectBanker® and other internet banking products, which complement Southwest’s more traditional banking products. Southwest also emphasizes the marketing of personal banking, investment, and other financial services to highly educated, professional and business persons in its markets. Southwest seeks to build close relationships with businesses, professionals and their principals and to serve their banking needs throughout their business development and professional lives. For a number of years, Southwest’s strategic focus has included expansion in carefully selected geographic markets based upon a tested business model developed in connection with its expansion into Oklahoma City in 1982. This geographic expansion has been 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 uses of traditional and specialized financial services. Specialized 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. We reduced our loan growth in 2009, and have determined to reduce our concentration in commercial real estate loans. Southwest’s strategic focus also includes careful expansion of our community banking operations.

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Organization
Southwest’s business operations are conducted through six operating segments that include regional divisions, a Secondary Market segment consisting of student lending and residential mortgage lending services, and an “other” segment that includes funds management (investment portfolio and funding), SNB Wealth Management, and nonbank cash machine operations. The organizational structure is designed to facilitate high customer service, prompt response, efficiency, and appropriate, uniform credit standards and other controls.
Banking Segments. The banking segments include Oklahoma Banking, which includes the Stillwater division, the Central Oklahoma division based in Oklahoma City, and the Tulsa division; Texas Banking, which includes the Dallas-Frisco division, the Dallas-Preston Center division, the Austin division, and the San Antonio division; Kansas Banking, which includes the FNBA division, the Hutchinson division, the Wichita division, and the Kansas City division. The Stillwater and Hutchinson divisions serve their respective markets as full-service community banks emphasizing both commercial and consumer lending. The other eight divisions pursue a more focused marketing strategy, targeting managers, professionals, and businesses for lending, and offering more specialized services. All of the regional divisions focus on commercial and consumer financial services to local businesses and their senior employees and to other managers and professionals living and working in Southwest’s market areas. Southwest has a high-service level philosophy. Loan officers often meet at the customer’s home or place of business to close loans.
     Oklahoma Banking Segment The Oklahoma Banking segment accounted for $12.2 million, or 94%, of consolidated net income. Net income from this segment decreased $345,000, or 3%, primarily as a result of increased provision for loan loss and decreased net interest income, offset in part by decreased noninterest expenses. During 2009, total assets decreased $33.9 million, or 3%.
     Texas Banking Segment The Texas Banking segment accounted for $10.7 million, or 83%, of consolidated net income. Net income from this segment increased $3.2 million, or 42%, primarily as a result of increased net interest income and decreased noninterest expenses, offset in part by increased provision for loan loss and increased income taxes. During 2009, total assets increased $98.4 million, or 10%.
     Kansas Banking Segment The Kansas Banking segment accounted for $424,000, or 3% of consolidated net income. Net income from this segment increased $1.5 million, or 138%, primarily as a result of increased noninterest income, which includes the $3.3 million recognized gain on the FDIC-assisted acquisition of FNBA, and increased net interest income, offset in part by increased provision for loan losses and increased noninterest expenses. During 2009, total assets increased $130.6 million, or 42%, primarily as a result of the acquisition of FNBA.
     Other States Banking Segment The Other States Banking segment primarily consists of healthcare and commercial real estate credits in thirty-seven states other than Oklahoma, Texas and Kansas. The Other States Banking segment incurred a net loss of $1.6 million for the year. Net income from this segment decreased $4.4 million, or 159%, primarily as a result of increased provision for loan losses, offset in part by decreased noninterest expenses and decreased income taxes. During 2009, total assets increased $3.1 million, or 1%.
     Secondary Market Segment Southwest has a long history of student and residential mortgage lending. These operations comprise the Secondary Market business segment. During 2009, this segment incurred a loss of $148,000 and $16.0 million fewer year-end assets, primarily loans held for sale. This decline in outstanding loans was the result of less student lending. Southwest manages its mortgage and student lending operations through its home office. Southwest markets its student lending program directly to financial aid directors at colleges and universities. Southwest also originates first mortgage loans for sale to the Federal National Mortgage Association (“FNMA”) or private investors. Servicing on these loans may be released in connection with the sale.
Operation of the student lending portion of this segment is substantially dependent on Sallie Mae, which provides substantially all of the servicing for government guaranteed and private student loans and provides liquidity through its purchases of student loans and lines of credit. Southwest makes government guaranteed student loans and private student loans. At December 31, 2009, all private student loans were self-insured by Sallie Mae.

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Support and Control Functions. Support and control functions are centralized, although each segment has support and control personnel. Costs of centrally managed support and control functions other than funds management (which is included in the Other Operations segment) are allocated to the Banking and Secondary Market segments. Southwest’s philosophy of customer service extends to its support and control functions. Southwest manages and offers products that are technology based, or that otherwise are more efficiently offered centrally through its home office. These include products that are marketed through the regional offices, such as Southwest’s internet banking product for commercial and retail customers (SNB DirectBanker®), commercial information, and item processing services (SNB Digital Lockbox). Southwest’s technology products are marketed to existing customers and to help develop new customer relationships. Use of these products by customers enables Southwest to serve its customers more effectively, use its resources more efficiently, and increase fee income.
For additional information regarding Southwest’s operating segments, please see “Note 21 Operating Segments” to the Consolidated Financial Statements on page 67 of this report. The total of net income of the segments discussed above is more than consolidated net income for 2009 due to income allocated to the Other Operations segment, which provides funding and liquidity services to the rest of the organization.
Banking Offices and Geographic Markets
Southwest intends to focus its efforts on markets with characteristics that will allow it to capitalize on its strengths, and to continue establishing new offices in those markets. Southwest considers acquisitions of other financial institutions and other companies, from time to time. Southwest also extends loans to borrowers in Oklahoma, Texas, Kansas and other states through participations with correspondent banks.
Southwest has twenty-four full-service banking offices, four located in Stillwater, Oklahoma, two each located in the Oklahoma City and Tulsa, Oklahoma metropolitan areas, two each located in the Dallas and San Antonio, Texas metropolitan areas, two each located in the Hutchinson area and Wichita, Kansas, one each in Chickasha and Edmond, Oklahoma, Austin and Tilden, Texas, and Anthony, Harper, Mayfield and Overland Park, Kansas. It also operates loan production offices in the Kansas City, Kansas area, on the campus of the University of Oklahoma Health Sciences Center, and in Houston, Texas. See “Item 2 Properties” on page 94 of this report. Southwest has developed and continues to pursue a business strategy that does not rely on an extensive branch network. National banks headquartered in Oklahoma now have broad powers to establish de novo branches anywhere in Oklahoma or Texas, and Kansas chartered banks have broad powers to establish branches in Kansas.
Competition
Southwest encounters competition in seeking deposits and in obtaining loan, cash management, investment, and other customers. The level of competition for deposits is high. Southwest’s principal competitors for deposits are other financial institutions, including other national banks, state chartered banks, federal savings banks, and credit unions. Competition among these institutions is based primarily on interest rates and other terms offered, service charges imposed on deposit accounts, the quality of services rendered, and the convenience of banking facilities. Additional competition for depositors’ funds comes from U.S. Government securities, private issuers of debt obligations, and suppliers of other investment alternatives for depositors, such as securities firms. Competition from credit unions has intensified as historic federal limits on membership have been relaxed. Because federal law subsidizes credit unions by giving them a general exemption from federal income taxes, credit unions have a significant cost advantage over national banks, federal savings banks, and state banks, which are fully subject to federal income taxes. Credit unions may use this advantage to offer rates that are more competitive than those offered by national banks, federal savings banks, and state banks.
Southwest also competes in its lending activities with other financial institutions such as securities firms, insurance companies, credit unions, small loan companies, finance companies, mortgage companies, real estate investment trusts, and other sources of funds. Many of Southwest’s nonbank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally-insured banks. As a result, such nonbank competitors have advantages over Southwest in providing certain services. A number of the financial institutions with which Southwest competes in lending, deposit, investment, cash management, and other activities are larger

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than Southwest or have a significantly larger market share. The Texas and Kansas offices compete for loans, deposits, and other services against local and nationally based financial institutions, many of which have much larger market shares and widespread office networks. In recent periods, competition has increased in Southwest’s Oklahoma market areas as new entrants and existing competitors have sought to more aggressively expand their loan and deposit market share.
The business of mortgage banking is highly competitive. Southwest competes for loan originations with other financial institutions, such as mortgage bankers, state and national banks, federal savings banks, credit unions, and insurance companies. Many of Southwest’s competitors have financial resources that are substantially greater than those available to Southwest. Southwest competes principally by providing competitive pricing by motivating its sales force through the payment of commissions on loans originated and by providing high quality service to builders, borrowers, and realtors.
The Holding Company Act permits the Federal Reserve to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a commercial bank located in a state other than that holding company’s home state. The Federal Reserve may not approve the acquisition of a commercial bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. The Holding Company Act also prohibits the Federal Reserve from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target commercial bank’s home state or in any state in which the target commercial bank maintains a branch. The Holding Company Act does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a commercial bank or bank holding company to the extent such limitation does not discriminate against out-of-state commercial banks or bank holding companies. The States of Oklahoma and Texas allow out-of-state financial institutions to establish branches in their borders, subject to certain limitations. Kansas imposes more significant branching limitations on out of state banks.
Regulation, Supervision, and Governmental Policy
Following is a brief summary of certain statutes and regulations that significantly affect Southwest and its banking subsidiaries. A number of other statutes and regulations affect Southwest and its subsidiaries but are not summarized below. Although Stillwater National and Bank Kansas have different primary federal banking regulators, many of the rules that govern them are substantially the same. Where practical, the rules for all banks are discussed together below. For ease of reference the term “banks” is used below to include national and federal savings banks, unless otherwise indicated. The term “commercial banks” includes nationally and state chartered banks, but not federal savings associations or federal savings banks.
Bank Holding Company Regulation. Southwest is registered as a bank holding company under the Holding Company Act and, as such, is subject to supervision and regulation by the Federal Reserve. As a bank holding company, Southwest is required to furnish to the Federal Reserve annual and quarterly reports of its operations and additional information and reports. Southwest is also subject to regular examination by the Federal Reserve.
Under the Holding Company Act, a bank holding company must obtain the prior approval of the Federal Reserve before (1) acquiring direct or indirect ownership or control of any class of voting securities of any national or state bank or bank holding company if, after the acquisition, the bank holding company would directly or indirectly own or control more than 5% of the class; (2) acquiring all or substantially all of the assets of another national bank or bank holding company; or (3) merging or consolidating with another bank holding company.
Under the Holding Company Act, any company must obtain approval of the Federal Reserve prior to acquiring control of Southwest or its banking subsidiaries. For purposes of the Holding Company Act, “control” is defined as ownership of more than 25% of any class of voting securities, the ability to control the election of a majority of the directors, or the exercise of a controlling influence over management or policies.

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The federal Change in Bank Control Act and the related regulations of the Federal Reserve require any person or persons acting in concert (except for companies required to make application under the Holding Company Act) to file a written notice with the Federal Reserve before the person or persons acquire control of Southwest or its banking subsidiaries. The Change in Bank Control Act defines “control” as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank.
The Holding Company Act also limits the investments and activities of bank holding companies. In general, a bank holding company is prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a commercial bank or a bank holding company or from engaging directly or indirectly in activities other than those of banking, managing, or controlling commercial banks, providing services for its subsidiaries, non-bank activities that are closely related to banking and other financially related activities. The activities of Southwest are subject to these legal and regulatory limitations under the Holding Company Act and Federal Reserve regulations. Non-bank and financially related activities of bank holding companies also may be subject to regulation and oversight by regulators other than the Federal Reserve.
The Federal Reserve also has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any banking subsidiary of that holding company.
The Federal Reserve has adopted guidelines regarding the capital adequacy of bank holding companies, which require bank holding companies to maintain specified minimum ratios of capital to total assets and capital to risk-weighted assets. See “Regulatory Capital Requirements” on page 79 of this report.
The Federal Reserve has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality, and overall financial condition. Southwest has made informal commitments to the Federal Reserve which include providing prior notice of the declaration and payment of dividends on trust preferred securities, preferred stock issued under the Treasury Department’s Capital Purchase Program, and common stock, and of planned receipt of dividends from its banking subsidiaries.
National Bank Regulation. As a national bank, Stillwater National is subject to the primary supervision of the Office of the Comptroller of the Currency (“OCC”) under the National Bank Act. The prior approval of the OCC is required for a national bank to establish or relocate a branch office or to engage in any merger, consolidation, or significant purchase or sale of assets.
The OCC regularly examines the operations and condition of Stillwater National including but not limited to its capital adequacy, loans, allowance for loan losses, investments, liquidity, interest rate risk, and management practices. These examinations are for the protection of Stillwater National’s depositors and the deposit insurance funds administered by the FDIC. In addition, Stillwater National is required to furnish quarterly and annual reports to the OCC. The OCC’s enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a national bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business.
No national bank may pay dividends from its paid-in capital. All dividends must be paid out of current or retained net profits. The National Bank Act further restricts the payment of dividends out of net profits by prohibiting a national bank from declaring a dividend on its shares of common stock until the surplus fund equals the amount of capital stock or, if the surplus fund does not equal the amount of capital stock, until one-tenth of a national bank’s net profits for the preceding half year in the case of quarterly or semi-annual dividends, or the preceding two half-year periods in the case of annual dividends, are transferred to the surplus fund.

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The approval of the OCC is required prior to the payment of a dividend if the total of all dividends declared by a national bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock. In addition, Stillwater National is prohibited by federal statute from paying dividends or making any other capital distribution that would cause Stillwater National to fail to meet its regulatory capital requirements. Further, the OCC also has authority to prohibit the payment of dividends by a national bank when it determines that their payment would be an unsafe and unsound banking practice. In addition, the January 2010 agreement between Stillwater National and the OCC requires prior OCC approval of dividends.
State Non-Member Bank Regulation. As a Kansas-chartered bank that is not a member of the Federal Reserve System, Bank of Kansas is subject to the primary supervision of the FDIC and Kansas state banking authorities. Prior regulatory approval is required for Bank of Kansas to establish or relocate a branch office or to engage in any merger, consolidation, or significant purchase or sale of assets.
The FDIC and Kansas banking authorities regularly examine the operations and condition of Bank of Kansas, including but not limited to its capital adequacy, loans, allowance for loan losses, investments, liquidity, interest rate risk, and management practices. These examinations are for the protection of Bank of Kansas’ depositors and the deposit insurance funds administered by the FDIC. In addition, Bank of Kansas is required to furnish quarterly and annual reports to the FDIC. FDIC and Kansas enforcement authority includes the power to remove officers and directors and the authority to issues cease-and-desist orders to prevent a state non-member bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business.
Kansas state non-member banks are subject to limitations on dividends and are prohibited by federal statute from paying dividends or making any other capital distribution that would cause the banks to fail to meet its regulatory capital requirements or when dividend payment would be an unsafe and unsound banking practice.
Limits on Loans to One Borrower. National banks are subject to loan to one borrower limits. With certain limited exceptions, loans and extensions of credit from national banks outstanding to any borrower (including certain related entities of the borrower) at any one time may not exceed 15% of the unimpaired capital and surplus of the institution. A national bank may lend an additional amount, equal to 10% of unimpaired capital and surplus, if the loan is fully secured by readily marketable collateral. Certain types of loans are exempted from the lending limits, including loans secured by in-bank deposits. Kansas chartered banks are generally not allowed to make loans to one borrower (including certain related entities of the borrower) at any one time in excess of 25% of bank capital, with exceptions for certain cash and real estate collateralized extensions of credit.
Transactions with Affiliates. Stillwater National and Bank of Kansas are subject to restrictions imposed by federal law on extensions of credit to, and certain other transactions with, Southwest and other affiliates and on investments in their stock or other securities. These restrictions prevent Southwest and its nonbanking subsidiaries from borrowing from Stillwater National or Bank of Kansas unless the loans are secured by specified collateral and require those transactions to have terms comparable to terms of arms-length transactions with third persons. In addition, secured loans and other transactions and investments by Stillwater National or Bank of Kansas are generally limited in amount as to Southwest and as to any other affiliate to 10% of Stillwater National’s or Bank of Kansas’ capital and surplus and as to Southwest and all other affiliates together to an aggregate of 20% of Stillwater National’s or Bank of Kansas’ capital and surplus. Certain exemptions to these limitations apply to extensions of credit by, and other transactions between, Stillwater National or Bank of Kansas and Southwest’s other subsidiaries. These regulations and restrictions may limit Southwest’s ability to obtain funds from Stillwater National and Bank of Kansas for its cash needs, including funds for acquisitions and for payment of dividends, interest, and operating expenses.
Real Estate Lending Guidelines. Under federal banking regulations, banks must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards; prudent underwriting standards, including loan-to-value limits, that are clear

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and measurable; loan administration procedures; and documentation, approval, and reporting requirements. A bank’s real estate lending policy must reflect consideration of the Guidelines for Real Estate Lending Policies (the “Guidelines”) adopted by the federal banking regulators. The Guidelines, among other things, call for internal loan-to-value limits for real estate loans that are not in excess of the limits specified in the Guidelines. The Guidelines state, however, that it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits.
Federal Deposit Insurance. Southwest’s bank subsidiaries pay deposit insurance premiums to the FDIC based on risk-based assessment rates. For additional information, see “Management’s Discussion and Analysis — FDIC and other insurance” on page 16 of this report.
Regulatory Capital Requirements. The Federal Reserve, the OCC, and the FDIC, have established guidelines for maintenance of appropriate levels of capital by bank holding companies, national banks, state chartered banks, and federal savings banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets.
Federal regulations require bank holding companies and banks to maintain a minimum leverage ratio of Tier 1 capital (as defined in the risk-based capital guidelines discussed in the following paragraphs) to total assets of 3.0%. The capital regulations state, however, that only the strongest bank holding companies and banks with composite examination ratings of 1 under the rating system used by the federal banking regulators would be permitted to operate at or near this minimum level of capital. All other bank holding companies and banks are expected to maintain a leverage ratio of at least 1% to 2% above the minimum ratio, depending on the assessment of an individual organization’s capital adequacy by its primary regulator. A bank, or bank holding company, experiencing or anticipating significant growth is expected to maintain capital well above the minimum levels. In addition, the Federal Reserve has indicated that it also may consider the level of an organization’s ratio of tangible Tier 1 capital (after deducting all intangibles) to total assets in making an overall assessment of capital.
The risk-based capital rules require bank holding companies and banks to maintain minimum regulatory capital levels based upon a weighting of their assets and off-balance sheet obligations according to risk. The risk-based capital rules have two basic components: a core capital (Tier 1) requirement and a supplementary capital (Tier 2) requirement. Core capital consists primarily of common stockholders’ equity, certain perpetual preferred stock (noncumulative perpetual preferred stock with respect to national banks), and minority interests in the equity accounts of consolidated subsidiaries, less all intangible assets, except for certain mortgage servicing rights and purchased credit card relationships. Supplementary capital elements include, subject to certain limitations, the allowance for losses on loans and leases, perpetual preferred stock that does not qualify as Tier 1 capital, long-term preferred stock with an original maturity of at least 20 years from issuance, hybrid capital instruments, including perpetual debt and mandatory convertible securities, subordinated debt, intermediate-term preferred stock, and up to 45% of pre-tax net unrealized gains on available for sale equity securities.
The risk-based capital regulations assign balance sheet assets and credit equivalent amounts of off-balance sheet obligations to one of four broad risk categories based principally on the degree of credit risk associated with the obligor. The assets and off-balance sheet items in the four risk categories are weighted at 0%, 20%, 50%, and 100%. These computations result in the total risk-weighted assets. The risk-based capital regulations require all banks and bank holding companies to maintain a minimum ratio of total capital to total risk-weighted assets of 8%, with at least 4% as core capital. For the purpose of calculating these ratios: (i) supplementary capital is limited to no more than 100% of core capital; and (ii) the aggregate amount of certain types of supplementary capital is limited. In addition, the risk-based capital regulations limit the allowance for loan losses that may be included in capital to 1.25% of total risk-weighted assets.
The federal banking regulatory agencies have established a joint policy regarding the evaluation of banks’ capital adequacy for interest rate risk. Under the policy, the assessment of a bank’s capital adequacy includes an assessment

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of exposure to adverse changes in interest rates. Management believes its interest rate risk management systems and its capital relative to its interest rate risk are adequate.
Federal banking regulations also require banks with significant trading assets or liabilities to maintain supplemental risk-based capital based upon their levels of market risk. Stillwater National and Bank of Kansas did not have any trading assets or liabilities during 2009, 2008, and 2007 and were not required to maintain such supplemental capital.
The federal banking regulators have established regulations that classify banks by capital levels and provide for various “prompt corrective actions” to resolve the problems of any bank that fails to satisfy the capital standards. Under these regulations, a well-capitalized bank is one that is not subject to any regulatory order or directive to meet any specific capital level and that has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based capital ratio of 6% or more, and a leverage ratio of 5% or more. An adequately capitalized bank is one that does not qualify as well-capitalized but meets or exceeds the following capital requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has the highest composite examination rating. A bank that does not meet these standards is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized, depending on its capital levels. A bank that falls within any of the three undercapitalized categories established by the prompt corrective action regulation is subject to severe regulatory sanctions. As of December 31, 2009, Stillwater National and Bank of Kansas were well-capitalized as defined in applicable banking regulations. Stillwater National has informally agreed with the OCC to maintain a Tier I leverage ratio of at least 8.5% and a total capital ratio of at least 12.5%. At December 31, 2009, Stillwater National’s ratios substantially exceeded the committed minimums. For information regarding Southwest’s, Stillwater National’s, and Bank of Kansas’ compliance with their respective regulatory capital requirements, see “Management’s Discussion and Analysis — Capital Resources” on page 22 of this report, “Management’s Discussion and Analysis — Certain Regulatory Matters” on page 27 of this report, and in the Notes to Consolidated Financial Statements in this report, “Note 10 Subordinated Debentures” on page 56 and “Note 13 Capital Requirements & Regulatory Matters” on pages 61 through 62.
Brokered Deposits. Well-capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew, or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are not permitted to accept brokered deposits. Stillwater National and Bank of Kansas are each eligible to accept brokered deposits as a result of their capital levels. Stillwater National regularly makes use of brokered deposits. Bank of Kansas has not used brokered deposits but may do so in the future when management deems it appropriate from an asset/liability management perspective. Stillwater National has agreed to obtain OCC approval before increasing its use of brokered deposits. Stillwater National has reduced its reliance on brokered deposits and other non-core funding sources, and does not anticipate any increase in the usage of brokered deposits.
Supervision and Regulation of Mortgage Banking Operations. Southwest’s mortgage banking business is subject to the rules and regulations of the U.S. Department of Housing and Urban Development (“HUD”), the Federal Housing Administration (“FHA”), the Veterans’ Administration (“VA”), and FNMA with respect to originating, processing, selling, and servicing mortgage loans. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines, which include provisions for inspections, and appraisals, require credit reports on prospective borrowers, and fix maximum loan amounts. Lenders such as Southwest are required annually to submit financial statements to FNMA, FHA, and VA, and each regulatory entity has its own financial requirements. Southwest’s affairs are also subject to examination by the Federal Reserve, FNMA, FHA, and VA at all times to assure compliance with the applicable regulations, policies, and procedures. Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, Federal Truth-in-Lending Act, Fair Housing Act, Home Mortgage Disclosure Act, Fair Credit Reporting Act, the National Flood Insurance Act, and the Real Estate Settlement Procedures Act, and related regulations that prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. Southwest’s mortgage banking operations also are affected by various state and local laws and regulations and the requirements of various private mortgage investors.

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Community Reinvestment. Under the Community Reinvestment Act (“CRA”), a financial institution has a continuing and affirmative obligation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions or limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. However, institutions are rated on their performance in meeting the needs of their communities. Performance is tested in three areas: (a) lending, to evaluate the institution’s record of making loans in its assessment areas; (b) investment, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and businesses; and (c) service, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. The CRA requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution, including applications for charters, branches, and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions. The CRA also requires that all institutions make public disclosure of their CRA ratings. Stillwater National and Bank of Kansas were all assigned a “satisfactory” rating as a result of their last CRA examination.
Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions based on the size and nature of the transaction. Financial institutions are generally required to report cash transactions involving more than $10,000 to the United States Treasury. In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects, or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA, or has no lawful purpose. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly referred to as the “USA PATRIOT Act” or the “Patriot Act,” enacted in response to the September 11, 2001 terrorist attacks, enacted prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to prevent the use of the United States financial system for money laundering and terrorist financing activities. The Patriot Act requires banks and other depository institutions, brokers, dealers and certain other businesses involved in the transfer of money to establish anti-money laundering programs, including employee training and independent audit requirements meeting minimum standards specified by the act, to follow standards for customer identification and maintenance of customer identification records, and to compare customer lists against lists of suspected terrorists, terrorist organizations, and money launderers. The Patriot Act also requires federal bank regulators to evaluate the effectiveness of an applicant in combating money laundering in determining whether to approve a proposed bank acquisition.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) established a broad range of corporate governance and accounting measures intended to increase corporate responsibility and protect investors by improving the accuracy and reliability of disclosures under federal securities laws. Southwest is subject to Sarbanes-Oxley because it is required to file periodic reports with the SEC under the Securities and Exchange Act of 1934. Among other things, Sarbanes-Oxley, its implementing regulations, and related NASDAQ Stock Market rules have established new membership requirements and additional responsibilities for Southwest’s audit committee, imposed restrictions on the relationship between Southwest and its outside auditors (including restrictions on the types of non-audit services auditors may provide to their clients), imposed additional financial statement certification responsibilities for Southwest’s Chief Executive Officer and Chief Financial Officer, expanded the disclosure requirements for corporate insiders, required management to evaluate Southwest’s disclosure controls and procedures and its internal control over financial reporting, and required Southwest’s auditors to issue a report on Southwest’s internal control over financial reporting.
Capital Purchase Program. Southwest sold securities to the United States Treasury in the Treasury’s Capital Purchase Program, or “CPP”. The CPP is a voluntary program which offered qualifying banks and bank holding companies to sell preferred securities and warrants to the Treasury. The same terms applied to all public company participants in the plan. The CPP provided an alternative source of capital funds to support growth and for other purposes at a time when the public market for banks securities were weak due to economic uncertainties affecting the whole banking sector. The purpose of the CPP was to stabilize financial markets by providing capital to healthy

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institutions and increase the flow of credit to businesses and consumers. For a description of CPP securities and their terms, see “Note 11 Shareholders’ Equity” to the Consolidated Financial Statements on page 59.
Under the Emergency Economic Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009 participants in the CPP and certain of their officers are subject to special requirements during the time that Treasury continues to hold their preferred securities, warrants, or common stock issued upon exercise of the warrants. These include prohibitions of: incentive compensation payments payable in cash or stock options to covered officers; incentive compensation paid in stock, except for grants of restricted stock that may not fully vest until after none of Southwest’s CPP preferred shares remain outstanding, and are limited in value to 1/3 of total compensation per covered officer; incentives that would cause a covered officer to take unnecessary and excessive risks that threaten the value of Southwest; payments to a covered officer triggered by his or her departure from employment, other than payments for services performed and accrued benefits; and payments of tax-gross ups, which are reimbursements to cover taxes owed by officers with respect to any compensation.
The incentive compensation restrictions apply to the five most highly compensated employees at Southwest. The severance payment restrictions apply to the Named Executive Officers and the next five most highly compensated officers. Some of the additional provisions of the Recovery Act may apply to additional officers at Southwest.
Covered officers also are required to return any bonus or incentive compensation they receive that was based upon statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate.
Companies with outstanding CPP preferred securities also are required to: provide shareholders with an opportunity to cast nonbinding advisory votes on executive compensation; establish independent compensation committees; establish policies regarding excessive luxury expenditures; and provide certifications of compliance with these requirements.
Temporary Liquidity Guarantee Program. Southwest’s bank subsidiaries participate in the FDIC’s voluntary Temporary Liquidity Guarantee Program (“TLGP”), which was established in November 2008. Under the TLGP the FDIC will (i) guarantee, through the earlier maturity or June 30, 2012, newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008, and before October 31, 2009 and (ii) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdrawal (“NOW”) accounts paying less than 0.5% interest per annum, and Interest and Lawyers Trust Accounts held at participating FDIC insured institutions through June 30, 2010.
Other Laws and Regulations. Some of the aspects of the lending and deposit business of Stillwater National and Bank of Kansas that are subject to regulation by the Federal Reserve and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and deposit accounts. Stillwater National’s federal student lending activities are subject to regulation and examination by the United States Department of Education. In addition, Stillwater National and Bank of Kansas are subject to numerous federal and state laws and regulations that include specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms, and discrimination in credit transactions.
Enforcement Actions. Federal statutes and regulations provide financial institution regulatory agencies with great flexibility to undertake an enforcement action against an institution that fails to comply with regulatory requirements. Possible enforcement actions range from the imposition of a capital plan and capital directive to civil money penalties, cease-and-desist orders, receivership, conservatorship, or the termination of deposit insurance.
Employees
As of December 31, 2009, Southwest employed 466 persons on a full-time equivalent basis, including executive officers, loan, and other banking officers, branch personnel, and others. No employees of Southwest or any of its consolidated subsidiaries are represented by a union or covered under a collective bargaining agreement. Management of Southwest considers their employee relations to be excellent.

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Board of Directors of Southwest Bancorp, Inc. and Stillwater National Bank & Trust Company
     
Robert B. Rodgers, Chairman of the Board
  President, Bob Rodgers Motor Company
 
   
Rick Green, Vice Chairman of the Board
  President and Chief Executive Officer
Southwest and Stillwater National
 
   
James E. Berry II
  Owner, Shading Concepts
 
   
Tom D. Berry
  Auctioneer, Real Estate Broker, Oil & Gas Exploration
 
   
Joe Berry Cannon
  Assistant Professor of Management, Oral Roberts
University School of Business
 
   
John Cohlmia
  Real Estate Broker, Grubb & Ellis/Levy Beffort
 
   
David S. Crockett Jr., CPA
  Owner, David S. Crockett & Co., CPA’s
 
   
J. Berry Harrison
  Oklahoma State Senator (retired) and Rancher
 
   
James M. Johnson
  Self-employed Small Business Owner
 
   
David P. Lambert
  Chairman of the Board, Lambert Construction Company
 
   
Linford R. Pitts
  President, Stillwater Transfer & Storage, Inc.
 
   
Russell W. Teubner
  Founder and Chief Executive Officer,
HostBridge Technology
 
   
Board of Directors of Bank of Kansas
   
 
   
Robert B. Rodgers, Chairman of the Board
  President, Bob Rodgers Motor Company
 
   
Rick Green, Vice Chairman of the Board
  President and Chief Executive Officer
Southwest and Stillwater National
 
   
Patrick L. Gearhart
  President, Wichita Division of Bank of Kansas
 
   
Jerry Lanier
  President and Chief Executive Officer, Bank of Kansas;
Executive Vice President and Chief Lending Officer of
Stillwater National
 
   
David Lesperance
  President, Hutchinson Division of Bank of Kansas
 
   
Anthony W. Martin
  Retired Dentist
 
   
David W. Pitts
  Executive Vice President and Regional Director, Bank of Kansas; Senior Vice President of Stillwater National
 
   
Douglas J. Watts
  President, Kansas City Division of Stillwater National

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Executive Officers
The following table sets forth information regarding the executive officers of Southwest, Stillwater National, and Bank of Kansas who are not directors of Southwest.
             
Name     Age     Position
Priscilla Barnes
    53     Executive Vice President, Director of Human Resources and Compliance of Stillwater National and Bank of Kansas
 
           
Kerby E. Crowell
    60     Executive Vice President, Chief Financial Officer, and Secretary of Southwest and Stillwater National; Executive Vice President, Chief Financial Officer, Cashier, and Secretary of Bank of Kansas
 
           
David Dietz
    54     Executive Vice President and Chief Information Officer of Stillwater National and Bank of Kansas
 
           
Steven M. Gobel
    58     Executive Vice President, Chief Accounting and Controls Officer and Associate Chief Financial Officer of Southwest and Stillwater National; Executive Vice President, Chief Accounting Officer and Assistant Secretary of Bank of Kansas
 
           
Jerry L. Lanier
    61     Executive Vice President and Chief Lending Officer of Stillwater National; President and Chief Executive Officer of Bank of Kansas
 
           
David W. Pitts
    49     Executive Vice President and Regional Director, Bank of Kansas; Senior Vice President of Stillwater National
 
           
Laura Robertson
    36     Senior Vice President, Public Company Reporting and Tax Manager of Southwest and Stillwater National
 
           
Kimberly G. Sinclair
    54     Executive Vice President and Chief Administrative Officer of Stillwater National and Bank of Kansas
 
           
Charles H. Westerheide
    61     Executive Vice President and Treasurer of Southwest, Stillwater National and Bank of Kansas
The principal occupations and business experience of each executive officer of Southwest, Stillwater National, and Bank of Kansas are shown below.
Priscilla Barnes was named Executive Vice President, Director of Human Resources and Compliance in July 2009. Ms. Barnes has 30 years experience in the banking industry, joining Stillwater National Bank in 2005 as Vice President, Compliance. Prior to joining Stillwater National Bank, Ms. Barnes was a federal bank examiner, a senior consultant for a regional accounting firm, and served as a banker in many similar capacities. She was named an Oklahoma State University Regent’s Distinguished Scholar and attended the Graduate School of Banking in Madison, Wisconsin.
Kerby E. Crowell joined Stillwater in 1969; has served as Executive Vice President and Chief Financial Officer of Southwest and Stillwater National since 1986; became Secretary of Southwest and Stillwater National in 2000; and was named Secretary of Bank of Kansas in 2007. He is a current member of the Independent Community Bankers Association’s (“ICBA”) Large Community Bank Council. Mr. Crowell is a past Board member of MetaFund Corporation (an Oklahoma Community Development Financial Institution) and the Oklahoma City Chapter of the Financial Executives Institute. In addition, he is a past Board member of ICBA’s Credit Card Subsidiary. Mr. Crowell is also past President of the Oklahoma City Chapter of the Financial Executives Institute, and has served

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on the Federal Reserve’s Industry Advisory Group on Electronic Check Presentment. In 1996, Mr. Crowell was recognized by the Oklahoma Society of Certified Public Accountants as the Outstanding Certified Public Accountant in Business and Industry.
David Dietz was appointed Executive Vice President of Stillwater National in February 2007. Mr. Dietz has 30 years of banking experience. He has been with Stillwater National since 1997 and serves as the company’s Chief Information Officer. Prior to joining Stillwater National, Mr. Dietz served as S.V.P. and Cashier of First National Bank & Trust Company of Ponca City, Oklahoma. He is a graduate of the University of Oklahoma. Mr. Dietz is active in the First United Methodist Church of Pawnee, Oklahoma, and is on the alumni board of the Oklahoma State University chapter of the Kappa Sigma fraternity.
Steven M. Gobel serves as Executive Vice President, Chief Accounting and Controls Officer, and Associate Chief Financial Officer of Southwest and Stillwater National. From 1990 until joining Stillwater National in September 2000, Mr. Gobel served as Senior Vice President of Finance and in other positions with Bank of America and predecessor institutions in Oklahoma and Kansas (previous institutions included NationsBank, Boatmen’s Bank of St. Louis, Bank IV of Wichita, Kansas, and Fourth National Bank of Tulsa). From 1987 to 1990, Mr. Gobel served as a Vice President and Manager of Financial Reporting and Financial Planning for Sooner Federal Savings and Loan of Oklahoma. He is a Certified Public Accountant and prior to 1987 spent twelve years working for international public accounting firms (previously Touche Ross and Coopers & Lybrand) in Tulsa, Oklahoma, New York City, New York, and Milwaukee, Wisconsin.
Jerry L. Lanier was appointed Chief Executive Officer of Bank of Kansas in December 2008 and Executive Vice President and Chief Lending Officer of Stillwater National in 2001. Mr. Lanier previously served as Executive Vice President-Credit Administration beginning in December 1999, supervising this area company-wide, and from January 1998 to December 1999, served as Senior Vice President in Credit Administration. From 1992 until joining Stillwater National in 1998, Mr. Lanier was a consultant specializing in loan review. During this same period he also served as court-appointed receiver for a number of Oklahoma-based insurance companies. From 1982-1992, Mr. Lanier served as President of American National Bank and Trust Co. of Shawnee, Oklahoma including service as Chief Executive Officer from 1987-1992. From 1970-1981, he was a National Bank Examiner for the Office of the Comptroller of the Currency in Oklahoma City, Oklahoma and Dallas, Texas, and, while an examiner, served as Regional Director of Special Surveillance from 1979 to 1981. Mr. Lanier has served as United Way Drive Chairman and President; Chairman of the Shawnee Advisory Board of Oklahoma Baptist University; Director of the Shawnee Chamber of Commerce; Director and Chairman of the Youth and Family Resource Center; and President and Trustee of the Shawnee Educational Foundation.
Laura Robertson joined Stillwater National in April 2006. She has served as the Public Company Reporting and Tax Manager since late 2006 and became an officer and assistant secretary of Southwest in 2006. Prior to joining Stillwater National, Ms. Robertson practiced public accounting in the Dallas, Texas metro area. She is a Certified Public Accountant and a member of both the Oklahoma and Texas Society of CPAs as well as the American Institute of Certified Public Accountants. Ms. Robertson currently serves on the Board of Directors for Payne County Court Appointed Special Advocates.
Kimberly G. Sinclair was appointed Chief Administrative Officer in 1995 and has been Executive Vice President of Stillwater National since 1991. Prior to 1991, she had been Senior Vice President and Chief Operations Officer of Stillwater National since 1985. Ms. Sinclair joined Stillwater National in 1975. She is a member of the Stillwater Junior Service Sustainers and just completed a six year term on the Executive Board of Directors for the Stillwater United Way, where she chaired the 2005 and 2006 Day of Caring, as well as the Leader’s Society. She is past Treasurer of the Board of Trustees of the Stillwater Public Education Foundation and a graduate of the Leadership Stillwater Class IX. She has been an Ambassador with the Stillwater Chamber of Commerce and active with various organizations throughout Stillwater.
Charles H. Westerheide was appointed Executive Vice President and Treasurer of Stillwater National in 2000. Prior to that, he served as Senior Vice President and Treasury Manager. He joined Stillwater National in 1997, coming from Bank of America (previously Bank IV and NationsBank), Wichita, Kansas, where he served as

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Treasury/Funding Manager. Prior to joining BankIV, Mr. Westerheide served as Executive Vice President and Chief Financial Officer of Security Bank and Trust Co., Ponca City, Oklahoma. Mr. Westerheide has held a number of community leadership positions including Chairman of the Ponca City Chamber of Commerce, President of the Ponca City Foundation for Progress, Inc., and a director and officer of numerous community foundations and clubs. Mr. Westerheide is a graduate of Leadership Oklahoma, Class II.

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RISK FACTORS
Investing in our common stock involves risks. You should carefully consider the following risk factors before you decide to make an investment decision regarding our stock. The risk factors may cause our future earnings to be lower or our financial condition to be less favorable than we expect. In addition, other risks of which we are not aware, or which we do not believe are material, may cause earnings to be lower or may hurt our financial condition. You should also consider the other information in this Annual Report on Form 10-K, as well as in the documents incorporated by reference into it.
Difficult and unsettled market conditions have affected our profits and loan quality and may continue to do so for an unknown period.
The decrease in our earnings for 2009 is linked to current market conditions that have required increases in our allowance for loan losses. We expect unsettled conditions to continue, and that they may increase the likelihood and the severity of adverse effects discussed in the following risk factors. In particular:
    There may be less demand for our products and services.
 
    Competition in our industry could intensify as a result of increased consolidation of the banking industry.
 
    It may become more difficult to estimate losses inherent in our loan portfolio.
 
    Loan delinquencies and problem assets may increase.
 
    Collateral for loans may decline in value, increasing loan to value ratios and reducing our customers’ borrowing power and the security for our loans.
 
    Deposits and borrowings may become even more expensive relative to yields on loans and securities, further reducing our net interest margin, and making it more difficult to maintain adequate sources of liquidity.
 
    Asset based liquidity, which depends upon the marketability of assets such as student loans and mortgages, may be reduced.
 
    Weak market conditions for banking industry securities may make it unattractive or impractical to raise funds through equity offerings.
 
    Compliance with new banking regulations enacted in connection with stimulus legislation may increase our costs, limit our ability to pursue business opportunities, and impair our ability to hire and retain talented managers.
Changes in interest rates and other factors beyond our control may adversely affect our earnings and financial condition.
Our net income depends to a great extent upon the level of our net interest income. Changes in interest rates can increase or decrease net interest income and net income. Net interest income is the difference between the interest income we earn on loans, investments, and other interest-earning assets, and the interest we pay on interest-bearing liabilities, such as deposits and borrowings. Net interest income is affected by changes in market interest rates, because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an increase in 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.
Changes in market interest rates are affected by many factors beyond our control, including inflation, unemployment, money supply, international events, and events in world financial markets. We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, repricing, and balances of the different types of interest-earning assets and interest-bearing liabilities, but interest rate risk management techniques are not exact. As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations. Changes in the market interest rates for types of products and services in our various markets also may vary significantly from location to location and over time based upon

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competition and local or regional economic factors. The results of our interest rate sensitivity simulation model depend upon a number of assumptions which may not prove to be accurate. There can be no assurance that we will be able to successfully manage our interest rate risk.
Changes in local economic conditions could adversely affect our business.
Our commercial and commercial real estate lending operations are concentrated in the metropolitan areas of Oklahoma City, Stillwater, Edmond, and Tulsa, Oklahoma; Dallas, Austin, San Antonio and Houston, Texas; and Hutchinson, Wichita and Kansas City, Kansas. Our success depends in part upon economic conditions in these markets. Adverse changes in economic conditions in these markets could reduce our growth in loans and deposits, impair our ability to collect our loans, increase our problem loans and charge-offs and otherwise negatively affect our performance and financial condition.
Adverse changes in healthcare-related businesses could lead to slower loan growth and higher levels of problem loans and charge-offs.
We have a substantial amount of loans to individuals and businesses involved in the healthcare industry, including business and personal loans to physicians, dentists, and other healthcare professionals, and loans to for-profit hospitals, nursing homes, suppliers and other healthcare-related businesses. Our strategy calls for continued growth in healthcare lending. This concentration exposes us to the risk that adverse developments in the healthcare industry could hurt our profitability and financial condition as a result of increased levels of nonperforming loans and charge-offs and reduced loan demand and deposit growth.
Our allowance for loan losses may not be adequate to cover our actual loan losses, which could adversely affect our earnings.
We maintain an allowance for loan losses in an amount which we believe is appropriate to provide for losses inherent in the portfolio. While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any time there are loans included in the portfolio that will result in losses but that have not been identified as nonperforming or potential problem loans. We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets or that we will be able to limit losses on those loans that are identified. As a result, future additions to the allowance may be necessary. Additionally, future additions may be required based on changes in the loans comprising the portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions or as a result of incorrect assumptions by management in determining the allowance. Additionally, federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses could have a negative effect on our financial condition and results of operations.
Our loan portfolio contains a high percentage of commercial and commercial real estate loans in relation to our total loans and total assets. Commercial and commercial real estate loans generally are viewed as having more risk of default than residential real estate loans or other loans or investments. These types of loans also typically are larger than residential real estate loans and other consumer loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming assets. An increase in nonperforming loans could result in: a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, which could have an adverse impact on our results of operations and financial condition.
Unseasoned loans may increase the risk of credit defaults in the future.
Due to our rapid growth over the past several years, a large portion of the loans in our loan portfolio and of our lending relationships is of relatively recent origin. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result,

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a portfolio of older loans may behave more predictably than a newer portfolio. Because a significant portion of our loan portfolio is relatively new, the current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which may be higher than current levels. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would adversely affect our results of operations and financial condition.
We use wholesale funding sources to supplement our core deposits, which exposes us to liquidity risk and potential earnings volatility or other adverse effects if we are unable to secure adequate funding.
We rely on wholesale funding, including FHLB borrowings, federal funds purchased, and brokered deposits, to supplement core deposits to fund our business. At December 31, 2009, these wholesale funding sources constituted approximately 15% of our total deposits and other borrowings and brokered deposits constituted approximately 20% of our total deposits and other borrowings.
Wholesale funding sources are affected by general market conditions and the condition and performance of the borrower, and the availability of funding from wholesale lenders may be dependent on the confidence these investors have in our operations. In addition, our agreement with the OCC requires Stillwater National to obtain prior approval for any increases in brokered deposits. The continued availability to us of these funding sources cannot be assured, and we may find it difficult to retain or replace them at attractive rates as they mature. Our liquidity will be constrained if we are unable to renew our wholesale funding sources or if adequate financing is not available to us in the future at acceptable rates of interest or at all. We may not have sufficient liquidity to continue to fund new loans, and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature. If we do not have adequate sources of liquidity at attractive rates, we may have to restrain the growth of assets or reduce our asset size, which may adversely affect shareholder value.
Government regulation significantly affects our business.
The banking industry is heavily regulated. Banking regulations are primarily intended to protect the federal deposit insurance funds and depositors, not shareholders. Stillwater National is subject to regulation and supervision by the OCC. Bank of Kansas is subject to regulation and supervision by the FDIC and Kansas Banking authorities. Southwest is subject to regulation and supervision by the Board of Governors of the Federal Reserve System. The burden imposed by federal and state regulations puts banks at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking companies and leasing companies.
Changes in the laws, regulations, and regulatory practices affecting the banking industry may limit our ability to increase or assess fees for services provided, increase our costs of doing business or otherwise adversely affect us and create competitive advantages for others. Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition. Federal economic and monetary policy may also affect our ability to attract deposits and other funding sources, make loans and investments, and achieve satisfactory interest spreads. The FDIC may continue to raise our deposit insurance costs by increasing regular assessment rates and levying special assessments, which may in the future significantly and adversely affect our net income.
Our ability to pay dividends is limited by law, contract, and banking agency discretion.
Our ability to pay dividends to our shareholders in the past and over the long term largely depends on Southwest’s receipt of dividends from Stillwater National. Bank of Kansas does not currently pay dividends. The amount of dividends that Stillwater National may pay to Southwest is limited by federal laws and regulations. In addition, the agreement entered into by Stillwater National requires prior approval of the OCC for any dividend by Stillwater National, and Southwest has informally committed to consult with the Federal Reserve Bank of Kansas City prior to declaring or paying any dividend, including interest payments on subordinated debentures, or receiving any dividend from Stillwater National or Bank of Kansas. We also have informally committed to submit

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any planned borrowing by the holding company for approval. Federal Reserve dividend policies state that funds should not be borrowed to pay dividends. We have no plans for any additional holding company borrowings. The Federal Reserve could, at any time, prevent Southwest from paying some or all dividends. Such a decision could result in reputation risk to Southwest and could adversely affect its borrowing costs and liquidity.
We are prohibited from paying dividends on our common stock if the required payments on our preferred stock and subordinated debentures have not been made. We also may decide to limit the payment of dividends even when we have the legal ability to pay them in order to retain earnings for use in our business.
We have entered into formal and informal agreements with the OCC and have informal commitments to the Federal Reserve that may adversely affect our operations. Failure to comply with these agreements and commitments could subject Southwest, Stillwater National, and their directors to additional enforcement actions and could damage our reputation.
Southwest and Stillwater National are committed to compliance with our agreements and commitments, and are taking aggressive actions to do so. However, we cannot be assured that we will be able to fully comply with them. The agreements and commitments relate primarily to our concentration in commercial real estate lending and our high levels of nonperforming and potential nonperforming loans, most of which are commercial real estate loans. We may not be able to reduce our commercial real estate loan concentrations or problem and potential problem assets quickly enough to fulfill expectations of the banking regulators. The agreement with the OCC does not require that Stillwater National maintain any specific capital ratios; however, Stillwater National has informally agreed to maintain at least a Tier I leverage ratio of 8.5% and a total capital ratio of 12.5%. At December 31, 2009, Stillwater National’s capital ratios significantly exceeded these levels and the regulatory minimums for well-capitalized status. An inability to sufficiently reduce our commercial real estate loan concentrations and problem and potential problem assets or a decrease in capital ratios below the levels to which Stillwater National has informally committed could lead to a need to raise additional capital upon terms which may not be favorable to our existing securities holders and additional regulatory restrictions which could further limit our operations.
Our decisions regarding the fair value of assets acquired could be inaccurate and our estimated loss share receivable in FDIC-assisted acquisitions may be inadequate, which could adversely affect our business, financial condition, results of operations, and future prospects.
In accordance with generally accepted accounting principles, we record assets acquired and liabilities assumed in business combinations at their fair values. The determination of the initial fair values can be complex and involves a high degree of judgment. Goodwill is initially recorded as the excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired in a business combination, and thereafter is tested for impairment at least annually. If the current fair value is determined to be less than the carrying value, an impairment loss is recorded. Our impairment testing of goodwill has not resulted in any losses to date.
Management makes various assumptions and judgments about the collectibility of acquired loan portfolios, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. In FDIC-assisted acquisitions that include loss share agreements, we may record a loss share receivable that we consider adequate to absorb future losses which may occur in the acquired loan portfolio. In determining the size of the loss share receivable, we analyze the loan portfolio based on historical loss experience, volume and classification of loans, volume and trends in delinquencies and nonaccruals, local economic conditions, and other pertinent information.
If our assumptions are incorrect, our current receivable may be insufficient to cover future loan losses, and increased loss reserves may be needed to respond to different economic conditions or adverse developments in the acquired loan portfolio. Any increase in future loan losses could have a negative effect on our operating results.

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The acquisition of banks, bank branches, and other businesses involve risks.
In the future we may acquire additional banks, branches or other financial institutions, or other businesses. We cannot assure you that we will be able to adequately or profitably manage any such acquisitions. The acquisition of banks, bank branches, and other businesses involves risk, including exposure to unknown or contingent liabilities, the uncertainties of asset quality assessment, the difficulty and expense of integrating the operations and personnel of the acquired companies with ours, the potential negative effects on our other operations of the diversion of management’s time and attention, and the possible loss of key employees and customers of the banks, businesses, or branches we acquire. Our failure to execute our internal growth strategy or our acquisition strategy could adversely affect our business, results of operations, financial condition, and future prospects.
The market price for our common stock may be highly volatile.
The overall market and the price of our common stock may continue to be volatile. There may be a significant impact on the market price for our common stock due to, among other things:
    Variations in our anticipated or actual operating results or the results of our competitors;
 
    Changes in investors’ or analysts’ perceptions of the risks and conditions of our business;
 
    The size of the public float of our common stock;
 
    Regulatory developments;
 
    The announcement of acquisitions or new branch locations by us or our competitors;
 
    Market conditions; and
 
    General economic conditions.
Restrictions on unfriendly acquisitions could prevent a takeover.
Our certificate of incorporation and bylaws contain provisions that could discourage takeover attempts that are not approved by the board of directors. The Oklahoma General Corporation Act includes provisions that make an acquisition of Southwest more difficult. These provisions may prevent a future takeover attempt in which our shareholders otherwise might receive a substantial premium for their shares over then-current market prices.
These provisions include supermajority provisions for the approval of certain business combinations and certain provisions relating to meetings of shareholders. Our certificate of incorporation also authorizes the issuance of additional shares without shareholder approval on terms or in circumstances that could deter a future takeover attempt.
Future sales of our common stock or other securities may dilute the value of our common stock.
In many situations, our board of directors has the authority, without any vote of our shareholders, to issue shares of our authorized but unissued stock, including shares authorized and unissued under our stock option plans. In the future, we may issue additional securities, through public or private offerings, in order to raise additional capital. Any such issuance would dilute the percentage of ownership interest of existing shareholders and may dilute the per share book value of the common stock. In addition, option holders may exercise their options at a time when we would otherwise be able to obtain additional equity capital on more favorable terms.
The sale, or availability for sale, of a substantial number of shares of common stock in the public market could adversely affect the price of our common stock and could impair our ability to raise additional capital through the sale of equity securities.
We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations.
We are and will continue to be dependent upon the services of our executive management team. In addition, we will continue to depend on our ability to retain and recruit key commercial loan officers. The unexpected loss of

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services of any key management personnel or the inability to recruit and retain qualified personnel in the future could have an adverse effect on our business and financial condition. Banking regulations adopted in connection with federal stimulus legislation may make it more difficult to retain and recruit senior managers.
Competition may decrease our growth or profits.
We compete for loans, deposits, and investment dollars with other banks and other financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, and private lenders, many of which have substantially greater resources than ours. Credit unions have federal tax exemptions, which may allow them to offer lower rates on loans and higher rates on deposits than taxpaying financial institutions such as commercial banks. In addition, non-depository institution competitors are generally not subject to the extensive regulation applicable to institutions that offer federally insured deposits. Other institutions may have other competitive advantages in particular markets or may be willing to accept lower profit margins on certain products. These differences in resources, regulation, competitive advantages, and business strategy may decrease our net interest margin, may increase our operating costs, and may make it harder for us to compete profitably.

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Availability of Filings
Southwest provides internet access to Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports through its Investor Relations section at www.oksb.com (This site is also accessible through Stillwater National’s website at www.banksnb.com and Bank of Kansas’ website at www.bankofkansas.com). Access to these reports is provided by means of a link to a third party vendor that maintains a database of such filings. In general, Southwest intends that these reports be available as soon as reasonably practicable after they are filed with or furnished to the SEC. However, technical and other operational obstacles or delays caused by the vendor may delay their availability. The SEC maintains a website (www.sec.gov) where these filings also are available through the SEC’s EDGAR system. There is no charge for access to these filings through either Southwest’s site or the SEC’s site, although users should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that they may bear. The public also may read and copy materials filed by Southwest with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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Properties
The locations of Southwest and its subsidiaries are shown below:
         
Southwest Bancorp, Inc.
       
Corporate Headquarters
       
608 S. Main Street
       
P.O. Box 1988
  Stillwater, Oklahoma 74076   405-742-1800
www.oksb.com
       
 
       
Bank of Kansas Locations
       
Corporate Headquarters
       
524 N. Main Street
       
P.O. Box 1707 South
  Hutchinson, Kansas 67505   620-728-3000
www.bankofkansas.com
       
 
       
Anthony
       
203 W. Main Street
       
P.O. Box 484
  Anthony, Kansas 67003   620-842-1000
 
       
Harper
       
1002 Central Street*
       
P.O. Box 7
  Harper, Kansas 67058   620-896-1035
 
       
North hutchinson
       
100 East 30th Avenue
       
P.O. Box 1707
  Hutchinson, Kansas 67502   620-728-3000
 
       
Mayfield
       
102 N. Osborn
  Mayfield, Kansas 67103   620-434-5325
 
       
Overland Park
       
14435 Metcalf Avenue
  Overland Park, Kansas 66223   913-906-4444
 
       
Wichita — East
       
8415 E. 21st Street North, Suite 150*
  Wichita, Kansas 67206   316-315-1600
 
       
Wichita — West
       
10111 W. 21st Street North
  Wichita, Kansas 67205   316-315-1600
 
       
Stillwater National Bank & Trust Company Locations    
Corporate Headquarters
       
608 S. Main Street
       
P.O. Box 1988
  Stillwater, Oklahoma 74076   405-372-2230
www.banksnb.com
       
 
       
Drive-in Facility
       
308 S. Main Street
       
P.O. Box 1988
  Stillwater, Oklahoma 74076   405-372-2230
 
       
Operations Center
       
1624 Cimarron Plaza*
       
P.O. Box 1988
  Stillwater, Oklahoma 74076   405-372-2230

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19th & Sangre Branch
       
1908 S. Sangre
       
P.O. Box 1988
  Stillwater, Oklahoma 74074   405-372-2230
 
       
OSU Campus Branch Bank
       
1102 W. Hall of Fame Avenue*
       
P.O. Box 1988
  Stillwater, Oklahoma 74076   405-372-2230
 
       
Waterford Branch
       
6301 Waterford Blvd., Suite 101*
  Oklahoma City, Oklahoma 73118   405-427-4000
 
       
South OKC Branch
       
8101 S. Walker Ave., Suite B
  Oklahoma City, Oklahoma 73139   405-427-4000
 
       
Edmond Branch
       
1440 S. Bryant Avenue*
  Edmond, Oklahoma 73034   405-427-4000
 
       
Chickasha Branch
       
500 W. Grand Avenue
  Chickasha, Oklahoma 73018   405-427-3100
 
       
Tulsa Utica Branch
       
1500 S. Utica Avenue
       
P.O. Box 521500
  Tulsa, Oklahoma 74152   918-523-3600
 
       
Tulsa 61st Branch
       
2431 E. 61st, Suite 170*
       
P.O. Box 521500
  Tulsa, Oklahoma 74152   918-523-3600
 
       
SNB McMullen Bank-Tilden Branch
       
205 Elm Street
       
P.O. Box 299
  Tilden, Texas 78072   361-274-3391
 
       
SNB Bank of Dallas — Frisco
       
5300 Town and Country Blvd., Suite 100*
  Frisco, Texas 75034   972-624-2900
 
       
SNB Bank of Dallas-Preston Center
       
5950 Berkshire Lane, Suite 350*
  Dallas, Texas 75225   972-624-2900
 
       
SNB Bank of Austin
       
3900 N. Capital of Texas HWY, Suite 100*
  Austin, Texas 78746   512-314-6700
 
       
SNB Bank of San Antonio-Stone Oak Branch    
777 E. Sonterra Blvd, Suite 190*
  San Antonio, Texas 78258   210-442-6100
 
       
SNB Bank of San Antonio-Medical Hill Branch    
9324 Huebner Road
  San Antonio, Texas 78240   210-442-6100
 
       
Stillwater National Bank Loan Production Office    
10111 Richmond Avenue Suite 132*
  Houston, Texas 77042   713-268-8900
 
       
Stillwater National Bank Loan Production Office    
11350 Tomahawk Creek Parkway, Suite 100*
  Leawood, Kansas 66211   913-906-4400

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OUHSC Loan Production Office
       
1106 N. Stonewall*
  Oklahoma City, Oklahoma 73117   405-271-3113
 
       
OSU-Stillwater Marketing Office
       
Student Union, Room 150*
       
P.O. Box 1988
  Stillwater, Oklahoma 74076   405-744-5962
 
*   Leased from third parties. Other properties are owned.

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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as Part of this Report
(1) Financial Statements. The following financial statements are filed as a part of this report:
Independent Registered Public Accounting Firm’s Report for the Years Ended December 31, 2009 and 2008
Consolidated Statements of Financial Condition at December 31, 2009 and 2008
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008, and 2007
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2009, 2008, and 2007
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008, and 2007
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008, and 2007
Notes to Consolidated Financial Statements for the Years Ended December 31, 2009, 2008, and 2007
(2) Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto.
(3) Exhibits. The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
     
No.   Exhibit
 
   
3.1
  Amended and Restated Certificate of Incorporation of Southwest Bancorp, Inc. (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008)
 
   
3.2
  Bylaws of Southwest Bancorp, Inc., as amended (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed November 19, 2007)
 
   
4.1
  Rights Agreement, dated as of April 22, 1999, between Southwest Bancorp, Inc. and Harris Trust & Savings Bank, as rights agent and Form of Certificate of Designations setting forth terms of Class B, Series 1 Preferred Stock of Southwest Bancorp, Inc. referred to in the rights agreement (incorporated by reference to Exhibits 1 and 2 to Current Report on Form 8-K dated April 22, 1999)
 
   
4.2
  Amendment No. 1 to Rights Agreement, dated as of December 2, 2008, between Southwest Bancorp, Inc. and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed December 8, 2008)
 
   
4.3
  Certificate of Designations for Fixed Rate Cumulative Perpetual Preferred Stock, Series B (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed December 8, 2008)
 
   
4.4
  Letter Agreement, dated as of December 5, 2008, between Southwest Bancorp, Inc. and the United States Department of Treasury (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed December 8, 2008)
 
   
* 10.1
  Southwest Bancorp, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8 (File No. 33-97850))
 
   
* 10.2
  Southwest Bancorp, Inc. and Affiliates Amended and Restated Severance Compensation Plan (incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K filed January 2, 2008)
 
   
* 10.3
  Southwest Bancorp, Inc. 1994 Stock Option Plan (incorporated by reference to Exhibit 10.3 to Annual Report on Form 10-K for the fiscal year ended December 31, 1993)
 
   
* 10.4
  Southwest Bancorp, Inc. 1999 Stock Option Plan as Amended and Restated (incorporated by

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No.   Exhibit
 
   
 
  reference to Exhibit 10 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2007)
 
   
* 10.5
  Stillwater National Bank and Trust Company 2002 and 2003 Deferred Compensation Plans (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the fiscal year ended December 31, 2002)
 
   
* 10.6
  Stillwater National Bank and Trust Company Amended and Restated Supplemental Profit Sharing Plan for Rick Green (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed January 2, 2008)
 
   
* 10.7
  Stillwater National Bank and Trust Company Amended and Restated Supplemental Profit Sharing Plan for Kerby E. Crowell (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed January 2, 2008)
 
   
* 10.8
  Stillwater National Bank and Trust Company Amended and Restated Supplemental Profit Sharing Plan for Jerry L. Lanier (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed January 2, 2008)
 
   
10.9
  Indemnification Agreements by and between Southwest Bancorp, Inc. and James E. Berry II, Thomas D. Berry, Joe Berry Cannon, J. Berry Harrison, Erd M. Johnson, David P. Lambert, Linford R. Pitts, Robert B. Rodgers, Russell W. Teubner, John Cohlmia, and Anthony W. Martin (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended December 31, 2005)
 
   
10.10
  Indemnification Agreements by and between Southwest Bancorp, Inc. and Rick Green, Kerby E. Crowell, David Dietz, Allen Glenn, Steve Gobel, Steven N. Hadley, Jerry L. Lanier, Randy Mills, Kimberly Sinclair, Kay Smith, and Charles H. Westerheide (incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K for the fiscal year ended December 31, 2005)
 
   
10.11
  Indemnification Agreements by and between Southwest Bancorp, Inc. and David S. Crockett, Jr. (incorporated by reference to Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2006)
 
   
10.12
  Indemnification Agreements by and between Southwest Bancorp, Inc. and James M. Johnson (incorporated by reference to Exhibit 10(b) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2006)
 
   
* 10.13
  2007 Director’s Deferred Compensation Plan by and between Southwest Bancorp, Inc. and James M. Johnson (incorporated by reference to Exhibit 10 to Current Report on Form 8-K dated December 28, 2006)
 
   
* 10.14
  Amendment to 2007 Director’s Deferred Compensation Plan by and between Southwest Bancorp, Inc. and James M. Johnson (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 2, 2008)
 
   
10.15
  Audit Committee Financial Expert Agreement by and between Southwest Bancorp, Inc. and David S. Crockett, Jr. (incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for the fiscal year ended December 31, 2006)
 
   
* 10.16
  2008 Director’s Deferred Compensation Plan by and between Southwest Bancorp, Inc. and James M. Johnson (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed January 2, 2008)
 
   
* 10.17
  Southwest Bancorp, Inc. 2008 Stock Based Award Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008)
 
   
* 10.18
  Southwest Bancorp, Inc. Form of Restricted Stock Agreement Amendments (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008)
 
   
* 10.19
  Southwest Bancorp, Inc. Form of Omnibus Compensation Compliance Agreement and Waivers dated December 5, 2008 (incorporated by reference to Exhibit 10.19 to Annual Report on Form 10-K for the fiscal year ended December 31, 2008)
 
   
10.20
  Written agreement between Stillwater National Bank and Trust Company and the Comptroller of the Currency of the United States dated January 27, 2010 (incorporated by reference to Exhibit 10 to Current Report on Form 8-K filed January 29, 2010)
 
   
21
  Subsidiaries of the Registrant
 
   
23
  Consent of Independent Registered Public Accounting Firm
 
   
24
  Power of Attorney
 
   
31(a), (b)
  Rule 13a-14(a)/15d-14(a) Certifications
 
   
32(a), (b)
  18 U.S.C. Section 1350 Certifications

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No.   Exhibit
 
   
99(a), (b)
  Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Section 111 (b) (4) of the Emergency Economic Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009
 
*   Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  SOUTHWEST BANCORP, INC.
 
 
March 5, 2010  by:   /s/ Rick Green
    Rick Green   
    Chief Executive Officer   
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
         
/s/ Rick Green
 
Rick Green
  March 5, 2010    
Director and Chief Executive Officer
       
(Principal Executive Officer)
       
 
       
/s/ Kerby E. Crowell
  March 5, 2010    
 
       
Kerby E. Crowell
       
Executive Vice President,
       
Chief Financial Officer and Secretary
       
(Principal Financial and
       
Accounting Officer)
       
A majority of the directors of Southwest executed a power of attorney appointing Rick Green as their attorney-in-fact, empowering him to sign this report on their behalf. This power of attorney has been filed with the Securities and Exchange Commission under Part IV, Exhibit 24 of this Annual Report on Form 10-K for the year ended December 31, 2009. This report has been signed below by such attorney-in-fact as of March 5, 2010.
         
By:   /s/ Rick Green      
  Rick Green     
  Attorney-in-Fact for Majority of the
Directors of Southwest 
   
 

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