SOUTHWEST BANCORP INC - FORM 10-Q

Attached files

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EX-31.1 - EX-31.1 - SOUTHWEST BANCORP INC	oksb-20160630xex31_1.htm
EX-32.2 - EX-32.2 - SOUTHWEST BANCORP INC	oksb-20160630xex32_2.htm
EX-32.1 - EX-32.1 - SOUTHWEST BANCORP INC	oksb-20160630xex32_1.htm
EX-31.2 - EX-31.2 - SOUTHWEST BANCORP INC	oksb-20160630xex31_2.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

__________________

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

For the quarterly period ended June 30, 2016

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

For the transition period from __________ to __________

Commission File Number: 001-34110

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		74074
(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code: (405) 742-1800

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.

[ x ] YES[ ] 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).

[ x ] YES[ ] NO

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

Large Accelerated Filer [ ] Accelerated Filer [ x ] Non-Accelerated Filer [ ]Smaller reporting company [ ]

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

[ ] YES[ x ] NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 5, 2016, the issuer has 18,689,340 shares of its Common Stock, par value $1.00, outstanding.

SOUTHWEST BANCORP, INC.

INDEX TO FORM 10-Q

9
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Statements of Financial Condition	4

Unaudited Consolidated Statements of Operations	5

Unaudited Consolidated Statements of Comprehensive Income	6

Unaudited Consolidated Statements of Cash Flows	7

Unaudited Consolidated Statements of Shareholders’ Equity	8

Notes to Unaudited Consolidated Financial Statements	9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44

ITEM 4. CONTROLS AND PROCEDURES	45

PART II. OTHER INFORMATION	46

ITEM 1. LEGAL PROCEEDINGS	46

ITEM 1A. RISK FACTORS	46

ITEM 6. EXHIBITS	47

SIGNATURES	47

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Southwest Bancorp, Inc. (“we”, “our”, “us”, “Southwest”) makes forward-looking statements in this Form 10-Q and documents incorporated by reference into it that are subject to risks and uncertainties. Forward-looking statements often use words such as “anticipate”, “target”, “outlook”, “forecast”, “will”, “should”, “expect”, “estimate”, “intend”, “plan”, “goal”,
“believe”, or other words with similar meanings. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time, many of which are beyond our control. We intend these statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include:

Statements of our goals, intentions, and expectations;

Estimates of risks and of future costs and benefits;

Expectations regarding our future financial performance and the financial performance of our operating segments;

Expectations regarding regulatory actions;

Expectations regarding our ability to utilize tax loss benefits;

Expectations regarding our stock repurchase program;

Expectations regarding dividends;

Expectations regarding acquisitions and divestitures;

Expectations regarding integration of acquired banks;

Assessments of loan quality, probable loan losses or negative provisions, and the amount and timing of loan payoffs;

Estimates of the value of assets held for sale or available for sale; and

Statements of our ability to achieve financial and other goals.

These forward-looking statements are subject to significant uncertainties because they are based upon: the amount and timing of future changes in interest rates, market behavior, and other economic conditions, future laws, regulations and accounting principles; changes in effective tax rates or the expiration of favorable tax provisions; changes in regulatory standards and examination policies; and a variety of other matters. These other matters include, among other things, the direct and indirect effects of economic conditions on interest rates, credit quality, loan demand, liquidity, and monetary and supervisory policies of banking regulators. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past growth and performance do not necessarily indicate our future results. For other factors, risks, and uncertainties that could cause actual results to differ materially from estimates and projections contained in forward-looking statements, please read the “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

The cautionary statements in this Form 10-Q and any documents incorporated by reference herein also identify important factors and possible events that involve risk and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made. We do not intend, and undertake no obligation, to update or revise any forward-looking statements contained in this Form 10-Q, whether as a result of differences in actual results, changes in assumptions, or changes in other factors affecting such statements, except as required by law.

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

SOUTHWEST BANCORP, INC.

Consolidated Statements of Financial Condition



	June 30,		December 31,
	2016		2015
(Dollars in thousands)	(unaudited)
Assets:
Cash and due from banks	$	35,822	$	24,971
Interest-bearing deposits		32,266		53,158
Cash and cash equivalents		68,088		78,129
Securities held to maturity (fair values of $12,660 and $12,282, respectively)		12,161		11,797
Securities available for sale (amortized cost of $406,427 and $401,136, respectively)		410,135		400,331
Loans held for sale		7,010		7,453
Loans receivable		1,814,367		1,771,976
Less: Allowance for loan losses		(26,876)		(26,106)
Net loans receivable		1,787,491		1,745,870
Accrued interest receivable		5,730		5,767
Non-hedge derivative asset		5,163		1,793
Premises and equipment, net		22,971		23,819
Other real estate		2,122		2,274
Goodwill		13,467		13,467
Other intangible assets, net		5,934		6,615
Bank owned life insurance life insurance		28,131		27,676
Other assets		33,859		32,031
Total assets	$	2,402,262	$	2,357,022

Liabilities:
Deposits:
Noninterest-bearing demand	$	545,421	$	596,494
Interest-bearing demand		160,886		151,015
Money market accounts		547,415		534,357
Savings accounts		55,209		56,333
Time deposits of $100,000 or more		323,137		311,538
Other time deposits		270,797		234,368
Total deposits		1,902,865		1,884,105
Accrued interest payable		931		867
Non-hedge derivative liability		5,163		1,793
Other liabilities		10,982		11,684
Other borrowings		153,568		110,927
Subordinated debentures		46,393		51,548
Total liabilities		2,119,902		2,060,924
Shareholders' equity:
Common stock - $1 par value; 40,000,000 shares authorized;
21,223,613 and 21,138,028 shares issued, respectively		21,224		21,138
Additional paid in capital		122,293		121,966
Retained earnings		177,373		173,210
Accumulated other comprehensive income (loss)		1,503		(1,290)
Treasury stock, at cost; 2,472,830 and 1,131,226 shares, respectively		(40,033)		(18,926)
Total shareholders' equity		282,360		296,098
Total liabilities & shareholders' equity	$	2,402,262	$	2,357,022

The accompanying notes are an integral part of these statements.

SOUTHWEST BANCORP, INC.

Unaudited Consolidated Statements of Operations


	For the three months				For the six months
	ended June 30,				ended June 30,
(Dollars in thousands, except earnings per share data)	2016		2015		2016		2015
Interest income:
Interest and fees on loans	$	20,031	$	15,839	$	40,061	$	31,409
Investment securities:
U.S. Government and agency obligations		302		381		598		717
Mortgage-backed securities		1,038		660		2,115		1,378
State and political subdivisions		350		287		698		576
Other securities		272		221		516		431
Other interest-earning assets		51		67		104		168
Total interest income		22,044		17,455		44,092		34,679

Interest expense:
Interest-bearing demand		65		30		127		63
Money market accounts		329		183		650		365
Savings accounts		18		9		37		17
Time deposits of $100,000 or more		448		170		815		408
Other time deposits		568		470		1,106		844
Other borrowings		342		241		651		468
Subordinated debentures		579		561		1,171		1,113
Total interest expense		2,349		1,664		4,557		3,278

Net interest income		19,695		15,791		39,535		31,401

Provision (credit) for loan losses		10		(1,136)		4,385		(3,023)
Net interest income after provision (credit) for loan losses		19,685		16,927		35,150		34,424

Noninterest income:
Service charges and fees		2,556		2,450		5,105		4,878
Gain on sales of mortgage loans, net		722		621		1,123		969
Gain on sales/calls of investment securities, net		165		138		291		143
Other noninterest income		428		200		767		259
Total noninterest income		3,871		3,409		7,286		6,249

Noninterest expense:
Salaries and employee benefits		9,587		8,289		18,929		16,203
Occupancy		2,669		2,201		5,340		4,485
Data processing		430		410		900		856
FDIC and other insurance		432		316		800		628
Other real estate, net		8		112		21		133
General and administrative		2,142		2,654		5,274		4,759
Total noninterest expense		15,268		13,982		31,264		27,064
Income before taxes		8,288		6,354		11,172		13,609
Taxes on income		2,876		2,193		3,891		4,913
Net income	$	5,412	$	4,161	$	7,281	$	8,696

Basic earnings per common share	$	0.29	$	0.22	$	0.38	$	0.46
Diluted earnings per common share		0.28		0.22		0.38		0.46
Common dividends declared per share		0.08		0.06		0.16		0.12

The accompanying notes are an integral part of these statements.

SOUTHWEST BANCORP, INC.

Unaudited Consolidated Statements of Comprehensive Income



	For the three months				For the six months
	ended June 30,				ended June 30,
(Dollars in thousands)	2016		2015		2016		2015

Net income	$	5,412	$	4,161	$	7,281	$	8,696

Other comprehensive income:
Unrealized holding gain (loss) on available for sale securities		1,693		(1,375)		4,804		474
Reclassification adjustment for net gains arising during the period		(165)		(138)		(291)		(143)
Change in fair value of derivative used for cash flow hedge		95		(10)		211		(84)
Other comprehensive income (loss), before tax		1,623		(1,523)		4,724		247
Tax benefit (expense) related to items of other comprehensive
income (loss)		(666)		617		(1,931)		(85)
Other comprehensive income (loss), net of tax		957		(906)		2,793		162
Comprehensive income	$	6,369	$	3,255	$	10,074	$	8,858

The accompanying notes are an integral part of these statements.

SOUTHWEST BANCORP, INC.

Unaudited Consolidated Statements of Cash Flows



	For the six months
	ended June 30,
(Dollars in thousands)	2016		2015
Operating activities:
Net income	$	7,281	$	8,696
Adjustments to reconcile net income to net cash provided by operating activities:

Provision (credit) for loan losses		4,385		(3,023)
Adjustment to other real estate		-		63
Deferred tax expense		39		1,286
Asset depreciation		1,436		1,172
Securities premium amortization, net of discount accretion		1,539		1,394
Amortization of intangibles		1,193		480
Restricted stock amortization expense		448		656
Net gain on sales/calls of investment securities		(291)		(143)
Net gain on sales of mortgage loans		(1,123)		(969)
Net (gain) loss on sales of premises/equipment		7		(13)
Net (gain) loss on sales of other real estate		5		(59)
Proceeds from sales of held for sale loans		56,253		44,913
Held for sale loans originated for resale		(54,682)		(49,214)
Net changes in assets and liabilities:
Accrued interest receivable		37		442
Bank owned life insurance		(455)		(110)
Other assets		(8,129)		1,806
Accrued interest payable		64		5
Other liabilities		2,924		(241)
Net cash provided by operating activities		10,931		7,141
Investing activities:
Proceeds from sales of available for sale securities		41,530		-
Proceeds from principal repayments, calls, and maturities:
Held to maturity securities		-		940
Available for sale securities		33,828		50,586
Purchases of held to maturity securities		(444)		-
Purchases of available for sale securities		(81,817)		(60,255)
Purchases of bank owned life insurance		-		(20,000)
Loans originated, net of principal repayments		(46,059)		(43,689)
Purchases of premises and equipment		(639)		(888)
Proceeds from sales of premises and equipment		44		66
Proceeds from sales of other real estate		147		900
Net cash used in investing activities		(53,410)		(72,340)
Financing activities:
Net increase in deposits		18,760		90,447
Net increase (decrease) in other borrowings		42,641		(3,541)
Net proceeds from issuance of common stock		413		363
Purchases of treasury stock		(21,107)		(4,040)
Redemption of trust preferred securities		(5,155)		-
Common stock dividends paid		(3,113)		(2,277)
Preferred stock dividends paid		(1)		(1)
Net cash provided by financing activities		32,438		80,951
Net (decrease) increase in cash and cash equivalents		(10,041)		15,752
Cash and cash equivalents:
Beginning of period		78,129		140,936
End of period	$	68,088	$	156,688

The accompanying notes are an integral part of these statements.

SOUTHWEST BANCORP, INC.

Unaudited Consolidated Statements of Shareholders’ Equity



								Accumulated
				Additional				Other				Total
	Common Stock			Paid in		Retained		Comprehensive			Treasury	Shareholders'
(Dollars in thousands)	Shares	Amount		Capital		Earnings		Gain/(Loss)			Stock	Equity
Balance, December 31, 2014	19,193,059	$	19,811	$	101,245	$	160,427	$	(395)	$	(10,302)	$	270,786

Dividends declared:
Preferred	-		-		-		(1)		-		-		(1)
Common, $0.12 per share	-		-		-		(2,285)		-		-		(2,285)
Common stock issued	88,937		89		256		-		-		-		345
Net common stock issued under
employee plans and related tax expense	1,041		1		17		-		-		-		18
Other comprehensive income, net of tax	-		-		-		-		162		-		162
Treasury shares purchased	(249,492)		-		-		-		-		(4,040)		(4,040)
Net income	-		-		-		8,696		-		-		8,696

Balance, June 30, 2015	19,033,545	$	19,901	$	101,518	$	166,837	$	(233)	$	(14,342)	$	273,681

Balance, December 31, 2015	20,006,802	$	21,138	$	121,966	$	173,210	$	(1,290)	$	(18,926)	$	296,098

Dividends declared:
Preferred	-		-		-		(1)		-		-		(1)
Common, $0.16 per share	-		-		-		(3,117)		-		-		(3,117)
Net common stock issued under
employee plans and related tax expense	85,585		86		327		-		-		-		413
Other comprehensive income, net of tax	-		-		-		-		2,793		-		2,793
Treasury shares purchased	(1,341,604)		-		-		-		-		(21,107)		(21,107)
Net income	-		-		-		7,281		-		-		7,281

Balance, June 30, 2016	18,750,783	$	21,224	$	122,293	$	177,373	$	1,503	$	(40,033)	$	282,360

The accompanying notes are an integral part of these statements.

SOUTHWEST BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

NOTE 1: SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, shareholders’ equity, cash flows, and comprehensive income in conformity with accounting principles generally accepted in the United States. However, the unaudited consolidated financial statements include all adjustments which, in the opinion of management, are necessary for a fair presentation. Those adjustments consist of normal recurring adjustments. The results of operations for the three months ended June 30, 2016, and the cash flows for the six months ended June 30, 2016, should not be considered indicative of the results to be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Southwest Bancorp, Inc. Annual Report on Form 10-K for the year ended December 31, 2015.

The accompanying unaudited consolidated financial statements include the accounts of Southwest Bancorp, Inc. (“we”, “our”, “us”, “Southwest”), and our consolidated subsidiaries, including Bank SNB, an Oklahoma state banking corporation (“Bank SNB”), our banking subsidiary, and the consolidated subsidiaries of Bank SNB. All significant intercompany transactions and balances have been eliminated in consolidation.

In accordance with Accounting Standards Codification (“ASC”) 855, Subsequent Events, we have evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

NOTE 2: INVESTMENT SECURITIES

A summary of the amortized cost and fair values of investment securities at June 30, 2016 and December 31, 2015 follows:



	Amortized		Gross Unrealized				Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
At June 30, 2016
Held to Maturity:
Obligations of state and political subdivisions	$	12,161	$	500	$	(1)	$	12,660
Total	$	12,161	$	500	$	(1)	$	12,660

Available for Sale:
Federal agency securities	$	67,262	$	1,187	$	(162)	$	68,287
Obligations of state and political subdivisions		46,787		1,559		(29)		48,317
Residential mortgage-backed securities		257,713		1,795		(501)		259,007
Asset-backed securities		9,656		-		(239)		9,417
Corporate debt		25,009		203		(105)		25,107
Total	$	406,427	$	4,744	$	(1,036)	$	410,135

At December 31, 2015
Held to Maturity:
Obligations of state and political subdivisions	$	11,797	$	488	$	(3)	$	12,282
Total	$	11,797	$	488	$	(3)	$	12,282

Available for Sale:
Federal agency securities	$	78,363	$	220	$	(373)	$	78,210
Obligations of state and political subdivisions		47,079		620		(134)		47,565
Residential mortgage-backed securities		240,804		936		(1,852)		239,888
Asset-backed securities		9,639		-		(224)		9,415
Corporate debt		25,251		148		(146)		25,253
Total	$	401,136	$	1,924	$	(2,729)	$	400,331

Residential mortgage-backed securities consist of agency securities underwritten and guaranteed by Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association. Other securities consist of corporate stock.

Securities with limited marketability, such as Federal Reserve Bank stock, Federal Home Loan Bank (“FHLB”) stock, and certain other investments, are carried at cost and included in other assets on the consolidated statements of financial condition. Total investments carried at cost were $14.4 million and $10.4 million at June 30, 2016 and December 31, 2015, respectively. There are no identified events or changes in circumstances that may have a significant adverse effect on the investments carried at cost.

A comparison of the amortized cost and approximate fair value of our investment securities by maturity date at June 30, 2016 follows:



	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
One year or less	$	13,241	$	13,326	$	1,657	$	1,656
More than one year through five years		279,068		281,813		6,037		6,216
More than five years through ten years		69,186		69,737		4,467		4,788
More than ten years		44,932		45,259		-		-
Total	$	406,427	$	410,135	$	12,161	$	12,660

The foregoing analysis assumes that our residential mortgage-backed securities mature during the period in which they are estimated to prepay and 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. No other prepayment or repricing assumptions have been applied to our investment securities for this analysis.

Gain or loss on sale of investments is based upon the specific identification method. The table below shows the proceeds, gross realized gains and gross realized losses recognized on the investment portfolio for the three and six months ended June 30, 2016 and June 30, 2015. The sales during the three and six months ended June 30, 2016 resulted from a slight restructuring of our investment portfolio and the sales during the three and six months ended June 30, 2015 resulted from residual payments related to the sale of a private equity investment during the fourth quarter of 2014.


		For the three months				For the six months
		ended June 30,				ended June 30,
(Dollars in thousands)		2016		2015		2016		2015
Proceeds from sales	$	18,726	$	138	$	41,530	$	143
Gross realized gains		173		138		345		143
Gross realized losses		(8)		-		(54)		-

The following table shows securities with gross unrealized losses and their fair values by the length of time that the individual securities had been in a continuous unrealized loss position at June 30, 2016 and December 31, 2015. Securities whose market values exceed cost are excluded from this table.



				Continuous Unrealized
		Amortized cost of		Loss Existing for:				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 June 30, 2016
Held to Maturity:
Obligations of state and political subdivisions	3	$	2,029	$	(0)	$	(1)	$	2,028
	3	$	2,029	$	(0)	$	(1)	$	2,028

Available for Sale:
Federal agency securities	6	$	15,368	$	(132)	$	(30)	$	15,206
Obligations of state and political subdivisions	1		2,157		-		(29)		2,128
Residential mortgage-backed securities	42		80,904		(235)		(266)		80,403
Asset-backed securities	3		9,656		(86)		(153)		9,417
Corporate debt	3		10,004		(22)		(83)		9,899
Total	55	$	118,089	$	(475)	$	(561)	$	117,053

At December 31, 2015
Held to Maturity:
Obligations of state and political subdivisions	1	$	1,677	$	-	$	(3)	$	1,674
	1	$	1,677	$	-	$	(3)	$	1,674

Available for Sale:
Federal agency securities	14	$	42,438	$	(138)	$	(235)	$	42,065
Obligations of state and political subdivisions	14		11,765		(57)		(77)		11,631
Residential mortgage-backed securities	87		175,043		(1,247)		(605)		173,191
Asset-backed securities	3		9,639		(115)		(109)		9,415
Corporate debt	6		14,987		(75)		(71)		14,841
Total	124	$	253,872	$	(1,632)	$	(1,097)	$	251,143

We evaluate 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 our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for an anticipated recovery in fair value.

We have the ability and intent to hold the securities classified as held to maturity until they mature, at which time we expect to receive full value for the securities. Furthermore, as of June 30, 2016, 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 not likely that we will have to sell any such securities before a recovery of cost. The declines in fair value were attributable to recent 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 June 30, 2016, management believes the impairment of these investments is not deemed to be other-than-temporary.

As required by law, available for sale investment securities are pledged to secure public and trust deposits, sweep agreements, and borrowings from the FHLB. Securities with an amortized cost of $184.9 million and $174.0 million were pledged to meet such requirements at June 30, 2016 and December 31, 2015, respectively. Any amount over-pledged can be released at any time.

NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES

We extend commercial and consumer credit primarily to customers in the states of Oklahoma, Texas, Kansas, and Colorado. Our commercial lending operations are concentrated in Oklahoma City, Tulsa, Dallas, Wichita, and other metropolitan markets in Oklahoma, Texas, Kansas, and Colorado. As a result, the collectability of our loan portfolio can be affected by changes in the economic conditions in those states and markets. Please see Note 9: Operating Segments for more detail regarding loans by market. At June 30, 2016 and December 31, 2015, substantially all of our loans were collateralized with real estate, inventory, accounts receivable, and/or other assets or were guaranteed by agencies of the United States government.

Our loan classifications were as follows:




(Dollars in thousands)	At June 30, 2016		At December 31, 2015
Real estate mortgage:
Commercial	$	862,287	$	938,462
One-to-four family residential		183,693		161,958
Real estate construction:
Commercial		175,805		129,070
One-to-four family residential		20,347		21,337
Commercial		558,472		507,173
Installment and consumer		20,773		21,429
		1,821,377		1,779,429
Less: Allowance for loan losses		(26,876)		(26,106)
Total loans, net		1,794,501		1,753,323
Less: Loans held for sale (included above)		(7,010)		(7,453)
Net loans receivable	$	1,787,491	$	1,745,870

Concentrations of Credit. At June 30, 2016, $554.3 million, or 30%, and $435.2 million, or 24%, of our loans consisted of loans to individuals and businesses in the real estate and healthcare industries, respectively. We do not have any other concentrations of loans to individuals or businesses involved in a single industry totaling 10% or more of total loans.

Loans Held for Sale. We had loans held for sale of $7.0 million and $7.5 million at June 30, 2016 and December 31, 2015, respectively. The loans currently classified as held for sale, primarily residential mortgage loans, are carried at the lower of cost or market value. A substantial portion of our one-to-four family residential loans and loan servicing rights are sold to one buyer. These mortgage loans are generally sold within a one-month period from loan closing at amounts determined by the investor commitment based upon the pricing of the loan. These loans are available for sale in the secondary market.

Loan Servicing. We earn fees for servicing real estate mortgages and other loans owned by others. The fees are generally calculated on the outstanding principal balance of the loans serviced and are recorded as noninterest income when earned. The unpaid principal balance of real estate mortgage loans serviced for others totaled $443.6 million and $432.3 million at June 30, 2016 and December 31, 2015, respectively. Loan servicing rights are capitalized based on estimated fair value at the point of origination. The servicing rights are amortized over the period of estimated net servicing income.

Acquired Loans. On October 9, 2015, we completed the acquisition of First Commercial Bancshares (“Bancshares”) by merging Bancshares with and into us (the “Merger”). In connection with the Merger, First Commercial Bank was merged with and into Bank SNB, with Bank SNB being the surviving bank. We evaluated $200.0 million of the loans purchased in conjunction with the merger in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs, and those loans were recorded with a $4.5 million discount. As a result, the fair value discount on these loans is being accreted into interest income over the weighted average life of the loans using a constant yield method. The remaining $7.8 million of loans evaluated were considered purchased credit impaired loans within the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, and were recorded with a $3.3 million discount. These purchased credit impaired loans will recognize interest income through accretion of the difference between the carrying amount of the loans and the expected cash flows.

On June 19, 2009, Bank SNB entered into purchase and assumption agreements with the Federal Deposit Insurance Corporation (“FDIC”) to acquire substantially all loans as well as certain other related assets of First National Bank of Anthony, Anthony, Kansas in an FDIC-assisted transaction. Originally, Bank SNB and the FDIC entered into loss sharing agreements that provided Bank SNB with significant protection against credit losses from loans and related assets acquired in the transaction (also known as acquired, covered, or discounted loans). On April 10, 2015, Bank SNB entered into an agreement with the FDIC to terminate these loss sharing agreements with the FDIC. All future recoveries, charge-offs, and expenses related to these covered assets

are now recognized entirely by Bank SNB. Loans that were covered under the loss sharing agreements with the FDIC are reported in loans. The acquired loans were initially recorded at fair value (as determined by the present value of expected future cash flows) with no allowance for loan losses. Subsequent decreases in expected cash flows are recognized as impairments. Valuation allowances on these loans reflect only losses incurred after the acquisition.

Changes in the carrying amounts and accretable yields for the ACS 310-30 loans that were acquired were as follows for the three and six months ended June 30, 2016 and June 30, 2015:



	For the three months ended June 30,
	2016					2015
			Carrying				Carrying
	Accretable		amount		Accretable		amount
(Dollars in thousands)	Yield		of loans		Yield		of loans
Balance at beginning of period	$	742	$	7,288	$	419	$	4,310
Payments received		-		(286)		-		(208)
Net charge-offs		(11)		(196)		-		-
Net reclassifications to / from nonaccretable amount		-		-		240		-
Accretion		(48)		-		(198)		442
Balance at end of period	$	683	$	6,806	$	461	$	4,544



	For the six months ended June 30,
	2016				2015
			Carrying				Carrying
	Accretable		amount		Accretable		amount
(Dollars in thousands)	Yield		of loans		Yield		of loans
Balance at beginning of period	$	807	$	7,914	$	540	$	4,971
Payments received		-		(790)		-		(869)
Net charge-offs		(11)		(318)		-		-
Net reclassifications to / from nonaccretable amount		-		-		240		-
Accretion		(113)		-		(319)		442
Balance at end of period	$	683	$	6,806	$	461	$	4,544

Nonperforming / Past Due Loans. We identify past due loans based on contractual terms on a loan-by-loan basis and generally place 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, past due 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. Subsequent interest income is recorded when cash receipts are received from the borrower and collectability of the principal amount is reasonably assured.

Under generally accepted accounting principles and instructions to reports of condition and income of banking regulators, a nonaccrual loan may be returned to accrual status: (i) 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; (ii) when the loan is well-secured, there is a sustained period of performance and repayment within a reasonable period is reasonably assured; or (iii) when the loan otherwise becomes well-secured and in the process of collection. 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.

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 us that have not been identified as nonperforming or potential problem loans. Because the loan portfolio contains a significant number of commercial (including energy banking credits) and commercial real estate loans with relatively large balances, the unexpected deterioration of one or a few such loans may cause a significant increase in nonperforming assets and may lead to a material increase in charge-offs and the provision for loan losses in future periods.

The following table shows the recorded investment in loans on nonaccrual status:




(Dollars in thousands)	At June 30, 2016		At December 31, 2015
Real estate mortgage:
Commercial	$	3,894	$	3,543
One-to-four family residential		3,106		1,729
Real estate construction:
Commercial		1,436		1,010
Commercial		13,752		13,491
Other consumer		71		85
Total nonaccrual loans	$	22,259	$	19,858

During the first six months of 2016, $0.4 million of interest income was received on nonaccruing loans. If interest on all nonaccrual loans had been accrued for the six months ended June 30, 2016, additional interest income of $0.7 million would have been recorded.

The following table shows an age analysis of past due loans at June 30, 2016 and December 31, 2015:

December 31, 2015



			90 days +								Recorded loans
	30-89 days		past due and		Total past				Total		> 90 days and
(Dollars in thousands)	past due		nonaccrual		due		Current		loans		accruing
At June 30, 2016
Real estate mortgage:
Commercial	$	462	$	3,894	$	4,356	$	857,931	$	862,287	$	-
One-to-four family residential		206		3,120		3,326		180,367		183,693		14
Real estate construction:
Commercial		851		811		1,662		174,143		175,805		-
One-to-four family residential		-		625		625		19,722		20,347		-
Commercial		3,847		13,800		17,647		540,825		558,472		48
Other		400		75		475		20,298		20,773		4
Total	$	5,766	$	22,325	$	28,091	$	1,793,286		1,821,377	$	66

At December 31, 2015
Real estate mortgage:
Commercial	$	272	$	3,992	$	4,264	$	934,198	$	938,462	$	449
One-to-four family residential		549		1,777		2,326		159,632		161,958		48
Real estate construction:
Commercial		-		493		493		128,060		128,553		-
One-to-four family residential		-		517		517		21,337		21,854		-
Commercial		278		13,491		13,769		493,404		507,173		-
Other		65		88		153		21,276		21,429		3
Total	$	1,164	$	20,358	$	21,522	$	1,757,907		1,779,429	$	500

Impaired Loans. A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Each loan deemed to be impaired (loans on nonaccrual status and greater than $100,000, and all troubled debt restructurings) is evaluated on an individual basis using the discounted present value of expected cash flows based on the loan’s initial effective interest rate, the fair value of collateral, or the market value of the loan. Smaller balance and homogeneous loans, including mortgage and consumer loans, are collectively evaluated for impairment.

Interest payments on impaired loans are applied to principal until collectability of the principal amount is reasonably assured, and, at that time, interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

Impaired loans as of June 30, 2016 and December 31, 2015 are shown in the following table:



	With No Specific Allowance				With A Specific Allowance
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
(Dollars in thousands)	Investment		Balance		Investment		Balance		Allowance
At June 30, 2016
Commercial real estate	$	1,838	$	2,171	$	13,992	$	17,100	$	752
One-to-four family residential		1,298		1,614		1,822		1,850		116
Real estate construction		1,229		1,456		207		245		40
Commercial		8,761		31,986		5,527		5,725		2,915
Other		71		83		-		-		-
Total	$	13,197	$	37,310	$	21,548	$	24,920	$	3,823

At December 31, 2015
Commercial real estate	$	12,166	$	15,747	$	10,940	$	10,940	$	1,575
One-to-four family residential		1,688		2,195		185		186		11
Real estate construction		1,078		1,327		-		-		-
Commercial		4,095		5,430		9,844		15,968		2,526
Other		85		94		-		-		-
Total	$	19,112	$	24,793	$	20,969		27,094	$	4,112

The average recorded investment of loans classified as impaired and the interest income recognized on those loans for the six months ended June 30, 2016 and June 30, 2015 are shown in the following table:



	As of and for the six months ended June 30,
	2016				2015
	Average				Average
	Recorded		Interest		Recorded		Interest
(Dollars in thousands)	Investment		Income		Investment		Income
Commercial real estate	$	17,365	$	871	$	23,862	$	473
One-to-four family residential		3,627		12		1,777		1
Real estate construction		1,408		-		376		-
Commercial		13,274		32		6,080		20
Other		77		-		1		-
Total	$	35,751	$	915	$	32,096	$	494

Troubled Debt Restructurings. Our loan portfolio also includes certain loans that have been modified in troubled debt restructurings, where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from loss mitigation activities and can include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Troubled debt restructurings are classified as impaired at the time of restructuring and are then further classified as nonperforming, potential problem, or performing restructured, as applicable. Loans modified in troubled debt restructurings may be returned to performing status after considering the borrowers’ sustained repayment for a reasonable period of at least six months.

When we modify loans in a troubled debt restructuring, an evaluation of any possible impairment is performed similar to the evaluation done with respect to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or use of the current fair value of the collateral, less selling costs for collateral dependent loans. If it is determined that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized through an allowance estimate or a charge-off to the allowance.

Troubled debt restructured loans outstanding as of June 30, 2016 and December 31, 2015 were as follows:



	At June 30, 2016				At December 31, 2015
(Dollars in thousands)	Accruing		Nonaccrual		Accruing		Nonaccrual
Commercial real estate	$	11,936	$	358	$	19,563	$	448
One-to-four family residential		14		47		13		48
Commercial		536		5,510		659		5,796
Total	$	12,486	$	5,915	$	20,235	$	6,292

At June 30, 2016 and December 31, 2015, we had no significant commitments to lend additional funds to debtors whose loan terms had been modified in a troubled debt restructuring.

There were no loans modified as troubled debt restructurings that occurred during the three months ended June 30, 2016 or June 30, 2015. Loans modified as troubled debt restructurings that occurred during the six months ended June 30, 2016 and June 30, 2015 are shown in the following table:


	For the six months ended June 30,
	2016				2015
	Number of		Recorded		Number of		Recorded
(Dollars in thousands)	Modifications		Investment		Modifications		Investment
Commercial		1	$	26		-	$	-
Total		1	$	26		-	$	-

The modifications of loans identified as troubled debt restructurings primarily related to payment reductions, payment extensions, and/or reductions in the interest rate. The financial impact of troubled debt restructurings is not significant.

There were no loans modified as a troubled debt restructuring that subsequently defaulted during the three or six months ended June 30, 2016 or June 30, 2015. Default, for this purpose, is deemed to occur when a loan is 90 days or more past due or transferred to nonaccrual and is within twelve months of restructuring.

Credit Quality Indicators. To assess the credit quality of loans, we categorize loans into risk categories based on relevant information about the ability of the borrowers to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. This analysis is performed on a quarterly basis. We use the following definitions for risk ratings:

Special mention – Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for these loans or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. These loans are considered potential problem or nonperforming loans depending on the accrual status of the loans.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These loans are considered nonperforming.

Loans not meeting the criteria above that are analyzed as part of the above described process are considered to be pass rated loans. As of June 30, 2016 and December 31, 2015, based on the most recent analysis performed as of those dates, the risk category of loans by class was as follows:



	Commercial		1-4 Family		Real Estate
(Dollars in thousands)	Real Estate		Residential		Construction		Commercial		Other		Total
At June 30, 2016
Grade:
Pass	$	818,634	$	177,948	$	194,507	$	496,890	$	20,533	$	1,708,512
Special Mention		6,286		1,286		209		18,246		167		26,194
Substandard		37,367		4,459		1,436		43,066		73		86,401
Doubtful		-		-		-		270		-		270
Total	$	862,287	$	183,693	$	196,152	$	558,472	$	20,773	$	1,821,377

At December 31, 2015
Grade:
Pass	$	902,034	$	157,912	$	148,811	$	480,928	$	21,284	$	1,710,969
Special Mention		5,916		29		586		2,941		50		9,522
Substandard		30,512		4,017		1,010		18,848		95		54,482
Doubtful		-		-		-		4,456		-		4,456
Total	$	938,462	$	161,958	$	150,407	$	507,173	$	21,429	$	1,779,429

Allowance for Loan Losses. The allowance for loan losses is a reserve established through the 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 periodic review and evaluation of the loan portfolio and quarterly assessments of the probable losses inherent in the loan portfolio. 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.

Management believes the level of the allowance is appropriate to absorb probable losses inherent in the loan portfolio. The allowance for loan losses is determined in accordance with regulatory guidelines and generally accepted accounting principles and is comprised of two primary components, specific and general. There is no one factor, or group of factors, that produces the amount of an appropriate allowance for loan losses, as the methodology for assessing the allowance for loan losses makes use of evaluations of individual impaired loans along with other factors and analysis of loan categories. This assessment is highly qualitative and relies upon judgments and estimates by management.

The specific allowance is recorded based on the result of an evaluation consistent with ASC 310.10.35, Receivables: Subsequent Measurement, for each impaired loan. Collateral dependent loans are evaluated for impairment based upon the fair value of the collateral. 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 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 for impaired loans are made when and to the extent loans are deemed uncollectible. Any portion of a collateral dependent impaired loan in excess of the fair value of the collateral that is determined to be uncollectible is charged off.

The general component 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. The non-owner occupied commercial real estate pool is further segmented by the market in which the loan collateral is located. Our primary markets are Oklahoma, Texas, and Kansas, and loans secured by real estate in those states are included in the “in-market” pool, with the remaining loans being included in the “out-of-market” pool. Estimated allowances are based on historical loss trends with adjustments factored in based on qualitative risk factors both internal and external to us. The historical loss trend is determined by loan pool and segmentation and is based on the actual loss history experienced by us over the most recent three years. The qualitative risk 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.

Independent appraisals on real estate collateral securing loans are obtained at origination. New appraisals are obtained periodically and following discovery of factors that may significantly affect the value of the collateral. Appraisals typically are received within 30 days of request. Results of appraisals on nonperforming and potential problem loans are reviewed promptly

upon receipt and considered in the determination of the allowance for loan losses. We are 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.

The following tables show the balance in the allowance for loan losses and the recorded investment in loans for the dates indicated by portfolio classification disaggregated on the basis of impairment evaluation method.



	Commercial		1-4 Family		Real Estate
(Dollars in thousands)	Real Estate		Residential		Construction		Commercial		Other		Total
At June 30, 2016
Balance at beginning of fiscal year	$	12,716	$	700	$	2,533	$	9,965	$	192	$	26,106
Loans charged-off		(3)		(83)		-		(3,801)		(376)		(4,263)
Recoveries		234		54		-		311		49		648
Provision for loan losses		(2,234)		362		647		5,194		416		4,385
Balance at end of period	$	10,713	$	1,033	$	3,180	$	11,669	$	281	$	26,876

Allowance for loan losses ending balance:
Individually evaluated for impairment	$	281	$	116	$	-	$	2,915	$	-	$	3,312
Collectively evaluated for impairment		9,961		917		3,140		8,754		281		23,053
Acquired with deteriorated credit quality		471		-		40		-		-		511
Total ending allowance balance	$	10,713	$	1,033	$	3,180	$	11,669	$	281	$	26,876

Loans receivable ending balance:
Individually evaluated for impairment	$	13,192	$	2,187	$	754	$	13,880	$	38	$	30,051
Collectively evaluated for impairment		844,739		180,213		194,646		544,221		20,702		1,784,521
Acquired with deteriorated credit quality		4,356		1,293		752		371		33		6,805
Total ending loans balance	$	862,287	$	183,693	$	196,152	$	558,472	$	20,773	$	1,821,377



	Commercial		1-4 Family		Real Estate
(Dollars in thousands)	Real Estate		Residential		Construction		Commercial		Other		Total
At June 30, 2015
Balance at beginning of fiscal year	$	13,678	$	712	$	4,159	$	9,614	$	289	$	28,452
Loans charged-off		(116)		(20)		(21)		(343)		(56)		(556)
Recoveries		151		443		31		583		138		1,346
Provision for loan losses		(448)		(557)		(509)		(1,313)		(196)		(3,023)
Balance at end of period	$	13,265	$	578	$	3,660	$	8,541	$	175	$	26,219

Allowance for loan losses ending balances:
Individually evaluated for impairment	$	1,875	$	-	$	-	$	1,660	$	-	$	3,535
Collectively evaluated for impairment		11,390		578		3,660		6,881		175		22,684
Acquired with deteriorated credit quality		-		-		-		-		-		-
Total ending allowance balance	$	13,265	$	578	$	3,660	$	8,541	$	175	$	26,219

Loans receivable ending balance:
Individually evaluated for impairment	$	20,886	$	404	$	416	$	5,885	$	-	$	27,591
Collectively evaluated for impairment		735,587		83,438		198,738		378,881		20,651		1,417,295
Acquired with deteriorated credit quality		2,933		1,496		93		22		-		4,544
Total ending loans balance	$	759,406	$	85,338	$	199,247	$	384,788	$	20,651	$	1,449,430

NOTE 4: 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, we utilize 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, Fair Value Measurements and Disclosure, establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1Quoted prices in active markets for identical instruments.

Level 2Observable 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 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The estimated fair value amounts have been determined by us 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 amount we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on our estimated fair value amounts. There were no significant changes in valuation methods used to estimate fair value during the six months ended June 30, 2016.

A description of the valuation methodologies used for instruments measured at fair value on a recurring basis is as follows:

Available for sale securities – The fair value of U.S. Government and federal agency securities, equity securities, and residential mortgage-backed securities is estimated based on quoted market prices or dealer quotes. The fair value of other investments such as obligations of state and political subdivisions is estimated based on quoted market prices. We obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond’s terms and conditions, among other things. We review the prices supplied by our independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices.

Derivative instruments – We utilize an interest rate swap agreement to convert one of our variable-rate subordinated debentures to a fixed rate. This has been designated as a cash flow hedge. We also offer an interest rate swap program that permits qualified customers to manage interest rate risk on variable rate loans with Bank SNB. Derivative contracts are executed between our customers and Bank SNB. Offsetting contracts are executed by Bank SNB and approved counterparties. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to us and collateral requirements. The fair value of the interest rate swap agreements are obtained from dealer quotes.

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:



			Fair Value Measurement at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
At June 30, 2016
Available for sale securities:
Federal agency securities	$	68,287	$	-	$	68,287	$	-
Obligations of state and political subdivisions		48,317		-		48,317		-
Residential mortgage-backed securities		259,007		-		259,007		-
Asset-backed securities		9,417		-		9,417		-
Corporate debt		25,107		137		24,970		-

Derivative asset		5,163		-		5,163		-
Derivative liability		(6,322)		-		(6,322)		-
Total	$	408,976	$	137	$	408,839	$	-

At December 31, 2015
Available for sale securities:
Federal agency securities	$	78,211		-		78,211		-
Obligations of state and political subdivisions		47,564		-		47,564		-
Residential mortgage-backed securities		239,888		-		239,888		-
Asset-backed securities		9,415		-		9,415		-
Corporate debt		25,253		137		25,116		-

Derivative asset		1,793		-		1,793		-
Derivative liability		(3,163)		-		(3,163)		-
Total	$	398,961	$	137	$	398,824	$	-

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 inputs based on third-party appraisals. Certain other impaired loans are analyzed and reported through a specific valuation allowance based upon the net present value of cash flows.

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. The fair value of loans held for sale is based on existing investor commitments.

Other real estate – Other real estate fair value is based on third-party appraisals for significant properties less the estimated costs to sell the asset.

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 prepayment 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.

Core deposit premiums – The fair value of core deposit premiums are based on third-party appraisals. There has been no impairment during 2016 or 2015; therefore, no fair value adjustment was recorded through earnings.

Goodwill – Fair value of goodwill is based on the fair value of each of our reporting units to which goodwill is allocated compared with their respective carrying value. There has been no impairment during 2016 or 2015; therefore, no fair value adjustment was recorded through earnings.

Assets that were measured at fair value on a nonrecurring basis as of June 30, 2016 and December 31, 2015 are summarized below.



			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
At June 30, 2016
Impaired loans at fair value :
Commercial real estate	$	14,403	$	-	$	-	$	14,403
One-to-four family residential		1,821		-		-		1,821
Real estate construction		207		-		-		207
Commercial		5,796		-		-		5,796

Loans held for sale:
One-to-four family residential		7,010		-		7,010		-

Mortgage loan servicing rights		3,350		-		3,350		-
Total	$	32,587	$	-	$	10,360	$	22,227

At December 31, 2015
Impaired loans at fair value :
Commercial real estate	$	11,182	$	-	$	-	$	11,182
One-to-four family residential		185		-		-		185
Real estate construction		390		-		-		390
Commercial		9,845		-		-		9,845

Loans held for sale:
One-to-four family residential		7,453		-		7,453		-

Other real estate		2,274		-		-		2,274
Mortgage loan servicing rights		3,721		-		3,721		-
Total	$	35,050	$	-	$	11,174	$	23,876

As of June 30, 2016, impaired loans measured at fair value with a carrying amount of $26.9 million were written down to a fair value of $22.2 million, resulting in a life-to-date impairment of $4.7 million. As of December 31, 2015, impaired loans measured at fair value with a carrying amount of $25.9 million were written down to a fair value of $21.6 million at December 31, 2015, resulting in a life-to-date impairment charge of $4.3 million.

As of December 31, 2015, other real estate assets were written down to their fair values, resulting in an impairment charge of $0.1 million, which was included in noninterest expense. No impairment was recognized during the period ended June 30, 2016.

As of June 30, 2016 and December 31, 2015, mortgage servicing rights were written down to their fair values, resulting in an impairment charge of $0.5 million and $0.1 million, respectively, which was included in noninterest income.

No impairment of core deposit premiums or goodwill was recognized during the periods ending June 30, 2016 or December 31, 2015.

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 used in estimating the fair value of financial instruments that are measured on a recurring or nonrecurring basis are discussed above. The methodologies for the 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.

Securities held to maturity – The investment securities held to maturity are carried at cost. The fair value of the held to maturity securities is estimated based on quoted market prices or dealer quotes.

Loans, net of allowance – Fair values are estimated for certain homogenous categories of loans adjusted for differences in loan characteristics. Our loans have been aggregated by categories consisting of commercial, real estate, 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.

Investments included in other assets – The estimated fair value of investments included in other assets, which primarily consists of investments carried at cost, approximates their carrying values.

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 deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Accrued interest payable and other liabilities – The estimated fair value of accrued interest payable and other liabilities, which primarily includes trade accounts payable, approximates their carrying values.

Other borrowings – Included in other borrowings are FHLB advances and securities sold under agreements to repurchase. 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.

Subordinated debentures – Our two subordinated debentures have floating rates that reset quarterly. The fair value of the floating rate subordinated debentures approximates carrying value at June 30, 2016.

Loan commitments and letters of credit – The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the terms of the agreements. The fair values of letters of credit are based on fees currently charged for similar agreements.

The carrying values and estimated fair values of our financial instruments segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value were as follows:



	At June 30, 2016				At December 31, 2015
	Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Values		Values		Values		Values
Financial assets:
Level 2 inputs:
Cash and cash equivalents	$	68,088	$	68,088	$	78,129	$	78,129
Securities held to maturity		12,161		12,660		11,797		12,282
Accrued interest receivable		5,730		5,730		5,767		5,767
Investments included in other assets		14,398		14,398		10,383		10,383
Level 3 inputs:
Total loans, net of allowance		1,794,501		1,780,222		1,753,323		1,728,114
Financial liabilities:
Level 2 inputs:
Deposits		1,902,865		1,839,860		1,884,105		1,780,954
Accrued interest payable		931		931		867		867
Other liabilities		9,823		9,823		10,314		10,314
Other borrowings		153,568		154,476		110,927		112,149
Subordinated debentures		46,393		46,393		51,548		51,548
Loan commitments				466,205				446,412
Letters of credit				7,112				6,563

NOTE 5: DERIVATIVE INSTRUMENTS

We utilize derivatives instruments to manage exposure to various types of interest rate risk for us and our customers within our policy guidelines. All derivative instruments are carried at fair value and credit risk is considered in determining fair value.

Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by our asset/liability management committee. Our credit exposure on interest rate swaps is limited to the net favorable value and interest payments of all swaps with each counterparty. Access to collateral in the event of default is reasonably assured. Therefore, credit exposure may be reduced by the amount of collateral pledged by the counterparty.

Customer Risk Management Interest Rate Swaps

Our qualified customers have the opportunity to participate in our interest rate swap program for the purpose of managing interest rate risk on their variable rate loans with us. If we enter into such agreements with customers, then offsetting agreements are executed between us and approved dealer counterparties to minimize our market risk from changes in interest rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to us by the dealer counterparty and the collateral requirements. These interest rate swaps carry varying degrees of credit, interest rate and market or liquidity risks. The fair value of derivative instruments is recognized as either assets or liabilities in the consolidated statements of financial condition.

We have entered into nine customer interest rate swap agreements that effectively convert the loan interest rate from floating rate based on LIBOR or prime rate to a fixed rate for the customer. As of June 30, 2016, these loans had an outstanding balance of $98.3 million. We have entered into offsetting agreements with dealer counterparties. The following table summarizes the fair values of derivative contracts recorded as “non-hedge derivative assets” and “non-hedge derivative liabilities” in the consolidated statements of financial condition:


	As of June 30, 2016				At December 31, 2015
(Dollars in thousands)	Notional		Fair Value		Notional		Fair Value
Non-hedge derivative assets	$	98,318	$	5,163	$	101,629	$	1,793
Non-hedge derivative liabilities		98,318		5,163		101,629		1,793

The margin rates to us in connection with these instruments are a contractual percentage over the one-month LIBOR or a minimal percentage under the prime rate. We had posted $7.4 million of collateral to dealer counterparties as of June 30, 2016. We posted securities to cover the collateral required. These interest rate swaps are not designated as hedging instruments.

Interest Rate Swap

We have an interest rate swap agreement with a total notional amount of $25.0 million. The interest rate swap contract was designated as a hedging instrument in cash flow hedges with the objective of protecting the overall cash flow from our quarterly interest payments on the SBI Capital Trust II preferred securities throughout the seven-year period beginning February 11, 2011 and ending April 7, 2018 from the risk of variability of those payments resulting from changes in the three-month London Interbank Offered Rate (“LIBOR”). Under the swap, we pay a fixed interest rate of 6.15% and receive a variable interest rate of three-month LIBOR plus a margin of 2.85% on a total notional amount of $25.0 million, with quarterly settlements. The rate received by us as of June 30, 2016 was 3.48%.

The estimated fair value of the interest rate swap contract outstanding as of June 30, 2016 and December 31, 2015 resulted in a pre-tax loss of $1.2 million and $1.4 million, respectively, and was included in other liabilities in the consolidated statements of financial condition. We obtained the counterparty valuation to validate the interest rate derivative contract as of June 30, 2016 and December 31, 2015.

The effective portion of our gain or loss due to changes in the fair value of the interest rate swap contract, a $0.1 million loss and a $0.1 million gain for the six months ended June 30, 2016 and June 30, 2015, respectively, is included in other comprehensive income, net of tax, while the ineffective portion (indicated by the excess of the cumulative change in the fair value of the derivative over that which is necessary to offset the cumulative change in expected future cash flows on the hedge transaction) is included in other noninterest income or other noninterest expense. No ineffectiveness related to the interest rate derivative was recognized during either reporting period.

Net cash outflows as a result of the interest rate swap contract were $0.3 million and $0.4 million for the six months ended June 30, 2016 and June 30, 2015, respectively, and were included in interest expense on subordinated debentures.

The fair value of cash and securities posted as collateral by us related to the interest rate swap contract was $2.1 million at June 30, 2016 and December 31, 2015.

There are no credit-risk-related contingent features associated with our derivative contract.

NOTE 6: TAXES ON INCOME

Net deferred tax assets totaled $12.0 million at June 30, 2016 and $14.0 million at December 31, 2015. Net deferred tax assets are included in other assets and no valuation allowance is considered necessary.

We or one of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal or state tax examinations for years before 2012. On January 13, 2016, we were notified by the Internal Revenue Service that we are under examination for the 2014 income tax filing and on June 6, 2016, we received final notice that the examinations was completed with no adjustments proposed.

NOTE 7: SHAREHOLDERS’ EQUITY

Stock Repurchase Program

On May 25, 2016, our Board of Directors approved our fourth stock repurchase program within the last two years. The program authorizes the repurchase of up to another 5.0%, or approximately 921,000 shares of our outstanding common stock and will become effective as of the earlier of: (a) the date we complete our repurchase of all the shares of our common stock that we are authorized to purchase under our current stock repurchase program that became effective as of February 23, 2016; or (b) February 23, 2017, which is the original expiration date of the current program. During the first six months of 2016, we repurchased 1,336,387 shares for a total of $21.0 million, and since August 2014, we have repurchased 2,457,945 shares for a total of $39.8 million.

NOTE 8: EARNINGS PER SHARE

Earnings per common share is computed using the two-class method prescribed by ASC 260, Earnings Per Share. Using the two-class method, basic earnings per common share is computed based upon net income divided by the weighted average number of common shares outstanding during each period, which excludes 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 compensation using the treasury stock method.

The following table shows the computation of basic and diluted earnings per common share:



	For the three months				For the six months
	ended June 30,				ended June 30,
(Dollars in thousands, except earnings per share data)	2016		2015		2016		2015
Numerator:
Net income	$	5,412	$	4,161	$	7,281	$	8,696
Earnings allocated to participating securities		(110)		(73)		(131)		(143)
Numerator for earnings per common share	$	5,302	$	4,088	$	7,150	$	8,553

Denominator:
Denominator for basic earnings per common share		18,574,300		18,666,853		18,916,686		18,714,088
Dilutive effect of stock compensation		102,261		197,124		18,918		172,332
Denominator for diluted earnings per common share		18,676,561		18,863,977		18,935,604		18,886,420
Earnings per common share:
Basic	$	0.29	$	0.22	$	0.38	$	0.46
Diluted	$	0.28	$	0.22	$	0.38	$	0.46

NOTE 9: OPERATING SEGMENTS

We operate four principal segments: Oklahoma Banking, Texas Banking, Kansas Banking, and Other Operations. The Oklahoma Banking segment provides deposit and lending services and consists of residential mortgage lending services to customers. Due to the relatively smaller size and the management structure, our Colorado banking operations are included within the Oklahoma Banking segment. The Texas Banking segment and the Kansas Banking segment provide deposit and lending services. Other Operations includes our funds management unit and corporate investments.

The primary purpose of the funds management unit is to manage our overall internal liquidity needs and interest rate risk. Each segment borrows funds from or 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 used in the funds transfer pricing curve is a blend of rates based on the volume usage of retail and brokered certificates of deposit and FHLB advances.

The accounting policies of each reportable segment are the same as ours. 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 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. The following table summarizes financial results by operating segment:


For the three months ended June 30, 2016
	Oklahoma		Texas		Kansas		Other		Total
(Dollars in thousands)	Banking		Banking		Banking		Operations		Company
Net interest income (loss)	$	12,339	$	5,640	$	1,638	$	78	$	19,695
Provision (credit) for loan losses		(210)		330		(113)		3		10
Noninterest income		2,657		290		300		624		3,871
Noninterest expenses		9,879		3,256		1,347		786		15,268
Income (loss) before taxes		5,327		2,344		704		(87)		8,288
Taxes on income (loss)		1,837		816		250		(27)		2,876
Net income (loss)	$	3,490	$	1,528	$	454	$	(60)	$	5,412


For the six months ended June 30, 2016
	Oklahoma		Texas		Kansas		Other		Total
(Dollars in thousands)	Banking		Banking		Banking		Operations*		Company
Net interest income (loss)	$	25,277	$	11,206	$	3,466	$	(414)	$	39,535
Provision for loan losses		50		2,245		2,086		4		4,385
Noninterest income		4,852		592		618		1,224		7,286
Noninterest expenses		19,839		6,987		2,764		1,674		31,264
Income (loss) before taxes		10,240		2,566		(766)		(868)		11,172
Taxes on income (loss)		3,566		894		(267)		(302)		3,891
Net income (loss)	$	6,674	$	1,672	$	(499)	$	(566)	$	7,281

* Includes externally generated revenue of $1.9 million, primarily from investing services, and an internally generated loss of $1.0 million from the funds management unit.

Total loans at period end	$	1,085,986	$	577,333	$	158,058	$	-	$	1,821,377
Total assets at period end		1,130,161		573,199		157,054		541,848		2,402,262
Total deposits at period end		1,322,430		190,475		135,585		254,375		1,902,865


For the three months ended June 30, 2015
	Oklahoma		Texas		Kansas		Other		Total
(Dollars in thousands)	Banking		Banking		Banking		Operations		Company
Net interest income (loss)	$	9,299	$	4,793	$	1,731	$	(32)	$	15,791
Provision (credit) for loan losses		(689)		(283)		(165)		1		(1,136)
Noninterest income		2,386		278		329		416		3,409
Noninterest expenses		7,698		3,793		1,606		885		13,982
Income before taxes		4,676		1,561		619		(502)		6,354
Taxes on income		1,609		531		216		(163)		2,193
Net income	$	3,067	$	1,030	$	403	$	(339)	$	4,161


For the six months ended June 30, 2015
	Oklahoma		Texas		Kansas		Other		Total
(Dollars in thousands)	Banking		Banking		Banking		Operations*		Company
Net interest income (loss)	$	19,034	$	10,013	$	3,194	$	(840)	$	31,401
Provision (credit) for loan losses		(1,922)		(533)		(568)		-		(3,023)
Noninterest income		4,425		587		631		606		6,249
Noninterest expenses		15,043		7,228		3,215		1,578		27,064
Income (loss) before taxes		10,338		3,905		1,178		(1,812)		13,609
Taxes on income (loss)		3,732		1,410		425		(654)		4,913
Net income (loss)	$	6,606	$	2,495	$	753	$	(1,158)	$	8,696

* Includes externally generated revenue of $0.7 million, primarily from investing services, and an internally generated loss of $1.0 million from the funds management unit.

Total loans at period end	$	810,368	$	493,047	$	146,015	$	-	$	1,449,430
Total assets at period end		824,073		491,442		147,302		568,764		2,031,581
Total deposits at period end		1,134,020		226,498		126,671		137,257		1,624,446

NOTE 10: COMMITMENTS AND CONTINGENCIES

Customer Risk Management Interest Rate Swap

On September 9, 2014, we entered into an agreement to provide one of our commercial borrowers a customer interest rate swap that effectively converts the loan interest rate from a floating rate based on LIBOR to a fixed rate for the customer. As of June 30, 2016, the floating rate loan had an outstanding balance of $15.3 million. The option to execute the swap is conditional on the borrower’s compliance with the loan and swap agreements, and will be subject to the terms of the International Swaps and Derivatives Association Master Agreement. The fixed pay amount will be based on the market rates at the time of execution, and it is our intention to simultaneously execute an offsetting trade with an approved swap dealer counterparty with identical terms.

Legal Action

On March 18, 2011, an action entitled Ubaldi, et al. v SLM Corporation (“Sallie Mae”), et al., Case No. 3:11-cv-01320 EDL (the “Ubaldi Case”) was filed in the U.S. District Court for the Northern District of California as a putative class action with respect to certain loans that the plaintiffs claim were made by Sallie Mae. The loans in question were made by various banks, including Bank SNB, and sold to Sallie Mae. Plaintiffs claim that Sallie Mae entered into arrangements with chartered banks in order to evade California law and that Sallie Mae is the de facto lender on the loans in question and, as the lender on such loan, Sallie Mae charged interest and late fees that violates California usury law and the California Business and Professions Code. Sallie Mae has denied all claims asserted against it and has stated that it intends to vigorously defend the action. On March 26, 2014, the Court denied the plaintiffs’ request to certify the class; however, the Court permitted the plaintiffs to amend the filing to redefine the class. Plaintiffs filed a renewed motion on June 23, 2014. On December 19, 2014, the Court issued a decision on the renewed motion, certifying a class with respect to claims of improper late fees, but denying class certification with respect to plaintiffs’ usury claims. Plaintiffs thereafter filed a motion seeking leave to amend their complaint

to add additional parties, which Sallie Mae opposed, and, on March 24, 2015, the Court denied the plaintiffs’ motion. On June 5, 2015, the law firm Cohen Milstein Sellers & Toll based in Washington, D.C. entered its appearance as co-counsel on behalf of plaintiffs.

Bank SNB is not specifically named in the action. However, in the first quarter of 2014, Sallie Mae provided Bank SNB with a notice of claims that have been asserted against Sallie Mae in the Ubaldi Case (the “Notice”). Sallie Mae asserts in the Notice that Bank SNB may have indemnification and/or repurchase obligations pursuant to the ExportSS Agreement dated July 1, 2002 between Sallie Mae and Bank SNB, pursuant to which the loans in question were made by Bank SNB. Bank SNB has substantial defenses with respect to any claim for indemnification or repurchase ultimately made by Sallie Mae, if any, and intends to vigorously defend against any such claims.

Due to the uncertainty regarding (i) the size and scope of the class, (ii) whether a class will ultimately be certified, (iii) the particular class members, (iv) the interest rate on loans made by Bank SNB charged to particular class members, (v) the late fees charged to particular class members, (vi) the time period that will ultimately be at issue if a class is certified in the Ubaldi Case, (vii) the theories, if any, under which the plaintiffs might prevail, (viii) whether Sallie Mae will make a claim against us for indemnification or repurchase, and (ix) the likelihood that Sallie Mae would prevail if it makes such a claim, we cannot estimate the amount or the range of losses that may arise as a result of the Ubaldi Case.

In the normal course of business, we are 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 currently does not expect that the outcome of such actions will have a material adverse effect on our financial position; however, we are 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.

NOTE 11: NEW AUTHORITATIVE ACCOUNTING GUIDANCE

In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurements of Financial Assets and Financial Liabilities. This ASU requires that all equity investments be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). This ASU also requires that an entity present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, this ASU eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The guidance becomes effective for us on January 1, 2018, and we are evaluating the impact of this ASU on our financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance becomes effective for us on January 1, 2019. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We are evaluating the impact of this ASU on our financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. This ASU clarifies that a change in the counterparty of a derivative contract (i.e., a novation) in a hedge accounting relationship does not, in and of itself, require dedesignation of the hedge accounting relationship. This guidance becomes effective for us on January 1, 2017, and it is not expected to have a material impact on the financial statements.

In March 2016, the FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments. This ASU clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under this ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. This guidance becomes effective for us on January 1, 2017, and it is not expected to have a material impact on the financial statements.

In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting. This ASU eliminates the requirement for an investor to retrospectively apply the equity method when an investment that it had accounted for by another method qualifies for use of the equity method. This guidance becomes effective for us on January 1, 2017, and it is not expected to have a material impact on the financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance becomes effective for us on January 1, 2017, and it is not expected to have a material impact on the financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. While this ASU does not change the core principles of the guidance in Topic 606, it does clarify the guidance related to identifying performance obligations as well as the accounting for licenses of intellectual property. This guidance becomes effective for us on January 1, 2017, and it is not expected to have a material impact on the financial statements.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives Hedging (Topic 815), Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update). This ASU rescinds from the FASB Accounting Standards Codification certain SEC Observer comments that are codified in FASB ASC Topic 605, Revenue Recognition, and ASC 932, Extractive Activities – Oil and Gas, effective upon an entity’s adoption of FASB ASC 606, Revenue from Contracts with Customers. This ASU also rescinds the SEC Staff Announcement: Determining the Nature of a Host Contract Related to a Hybrid Instrument Issued in the Form of a Share under Topic 815,” which is codified in FASB ASC Topic 815, Derivatives and Hedging, effective on adoption of FASB ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or Equity. This guidance becomes effective for us on January 1, 2018, and it is not expected to have a material impact on the financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients. While this ASU does not change the core principles of the new revenue recognition standard, it does make the standard more operational and clarifies the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters. This guidance becomes effective for us on January 1, 2018, and it is not expected to have a material impact on the financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that estimates credit losses on most financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity securities, using the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the financial instrument’s entire contractual term from the date of initial recognition of that instrument. The ASU also requires incremental disclosures on how the entity developed its estimates. This guidance becomes effective for us on January 1, 2020. We are evaluating the impact of this ASU on our financial statements and disclosures.

SOUTHWEST BANCORP, INC.

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

EXECUTIVE SUMMARY

Southwest Bancorp, Inc. (“we”, “our”, “us”, or “Southwest”) is a financial holding company for Bank SNB, which has been providing banking services since 1894. Through Bank SNB, we have thirty-three full-service banking centers located primarily along the heavily populated areas on the I-35 corridor through Texas, Oklahoma, and Kansas, and in Colorado. We focus on providing customers with exceptional service and meeting all of their banking needs by offering a wide variety of commercial and consumer banking services, including commercial and consumer lending, deposit services, specialized cash management, and other financial services and products. At June 30, 2016, we had total assets of $2.4 billion, deposits of $1.9 billion, and shareholders’ equity of $282.4 million.

On May 25, 2016, our Board of Directors (the “Board”) authorized a fourth consecutive share repurchase program of up to another 5.0%, or approximately 921,000 shares, of our outstanding common stock, which becomes effective as of the earlier of: (a) the date we complete our repurchase of all the shares of our common stock that we are authorized to purchase under our current stock repurchase program that became effective as of February 23, 2016; or (b) February 23, 2017, which is the original expiration date of the current program. The share repurchases are expected to continue to be made primarily on the open market from time to time. Repurchases under the program will be made at the discretion of management based upon market, business, legal, and other factors. During the first six months of 2016, we repurchased 1,336,387 shares for a total of $21.0 million, and since August 2014, we have repurchased 2,457,945 shares for a total of $39.8 million.

Our business operations are conducted through four operating segments that include Oklahoma Banking, Texas Banking, Kansas Banking, and Other Operations. Due to the relatively smaller size and management structure, Colorado banking operations are included within our Oklahoma Banking segment. At June 30, 2016, the Oklahoma Banking segment accounted for $1.1 billion in loans, the Texas Banking segment accounted for $577.3 million in loans, and the Kansas Banking segment accounted for $158.1 million in loans. Please see “Financial Condition: Loans” below for additional information. For additional information on our operating segments, please see “Note 9: Operating Segments” in the Notes to Unaudited Consolidated Financial Statements.

Our common stock is traded on the NASDAQ Global Select Market under the symbol OKSB. We focus on converting our strategic vision into long-term shareholder value.

INDUSTRY FOCUS

Our area of expertise focuses on the special financial needs of: (i) healthcare and health professionals; (ii) commercial real estate borrowers, businesses and their managers and owners; (iii) commercial lending; (iv) and energy banking. The healthcare and real estate industries make up the majority of our loan and deposit portfolios. We conduct regular reviews of our current and potential healthcare and real estate lending and the appropriate concentrations within those industries based upon economic and regulatory conditions.

As of June 30, 2016, $1.0 billion, or 57%, of our loans were real estate industry loans. Economic factors that affect commercial real estate values include job growth, corporate profits, and business expansion. The unemployment rate, uncertainty over government regulation and fiscal policy, the rising cost of debt capital, and depressed oil and gas prices are all industry risk factors.

Our tactical focus on healthcare lending was established in 1974. We provide credit and other remittance services, such as deposits, cash management, and document imaging for physicians and other healthcare practitioners to start or develop their practices and finance the development and purchase of medical offices, clinics, surgical care centers, hospitals, and similar facilities. As of June 30, 2016, $435.2 million, or 24%, of our loans were to individuals and businesses in the healthcare industry.

As of June 30, 2016, approximately 3% of our loan portfolio was concentrated in energy banking. Our exposure continues to be focused with good companies that are generally well capitalized. If oil prices remain at current low levels for an extended period, we could experience weaker energy loan demand and increased losses within our energy portfolio. Furthermore, a prolonged period of low oil prices could have a negative impact on the economies of energy-dominant states such as Oklahoma and Texas. As a result, a prolonged period of low oil prices could have an adverse effect on our business, financial condition and results of operation.

FINANCIAL CONDITION

Investment Securities

The following table shows the composition of the investment portfolio at the dates indicated:


	June 30,		December 31,
(Dollars in thousands)	2016		2015		$ Change		% Change
Federal agency securities	$	68,287	$	78,210	$	(9,923)	(12.69)	%
Obligations of state and political subdivisions		60,478		59,362		1,116	1.88
Residential mortgage-backed securities		259,007		239,888		19,119	7.97
Asset-backed securities		9,417		9,415		2	0.02
Corporate debt		25,107		25,253		(146)	(0.58)
Total	$	422,296	$	412,128	$	10,168	2.47	%

Loans

Total loans, including loans held for sale, were $1.8 billion at June 30, 2016. The following table shows the composition of the loan portfolio at the dates indicated:




(Dollars in thousands)	June 30, 2016		December 31, 2015		$ Change		% Change
Real estate mortgage
Commercial	$	862,287	$	938,462	$	(76,175)	(8.12)	%
One-to-four family residential		183,693		161,958		21,735	13.42
Real estate construction
Commercial		175,805		129,070		46,735	36.21
One-to-four family residential		20,347		21,337		(990)	(4.64)
Commercial		558,472		507,173		51,299	10.11
Installment and consumer
Other		20,773		21,429		(656)	(3.06)
Total loans	$	1,821,377	$	1,779,429	$	41,948	2.36	%

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


	June 30,		December 31,
(Dollars in thousands)	2016		2015		$ Change		% Change
Loans held for sale:
One-to-four family residential	$	7,010	$	7,453	$	(443)	(5.94)	%
Total loans held for sale		7,010		7,453		(443)	(5.94)
Portfolio loans		1,814,367		1,771,976		42,391	2.39
Total loans	$	1,821,377	$	1,779,429	$	41,948	2.36	%

Allowance for Loan Losses

Management determines the appropriate level of the allowance for loan losses using an established methodology. (See “Note 3: Loans and Allowance for Loan Losses” in the Notes to Unaudited Consolidated Financial Statements.) Management believes the amount of the allowance is appropriate, based on our analysis.

The allowance for loan losses on loans is comprised of two components. We consider all non-accrual loans and troubled debt restructuring loans to be impaired loans. However, all troubled debt restructuring loans and non-accrual loans greater than or equal to $100,000 are evaluated on an individual basis using the discounted present value of expected cash flows, the fair value of collateral, or the market value of the loan, and a specific allowance is recorded based upon the result. Collateral dependent loans are evaluated for impairment based upon the fair value of the collateral. Any portion of a collateral dependent impaired loan in excess of the fair value of the collateral that is determined to be uncollectible is charged off.

The allowance on all other portfolio loans (including non-accrual loans less than $100,000) is determined by use of historical loss ratios adjusted for qualitative internal and external risk factors, segmented into loan pools by type of loan and market area.

The composition of the allowance for portfolio loan losses, at the dates indicated, is shown in the following table:


	As of June 30, 2016						As of December 31, 2015
(Dollars in thousands)	Loan Balance		Allowance		Allowance %		Loan Balance		Allowance		Allowance %
Nonaccrual	$	22,259	$	3,751	16.9	%	$	19,858	$	2,537	12.8	%
Performing TDR		12,486		72	0.6			20,235		1,575	7.8
All other excluding loans held for sale		1,779,622		23,053	1.3			1,731,883		21,994	1.3
Total	$	1,814,367	$	26,876	1.5	%	$	1,771,976	$	26,106	1.5	%

The increase in the allowance for nonaccrual loans was primarily the result of the downgrade of one energy credit. The allowance relating to the other loans reflects the consideration of improving portfolio loss trends and qualitative factors including management’s assessment of economic risk, asset quality trends, levels of potential problem loans, and loan concentrations in commercial real estate mortgage and construction loans.

The amount of the loan loss provision, or negative 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 (recoveries) for the period. Net charge-offs for the first six months of 2016 were $3.6 million, an increase of $4.4 million from the $(0.8) million net recoveries recorded for the first six months of 2015. The provision for loan losses for the first six months of 2016 was $4.4 million, representing an increase of $7.4 million from the negative provision of $3.0 million recorded for the first six months of 2015. The increase in the provision is due to the slowness in the energy sector as well as specific deterioration particularly in three general business credits that occurred during the first three months of 2016.

Nonperforming Loans / Nonperforming Assets

At June 30, 2016, the allowance for loan losses was 120.39% of nonperforming loans, compared to 128.23% of nonperforming loans, at December 31, 2015. Nonaccrual loans, which comprise the majority of nonperforming loans, were $22.3 million as of June 30, 2016, an increase of $2.4 million, or 12%, from December 31, 2015. We have taken cumulative net charge-offs related to these nonaccrual loans of $6.7 million as of June 30, 2016. Nonaccrual loans at June 30, 2016 were comprised of 54 relationships and were primarily concentrated in commercial and industrial (61.78%) and commercial real estate (17.49%). All nonaccrual loans are considered impaired and are carried at their estimated collectible amounts. These loans are believed to have sufficient collateral and are in the process of being collected.




(Dollars in thousands)	June 30, 2016			December 31, 2015
Nonaccrual loans:
Commercial real estate	$	3,894		$	3,543
One-to-four family residential		3,106			1,729
Real estate construction		1,436			1,010
Commercial		13,752			13,491
Other consumer		71			85
Total nonaccrual loans		22,259			19,858

Past due 90 days or more:
Commercial		48			449
One-to-four family residential		14			48
Other consumer		4			3
Total past due 90 days or more		66			500
Total nonperforming loans		22,325			20,358
Other real estate		2,122			2,274
Total nonperforming assets	$	24,447		$	22,632

Nonperforming assets to portfolio loans receivable and
other real estate		1.35	%		1.28	%
Nonperforming loans to portfolio loans receivable		1.23			1.15
Allowance for loan losses to nonperforming loans		120.39			128.23

At June 30, 2016, six credit relationships represented 78% of nonperforming loans. These had an aggregate principal balance of $17.4 million and related impairment reserves of $3.6 million. These include $12.8 million in commercial loans, of which $6.9 million are energy related, $2.3 million are commercial real estate, and $2.3 million are one-to-four family residential. Cumulative net charge-offs for these six relationships were $5.1 million as of June 30, 2016.

Performing loans considered potential problem loans (loans which are not included in the past due or nonaccrual categories but for which known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms) amounted to approximately $64.4 million at June 30, 2016, compared to $39.2 million at December 31, 2015. Substantially all of these loans were performing in accordance with their present terms at June 30, 2016. Loans may be monitored by management and reported as potential problem loans for an extended period of time during which management continues to be uncertain as to the ability of certain borrowers to comply with the present loan repayment terms.

At June 30, 2016, other real estate was $2.1 million, a decrease of $0.2 million from December 31, 2015.

At June 30, 2016, the reserve for unfunded loan commitments was $2.3 million, a $0.1 million, or 2%, decrease from the amount at December 31, 2015. Management believes the amount of the reserve is appropriate and is included in other liabilities on the consolidated statements of financial condition. The decrease is related primarily to continued improvement in asset quality and a corresponding decline in historical loss ratios used to calculate the reserve.

Deposits and Other Borrowings

Our deposits were $1.9 billion at June 30, 2016 and December 31, 2015. The following table shows the composition of deposits at the dates indicated:


	June 30,		December 31,
(Dollars in thousands)	2016		2015		$ Change		% Change
Noninterest-bearing demand	$	545,421	$	596,494	$	(51,073)	(8.56)	%
Interest-bearing demand		160,886		151,015		9,871	6.54
Money market accounts		547,415		534,357		13,058	2.44
Savings accounts		55,209		56,333		(1,124)	(2.00)
Time deposits of $100,000 or more		323,137		311,538		11,599	3.72
Other time deposits		270,797		234,368		36,429	15.54
Total deposits	$	1,902,865	$	1,884,105	$	18,760	1.00	%

Brokered deposits include deposits obtained through bank networks for the purpose of sharing deposits and in some cases to increase customer deposit insurance levels. Brokered deposits totaled $56.2 million at June 30, 2016 and $25.4 million at December 31, 2015.

Other borrowings, which includes short-term federal funds purchased, FHLB borrowings, and repurchase agreements, increased $42.6 million, or 38%, to $153.6 million during the first six months of 2016. The increase primarily reflects the change in temporary FHLB advances for the period.

Wholesale funding, including FHLB borrowings, federal funds purchased, and brokered deposits, accounted for 17% and 12% of total funding at June 30, 2016 and December 31, 2015, respectively. See further discussion under the “Liquidity” section below.

Shareholders’ Equity

Shareholders’ equity decreased $13.7 million during the six months ended June 30, 2016 primarily due to $21.1 million in treasury stock repurchases and $3.1 million in common stock dividends declared, offset in part by net income of $7.3 million and an increase of $2.8 million in other comprehensive income. At June 30, 2016, the accumulated other comprehensive income on available for sale investment securities and derivative instruments (net of tax) was $1.5 million, an improvement from an unrealized loss of $1.3 million at December 31, 2015.

At June 30, 2016, we and Bank SNB continued to exceed all applicable regulatory capital requirements. See “Capital Requirements” on page 41.

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2016 and 2015

Net income for the second quarter of 2016 of $5.4 million represented an increase of $1.2 million from the $4.2 million net income recorded for the second quarter of 2015. Diluted earnings per share were $0.28 for the second quarter of 2016, compared to $0.22 for the second quarter of 2015. The $1.2 million increase in net income compared to the second quarter of 2015 was due to a $3.9 million increase in net interest income and a $0.5 million increase in noninterest income, offset in part by a $1.1 million increase in the provision for loan losses, a $1.2 million increase in noninterest expense, and a $0.7 million increase in income taxes. The increases in net interest income, noninterest income, and noninterest expense are due in part to the First Commercial Bancshares, Inc. acquisition that occurred in the fourth quarter of 2015.

Provisions for loan losses are booked in the amounts necessary to maintain the allowance for loan losses at an appropriate level at period end after net charge-offs for the period. (See “Note 3: Loans and Allowance for Loan Losses” in the Notes to Unaudited Consolidated Financial Statements and “Provision for Loan Losses” on page 40.)

Net Interest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2016		2015		$ Change		% Change
Interest income:
Loans	$	20,031	$	15,839	$	4,192	26.47	%
Investment securities:
U.S. government and agency obligations		302		381		(79)	(20.73)
Mortgage-backed securities		1,038		660		378	57.27
State and political subdivisions		350		287		63	21.95
Other securities		272		221		51	23.08
Other interest-earning assets		51		67		(16)	(23.88)
Total interest income		22,044		17,455		4,589	26.29

Interest expense:
Interest-bearing demand deposits		65		30		35	116.67
Money market accounts		329		183		146	79.78
Savings accounts		18		9		9	100.00
Time deposits of $100,000 or more		448		170		278	163.53
Other time deposits		568		470		98	20.85
Other borrowings		342		241		101	41.91
Subordinated debentures		579		561		18	3.21
Total interest expense		2,349		1,664		685	41.17

Net interest income	$	19,695	$	15,791	$	3,904	24.72	%

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

AVERAGE BALANCES, YIELDS AND RATES

The following table shows average interest-earning assets and interest-bearing liabilities and the average yields and rates on them for the periods indicated:


	For the three months ended June 30,
	2016						2015
	Average				Average		Average				Average
(Dollars in thousands)	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
Assets
Loans (1) (2)	$	1,799,591	$	20,031	4.48	%	$	1,439,050	$	15,839	4.41	%
Investment securities (2)		428,275		1,962	1.84			369,677		1,549	1.68
Other interest-earning assets		48,569		51	0.42			103,943		67	0.26
Total interest-earning assets		2,276,435		22,044	3.89			1,912,670		17,455	3.66
Other assets		103,566						58,267
Total assets	$	2,380,001					$	1,970,937

Liabilities and shareholders' equity
Interest-bearing demand deposits	$	165,011	$	65	0.16	%	$	137,781	$	30	0.09	%
Money market accounts		537,734		329	0.25			473,993		183	0.15
Savings accounts		54,808		18	0.13			34,702		9	0.10
Time deposits		589,029		1,016	0.69			448,175		640	0.57
Total interest-bearing deposits		1,346,582		1,428	0.43			1,094,651		862	0.32
Other borrowings		141,623		342	0.97			60,568		241	1.60
Subordinated debentures		46,393		579	4.99			46,393		561	4.84
Total interest-bearing liabilities		1,534,598		2,349	0.62			1,201,612		1,664	0.56
Noninterest-bearing demand deposits		547,963						485,984
Other liabilities		13,598						10,005
Shareholders' equity		283,842						273,336
Total liabilities and shareholders' equity	$	2,380,001					$	1,970,937

Net interest income and interest rate spread			$	19,695	3.27	%			$	15,791	3.10	%
Net interest margin (3)					3.48	%					3.31	%
Ratio of average interest-earning assets
to average interest-bearing liabilities		148.34%						159.18%


(1) Average balances include nonaccrual loans. Fees included in interest income on loans receivable are not considered material.
(2) Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.
(3) Net interest margin = annualized net interest income / average interest-earning assets

Compared to the second quarter of 2015, the second quarter 2016 yields on our interest-earning assets increased 23 basis points, while the rates paid on our interest-bearing liabilities increased 6 basis points, resulting in an increase in the interest rate spread from 3.10% to 3.27%. During the quarterly periods ended June 30, 2016 and June 30, 2015, annualized net interest margin was 3.48% and 3.31%, respectively, and for the same periods, the ratio of average interest-earning assets to average interest-bearing liabilities was 148.34% and 159.18%, respectively.

RATE VOLUME TABLE

The following table analyzes changes in our interest income and interest expense for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by the prior period’s rate); and (ii) changes in rates (changes in rate multiplied by the prior period’s volume). Changes in rate-volume (changes in rate multiplied by the changes in volume) are allocated between changes in rate and changes in volume in proportion to the relative contribution of each.

With the rate environment remaining low in the short to mid-term, earning assets and interest bearing liabilities are repricing at lower rates. The increase in net interest income is primarily the result of higher interest income from loans.



	For the three months ended June 30,
	2016 vs. 2015
	Increase		Due to Change
	Or		In Average:
(Dollars in thousands)	(Decrease)		Volume		Rate
Interest earned on:
Loans receivable (1)	$	4,192	$	4,011	$	181
Investment securities (1)		413		260		153
Other interest-earning assets		(16)		(46)		30
Total interest income		4,589		4,225		364

Interest paid on:
Interest-bearing demand		35		7		28
Money market accounts		146		27		119
Savings accounts		9		6		3
Time deposits		376		201		175
Other borrowings		101		225		(124)
Subordinated debentures		18		-		18
Total interest expense		685		466		219

Net interest income	$	3,904	$	3,759	$	145

(1) Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.

Noninterest Income


	For the three months
	ended June 30,
(Dollars in thousands)	2016		2015		$ Change		% Change
Noninterest income:
Other service charges and fees	$	2,556	$	2,450	$	106	4.33	%
Other noninterest income		428		200		228	114.00
Gain on sale/call of investment securities		165		138		27	19.57
Gain on sales of mortgage loans, net		722		621		101	16.26
Total noninterest income	$	3,871	$	3,409	$	462	13.55	%

Other service charges and fees for the three months ended June 30, 2016 increased $0.1 million compared to the three months ended June 30, 2015 and included a $0.2 million impairment of mortgage servicing rights.

Other noninterest income for the three months ended June 30, 2016 increased $0.2 million compared to the three months ended June 30, 2015 primarily as a result of income generated from the bank owned life insurance asset that was purchased in the second quarter of 2015.

The gain on sale/call of investment securities for the three months ended June 30, 2016 increased compared to the three months ended June 30, 2015 due to a slight restructure of the investment portfolio.

Gain on sales of mortgage loans for the three months ended June 30, 2016 increased $0.1 million compared to the three months ended June 30, 2015 primarily due to an increase in mortgage lending activity.

Noninterest Expense


	For the three months
	ended June 30,
(Dollars in thousands)	2016		2015		$ Change		% Change
Noninterest expense:
Salaries and employee benefits	$	9,587	$	8,289	$	1,298	15.66	%
Occupancy		2,669		2,201		468	21.26
Data processing		430		410		20	4.88
FDIC and other insurance		432		316		116	36.71
Other real estate (net)		8		112		(104)	92.86
Unfunded loan commitment reserve		(263)		115		(378)	328.70
Other general and administrative		2,405		2,539		(134)	(5.28)
Total noninterest expense	$	15,268	$	13,982	$	1,286	9.20	%

The number of full-time equivalent employees increased from 361 as of June 30, 2015 to 410 as of June 30, 2016, primarily due to the acquisition of First Commercial Bancshares, Inc. The increase in personnel expense from the prior year is primarily the result of the increase in salary and employee benefit expenses related to an increase in the number of employees.

The increases in occupancy and data processing for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 is due primarily to increased rental expense, depreciation expense, maintenance contract amortization expense, and data processing expense related to acquired branches and software expense.

Our financial institution subsidiary pays deposit insurance premiums to the FDIC based on assessment rates. The increase for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 is primarily the result of an increase in average total assets and an increase in the assessment rates.

The decrease in other real estate net expenses for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 is primarily the result of a decrease in overall other real estate and related property taxes and insurance, as well as a change in the real estate portfolio, specifically marked by a decrease in commercial and residential real estate and an increase in vacant land.

The unfunded loan commitment reserve expense for the three months ended June 30, 2016 decreased compared to the three months ended June 30, 2015, primarily as a result of continued improvement in asset quality and the corresponding decline in historical loss ratios used to calculate the reserve.

The decrease in other general and administrative for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 is primarily the result of decreased legal fees and marketing expense.

RESULTS OF OPERATIONS

FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2016 and 2015

Net income for the six months ended June 30, 2016 of $7.3 million represented a decrease of $1.4 million from the $8.7 million net income recorded for the six months ended June 30, 2015. Diluted earnings per share were $0.38 for the six months ended June 30, 2016, compared to $0.46 for the six months ended June 30, 2015. The $1.4 million decrease in net income from 2015 is the result of a $7.4 million increase in the provision for loan losses and a $4.2 million increase in noninterest expense due to increased personnel, occupancy, and general and administrative expenses, offset in part by an $8.1 million increase in net interest income, a $1.0 million increase in noninterest income, and a $1.0 million decrease in income taxes. The increases in noninterest expense, net interest income, and noninterest income are due in part to the First Commercial Bancshares, Inc. acquisition that occurred in the fourth quarter of 2015.


	For the six months
	ended June 30,
(Dollars in thousands)	2016		2015		$ Change		% Change
Interest income:
Loans	$	40,061	$	31,409	$	8,652	27.55	%
Investment securities:
U.S. government and agency obligations		598		717		(119)	(16.60)
Mortgage-backed securities		2,115		1,378		737	53.48
State and political subdivisions		698		576		122	21.18
Other securities		516		431		85	19.72
Other interest-earning assets		104		168		(64)	(38.10)
Total interest income		44,092		34,679		9,413	27.14

Interest expense:
Interest-bearing demand deposits		127		63		64	101.59
Money market accounts		650		365		285	78.08
Savings accounts		37		17		20	117.65
Time deposits of $100,000 or more		815		408		407	99.75
Other time deposits		1,106		844		262	31.04
Other borrowings		651		468		183	39.10
Subordinated debentures		1,171		1,113		58	5.21
Total interest expense		4,557		3,278		1,279	39.02

Net interest income	$	39,535	$	31,401	$	8,134	25.90	%

AVERAGE BALANCES, YIELDS AND RATES

The following table shows average interest-earning assets and interest-bearing liabilities and the average yields and rates on them for the periods indicated.


	For the six months ended June 30,
(Dollars in thousands)	2016						2015
	Average				Average		Average				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
Assets
Loans (1) (2)	$	1,794,291	$	40,061	4.49	%	$	1,429,148	$	31,409	4.43	%
Investment securities (2)		420,291		3,927	1.88			368,782		3,102	1.70
Other interest-earning assets		49,800		104	0.42			131,290		168	0.26
Total interest-earning assets		2,264,382		44,092	3.92			1,929,220		34,679	3.62
Other assets		105,720						53,888
Total assets	$	2,370,102					$	1,983,108

Liabilities and shareholders' equity
Interest-bearing demand deposits	$	162,825	$	127	0.16	%	$	138,335	$	63	0.09	%
Money market accounts		540,267		650	0.24			479,287		365	0.15
Savings accounts		55,321		37	0.13			34,030		17	0.10
Time deposits		576,621		1,921	0.67			441,330		1,252	0.57
Total interest-bearing deposits		1,335,034		2,735	0.41			1,092,982		1,697	0.31
Other borrowings		129,397		651	1.01			66,405		468	1.42
Subordinated debentures		47,469		1,171	4.93			46,393		1,113	4.80
Total interest-bearing liabilities		1,511,900		4,557	0.61			1,205,780		3,278	0.55
Noninterest-bearing demand deposits		555,493						494,582
Other liabilities		14,184						10,458
Shareholders' equity		288,525						272,288
Total liabilities and shareholders' equity	$	2,370,102					$	1,983,108

Net interest income and interest rate spread			$	39,535	3.31	%			$	31,401	3.07	%
Net interest margin (3)					3.51	%					3.28	%
Ratio of average interest-earning assets
to average interest-bearing liabilities		149.77%						160.00%


(1) Average balances include nonaccrual loans. Fees included in interest income on loans receivable are not considered material.
(2) Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis because it is not considered material.
(3) Net interest margin = annualized net interest income / average interest-earning assets

Compared to the six months ended June 30, 2015, the six months ended June 30, 2016 yields on our interest-earning assets increased 30 basis points, while the rates paid on our interest-bearing liabilities increased 6 basis points, resulting in an increase in the interest rate spread from 3.07% to 3.31%. During the same periods, annualized net interest margin was 3.51% and 3.28%, respectively, and for the same periods, the ratio of average interest-earning assets to average interest-bearing liabilities was 149.77% and 160.00%, respectively. Included in interest income for the first six months of 2016 and the first six months of 2015 was $0.5 million and $0.3 million of accelerated discount accretion, respectively. The net effect on the net interest margin was a 4 basis point and a 3 basis point increase, respectively for each six-month period. Average loans (including loans held for sale) as of June 30, 2016 increased $365.1 million when compared to June 30, 2015. Loans acquired in the fourth quarter of 2015 were $202.4 million.

RATE VOLUME TABLE

With the rate environment remaining low in the short to mid-term, earning assets and interest bearing liabilities are repricing at lower rates. The decrease in net interest income is primarily the result of lower interest income from loans and securities, partially offset by lower interest expense on deposits.



	For the six months ended June 30,
	2016 vs. 2015
	Increase		Due to Change
	Or		In Average:
(Dollars in thousands)	(Decrease)		Volume		Rate
Interest earned on:
Loans receivable (1)	$	8,652	$	8,145	$	507
Investment securities (1)		825		460		365
Other interest-earning assets		(64)		(137)		73
Total interest income		9,413		8,468		945

Interest paid on:
Interest-bearing demand		64		13		51
Money market accounts		285		51		234
Savings accounts		20		13		7
Time deposits		669		401		268
Other borrowings		183		346		(163)
Subordinated debentures		58		26		32
Total interest expense		1,279		850		429

Net interest income	$	8,134	$	7,618	$	516

(1) Interest on tax-exempt loans and securities is not shown on a tax-equivalent basis, because it is not considered material.

Noninterest Income


	For the six months
	ended June 30,
(Dollars in thousands)	2016		2015		$ Change		% Change
Noninterest income:
Other service charges and fees	$	5,105	$	4,878	$	227	4.65	%
Other noninterest income		767		259		508	196.14
Gain on sale/call of investment securities		291		143		148	103.50
Gain on sales of mortgage loans, net:		1,123		969		154	15.89
Total noninterest income	$	7,286	$	6,249	$	1,037	16.59	%

Other service charges and fees for the six months ended June 30, 2016 increased $0.2 million compared to the six months ended June 30, 2015 and included a $0.5 million impairment of mortgage servicing rights during the first six months of 2016.

Other noninterest income for the six months ended June 30, 2016 increased $0.5 million compared to the six months ended June 30, 2015, which includes income on bank owned life insurance and customer risk management interest rate swap income.

The gain on sale/call of investment securities for the six months ended June 30, 2016 increased $0.1 million compared to the six months ended June 30, 2015 due to a slight restructure of the investment portfolio during the six months ended June 30, 2016.

Gain on sales of mortgage loans for the six months ended June 30, 2016 increased $0.2 million compared to the six months ended June 30, 2015, primarily a reflection of the activity in residential mortgage lending. The increase relates to an increase in mortgage lending activity during the year.

Noninterest Expense


	For the six months
	ended June 30,
(Dollars in thousands)	2016		2015		$ Change		% Change
Noninterest expense:
Salaries and employee benefits	$	18,929	$	16,203	$	2,726	16.82	%
Occupancy		5,340		4,485		855	19.06
Data processing		900		856		44	5.14
FDIC and other insurance		800		628		172	27.39
Other real estate (net)		21		133		(112)	(84.21)
Unfunded loan commitment reserve		(48)		(110)		62	56.36
Other general and administrative		5,322		4,869		453	9.30
Total noninterest expense	$	31,264	$	27,064	$	4,200	15.52	%

The number of full-time equivalent employees increased from 361 at June 30, 2015 to 410 as of June 30, 2016, primarily due to the acquisition of First Commercial Bancshares, Inc. The increase in personnel expense from the prior year is primarily the result of the increase in salary and employee benefit expenses related to an increase in the number of employees.

The increase in occupancy and data processing for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 is due primarily to increased rental expense, depreciation expense, maintenance contract amortization expense, and data processing expense related to acquired branches and software expense.

Our financial institution subsidiary pays deposit insurance premiums to the FDIC based on assessment rates. The increase for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 is primarily the result of an increase in average total assets and an increase in the assessment rates.

The decrease in other real estate net expenses for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 is primarily the result of a decrease in overall other real estate and related property taxes and insurance, as well as a change in the real estate portfolio, specifically marked by a decrease in commercial and residential real estate and an increase in vacant land.

The unfunded loan commitment reserve expense increased for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 due to an increase in the level of unfunded commitments related to loans originating during the six months ended June 30, 2015.

The increase in other general and administrative for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 is primarily the result of increased business development expenses, increased intangible amortization expense, and increased administrative expenses (e.g., telephone, postage, supplies, etc.).

Provision for Loan Losses

The provision for loan losses is the amount of expense (or credit) that is required to maintain the allowance for losses at an appropriate level based upon the inherent risks in the loan portfolio after the effects of net charge-offs (or recoveries) for the period. The increase in the provision for loan losses is due to the impact of low energy prices combined with deterioration in a few general business credits. (See “Note 3: Loans and Allowance for Loan Losses” in the Notes to Unaudited Consolidated Financial Statements and “Loans”)

Taxes on Income

Our income tax expense was $3.9 million for the first six months of 2016 compared to $4.9 million for the first six months of 2015, a decrease of $1.0 million, or 21%. The decrease in the income tax expense is the result of decreased pretax income and fluctuations in permanent book/tax differences. The effective tax rate for the first six months of 2016 was 34.83%, compared to 36.10% as of June 30, 2015. The decline in the effective tax rate includes the impact of an increase in tax exempt income, as a percentage of pre-tax income.

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

Southwest and Bank SNB have available various forms of short-term borrowings for cash management and liquidity purposes. These forms of borrowings include federal funds purchased, securities sold under agreements to repurchase, and borrowings from the Federal Reserve Bank (“FRB”) and the Federal Home Loan Bank of Topeka (“FHLB”).

Bank SNB has approved federal funds purchased lines totaling $65.0 million with three banks. There was no outstanding balance on these lines at June 30, 2016. Bank SNB 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 allows Bank SNB to borrow up to $107.2 million. As of June 30, 2016, no borrowings were made through the BIC program. In addition, Bank SNB has available a $422.1 million line of credit from the FHLB. Borrowings under the FHLB lines are secured by investment securities and loans. At June 30, 2016, Bank SNB’s FHLB line of credit had an outstanding balance of $111.0 million. (See also “Deposits and Other Borrowings” on page 32 for funds available and “Note 9: Operating Segments” in the Notes to Unaudited Consolidated Financial Statements for a discussion of our funds management unit.)

Bank SNB sells securities under agreements to repurchase with Bank SNB retaining custody of the collateral. Collateral consists of U.S. government agency obligations, which are designated as pledged with Bank SNB’s safekeeping agent. These transactions are for one to four day periods. Outstanding balances under this program were $42.6 million and $37.3 million as of June 30, 2016 and December 31, 2015, respectively.

At June 30, 2016, $184.9 million of the total carrying value of investment securities of $422.3 million were pledged as collateral to secure public and trust deposits, sweep agreements, and borrowings from the FHLB. Any amount over pledged can be released at any time.

During the first six months of 2016, no category of short-term borrowings had an average balance that exceeded 30% of ending shareholders’ equity.

During the first six months of 2016, cash and cash equivalents decreased by $10.0 million, or 13%, to $68.1 million compared to December 31, 2015. This decrease was the net result of cash used in investing activities of $53.4 million (primarily from net purchases of available for sale securities and the increase in net loans originated), partially offset by cash provided by financing activities of $32.4 million (primarily from net increases in deposits and other borrowings, partially offset by purchases of treasury stock and common stock dividends paid), and by cash provided by operating activities of $10.9 million.

CAPITAL REQUIREMENTS

Basel III – United States banking regulators are members of the Basel Committee on Banking Supervision. This committee issues accords, which include capital guidelines for use by regulators in individual countries, generally referred to as Basel I (1988), Basel II (2004), and Basel III (2011). U.S. banking agencies published the final proposed rules to implement Basel III in the United States (the “Basel III Capital Rules”), which were effective for us January 1, 2015 (subject to a phase-in period for certain provisions). The Basel III Capital Rules introduce a comprehensive new regulatory framework for U.S. banking organizations, which is consistent with international standards. The implementation of Basel III is intended to help ensure that banks of all sizes maintain strong capital positions to keep them viable during times of financial stress and severe economic downturns.

The Basel III Capital Rules, among other things, introduce a new capital measure called “Common Equity Tier 1” (“CET1”), specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expand the scope of the deductions/adjustments as compared to existing regulations.

Under the Basel III Capital Rules, the initial minimum capital ratios that became effective on January 1, 2015 are as follows:

4.5% CET1 to risk weighted assets

6.0% Tier 1 capital to risk weighted assets

8.0% Total capital to risk weighted assets

4.0% Tier 1 capital to average quarterly assets

When fully phased in on January 1, 2019, the Basel III Capital Rules will require us to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a “capital conservation buffer” equal to 2.5% of total risk-weighted assets (the “Capital Buffer”), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the Capital Buffer, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the Capital Buffer and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average quarterly assets. The Capital Buffer will be tested on a quarterly basis. Our ability to pay dividends, discretionary bonuses, or repurchase stock will be restricted unless we maintain the Capital Buffer. As of June 30, 2016, we are well-capitalized even if we apply the capital buffer on a fully phased-in basis.

The Basel III Capital Rules also prescribe a standardized approach for risk weightings that expand the risk-weighting categories from the four Basel I-derived categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and resulting in higher risk weights for a variety of asset categories. Specific changes to the rules impacting our determination of risk-weighted assets include, a 150% risk weight instead of a 100% risk weight for certain high volatility commercial real estate acquisition, development and construction loans, and a 150% risk weight to exposures that are 90 days past due.

Banks with under $250 billion in assets are given a one-time, opt-out election under the Basel III Capital Rules to filter from regulatory capital certain accumulated other comprehensive income (“AOCI”) components. Without this election, a bank must reflect unrealized gains and losses on “available for sale” securities in regulatory capital. This AOCI opt-out election must be made on a bank’s first regulatory report filed after January 1, 2015.

In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in regulatory capital. Accordingly, amounts reported as accumulated other comprehensive income/loss related to securities available for sale and effective cash flow hedges do not increase or reduce regulatory capital and are not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items.

Capital Ratios – Financial holding companies are required to maintain capital ratios set by the FRB in its Risk-Based Capital Guidelines. At June 30, 2016, we exceeded all applicable capital requirements, having a total risk-based capital ratio of 15.53%, a Tier I risk-based capital ratio of 14.28%, a Tier 1 leverage ratio of 13.18%, and a CET1 ratio of 12.22%. As of June 30, 2016, Bank SNB met the criteria for classification as “well-capitalized” institutions under the prompt corrective action rules of the Federal Deposit Insurance Act. Designation as a well-capitalized institution under these regulations does not constitute a recommendation or endorsement of Southwest or Bank SNB by bank regulators.

EFFECTS OF INFLATION

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

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The accounting and reporting policies followed by Southwest Bancorp, Inc. conform, in all material respects, to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the financial services industry. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the

amounts reported in the financial statements and accompanying notes. While we base our estimates on historical experience, current information, and other factors deemed to be relevant, actual results could differ from those estimates.

We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. Accounting policies related to the allowance for loan losses, the valuation of securities, income taxes, goodwill and other intangible assets are considered to be critical, as these policies involve considerable subjective judgment and estimation by management.

There have been no significant changes in our application of critical accounting policies since December 31, 2015.

* * * * * * *

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our income is largely dependent on our net interest income. We seek to maximize our 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.

We attempt to manage interest rate risk while enhancing net interest margin by adjusting our 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, we may increase our interest rate risk position in order to increase its net interest margin. We monitor interest rate risk and adjust the composition of our rate-sensitive assets and liabilities in order to limit our exposure to changes in interest rates on net interest income over time. Our asset/liability committee reviews our interest rate risk position and profitability and recommends adjustments. Our asset/liability committee also reviews the securities portfolio, formulates investment strategies, and oversees the timing and implementation of transactions. Notwithstanding our interest rate risk management activities, the actual magnitude, direction, and relationship of future interest rates are uncertain and can have adverse effects on net income and liquidity.

A principal objective of our asset/liability management effort is to balance the various factors that generate interest rate risk, thereby maintaining our interest rate sensitivity within acceptable risk levels. To measure our interest rate sensitivity position, we utilize 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”), although we may elect not to use particular scenarios that we determine 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

June 30, 2016	14.87%	9.15%	3.20%
December 31, 2015	15.27%	9.43%	3.41%

When compared to December 31, 2015, net interest income at risk declined in each of the three interest rate scenarios. The measured changes in net interest income for all scenarios are in compliance with the established policy limits.

The measures of equity value at risk indicate the ongoing economic value of equity considering the effects of interest rate changes on 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

June 30, 2016	9.44%	5.71%	1.41%
December 31, 2015	7.37%	4.35%	0.98%

As of June 30, 2016 the economic value of equity measure improved in each of the three rising interest rate scenarios when compared to the December 31, 2015 percentages. The measured changes in economic value of equity for all scenarios are in compliance with the established policy limits.

* * * * * * *

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by SEC rules, our management evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2016. Our Chief Executive Officer and Chief Financial Officer participated in the evaluation. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2016.

Changes in Internal Control over Financial Reporting

No changes occurred during the six months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1: Legal proceedings

Item 1A: Risk Factors

There were no material changes in risk factors during the first six months of 2016 from those disclosed in our Form 10-K for the year ended December 31, 2015.

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


	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
								863,515
April 1, 2016 to April 30, 2016		204,376	$	15.11		204,376		659,139
May 1, 2016 to May 31, 2016		189,977		15.75		189,977		1,390,162
June 1, 2016 to June 30, 2016		138,488		16.45		138,488		1,251,674
Total		532,841	$	15.68		532,841

Item 3: Defaults upon senior securities

None

Item 4: Mine Safety Disclosures

Not Applicable

Item 5: Other information

None

Item 6: Exhibits

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

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

Exhibit 101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTHWEST BANCORP, INC.

(Registrant)


By: /s/ Mark W. Funke		August 5, 2016
Mark W. Funke President and Chief Executive Officer (Principal Executive Officer)		Date

By: /s/ Joe T. Shockley, Jr.		August 5, 2016
Joe T. Shockley, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer)		Date

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