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EX-31.2 - EX-31.2 - SOUTHWEST BANCORP INCoksb-20170331xex31_2.htm
EX-31.1 - EX-31.1 - SOUTHWEST BANCORP INCoksb-20170331xex31_1.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 March 31, 2017

 

OR 

 

[   ]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, “smaller reporting company, or an “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large Accelerated Filer [  ]   Accelerated Filer [ x ]   Non-Accelerated Filer [  ]   Smaller Reporting Company [  ]   Emerging Growth Company [  ]    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]    



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 May 5, 2017, the issuer has 18,687,109 shares of its Common Stock, par value $1.00, outstanding.





1

 


 

 

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

40



 

   ITEM 4. CONTROLS AND PROCEDURES

41



 

PART II. OTHER INFORMATION 

42



 

  ITEM 1. LEGAL PROCEEDINGS

42



 

  ITEM 1A. RISK FACTORS

42



 

  ITEM 6. EXHIBITS

42



 

SIGNATURES

43



 



2

 


 

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 our planned merger with Simmons First National Corporation;

·

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, 2016

 

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.   

 

3

 


 

 SOUTHWEST BANCORP, INC. 

Consolidated Statements of Financial Condition 





 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2017

 

2016

(Dollars in thousands)

(unaudited)

 

 

Assets:

 

 

 

 

 

Cash and due from banks

$

28,400 

 

$

36,831 

Interest-bearing deposits

 

36,702 

 

 

38,819 

Cash and cash equivalents

 

65,102 

 

 

75,650 

Securities held to maturity (fair values of $10,680 and $10,677, respectively)

 

10,413 

 

 

10,443 

Securities available for sale (amortized cost of $422,672 and $427,113, respectively)

 

422,640 

 

 

426,218 

Loans held for sale

 

4,980 

 

 

4,386 

Loans receivable

 

1,931,463 

 

 

1,872,746 

Less:  Allowance for loan losses

 

(27,543)

 

 

(27,546)

Net loans receivable

 

1,903,920 

 

 

1,845,200 

Accrued interest receivable

 

6,357 

 

 

6,194 

Non-hedge derivative asset

 

2,043 

 

 

1,235 

Premises and equipment, net

 

22,341 

 

 

22,808 

Other real estate

 

350 

 

 

350 

Goodwill

 

13,545 

 

 

13,545 

Other intangible assets, net

 

5,693 

 

 

5,790 

Bank owned life insurance

 

28,795 

 

 

28,575 

Other assets

 

36,415 

 

 

34,998 

Total assets

$

2,522,594 

 

$

2,475,392 



 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest-bearing demand

$

541,021 

 

$

551,709 

Interest-bearing demand

 

177,676 

 

 

152,656 

Money market accounts

 

591,368 

 

 

567,058 

Savings accounts

 

58,387 

 

 

56,410 

Time deposits of $100,000 or more

 

353,244 

 

 

360,307 

Other time deposits

 

255,569 

 

 

257,878 

Total deposits

 

1,977,265 

 

 

1,946,018 

Accrued interest payable

 

1,190 

 

 

1,132 

Non-hedge derivative liability

 

2,043 

 

 

1,235 

Other liabilities

 

10,144 

 

 

10,171 

Other borrowings

 

194,645 

 

 

183,814 

Subordinated debentures

 

46,393 

 

 

46,393 

Total liabilities

 

2,231,680 

 

 

2,188,763 

Shareholders' equity:

 

 

 

 

 

Common stock - $1 par value; 40,000,000 shares authorized;

 

 

 

 

 

21,260,934 and 21,230,714 shares issued, respectively

 

21,261 

 

 

21,231 

Additional paid in capital

 

123,417 

 

 

123,112 

Retained earnings

 

188,638 

 

 

184,840 

Accumulated other comprehensive loss

 

(302)

 

 

(907)

Treasury stock, at cost; 2,571,912 and 2,555,987 shares, respectively

 

(42,100)

 

 

(41,647)

Total shareholders' equity

 

290,914 

 

 

286,629 

Total liabilities & shareholders' equity

$

2,522,594 

 

$

2,475,392 



 

 

 

 

 

The accompanying notes are an integral part of these statements.

 

 

 

 

 













 

4

 


 

SOUTHWEST BANCORP, INC. 

Unaudited Consolidated Statements of Operations 





 

 

 

 

 

 



 

For the three months



 

ended March 31,

(Dollars in thousands, except earnings per share data)

 

2017

 

2016

Interest income:

 

 

 

 

 

 

Interest and fees on loans

 

$

20,944 

 

$

20,030 

Investment securities:

 

 

 

 

 

 

U.S. government and agency obligations

 

 

269 

 

 

296 

Mortgage-backed securities

 

 

1,123 

 

 

1,077 

State and political subdivisions

 

 

339 

 

 

348 

Other securities

 

 

321 

 

 

244 

Other interest-earning assets

 

 

75 

 

 

53 

Total interest income

 

 

23,071 

 

 

22,048 



 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

Interest-bearing demand

 

 

90 

 

 

62 

Money market accounts

 

 

472 

 

 

321 

Savings accounts

 

 

19 

 

 

19 

Time deposits of $100,000 or more

 

 

810 

 

 

367 

Other time deposits

 

 

449 

 

 

538 

Other borrowings

 

 

478 

 

 

309 

Subordinated debentures

 

 

590 

 

 

592 

Total interest expense

 

 

2,908 

 

 

2,208 



 

 

 

 

 

 

Net interest income

 

 

20,163 

 

 

19,840 



 

 

 

 

 

 

Provision for loan losses

 

 

1,776 

 

 

4,375 

Net interest income after provision for loan losses

 

 

18,387 

 

 

15,465 



 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

Service charges and fees

 

 

2,681 

 

 

2,549 

Gain on sales of  mortgage loans, net

 

 

552 

 

 

401 

Gain on sales/calls of investment securities, net

 

 

451 

 

 

126 

Other noninterest income

 

 

1,196 

 

 

339 

Total noninterest income

 

 

4,880 

 

 

3,415 



 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

 

9,900 

 

 

9,342 

Occupancy

 

 

2,373 

 

 

2,671 

Data processing

 

 

409 

 

 

470 

FDIC and other insurance

 

 

273 

 

 

368 

Other real estate, net

 

 

 

 

13 

Provision (credit) for unfunded loan commitments

 

 

(388)

 

 

215 

General and administrative

 

 

2,733 

 

 

2,917 

Total noninterest expense

 

 

15,303 

 

 

15,996 

Income before taxes

 

 

7,964 

 

 

2,884 

Taxes on income

 

 

2,685 

 

 

1,015 

Net income

 

$

5,279 

 

$

1,869 



 

 

 

 

 

 

Basic earnings per common share

 

$

0.28 

 

$

0.10 

Diluted earnings per common share

 

 

0.28 

 

 

0.10 

Common dividends declared per share

 

 

0.08 

 

 

0.08 



 

 

 

 

 

 

The accompanying notes are an integral part of these statements.

 

 

 

 

 





5

 


 

SOUTHWEST BANCORP, INC.

Unaudited Consolidated Statements of Comprehensive Income 

 





 

 

 

 

 



 

 

 

 

 



For the three months



ended March 31,

(Dollars in thousands)

2017

 

2016



 

 

 

 

 

Net income

$

5,279 

 

$

1,869 



 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

Unrealized holding gain on available for sale securities

 

863 

 

 

3,111 

Reclassification adjustment for net gains arising during the period

 

 -

 

 

(126)

Change in fair value of derivative used for cash flow hedge

 

157 

 

 

116 

Other comprehensive income, before tax

 

1,020 

 

 

3,101 

Tax expense related to items of other comprehensive

 

 

 

 

 

income

 

(415)

 

 

(1,265)

Other comprehensive income, net of tax

 

605 

 

 

1,836 

Comprehensive income

$

5,884 

 

$

3,705 



 

 

 

 

 

The accompanying notes are an integral part of these statements.

 

 

 

 

 

















 

6

 


 

SOUTHWEST BANCORP, INC. 

Unaudited Consolidated Statements of Cash Flows 







 

 

 

 

 



 

 

 

 

 



For the three months



ended March 31,

(Dollars in thousands)

2017

 

2016

Operating activities:

 

 

 

 

 

Net income

$

5,279 

 

$

1,869 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 



 

 

 

 

 

Provision for loan losses

 

1,776 

 

 

4,375 

Deferred tax expense

 

745 

 

 

 -

Asset depreciation

 

610 

 

 

718 

Securities premium amortization, net of discount accretion

 

881 

 

 

706 

Amortization of intangibles

 

229 

 

 

630 

Restricted stock amortization expense

 

200 

 

 

201 

Net gain on sales/calls of investment securities

 

(451)

 

 

(126)

Net gain on sales of mortgage loans

 

(552)

 

 

(401)

Net (gain) loss on sales of premises/equipment

 

 

 

(2)

Proceeds from sales of held for sale loans

 

25,581 

 

 

23,165 

Held for sale loans originated for resale

 

(25,866)

 

 

(17,109)

Net changes in assets and liabilities:

 

 

 

 

 

Accrued interest receivable

 

(163)

 

 

(71)

Bank owned life insurance

 

(220)

 

 

(229)

Other assets

 

(1,151)

 

 

(3,801)

Accrued interest payable

 

58 

 

 

27 

Other liabilities

 

1,319 

 

 

1,290 

Net cash provided by operating activities

 

8,278 

 

 

11,242 

Investing activities:

 

 

 

 

 

Proceeds from sales of available for sale securities

 

 -

 

 

22,804 

Proceeds from principal repayments, calls, and maturities:

 

 

 

 

 

   Available for sale securities

 

20,219 

 

 

13,925 

Purchases of available for sale securities

 

(16,629)

 

 

(45,226)

Net purchases of FHLB stock

 

(2,115)

 

 

(559)

Loans originated, net of principal repayments

 

(60,642)

 

 

(11,208)

Purchases of premises and equipment

 

(146)

 

 

(453)

Proceeds from sales of premises and equipment

 

 -

 

 

23 

Net cash used in investing activities

 

(59,313)

 

 

(20,694)

Financing activities:

 

 

 

 

 

Net increase in deposits

 

31,247 

 

 

11,143 

Net increase in other borrowings

 

10,831 

 

 

6,836 

Net proceeds from issuance of common stock

 

335 

 

 

191 

Purchases of treasury stock

 

(453)

 

 

(12,750)

Redemption of trust preferred securities

 

 -

 

 

(5,155)

Common stock dividends paid

 

(1,472)

 

 

(1,588)

Preferred stock dividends paid

 

(1)

 

 

(1)

Net cash provided by (used in) financing activities

 

40,487 

 

 

(1,324)

Net decrease in cash and cash equivalents

 

(10,548)

 

 

(10,776)

Cash and cash equivalents:

 

 

 

 

 

Beginning of period

 

75,650 

 

 

78,129 

End of period

$

65,102 

 

$

67,353 



 

 

 

 

 

The accompanying notes are an integral part of these statements.

 

 

 

 

 











7

 


 

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

 

Income Gain/(Loss)

 

 

Stock

 

Equity

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, $0.08 per share

 -

 

 

 -

 

 

 -

 

 

(1,582)

 

 

 -

 

 

 -

 

 

(1,582)

Net common stock issued under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

employee plans and related tax expense

87,006 

 

 

87 

 

 

104 

 

 

 -

 

 

 -

 

 

 -

 

 

191 

Other comprehensive income, net of tax

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,836 

 

 

 -

 

 

1,836 

Treasury shares purchased

(808,763)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(12,750)

 

 

(12,750)

Net income

 -

 

 

 -

 

 

 -

 

 

1,869 

 

 

 -

 

 

 -

 

 

1,869 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2016

19,285,045 

 

$

21,225 

 

$

122,070 

 

$

173,496 

 

$

546 

 

$

(31,676)

 

$

285,661 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

18,674,727 

 

$

21,231 

 

$

123,112 

 

$

184,840 

 

$

(907)

 

$

(41,647)

 

$

286,629 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred

 -

 

 

 -

 

 

 -

 

 

(1)

 

 

 -

 

 

 -

 

 

(1)

Common, $0.08 per share

 -

 

 

 -

 

 

 -

 

 

(1,480)

 

 

 -

 

 

 -

 

 

(1,480)

Net common stock issued under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

employee plans and related tax expense

30,220 

 

 

30 

 

 

305 

 

 

 -

 

 

 -

 

 

 -

 

 

335 

Other comprehensive income, net of tax

 -

 

 

 -

 

 

 -

 

 

 -

 

 

605 

 

 

 -

 

 

605 

Treasury shares purchased

(15,925)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(453)

 

 

(453)

Net income

 -

 

 

 -

 

 

 -

 

 

5,279 

 

 

 -

 

 

 -

 

 

5,279 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2017

18,689,022 

 

$

21,261 

 

$

123,417 

 

$

188,638 

 

$

(302)

 

$

(42,100)

 

$

290,914 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these statements.





8

 


 

SOUTHWEST BANCORP, INC. 

Notes to Unaudited Consolidated Financial Statements 



NOTE 1SIGNIFICANT 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 March 31, 2017, and the cash flows for the three months ended March 31, 2017, 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, 2016.  



The accompanying unaudited consolidated financial statements include the accounts of Southwest Bancorp, Inc. (“we”, “our”, “us”, “Southwest”), and our consolidated subsidiaries, including our banking subsidiary Bank SNB, an Oklahoma state banking corporation (“Bank SNB”), and its consolidated subsidiaries. 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 2INVESTMENT SECURITIES



A summary of the amortized cost and fair values of investment securities at March 31, 2017 and December 31, 2016 follows:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Amortized

 

Gross Unrealized

 

Fair

(Dollars in thousands)

Cost

 

Gains

 

Losses

 

Value

At March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political subdivisions

$

10,413 

 

$

269 

 

$

(2)

 

$

10,680 

Total

$

10,413 

 

$

269 

 

$

(2)

 

$

10,680 



 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

$

66,633 

 

$

256 

 

$

(190)

 

$

66,699 

Obligations of state and political subdivisions

 

45,952 

 

 

565 

 

 

(105)

 

 

46,412 

Residential mortgage-backed securities

 

281,179 

 

 

582 

 

 

(1,498)

 

 

280,263 

Asset-backed securities

 

8,890 

 

 

11 

 

 

(34)

 

 

8,867 

Corporate debt

 

20,018 

 

 

442 

 

 

(61)

 

 

20,399 

Total

$

422,672 

 

$

1,856 

 

$

(1,888)

 

$

422,640 



 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political subdivisions

$

10,443 

 

$

242 

 

$

(8)

 

$

10,677 

Total

$

10,443 

 

$

242 

 

$

(8)

 

$

10,677 



 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

$

69,691 

 

$

201 

 

$

(198)

 

$

69,694 

Obligations of state and political subdivisions

 

46,105 

 

 

461 

 

 

(191)

 

 

46,375 

Residential mortgage-backed securities

 

282,035 

 

 

573 

 

 

(1,966)

 

 

280,642 

Asset-backed securities

 

9,265 

 

 

 -

 

 

(88)

 

 

9,177 

Corporate debt

 

20,017 

 

 

385 

 

 

(72)

 

 

20,330 

Total

$

427,113 

 

$

1,620 

 

$

(2,515)

 

$

426,218 



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.

9

 


 



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 $16.6 million and $14.6 million at March 31, 2017 and December 31, 2016, 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 March 31, 2017 follows: 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Available for Sale

 

Held to Maturity



Amortized

 

Fair

 

Amortized

 

Fair

(Dollars in thousands)

Cost

 

Value

 

Cost

 

Value

One year or less

$

10,916 

 

$

10,941 

 

$

 -

 

$

 -

More than one year through five years

 

253,317 

 

 

253,341 

 

 

9,273 

 

 

9,530 

More than five years through ten years

 

104,901 

 

 

104,627 

 

 

1,140 

 

 

1,150 

More than ten years

 

53,538 

 

 

53,731 

 

 

 -

 

 

 -

Total

$

422,672 

 

$

422,640 

 

$

10,413 

 

$

10,680 



The foregoing analysis assumes that our residential mortgage-backed securities mature during the period in which they are estimated to be prepaid 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 months ended March 31, 2017 and March 31, 2016.  Proceeds from sales recognized during the three months ended March 31, 2017 resulted from the sale of a private equity investment carried at cost and recorded in other assets. Proceeds from sales during the three months ended March 31, 2016 resulted from a slight restructuring of our investment portfolio.







 

 

 

 

 



 

For the three months



 

ended March 31,

(Dollars in thousands)

 

2017

 

 

2016

Proceeds from sales

$

601 

 

$

22,804 

Gross realized gains

 

451 

 

 

172 

Gross realized losses

 

 -

 

 

(46)



10

 


 

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 March 31, 2017 and December 31, 2016. 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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political subdivisions

 

$

442 

 

$

(2)

 

$

 -

 

$

440 



 

$

442 

 

$

(2)

 

$

 -

 

$

440 



 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

14 

 

$

34,729 

 

$

(111)

 

$

(79)

 

$

34,539 

Obligations of state and political subdivisions

18 

 

 

9,739 

 

 

(57)

 

 

(48)

 

 

9,634 

Residential mortgage-backed securities

86 

 

 

200,195 

 

 

(1,183)

 

 

(315)

 

 

198,697 

Asset-backed securities

 

 

3,952 

 

 

 -

 

 

(34)

 

 

3,918 

Corporate debt

 

 

5,007 

 

 

 -

 

 

(61)

 

 

4,946 

Total

121 

 

$

253,622 

 

$

(1,351)

 

$

(537)

 

$

251,734 



 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political subdivisions

 

$

1,987 

 

$

(8)

 

$

 -

 

$

1,979 



 

$

1,987 

 

$

(8)

 

$

 -

 

$

1,979 



 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

13 

 

$

34,734 

 

$

(111)

 

$

(87)

 

$

34,536 

Obligations of state and political subdivisions

36 

 

 

18,283 

 

 

(145)

 

 

(46)

 

 

18,092 

Residential mortgage-backed securities

89 

 

 

225,986 

 

 

(1,618)

 

 

(348)

 

 

224,020 

Asset-backed securities

 

 

9,265 

 

 

 -

 

 

(88)

 

 

9,177 

Corporate debt

 

 

5,005 

 

 

 -

 

 

(72)

 

 

4,933 

Total

143 

 

$

293,273 

 

$

(1,874)

 

$

(641)

 

$

290,758 



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 amount by 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 March 31, 2017, 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 March 31, 2017, 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 $203.1 million and $199.0 million were pledged to meet such requirements at March 31, 2017 and December 31, 2016, respectively. Any amount over-pledged can be released at any time.





11

 


 

NOTE 3LOANS 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.  See Note 9:   Operating Segments” in the Notes to Unaudited Consolidated Financial Statements for more detail regarding loans by market. At March 31, 2017 and December 31, 2016, 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 March 31, 2017

 

At December 31, 2016

Real estate mortgage:

 

 

 

 

 

Commercial

$

925,458 

 

$

882,071 

One-to-four family residential

 

210,495 

 

 

199,123 

Real estate construction:

 

 

 

 

 

Commercial

 

193,937 

 

 

199,113 

One-to-four family residential

 

18,426 

 

 

20,946 

Commercial

 

570,001 

 

 

556,248 

Installment and consumer

 

18,126 

 

 

19,631 



 

1,936,443 

 

 

1,877,132 

Less: Allowance for loan losses

 

(27,543)

 

 

(27,546)

Total loans, net

 

1,908,900 

 

 

1,849,586 

Less: Loans held for sale (included above)

 

(4,980)

 

 

(4,386)

Net loans receivable

$

1,903,920 

 

$

1,845,200 



Concentrations of Credit.  At March 31, 2017, $625.9 million, or 32%, and  $431.6 million, or 22%, 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 SaleWe had loans held for sale of $5.0 million and $4.4 million at March 31, 2017 and December 31, 2016, 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 ServicingWe 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 $459.0 million and $460.6 million at March 31, 2017 and December 31, 2016, 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 “Bancshares Merger”). In connection with the Bancshares 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.



12

 


 

Changes in the carrying amounts and accretable yields for all ACS 310-30 loans that were acquired were as follows for the three months ended March 31, 2017 and March 31, 2016:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



For the three months ended March 31,



2017

 

 

2016



 

 

 

Carrying

 

 

 

 

Carrying



Accretable

 

amount

 

Accretable

 

amount

(Dollars in thousands)

Yield

 

of loans

 

Yield

 

of loans

Balance at beginning of period

$

630 

 

$

4,632 

 

$

807 

 

$

7,914 

Payments received

 

 -

 

 

(815)

 

 

 

 

 

(504)

Net charge-offs

 

 -

 

 

 -

 

 

 -

 

 

(122)

Accretion

 

(143)

 

 

 -

 

 

(65)

 

 

 -

Balance at end of period

$

487 

 

$

3,817 

 

$

742 

 

$

7,288 



Nonperforming / Past Due LoansWe 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 March 31, 2017

 

At December 31, 2016

Real estate mortgage:

 

 

 

 

 

Commercial

$

570 

 

$

6,471 

One-to-four family residential

 

2,730 

 

 

2,766 

Real estate construction:

 

 

 

 

 

Commercial

 

522 

 

 

522 

One-to-four family residential

 

448 

 

 

448 

Commercial

 

12,182 

 

 

5,949 

Other consumer

 

29 

 

 

111 

Total nonaccrual loans

$

16,481 

 

$

16,267 



During the first three months of 2017,  $0.1 million of interest income was received on nonaccruing loans. If interest on all nonaccrual loans had been accrued for the three months ended March 31, 2017, additional interest income of $0.2 million would have been recorded.



13

 


 

The following table shows an age analysis of past due loans at March 31, 2017 and December 31, 2016:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

$

1,616 

 

$

570 

 

$

2,186 

 

$

923,272 

 

$

925,458 

 

$

 -

One-to-four family residential

 

376 

 

 

2,838 

 

 

3,214 

 

 

207,281 

 

 

210,495 

 

 

108 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 -

 

 

522 

 

 

522 

 

 

193,415 

 

 

193,937 

 

 

 -

One-to-four family residential

 

 -

 

 

448 

 

 

448 

 

 

17,978 

 

 

18,426 

 

 

 -

Commercial

 

1,924 

 

 

12,183 

 

 

14,107 

 

 

555,894 

 

 

570,001 

 

 

Other

 

295 

 

 

30 

 

 

325 

 

 

17,801 

 

 

18,126 

 

 

Total

$

4,211 

 

$

16,591 

 

$

20,802 

 

$

1,915,641 

 

$

1,936,443 

 

$

110 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

$

24 

 

$

6,472 

 

$

6,496 

 

$

875,575 

 

$

882,071 

 

$

 -

One-to-four family residential

 

631 

 

 

2,903 

 

 

3,534 

 

 

195,589 

 

 

199,123 

 

 

138 

Real estate construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 -

 

 

522 

 

 

522 

 

 

198,591 

 

 

199,113 

 

 

 -

One-to-four family residential

 

 -

 

 

448 

 

 

448 

 

 

20,498 

 

 

20,946 

 

 

 -

Commercial

 

2,530 

 

 

6,142 

 

 

8,672 

 

 

547,576 

 

 

556,248 

 

 

193 

Other

 

359 

 

 

123 

 

 

482 

 

 

19,149 

 

 

19,631 

 

 

12 

Total

$

3,544 

 

$

16,610 

 

$

20,154 

 

$

1,856,978 

 

$

1,877,132 

 

$

343 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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. 

 

14

 


 

Impaired loans as of March 31, 2017 and December 31, 2016 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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

1,676 

 

$

3,212 

 

$

 -

 

$

 -

 

$

 -

One-to-four family residential

 

1,152 

 

 

1,434 

 

 

1,593 

 

 

1,617 

 

 

63 

Real estate construction

 

523 

 

 

654 

 

 

447 

 

 

517 

 

 

40 

Commercial

 

707 

 

 

2,571 

 

 

11,493 

 

 

14,023 

 

 

3,481 

Other

 

29 

 

 

34 

 

 

 -

 

 

 -

 

 

 -

Total

$

4,087 

 

$

7,905 

 

$

13,533 

 

$

16,157 

 

$

3,584 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

1,536 

 

$

3,057 

 

$

6,053 

 

$

6,529 

 

$

2,219 

One-to-four family residential

 

1,188 

 

 

1,535 

 

 

1,593 

 

 

1,698 

 

 

63 

Real estate construction

 

762 

 

 

926 

 

 

207 

 

 

245 

 

 

40 

Commercial

 

1,032 

 

 

2,861 

 

 

4,963 

 

 

7,480 

 

 

1,346 

Other

 

111 

 

 

115 

 

 

 -

 

 

 -

 

 

 -

Total

$

4,629 

 

$

8,494 

 

$

12,816 

 

$

15,952 

 

$

3,668 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



The average recorded investment of loans classified as impaired and the interest income recognized on those loans for the three months ended March 31, 2017 and March 31, 2016 are shown in the following table:  





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



As of and for the three months ended March 31,

 



2017

 

2016

 



Average

 

 

 

 

Average

 

 

 

 



Recorded

 

Interest

 

Recorded

 

Interest

 

(Dollars in thousands)

Investment

 

Income

 

Investment

 

Income

 

Commercial real estate

$

2,766 

 

$

33 

 

$

25,133 

 

$

252 

 

One-to-four family residential

 

3,245 

 

 

 

 

4,067 

 

 

 -

 

Real estate construction

 

1,044 

 

 

 -

 

 

1,539 

 

 

 -

 

Commercial

 

8,360 

 

 

91 

 

 

13,169 

 

 

 

Other

 

29 

 

 

 -

 

 

80 

 

 

 -

 

Total

$

15,444 

 

$

125 

 

$

43,988 

 

$

260 

 



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. 

 

15

 


 

Troubled debt restructured loans outstanding as of March 31, 2017 and December 31, 2016 were as follows: 

 





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



At March 31, 2017

 

At December 31, 2016

(Dollars in thousands)

Accruing

 

Nonaccrual

 

Accruing

 

Nonaccrual

Commercial real estate

$

1,106 

 

$

280 

 

$

1,118 

 

$

475 

One-to-four family residential

 

15 

 

 

45 

 

 

15 

 

 

46 

Commercial

 

18 

 

 

3,243 

 

 

45 

 

 

3,323 

Total

$

1,139 

 

$

3,568 

 

$

1,178 

 

$

3,844 



At March 31, 2017 and December 31, 2016,  we had no significant commitments to lend additional funds to debtors whose loan terms had been modified in a  troubled debt restructuring. 



Loans modified as troubled debt restructurings that occurred during the three months ended March 31, 2017 and March 31, 2016 are shown in the following table:     

 





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



For the three months ended March 31,



2017

 

2016



Number of

 

Recorded

 

Number of

 

Recorded

(Dollars in thousands)

Modifications

 

Investment

 

Modifications

 

Investment

Commercial

 

 -

 

 

 -

 

 

 

 

260 

Total

 

 -

 

$

 -

 

 

 

$

260 



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 months ended March 31, 2017 or March 31, 2016. 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. 



16

 


 

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 March 31, 2017 and December 31, 2016, 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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

894,735 

 

$

203,837 

 

$

201,854 

 

$

508,938 

 

$

18,097 

 

$

1,827,461 

Special Mention

 

17,986 

 

 

1,973 

 

 

8,951 

 

 

21,509 

 

 

 -

 

 

50,419 

Substandard

 

12,737 

 

 

4,685 

 

 

1,558 

 

 

39,257 

 

 

29 

 

 

58,266 

Doubtful

 

 -

 

 

 -

 

 

 -

 

 

297 

 

 

 -

 

 

297 

Total

$

925,458 

 

$

210,495 

 

$

212,363 

 

$

570,001 

 

$

18,126 

 

$

1,936,443 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

857,290 

 

$

192,395 

 

$

210,780 

 

$

498,039 

 

$

19,518 

 

$

1,778,022 

Special Mention

 

4,479 

 

 

1,983 

 

 

7,720 

 

 

24,639 

 

 

 -

 

 

38,821 

Substandard

 

20,302 

 

 

4,745 

 

 

1,559 

 

 

33,175 

 

 

113 

 

 

59,894 

Doubtful

 

 -

 

 

 -

 

 

 -

 

 

395 

 

 

 -

 

 

395 

Total

$

882,071 

 

$

199,123 

 

$

220,059 

 

$

556,248 

 

$

19,631 

 

$

1,877,132 



Allowance for Loan LossesThe 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.  Commercial real estate pools are further segmented by market type for non-owner occupied and owner occupied collateral. Our primary markets are Oklahoma, Texas, Kansas, and Colorado. 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

17

 


 

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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of fiscal year

$

12,507 

 

$

1,163 

 

$

3,502 

 

$

10,058 

 

$

316 

 

$

27,546 

Loans charged-off

 

(2,029)

 

 

 -

 

 

 -

 

 

(12)

 

 

(116)

 

 

(2,157)

Recoveries

 

182 

 

 

55 

 

 

 -

 

 

117 

 

 

24 

 

 

378 

Provision for loan losses

 

1,353 

 

 

 

 

(347)

 

 

676 

 

 

92 

 

 

1,776 

Balance at end of period

$

12,013 

 

$

1,220 

 

$

3,155 

 

$

10,839 

 

$

316 

 

$

27,543 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

 -

 

$

63 

 

$

 -

 

$

3,481 

 

$

 -

 

$

3,544 

Collectively evaluated for impairment

 

12,013 

 

 

1,157 

 

 

3,115 

 

 

7,358 

 

 

316 

 

 

23,959 

Acquired with deteriorated credit quality

 

 -

 

 

 -

 

 

40 

 

 

 -

 

 

 -

 

 

40 

Total ending allowance balance

$

12,013 

 

$

1,220 

 

$

3,155 

 

$

10,839 

 

$

316 

 

$

27,543 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

712 

 

$

1,762 

 

$

390 

 

$

11,789 

 

$

 -

 

$

14,653 

Collectively evaluated for impairment

 

922,999 

 

 

207,541 

 

 

211,318 

 

 

557,989 

 

 

18,126 

 

 

1,917,973 

Acquired with deteriorated credit quality

 

1,747 

 

 

1,192 

 

 

655 

 

 

223 

 

 

 -

 

 

3,817 

Total ending loans balance

$

925,458 

 

$

210,495 

 

$

212,363 

 

$

570,001 

 

$

18,126 

 

$

1,936,443 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Commercial

 

1-4 Family

 

Real Estate

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real Estate

 

Residential

 

Construction

 

Commercial

 

Other

 

Total

At March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of fiscal year

$

12,716 

 

$

700 

 

$

2,533 

 

$

9,965 

 

$

192 

 

$

26,106 

Loans charged-off

 

(14)

 

 

(84)

 

 

 -

 

 

(3,553)

 

 

(74)

 

 

(3,725)

Recoveries

 

201 

 

 

43 

 

 

 -

 

 

145 

 

 

23 

 

 

412 

Provision for loan losses

 

(1,782)

 

 

216 

 

 

367 

 

 

5,517 

 

 

57 

 

 

4,375 

Balance at end of period

$

11,121 

 

$

875 

 

$

2,900 

 

$

12,074 

 

$

198 

 

$

27,168 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses ending balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

914 

 

$

135 

 

$

40 

 

$

3,038 

 

$

 -

 

$

4,127 

Collectively evaluated for impairment

 

10,207 

 

 

740 

 

 

2,860 

 

 

9,036 

 

 

198 

 

 

23,041 

Acquired with deteriorated credit quality

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Total ending allowance balance

$

11,121 

 

$

875 

 

$

2,900 

 

$

12,074 

 

$

198 

 

$

27,168 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

20,341 

 

$

560 

 

$

390 

 

$

13,153 

 

$

43 

 

$

34,487 

Collectively evaluated for impairment

 

854,097 

 

 

155,892 

 

 

179,489 

 

 

530,203 

 

 

20,428 

 

 

1,740,109 

Acquired with deteriorated credit quality

 

4,384 

 

 

1,626 

 

 

777 

 

 

466 

 

 

35 

 

 

7,288 

Total ending loans balance

$

878,822 

 

$

158,078 

 

$

180,656 

 

$

543,822 

 

$

20,506 

 

$

1,781,884 





18

 


 



NOTE 4FAIR 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 three months ended March 31, 2017. 

 

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 instrumentsWe 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.



19

 


 

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016: 





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

 

 

 

$

66,699 

 

$

 -

 

$

66,699 

 

$

 -

Obligations of state and political subdivisions

 

 

 

 

46,412 

 

 

 -

 

 

46,412 

 

 

 -

Residential mortgage-backed securities

 

 

 

 

280,263 

 

 

 -

 

 

280,263 

 

 

 -

Asset-backed securities

 

 

 

 

8,867 

 

 

 -

 

 

8,867 

 

 

 -

Corporate debt

 

 

 

 

20,399 

 

 

214 

 

 

20,185 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative asset

 

 

 

 

2,043 

 

 

 -

 

 

2,043 

 

 

 -

Derivative liability

 

 

 

 

(2,541)

 

 

 -

 

 

(2,541)

 

 

 -

Total

 

 

 

$

422,142 

 

$

214 

 

$

421,928 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal agency securities

 

 

 

$

69,694 

 

$

 -

 

$

69,694 

 

$

 -

Obligations of state and political subdivisions

 

 

 

 

46,375 

 

 

 -

 

 

46,375 

 

 

 -

Residential mortgage-backed securities

 

 

 

 

280,642 

 

 

 -

 

 

280,642 

 

 

 -

Asset-backed securities

 

 

 

 

9,177 

 

 

 -

 

 

9,177 

 

 

 -

Corporate debt

 

 

 

 

20,330 

 

 

213 

 

 

20,117 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative asset

 

 

 

 

1,235 

 

 

 -

 

 

1,235 

 

 

 -

Derivative liability

 

 

 

 

(1,890)

 

 

 -

 

 

(1,890)

 

 

 -

Total

 

 

 

$

425,563 

 

$

213 

 

$

425,350 

 

$

 -



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 premiumsThe fair value of core deposit premiums are based on third-party appraisals.

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.





20

 


 

Assets that were measured at fair value on a nonrecurring basis as of March 31, 2017 and December 31, 2016 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 March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Impaired loans at fair value :

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

$

1,593 

 

$

 -

 

$

 -

 

$

1,593 

Real estate construction

 

447 

 

 

 -

 

 

 -

 

 

447 

Commercial

 

11,492 

 

 

 -

 

 

 -

 

 

11,492 



 

 

 

 

 

 

 

 

 

 

 

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

 

4,980 

 

 

 -

 

 

4,980 

 

 

 -

Total

$

18,512 

 

$

 -

 

$

4,980 

 

$

13,532 



 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Impaired loans at fair value :

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

6,053 

 

$

 -

 

$

 -

 

$

6,053 

One-to-four family residential

 

1,593 

 

 

 -

 

 

 -

 

 

1,593 

Real estate construction

 

207 

 

 

 -

 

 

 -

 

 

207 

Commercial

 

5,357 

 

 

 -

 

 

 -

 

 

5,357 



 

 

 

 

 

 

 

 

 

 

 

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

 

4,386 

 

 

 -

 

 

4,386 

 

 

 -

Total

$

17,596 

 

$

 -

 

$

4,386 

 

$

13,210 

 

For the period ended March 31, 2017, impaired loans measured at fair value with a carrying amount of $17.1 million were written down to a fair value of $13.5 million, resulting in a life-to-date impairment of $3.6  million. For the year ended December 31, 2016, impaired loans measured at fair value with a carrying amount of $19.7 million were written down to a fair value of $13.2 million at December 31, 2016, resulting in a life-to-date impairment charge of $6.5 million. 

 

No impairment was recognized for other real estate during the periods ended March 31, 2017 or December 31, 2016.    



As of March 31, 2017,  mortgage servicing rights had a fair value of $4.5 million, which exceeded the book value of $3.5 million. Because the fair value exceeded the book value, there was no impairment charge at March 31, 2017. As of December 31, 2016, the mortgage servicing rights had a fair value of $4.2 million, which exceeded the book value of $3.5 million. Because the fair value exceeded the book value, there was no impairment charge at December 31, 2016.



No impairment of core deposit premiums or goodwill  was recognized during the periods ending March 31, 2017 or December 31, 2016.



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. 

21

 


 

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 March 31, 2017 

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 March 31, 2017

 

At December 31, 2016



Carrying

 

Fair

 

Carrying

 

Fair

(Dollars in thousands)

Values

 

Values

 

Values

 

Values

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

65,102 

 

$

65,102 

 

$

75,650 

 

$

75,650 

Securities held to maturity

 

10,413 

 

 

10,680 

 

 

10,443 

 

 

10,677 

Accrued interest receivable

 

6,357 

 

 

6,357 

 

 

6,194 

 

 

6,194 

Mortgage loan servicing rights

 

3,516 

 

 

4,490 

 

 

3,491 

 

 

4,159 

Bank-owned life insurance

 

28,795 

 

 

28,795 

 

 

28,575 

 

 

28,575 

Investments included in other assets

 

16,624 

 

 

16,624 

 

 

14,627 

 

 

14,627 

Level 3 inputs:

 

 

 

 

 

 

 

 

 

 

 

Total loans, net of allowance

 

1,908,900 

 

 

1,900,248 

 

 

1,849,586 

 

 

1,839,960 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,977,265 

 

 

1,929,085 

 

 

1,946,018 

 

 

1,897,927 

Accrued interest payable

 

1,190 

 

 

1,190 

 

 

1,132 

 

 

1,132 

Other liabilities

 

9,646 

 

 

9,646 

 

 

9,516 

 

 

9,516 

Other borrowings

 

194,645 

 

 

194,743 

 

 

183,814 

 

 

183,926 

Subordinated debentures

 

46,393 

 

 

46,393 

 

 

46,393 

 

 

46,393 



22

 


 

NOTE 5DERIVATIVE 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 differing 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 fifteen 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 March 31, 2017, these loans had an outstanding balance of  $160.1 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 March 31, 2017

At December 31, 2016

(Dollars in thousands)

Notional

 

Fair Value

Notional

 

Fair Value

Non-hedge derivative assets

$

160,125 

 

$

2,043 

$

123,953 

 

$

1,235 

Non-hedge derivative liabilities

 

160,125 

 

 

2,043 

 

123,953 

 

 

1,235 



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.  From time to time, it may be necessary to post collateral with our dealer counterparties to secure the market values of these contracts. As of March 31, 2017, there was no collateral requirement with any of our dealer counterparties given the market values of these contracts. 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 March 31, 2017 was 3.87%. 

 

The estimated fair value of the interest rate swap contract outstanding as of March 31, 2017 and December 31, 2016 resulted in a pre-tax loss of $0.5 million and $0.7 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 March 31, 2017 and December 31, 2016.   

 

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 for both the three months ended March 31, 2017 and March 31, 2016, 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.   

 

23

 


 

Net cash outflows as a result of the interest rate swap contract were $0.1 million for both the three months ended March 31, 2017 and March 31, 2016 and were included in interest expense on subordinated debentures.   

 

We posted cash collateral with our counterparty related to the interest rate swap contract in excess of the required $0.6 million and $0.7 million at March 31, 2017 and December 31, 2016, respectively.



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



NOTE 6TAXES ON INCOME 



Net deferred tax assets totaled $12.0 million at March 31, 2017 and $13.2 million at December 31, 2016. 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 2013.



NOTE 7SHAREHOLDERS’ EQUITY



Stock Repurchase Program



On May 25, 2016, the Board authorized our fourth stock repurchase program since August 2014. The program authorizes the repurchase of up to another 5.0%, or approximately 921,000 shares, of our outstanding common stock and became effective February 23, 2017, which was the original expiration date of the third program. During the first quarter of 2017, we have made no repurchases. During 2016, we repurchased 1,398,026 shares for a total of $22.1 million, and since August 2014, we have repurchased a total of 2,519,584 shares for a total of $40.8 million. Repurchases under the program are available at the discretion of management based upon market, business, legal, and other factors. Our ability to repurchase our common stock is limited during the time that our planned merger with Simmons First National Corporation is pending.



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



ended March 31,

(Dollars in thousands, except earnings per share data)

2017

 

2016

Numerator:

 

 

 

 

 

Net income

$

5,279 

 

$

1,869 

Earnings allocated to participating securities

 

(83)

 

 

(26)

Numerator for earnings per common share

$

5,196 

 

$

1,843 



 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per common share

 

18,363,405 

 

 

19,257,445 

Dilutive effect of stock compensation

 

169,094 

 

 

10,028 

Denominator for diluted earnings per common share

 

18,532,499 

 

 

19,267,473 

Earnings per common share:

 

 

 

 

 

Basic

$

0.28 

 

$

0.10 

Diluted

$

0.28 

 

$

0.10 



24

 


 

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, including residential mortgage lending services to customers. Due to its size and our 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 March 31, 2017



Oklahoma

 

Texas

 

Kansas

 

Other

 

Total

(Dollars in thousands)

Banking

 

Banking

 

Banking

 

Operations*

 

Company

Net interest income (loss)

$

12,794 

 

$

6,088 

 

$

1,558 

 

$

(277)

 

$

20,163 

Provision (credit) for loan losses

 

1,422 

 

 

491 

 

 

(134)

 

 

(3)

 

 

1,776 

Noninterest income

 

3,260 

 

 

456 

 

 

302 

 

 

862 

 

 

4,880 

Noninterest expenses

 

9,697 

 

 

3,197 

 

 

1,407 

 

 

1,002 

 

 

15,303 

Income (loss) before taxes

 

4,935 

 

 

2,856 

 

 

587 

 

 

(414)

 

 

7,964 

Taxes on income (loss)

 

1,663 

 

 

963 

 

 

198 

 

 

(139)

 

 

2,685 

Net income (loss)

$

3,272 

 

$

1,893 

 

$

389 

 

$

(275)

 

$

5,279 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Includes externally generated revenue of $1.3 million, primarily from investing services, and an internally generated loss of $0.7 million from the funds management unit.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans at period end

$

1,153,417 

 

$

639,945 

 

$

143,081 

 

$

 -

 

$

1,936,443 

Total assets at period end

 

1,189,746 

 

 

636,350 

 

 

141,939 

 

 

554,559 

 

 

2,522,594 

Total deposits at period end

 

1,358,251 

 

 

192,867 

 

 

159,828 

 

 

266,319 

 

 

1,977,265 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2016



Oklahoma

 

Texas

 

Kansas

 

Other

 

Total

(Dollars in thousands)

Banking

 

Banking

 

Banking

 

Operations*

 

Company

Net interest income (loss)

$

12,938 

 

$

5,566 

 

$

1,828 

 

$

(492)

 

$

19,840 

Provision for loan losses

 

260 

 

 

1,915 

 

 

2,199 

 

 

 

 

4,375 

Noninterest income

 

2,195 

 

 

302 

 

 

318 

 

 

600 

 

 

3,415 

Noninterest expenses

 

9,960 

 

 

3,731 

 

 

1,417 

 

 

888 

 

 

15,996 

Income (loss) before taxes

 

4,913 

 

 

222 

 

 

(1,470)

 

 

(781)

 

 

2,884 

Taxes on income (loss)

 

1,729 

 

 

78 

 

 

(517)

 

 

(275)

 

 

1,015 

Net income (loss)

$

3,184 

 

$

144 

 

$

(953)

 

$

(506)

 

$

1,869 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Includes externally generated revenue of $0.9 million, primarily from investing services, and an internally generated loss of $0.8 million from the funds management unit.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans at period end

$

1,060,483 

 

$

560,421 

 

$

160,980 

 

$

 -

 

$

1,781,884 

Total assets at period end

 

1,105,545 

 

 

556,405 

 

 

160,031 

 

 

538,838 

 

 

2,360,819 

Total deposits at period end

 

1,359,179 

 

 

195,593 

 

 

130,283 

 

 

210,193 

 

 

1,895,248 



25

 


 



NOTE 10COMMITMENTS AND CONTINGENCIES



Financial Instruments with Off-Balance-Sheet Risk



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



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



As of March 31, 2017 and December 31, 2016, our loan commitments were $421.9 million and $429.4 million, respectively. As of March 31, 2017 and December 31, 2016, our standby letters of credit obligations were $6.2 million and $7.2 million, respectively.



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 borrower’s loan interest rate from  a floating rate based on LIBOR to a fixed rate. As of March 31, 2017, the floating rate loan had an outstanding balance of $14.5 million.  The option to execute the swap is conditioned 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 payment 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. 



As of March 31, 2017 and December 31, 2016, we had eight risk participation agreements and seven risk participation agreements, respectively, with financial institution counterparties for interest rate swaps related to loans in which we are a participant.  The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. As of March 31, 2017 and December 31, 2016, the current notional amount for these transactions were $51.1 million and $34.7 million, respectively.



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,

26

 


 

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.



Simmons First National Corporation (Pending Merger)



On December 14, 2016, we entered into a Merger Agreement with Simmons First National Corporation (“Simmons”), an Arkansas corporation, pursuant to which, and subject to its terms and conditions, Simmons will acquire all of our outstanding capital stock for $95.0 million in cash and 7,250,000 shares of Simmons’s common stock, subject to potential adjustments. The completion of the Merger is subject to, among other things, regulatory and shareholder approval and other customary closing conditions.





NOTE 11:  NEW AUTHORITATIVE ACCOUNTING GUIDANCE



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 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.



In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance specifically addresses eight classification issues:  debt prepayment or debt extinguishment costs; settlement of zero-coupon bonds; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance (COLI) policies, including bank-owned life insurance (BOLI) policies; distributions received from equity method investments; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance becomes effective for us on January 1, 2018. We are evaluating the impact of the ASU on our financial statements and disclosures.



In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. The ASU requires companies to recognize the income tax consequences of an intercompany asset transfer when the transfer occurs. The amendments in this ASU do not change accounting for the pre-tax effects of intra-entity asset transfers under Topic 810, Consolidation, and do not apply to intra-entity inventory transfers. The economic consequences of intra-entity asset sales—other than inventory—will be recognized in the period in which the transaction occurs and no longer deferred. A reporting entity’s effective tax rate likely will be affected due to the immediate recognition of the seller’s taxes and

27

 


 

buyer’s deferred taxes, particularly when the transaction has no effect on consolidated pre-tax income. This guidance becomes effective for us on January 1, 2018. We are evaluating the impact of this ASU on our financial statement disclosures.



In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805):  Clarifying the Definition of a Business.  The main objective of this new standard is to help financial statement preparers evaluate whether a set of transferred assets and activities (either acquired or disposed of) is a business. Accounting for a business combination differs significantly from that of an asset acquisition. Because the definition of a business affects acquisitions, disposals, goodwill, and consolidation, the revised definition of a business is generally expected to reduce the number of transactions that qualify as a business combination. This guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The set is not a business if this screen is met. If this screen is not met, however, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. This 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 January 2017, the FASB issued ASU 2017-04,  Intangibles—Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment.  The new guidance will simplify financial reporting because it eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill impairment. This ASU simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Entities will still perform their annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the fair value exceeds the carrying amount, no impairment should be recorded. If a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charged based on that difference. Impairment losses on goodwill cannot be reversed once recognized. This guidance becomes effective for us on January 1, 2020, and we are evaluating the impact of this ASU on our financial statements and disclosures. 



In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20):  Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.  This ASU primarily defines in-substance nonfinancial assets and provides guidance for partial sales of nonfinancial assets. It also eliminates rules specifically addressing sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. This guidance becomes effective for us on January 1, 2019, and we are evaluating the impact of this ASU on our financial statements and disclosures. 



In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20):  Premium Amortization on Purchased Callable Debt Securities, which is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities. This ASU amends the amortization period for certain callable debt securities held at a premium by more closely aligning the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities.  Previously, the premiums on callable debt securities generally were required to be amortized based on the maturity date.  Under this update, the premiums on certain callable debt securities held at a premium are to be amortized based on the earliest call date.  This update is effective for fiscal years beginning after December 15, 2018.  Early adoption is permitted.  The Company has elected to early adopt this update effective January 1, 2017, which did not have a material impact on our financial statements and disclosures.



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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 full-service banking offices located primarily along the heavily populated areas on the I-35 corridor through Texas, Oklahoma, Kansas, and in Colorado.  In addition, we have a fully dedicated loan production office in Denver, 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 March 31, 2017 we had total assets of $2.5 billion, deposits of $2.0 billion, and shareholders’ equity of $290.9 million.



On December 14, 2016, we entered into a Merger Agreement with Simmons, an Arkansas corporation, pursuant to which, and subject to its terms and conditions, Simmons will acquire all of our outstanding capital stock for $95.0 million in cash and 7,250,000 shares of Simmons’s common stock, subject to potential adjustments. The completion of the Merger is subject to, among other things, regulatory and shareholder approval and other customary closing conditions.



On May 25, 2016, the Board authorized our fourth stock repurchase program since August 2014. The program authorizes the repurchase of up to another 5.0%, or approximately 921,000 shares, of our outstanding common stock and became effective February 23, 2017, which was the original expiration date of the third program. During the first quarter of 2017, we have made no repurchases. During 2016, we repurchased 1,398,026 shares for a total of $22.1 million, and since August 2014, we have repurchased a total of 2,519,584 shares for a total of $40.8 million. Repurchases under the program are available at the discretion of management based upon market, business, legal, and other factors. Our ability to repurchase our common stock is limited during the time that our planned merger with Simmons is pending. 



Our business operations are conducted through four operating segments that include Oklahoma Banking, Texas Banking, Kansas Banking, and Other Operations. Due to its size and our management structure, Colorado banking operations are included within our Oklahoma Banking segment. At March 31, 2017, the Oklahoma Banking segment accounted for $1.2 billion in loans, the Texas Banking segment accounted for $639.9 million in loans, and the Kansas Banking segment accounted for $143.1 million in loans. For additional information on the composition of our loans, see “Loans” in the “Financial Condition” section on page 30.  For additional information on our operating segments, 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; and (iv) 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 March 31, 2017,  $625.9 million, or 32%, 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 March 31, 2017, $431.6 million, or 22%, of our loans were to individuals and businesses in the healthcare industry.    



As of March 31, 2017, approximately 4% of our loan portfolio was concentrated in the oil and gas industry. Our exposure continues to be focused on production based companies and servicing companies, representing 83% and 17%, respectively, of

29

 


 

our energy portfolio. If oil prices return to lower 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 or stagnant oil prices could have a negative impact on the economies of energy-dominant states such as Oklahoma and Texas. As a result, low oil prices could have an adverse effect on our business, financial condition, and results of operation. We have the ability to adjust the borrowing base on outstanding commitments based on market price and condition.

 

FINANCIAL CONDITION 



Investment Securities 



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









 

 

 

 

 

 

 

 

 

 

 



March 31,

 

December 31,

 

 

 

 

 

 

(Dollars in thousands)

2017

 

2016

 

$ Change

 

% Change

Federal agency securities

$

66,699 

 

$

69,694 

 

$

(2,995)

 

(4.30)

%

Obligations of state and political subdivisions

 

56,825 

 

 

56,818 

 

 

 

0.01 

 

Residential mortgage-backed securities

 

280,263 

 

 

280,642 

 

 

(379)

 

(0.14)

 

Asset-backed securities

 

8,867 

 

 

9,177 

 

 

(310)

 

(3.38)

 

Corporate debt

 

20,399 

 

 

20,330 

 

 

69 

 

0.34 

 

Total

$

433,053 

 

$

436,661 

 

$

(3,608)

 

(0.83)

%



Loans 

 

Total loans, including loans held for sale, were $1.9 billion at March 31, 2017. The following table shows the composition of the loan portfolio at the dates indicated: 





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

(Dollars in thousands)

March 31, 2017

 

December 31, 2016

 

$ Change

 

% Change

Real estate mortgage

 

 

 

 

 

 

 

 

 

 

 

Commercial

$

925,458 

 

$

882,071 

 

$

43,387 

 

4.92 

%

One-to-four family residential

 

210,495 

 

 

199,123 

 

 

11,372 

 

5.71 

 

Real estate construction

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

193,937 

 

 

199,113 

 

 

(5,176)

 

(2.60)

 

One-to-four family residential

 

18,426 

 

 

20,946 

 

 

(2,520)

 

(12.03)

 

Commercial

 

570,001 

 

 

556,248 

 

 

13,753 

 

2.47 

 

Installment and consumer

 

 

 

 

 

 

 

 

 

 

 

Other

 

18,126 

 

 

19,631 

 

 

(1,505)

 

(7.67)

 

Total loans

$

1,936,443 

 

$

1,877,132 

 

$

59,311 

 

3.16 

%



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







 

 

 

 

 

 

 

 

 

 

 



March 31,

 

December 31,

 

 

 

 

 

 

(Dollars in thousands)

2017

 

2016

 

$ Change

 

% Change

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

$

4,980 

 

$

4,386 

 

$

594 

 

13.54 

%

Total loans held for sale

 

4,980 

 

 

4,386 

 

 

594 

 

13.54 

 

Portfolio loans

 

1,931,463 

 

 

1,872,746 

 

 

58,717 

 

3.14 

 

Total  loans

$

1,936,443 

 

$

1,877,132 

 

$

59,311 

 

3.16 

%



Allowance for Loan Losses 

 

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

 

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

30

 


 

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 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 loan losses, at the dates indicated, is shown in the following table







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of March 31, 2017

 

As of December 31, 2016

(Dollars in thousands)

Loan Balance

 

Allowance

 

Allowance
%

 

Loan Balance

 

Allowance

 

Allowance %

Nonaccrual

$

16,481 

 

$

3,584 

 

21.7 

%

 

$

16,267 

 

$

3,668 

 

22.5 

%

Performing TDR

 

1,139 

 

 

 -

 

0.0 

 

 

 

1,178 

 

 

 -

 

0.0 

 

All other excluding loans held for sale

 

1,913,843 

 

 

23,959 

 

1.3 

 

 

 

1,855,301 

 

 

23,878 

 

1.3 

 

Total

$

1,931,463 

 

$

27,543 

 

1.4 

%

 

$

1,872,746 

 

$

27,546 

 

1.5 

%



The decrease in the allowance for nonaccrual loans was primarily the result of a $2.0 million charge-off that had been previously reserved, plus principal reductions and improvements in impaired loans, which was reduced by needed reserves on a few additional impaired credits. 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 quarter of 2017 were $1.8 million, or 0.38% (annualized) of average portfolio loans, compared to net charge-offs of $3.3 million, or 0.75% (annualized) of average portfolio loans, for the first quarter of 2016. The provision for loan losses for the first quarter of 2017 was $1.8 million, representing a decrease of $2.6 million from the provision of $4.4 million recorded for the first quarter of 2016. The first quarter 2017 provision was driven by loan growth and an increase in reserves on a few classified loans. 



Nonperforming Loans / Nonperforming Assets 

 

At March 31, 2017, the allowance for loan losses was 166.01% of nonperforming loans, compared to 165.84% of nonperforming loans, at December 31, 2016. Nonaccrual loans, which comprise the majority of nonperforming loans, were $16.5 million as of March 31, 2017, an increase of $0.2 million, or 1%, from December 31, 2016. We have taken cumulative net charge-offs related to these nonaccrual loans of $3.0 million as of March 31, 2017. Nonaccrual loans at March 31, 2017 were comprised of 42 relationships and were primarily concentrated in commercial and industrial (73.92%) and residential real estate (16.56%). 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. 

31

 


 







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

(Dollars in thousands)

March 31, 2017

 

December 31, 2016

Nonaccrual loans:

 

 

 

 

 

 

 

Commercial real estate

$

570 

 

 

$

6,471 

 

One-to-four family residential

 

2,730 

 

 

 

2,766 

 

Real estate construction

 

970 

 

 

 

970 

 

Commercial

 

12,182 

 

 

 

5,949 

 

Other consumer

 

29 

 

 

 

111 

 

Total nonaccrual loans

 

16,481 

 

 

 

16,267 

 



 

 

 

 

 

 

 

Past due 90 days or more:

 

 

 

 

 

 

 

Commercial

 

 

 

 

193 

 

One-to-four family residential

 

108 

 

 

 

138 

 

Other consumer

 

 

 

 

12 

 

Total past due 90 days or more

 

110 

 

 

 

343 

 

Total nonperforming loans

 

16,591 

 

 

 

16,610 

 

Other real estate

 

350 

 

 

 

350 

 

Total nonperforming assets

$

16,941 

 

 

$

16,960 

 



 

 

 

 

 

 

 

Nonperforming assets to portfolio loans receivable and

 

 

 

 

 

 

 

other real estate

 

0.88 

%

 

 

0.91 

%

Nonperforming loans to portfolio loans receivable

 

0.86 

 

 

 

0.89 

 

Allowance for loan losses to nonperforming loans

 

166.01 

 

 

 

165.84 

 



At March 31, 2017, six credit relationships represented 76% of nonperforming loans and 75% of nonperforming assets. At December 31, 2016, six credit relationships represented 77% of nonperforming loans and 74% of nonperforming assets.

 

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 $42.1 million at March 31, 2017, compared to $44.0 million at December 31, 2016. Substantially all of these loans were performing in accordance with their present terms at March 31, 2017. 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 March 31, 2017, other real estate was $0.4 million, unchanged from December 31, 2016

 

At March 31, 2017, the reserve for unfunded loan commitments was $2.1 million, a $0.4 million, or 16%, decrease from the reserve amount at December 31, 2016.  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 a reduction in the outstanding unfunded loan commitments.



Deposits and Other Borrowings 

 

Our deposits were $2.0 billion at March 31, 2017 and December 31, 2016. The following table shows the composition of deposits at the dates indicated: 









 

 

 

 

 

 

 

 

 

 

 



March 31,

 

December 31,

 

 

 

 

 

 

(Dollars in thousands)

2017

 

2016

 

$ Change

 

% Change

Noninterest-bearing demand

$

541,021 

 

$

551,709 

 

$

(10,688)

 

(1.94)

%

Interest-bearing demand

 

177,676 

 

 

152,656 

 

 

25,020 

 

16.39 

 

Money market accounts

 

591,368 

 

 

567,058 

 

 

24,310 

 

4.29 

 

Savings accounts

 

58,387 

 

 

56,410 

 

 

1,977 

 

3.50 

 

Time deposits of $100,000 or more

 

353,244 

 

 

360,307 

 

 

(7,063)

 

(1.96)

 

Other time deposits

 

255,569 

 

 

257,878 

 

 

(2,309)

 

(0.90)

 

Total deposits

$

1,977,265 

 

$

1,946,018 

 

$

31,247 

 

1.61 

%



32

 


 

Some of our interest-bearing deposits were obtained through brokered transactions and we participate in the Certificate of Deposit Account Registry Service (“CDARS”). CDARS deposits totaled $24.9 million at March 31, 2017 and  $29.0 million at December 31, 2016.

 

Other borrowings, which includes short-term federal funds purchased, FHLB borrowings, and repurchase agreements, increased $10.8 million, or 6%, to $194.6 million during the first three months of 2017. The increase primarily reflects the change in short-term FHLB advances for the period.   

  

Wholesale funding, including FHLB borrowings, federal funds purchased, and brokered deposits, accounted for 21% and 19% of total funding at March 31, 2017 and December 31, 2016, respectively. See further discussion under the “Liquidity” section on page 37.



Shareholders’ Equity 

 

Shareholders’ equity increased  $4.3 million during the first quarter of 2017 primarily due to net income of $5.3 million and a decrease of $0.6 million in other comprehensive loss, offset in part by $0.4 million in Treasury stock repurchases and $1.5 million in common stock dividends declared.  At March 31, 2017, the accumulated other comprehensive loss on available for sale investment securities and derivative instruments (net of tax) was $0.3 million, an improvement from $0.9 million at December 31, 2016

 

At March 31, 2017, we and Bank SNB continued to exceed all applicable regulatory capital requirements. See “Capital Requirements” on page 38. 

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RESULTS OF OPERATIONS 

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2017 and 2016 

 

Net income of $5.3 million for the first quarter of 2017 represented an increase of $3.4 million from the $1.9 million net income recorded for the first quarter of 2016. Diluted earnings per share were $0.28 for the first quarter of 2017, compared to $0.10 for the first quarter of 2016. The increase in quarterly net income was primarily the result of a $0.3 million increase in net interest income, a $2.6 million decrease in the provision for loan losses, a $1.5 million increase in noninterest income, and a $0.7 million decrease in noninterest expense, offset in part by a $1.7 million increase in income taxes.

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. For additional information, see “Note 3:   Loans and Allowance for Loan Losses” in the Notes to Unaudited Consolidated Financial Statements and “Provision for Loan Losses” on page 37

Net Interest Income 





 

 

 

 

 

 

 

 

 

 

 



For the three months

 

 

 

 

 

 



ended March 31,

 

 

 

 

 

 

(Dollars in thousands)

2017

 

2016

 

$ Change

 

% Change

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Loans

$

20,944 

 

$

20,030 

 

$

914 

 

4.56 

%

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

269 

 

 

296 

 

 

(27)

 

(9.12)

 

Mortgage-backed securities

 

1,123 

 

 

1,077 

 

 

46 

 

4.27 

 

State and political subdivisions

 

339 

 

 

348 

 

 

(9)

 

(2.59)

 

Other securities

 

321 

 

 

244 

 

 

77 

 

31.56 

 

Other interest-earning assets

 

75 

 

 

53 

 

 

22 

 

41.51 

 

Total interest income

 

23,071 

 

 

22,048 

 

 

1,023 

 

4.64 

 



 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

90 

 

 

62 

 

 

28 

 

45.16 

 

Money market accounts

 

472 

 

 

321 

 

 

151 

 

47.04 

 

Savings accounts

 

19 

 

 

19 

 

 

 -

 

 -

 

Time deposits of $100,000 or more

 

810 

 

 

367 

 

 

443 

 

120.71 

 

Other time deposits

 

449 

 

 

538 

 

 

(89)

 

(16.54)

 

Other borrowings

 

478 

 

 

309 

 

 

169 

 

54.69 

 

Subordinated debentures

 

590 

 

 

592 

 

 

(2)

 

(0.34)

 

Total interest expense

 

2,908 

 

 

2,208 

 

 

700 

 

31.70 

 



 

 

 

 

 

 

 

 

 

 

 

Net interest income

$

20,163 

 

$

19,840 

 

$

323 

 

1.63 

%



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. 



34

 


 

 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 March 31,



2017

 

2016



Average

 

 

 

 

Average

 

Average

 

 

 

 

Average

(Dollars in thousands)

Balance

 

Interest

 

Yield/Rate

 

Balance

 

Interest

 

Yield/Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1) (2)

$

1,899,047 

 

$

20,944 

 

4.47 

%

 

$

1,788,992 

 

$

20,030 

 

4.50 

%

Investment securities (2)

 

431,542 

 

 

2,052 

 

1.93 

 

 

 

412,307 

 

 

1,965 

 

1.92 

 

Other interest-earning assets

 

56,089 

 

 

75 

 

0.54 

 

 

 

51,031 

 

 

53 

 

0.42 

 

Total interest-earning assets

 

2,386,678 

 

 

23,071 

 

3.92 

 

 

 

2,252,330 

 

 

22,048 

 

3.94 

 

Other assets

 

102,331 

 

 

 

 

 

 

 

 

107,874 

 

 

 

 

 

 

Total assets

$

2,489,009 

 

 

 

 

 

 

 

$

2,360,204 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

$

187,269 

 

$

90 

 

0.19 

%

 

$

160,638 

 

$

62 

 

0.16 

%

Money market accounts

 

573,364 

 

 

472 

 

0.33 

 

 

 

542,800 

 

 

321 

 

0.24 

 

Savings accounts

 

58,021 

 

 

19 

 

0.13 

 

 

 

55,834 

 

 

19 

 

0.14 

 

Time deposits

 

611,170 

 

 

1,259 

 

0.84 

 

 

 

564,213 

 

 

905 

 

0.65 

 

Total interest-bearing deposits

 

1,429,824 

 

 

1,840 

 

0.52 

 

 

 

1,323,485 

 

 

1,307 

 

0.40 

 

Other borrowings

 

174,362 

 

 

478 

 

1.11 

 

 

 

117,171 

 

 

309 

 

1.06 

 

Subordinated debentures

 

46,393 

 

 

590 

 

5.09 

 

 

 

48,546 

 

 

592 

 

4.88 

 

Total interest-bearing liabilities

 

1,650,579 

 

 

2,908 

 

0.71 

 

 

 

1,489,202 

 

 

2,208 

 

0.60 

 

Noninterest-bearing demand deposits

 

536,101 

 

 

 

 

 

 

 

 

563,022 

 

 

 

 

 

 

Other liabilities

 

13,070 

 

 

 

 

 

 

 

 

14,769 

 

 

 

 

 

 

Shareholders' equity

 

289,259 

 

 

 

 

 

 

 

 

293,211 

 

 

 

 

 

 

Total liabilities and shareholders' equity

$

2,489,009 

 

 

 

 

 

 

 

$

2,360,204 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income and interest rate spread

 

 

 

$

20,163 

 

3.21 

%

 

 

 

 

$

19,840 

 

3.34 

%

Net interest margin (3)

 

 

 

 

 

 

3.43 

%

 

 

 

 

 

 

 

3.54 

%

Ratio of average interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to average interest-bearing liabilities

 

144.60% 

 

 

 

 

 

 

 

 

151.24% 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 first quarter of 2016, the first quarter 2017 yields on our interest-earning assets decreased 2 basis points, while the rates paid on our interest-bearing liabilities increased 11 basis points, resulting in a decrease in the interest rate spread from 3.34% to 3.21%. During the quarterly periods ended March 31, 2017 and March 31, 2016, annualized net interest margin was 3.43% and 3.54%, respectively, and for the same periods, the ratio of average interest-earning assets to average interest-bearing liabilities was 144.60%  and 151.24%, respectively. 

35

 


 

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, driven by loan volume, offset in part by higher interest expense primarily on time deposits and other borrowings. 







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



For the three months ended March 31,



2017 vs. 2016



Increase

 

Due to Change



Or

 

In Average:

(Dollars in thousands)

(Decrease)

 

Volume

 

Rate

Interest earned on:

 

 

 

 

 

 

 

 

Loans receivable (1)

$

914 

 

$

1,217 

 

$

(303)

Investment securities (1)

 

87 

 

 

91 

 

 

(4)

Other interest-earning assets

 

22 

 

 

 

 

16 

Total interest income

 

1,023 

 

 

1,314 

 

 

(291)



 

 

 

 

 

 

 

 

Interest paid on:

 

 

 

 

 

 

 

 

Interest-bearing demand

 

28 

 

 

11 

 

 

17 

Money market accounts

 

151 

 

 

19 

 

 

132 

Savings accounts

 

 -

 

 

 

 

(1)

Time deposits

 

354 

 

 

78 

 

 

276 

Other borrowings

 

169 

 

 

156 

 

 

13 

Subordinated debentures

 

(2)

 

 

(27)

 

 

25 

Total interest expense

 

700 

 

 

238 

 

 

462 



 

 

 

 

 

 

 

 

Net interest income

$

323 

 

$

1,076 

 

$

(753)



 

 

 

 

 

 

 

 

(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 March 31,

 

 

 

 

 

 

(Dollars in thousands)

2017

 

2016

 

$ Change

 

% Change

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Other service charges and fees

$

2,681 

 

$

2,549 

 

$

132 

 

5.18 

%

Other noninterest income

 

1,196 

 

 

339 

 

 

857 

 

252.80 

 

Gain on sale/call of investment securities

 

451 

 

 

126 

 

 

325 

 

257.94 

 

Gain on sales of mortgage loans, net

 

552 

 

 

401 

 

 

151 

 

37.66 

 

Total noninterest income

$

4,880 

 

$

3,415 

 

$

1,465 

 

42.90 

%



Other service charges and fees for the three months ended March 31, 2017 increased $0.1 million compared to the three months ended March 31, 2016.



Other noninterest income for the three months ended March 31, 2017 increased $0.9 million compared to the three months ended March 31, 2016 primarily as a result of a $0.6 million increase in customer risk management interest rate swap income combined with a $0.3 million increase in other noninterest income.    



36

 


 

The gain on sale/call of investment securities for the three months ended March 31, 2017 increased $0.3 million compared to the three months ended March 31, 2016 due to the sale of a private equity investment.



Gain on sales of mortgage loans for the three months ended March 31, 2017 increased $0.2 million as compared to the three months ended March 31, 2016 and is primarily a reflection of increased activity in residential mortgage lending. 

 

Noninterest Expense 





 

 

 

 

 

 

 

 

 

 

 



For the three months

 

 

 

 

 

 



ended March 31,

 

 

 

 

 

 

(Dollars in thousands)

2017

 

2016

 

$ Change

 

% Change

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

$

9,900 

 

$

9,342 

 

$

558 

 

5.97 

%

Occupancy

 

2,373 

 

 

2,671 

 

 

(298)

 

(11.16)

 

Data processing

 

409 

 

 

470 

 

 

(61)

 

(12.98)

 

FDIC and other insurance

 

273 

 

 

368 

 

 

(95)

 

(25.82)

 

Other real estate (net)

 

 

 

13 

 

 

(10)

 

(76.92)

 

Provision (credit) for unfunded loan commitments

 

(388)

 

 

215 

 

 

(603)

 

(280.47)

 

Other general and administrative

 

$2,733 

 

 

$2,917 

 

 

(184)

 

(6.31)

 

Total noninterest expense

$

15,303 

 

$

15,996 

 

$

(693)

 

(4.33)

%



The number of full-time equivalent employees decreased from 411 as of March 31, 2016 to 380 as of March 31, 2017. The increase in personnel expense from the prior year is primarily due to increased incentives, severance costs, payroll taxes, and benefits.



The decreases in occupancy and data processing for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 is due primarily to decreased rental expense, depreciation expense, maintenance contract amortization expense, and data processing expense related to software expense.



The provision (credit) for unfunded loan commitments for the three months ended March 31, 2017 decreased compared to the three months ended March 31, 2016, primarily as a result of a decrease in the level of unfunded commitments related to loans outstanding at March 31, 2017.

 

The decrease in other general and administrative for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 is primarily the result of decreased business development expenses, decreased intangible amortization expense, decreased legal fees, and decreased administrative expenses (i.e. telephone, postage, supplies, etc.).



Provision for Loan Losses  

 

The provision for loan losses is the amount that is required to maintain the allowance for loan losses at an appropriate level based upon the inherent risks in the loan portfolio after the net effects of charge-offs and recoveries for the period. The provision for loan losses was $1.8 million for the first quarter of 2017, representing a decrease of $2.6 million from the provision of $4.4 million recorded for the first three months of 2016. The first quarter 2017 provision was driven by loan growth and an increase in reserves on a few classified loans. For additional information, see “Note 3:   Loans and Allowance for Loan Losses” in the Notes to Unaudited Consolidated Financial Statements



Taxes on Income 

 

Our income tax expense  was $2.7 million for the first three months of 2017 compared to $1.0 million for the first three months of 2016,  an increase of $1.7 million, or 165%. The increase in the income tax expense is the result of increased pretax income and fluctuations in permanent book/tax differences. The effective tax rate for the first three months of 2017 was 33.71%, compared to 35.19% as of March 31, 2016. The decline in the effective tax rate includes a $0.2 million tax benefit due to the adoption of an accounting principle related to the tax benefit on vested stock incentive awards that became effective January 1, 2017.   

 

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

37

 


 

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 $70.0 million with three financial entities. There was no outstanding balance on these lines at March 31, 2017. 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 $110.5 million. As of March 31, 2017, no borrowings were made through the BIC program. In addition, Bank SNB has available a $551.6 million line of credit from the FHLB.  Borrowings under the FHLB lines are secured by investment securities and loans. At March 31, 2017, Bank SNB’s FHLB line of credit had an outstanding balance of $185.0 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 $9.6 million and $45.8 million as of March 31, 2017 and December 31, 2016, respectively. 

 

At March 31, 2017, $203.1 million of the total carrying value of investment securities of $433.1 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 three months of 2017, cash and cash equivalents decreased by $10.5 million, or 14%, to $65.1 million compared to December 31, 2016. This decrease was the net result of cash used in investing activities of $59.3 million (primarily from the increase in net loans originated), offset in part by cash provided by financing activities of $40.5 million (primarily from net increases in deposits and other borrowings, offset in part by common stock dividends paid), and by cash provided by operating activities of $8.3 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

38

 


 

basis.  Our ability to pay dividends, discretionary bonuses, or repurchase stock will be restricted unless we maintain the Capital Buffer. As of March 31, 2017, 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 was required to 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 March 31, 2017, we exceeded all applicable capital requirements, having a total risk-based capital ratio of 15.44%, a Tier I risk-based capital ratio of 14.19%, a Tier 1 leverage ratio of 12.98%, and a CET1 ratio of 12.20%. As of March 31, 2017, 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, 2016.  



*   *   *   *   *   *   *

39

 


 

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 while maintaining adequate levels of liquidity and capital. 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.



The Asset/Liability Committee is responsible for managing interest rate risk in accordance with policy guidelines established by the Board of Directors. The Committee monitors projected variation in net interest income and economic value of equity due to specified changes in interest rates over time, local and national market conditions, and market interest rates. The committee also reviews the liquidity, capital, deposit mix, loan mix, and investment strategy. A principal objective of the asset and liability management effort is to balance the various factors that generate interest rate risk, thereby maintaining the interest rate sensitivity within acceptable risk levels. To measure interest rate sensitivity, we utilize a simulation model that facilitates the forecasting of net interest income under a variety of interest rate 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 project net income. Actual results will differ from simulated results due to timing, cash flows, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. 



To measure the level of interest rate risk, the balance sheet is modeled under alternative interest rate scenarios that include immediate rates shocks of +/- 100, 200, and 300 basis points (“bps”), although we may not use particular scenarios that are determined to be impractical in the current rate environment. It is management’s goal to structure the balance sheet so that forecasted net interest income and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.



Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. 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 bps

 

+200 bps

 

+100 bps

 

-100 bps



 

 

 

 

 

 

 

March 31, 2017

16.58%

 

10.28%

 

3.93%

 

-12.18%

December 31, 2016

17.41%

 

10.98%

 

4.32%

 

-11.66%



When compared to December 31, 2016, net interest income marginally declined in each of the four 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 bps

 

+200 bps

 

+100 bps

 

-100 bps



 

 

 

 

 

 

 

March 31, 2017

2.90%

 

2.10%

 

1.23%

 

-0.53%

December 31, 2016

4.07%

 

2.80%

 

1.43%

 

-0.31%



As of March 31, 2017, the economic value of equity measure decreased in each of the four interest rate scenarios when compared to December 31, 2016. The measured changes in economic value of equity for all scenarios are in compliance with the established policy limits.

 

 

*   *   *   *   *   *   *

 

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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 March 31, 2017.  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 March 31, 2017. 

 

Changes in Internal Control over Financial Reporting 



No changes occurred during the three months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II:  OTHER INFORMATION 

 

Item 1Legal Proceedings 



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.



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.



Item 1ARisk Factors 



There were no material changes in risk factors during the first three months of 2017 from those disclosed in our Form 10-K for the year ended December 31, 2016.

 

Item 2Unregistered Sales of Equity Securities and Use of Proceeds 

 



None



Item 3:  Defaults upon Senior Securities 

 

None 

 

Item 4:  Mine Safety Disclosures 



Not Applicable 



Item 5:  Other Information 



None  

 

Item 6Exhibits 

 

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 Unaudited Consolidated Statements of Operations, (iii) the Unaudited Consolidated Statements of Comprehensive Income, (iv) the Unaudited Consolidated Statements of Shareholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements  



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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  

May 5, 2017

Mark W. Funke

President and Chief Executive Officer 

(Principal Executive Officer)

 

Date



 

 

By:  /s/ Joe T. Shockley, Jr.

 

May 5, 2017

Joe T. Shockley, Jr.

Executive Vice President and Chief  

Financial Officer  

(Principal Financial Officer) 

 

Date







43