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UNITED STATES 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 Quarter Ended June 30, 2003

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

            SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-22007

Southwest Bancorporation of Texas, Inc.

(Exact Name of Registrant as Specified in its Charter)
     
Texas
(State or Other Jurisdiction of
Incorporation or Organization) 		  76-0519693
(I.R.S. Employer
Identification No.)

4400 Post Oak Parkway

Houston, Texas 77027
(Address of Principal Executive Offices, including zip code)

(713) 235-8800

(Registrant’s telephone number, including area code)

      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.

Yes þ  No o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)  Yes þ  No o

      There were 34,116,926 shares of the Registrant’s Common Stock outstanding as of the close of business on July 31, 2003.

 

SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

           
Page
PART I.  FINANCIAL INFORMATION
        
Item 1.  Financial Statements        
 
Report of Independent Accountants
    2  
 
Condensed Consolidated Balance Sheet as of June 30, 2003 and December 31, 2002 (unaudited)
    3  
 
Condensed Consolidated Statement of Income for the Three and Six Months Ended June 30, 2003 and 2002 (unaudited)
    4  
 
Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2003 (unaudited)
    5  
 
Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2003 and 2002 (unaudited)
    6  
 
Notes to Condensed Consolidated Financial Statements (unaudited)
    7  
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations     12  
Item 3.  Quantitative and Qualitative Disclosures about Market Risk     32  
Item 4.  Controls and Procedures     32  
PART II.  OTHER INFORMATION
        
Item 1.  Legal Proceedings     33  
Item 2.  Changes in Securities and Use of Proceeds     33  
Item 3.  Defaults upon Senior Securities     33  
Item 4.  Submission of Matters to a Vote of Security Holders     33  
Item 5.  Other Information     33  
Item 6.  Exhibits and Reports on Form 8-K     33  
Signatures
    35  

1

 

PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders

Southwest Bancorporation of Texas, Inc.:

      We have reviewed the accompanying condensed consolidated balance sheet of Southwest Bancorporation of Texas, Inc. and Subsidiaries (the “Company”) as of June 30, 2003, the related condensed consolidated statement of income for the three-month and six-month periods ended June 30, 2003 and 2002, the condensed consolidated statement of changes in shareholders’ equity for the six-month period ended June 30, 2003, and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2003 and 2002. These interim financial statements are the responsibility of the Company’s management.

      We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

      Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

      We previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, of changes in shareholders’ equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 28, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/     PricewaterhouseCoopers LLP

Houston, Texas

July 31, 2003

2

 

SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(unaudited)
                     
June 30, December 31,
2003 2002
(Dollars in thousands, except
per share amounts)
ASSETS
Cash and due from banks
  $ 270,711     $ 472,257  
Federal funds sold and other cash equivalents
    274,117       63,107  
     
     
 
   
Total cash and cash equivalents
    544,828       535,364  
Securities available for sale
    1,303,613       1,201,200  
Loans held for sale
    91,757       101,389  
Loans held for investment
    3,277,684       3,117,951  
Allowance for loan losses
    (38,723 )     (36,696 )
Premises and equipment, net
    97,402       92,227  
Accrued interest receivable
    19,131       20,160  
Other assets
    146,440       140,362  
     
     
 
   
Total assets
  $ 5,442,132     $ 5,171,957  
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
               
 
Demand — noninterest-bearing
  $ 1,343,749     $ 1,290,323  
 
Demand — interest-bearing
    31,479       36,222  
 
Money market accounts
    1,659,319       1,618,417  
 
Savings
    107,499       97,119  
 
Time, $100 and over
    662,329       518,108  
 
Other time
    335,078       351,860  
     
     
 
   
Total deposits
    4,139,453       3,912,049  
Securities sold under repurchase agreements
    235,557       275,443  
Other borrowings
    554,436       515,430  
Accrued interest payable
    1,322       1,654  
Other liabilities
    31,448       21,858  
     
     
 
   
Total liabilities
    4,962,216       4,726,434  
     
     
 
Commitments and contingencies
               
Shareholders’ equity:
               
 
Common stock — $1 par value, 150,000,000 shares authorized; 34,059,928 issued and 34,057,022 outstanding at June 30, 2003; 33,856,065 issued and outstanding at December 31, 2002
    34,060       33,856  
 
Additional paid-in capital
    90,704       87,651  
 
Retained earnings
    341,795       310,758  
 
Accumulated other comprehensive income
    13,360       13,258  
 
Treasury stock, at cost — 2,906 shares and 0 shares, respectively
    (3 )     —  
     
     
 
   
Total shareholders’ equity
    479,916       445,523  
     
     
 
   
Total liabilities and shareholders’ equity
  $ 5,442,132     $ 5,171,957  
     
     
 

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

 

SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(unaudited)
                                     
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
(Dollars in thousands, except per share amounts)
Interest income:
                               
 
Loans
  $ 46,988     $ 44,767     $ 92,143     $ 88,149  
 
Securities
    11,489       14,629       23,440       29,008  
 
Federal funds sold and other
    284       186       491       377  
     
     
     
     
 
   
Total interest income
    58,761       59,582       116,074       117,534  
     
     
     
     
 
Interest expense:
                               
 
Deposits
    9,535       12,174       19,641       24,867  
 
Borrowings
    2,050       2,503       4,176       5,300  
     
     
     
     
 
   
Total interest expense
    11,585       14,677       23,817       30,167  
     
     
     
     
 
   
Net interest income
    47,176       44,905       92,257       87,367  
Provision for loan losses
    3,000       3,250       6,000       5,750  
     
     
     
     
 
   
Net interest income after provision for loan losses
    44,176       41,655       86,257       81,617  
     
     
     
     
 
Noninterest income:
                               
 
Service charges on deposit accounts
    10,389       9,466       20,915       18,159  
 
Investment services
    2,430       2,395       4,725       4,812  
 
Other fee income
    2,886       3,089       5,624       5,969  
 
Other operating income
    2,113       1,716       4,671       3,342  
 
Gain on sale of loans, net
    1,146       1,008       2,246       1,586  
 
Gain on sale of securities, net
    1,115       1       1,150       2  
     
     
     
     
 
   
Total noninterest income
    20,079       17,675       39,331       33,870  
     
     
     
     
 
Noninterest expenses:
                               
 
Salaries and employee benefits
    24,076       21,487       47,902       42,460  
 
Occupancy expense
    6,885       5,631       13,384       11,116  
 
Professional expense
    2,147       2,238       4,214       4,056  
 
Other operating expenses
    8,055       7,871       15,174       15,794  
 
Minority interest
    —       24       —       49  
     
     
     
     
 
   
Total noninterest expenses
    41,163       37,251       80,674       73,475  
     
     
     
     
 
   
Income before income taxes
    23,092       22,079       44,914       42,012  
Provision for income taxes
    7,129       6,897       13,877       13,285  
     
     
     
     
 
   
Net income
  $ 15,963     $ 15,182     $ 31,037     $ 28,727  
     
     
     
     
 
Earnings per common share:
                               
   
Basic
  $ 0.47     $ 0.46     $ 0.92     $ 0.87  
     
     
     
     
 
   
Diluted
  $ 0.46     $ 0.44     $ 0.90     $ 0.84  
     
     
     
     
 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

 

SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)
                                                             
Accumulated
Common Stock Additional Other Total
Paid-in Retained Comprehensive Treasury Shareholders’
Shares Dollars Capital Earnings Income Stock Equity
BALANCE, DECEMBER 31, 2002
    33,856,065     $ 33,856     $ 87,651     $ 310,758     $ 13,258     $ —     $ 445,523  
 
Exercise of stock options
    150,363       150       2,460                               2,610  
 
Issuance of restricted common stock, net of shares forfeited into Treasury stock
    53,500       54       (51 )                     (3 )     —  
 
Deferred compensation amortization
                    644                               644  
 
Comprehensive income:
                                                       
   
Net income for the six months ended June 30, 2003
                            31,037                       31,037  
   
Net change in unrealized appreciation on securities available for sale, net of deferred taxes of $996
                                    1,846               1,846  
   
Reclassification adjustment for gains included in net income, net of deferred taxes of ($940)
                                    (1,744 )             (1,744 )
                                                     
 
   
Total comprehensive income
                                                    31,139  
     
     
     
     
     
     
     
 
BALANCE, JUNE 30, 2003
    34,059,928     $ 34,060     $ 90,704     $ 341,795     $ 13,360     ($ 3 )   $ 479,916  
     
     
     
     
     
     
     
 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

 

SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)
                       
Six Months
Ended June 30,
2003 2002
(Dollars in thousands)
Cash flows from operating activities:
               
 
Net income
  $ 31,037     $ 28,727  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
   
Provision for loan losses
    6,000       5,750  
   
Depreciation
    5,460       4,308  
   
Provision for mortgage servicing rights in excess of fair value
    234       —  
   
Realized gain on securities available for sale, net
    (1,150 )     (2 )
   
Amortization and accretion of securities’ premiums and discounts, net
    5,118       1,740  
   
Amortization of mortgage servicing rights
    2,594       1,671  
   
A