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Rick Green, President and Chief Executive Officer, stated, "Our strategicvision includes growth from existing and additional offices in Oklahoma and incarefully selected markets in Texas and other states with emphasis onhealthcare and health professionals, businesses and their managers and owners,commercial and commercial real estate borrowers, careful expansion of ourcommunity banking operations, and increases in stable funding sources atreasonable cost.
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"Our strategy produced significant loan growth in the first quarter. Ourportfolio loans grew $142.0 million, up 7%, from year-end 2007, led byincreases in healthcare and other commercial real estate lending in Oklahomaand Texas. A portion of the net growth was the result of a first quarterreduction in the customary levels of early payoffs of commercial real estateand commercial loans, which we believe reflected a decrease in competition forrefinancings from conduits and other non-depository lenders. We anticipateseeing movement toward more traditional unscheduled payoff levels, andcurrently expect somewhat slower net loan growth in the remainder of 2008.
"The positive earnings effect of our loan growth continued to be offset bythe significant margin squeeze that began last year. Quarterly net interestmargin of 3.45% was down 89 basis points from first quarter 2007. As aresult, net interest income declined $907,000, or 4%. We also increased ourprovision for loan losses by $375,000, or 20%, in the first quarter of 2008compared to the same quarter in 2007. Other significant factors in the firstquarter comparisons include the VISA USA public offering completed in thequarter, which added $1.8 million in income before taxes, a $1.1 millionincrease in salary and employee benefits expenses, and a $2.6 million decreasein general and administrative expenses, largely due to last year's ATM-relatedwrite-off.
"The validity of our strategic decision not to rely on any significantamounts of residential mortgages and not to make subprime loans was reinforcedby market events. Subprime lending has never been a part of our strategy andone to four family mortgages account for less than 5% of our portfolio."
Please see the following discussion and financial tables and thedisclosures under the heading "Forward-Looking Statements" on page 3.
Financial Overview
Condition. Total assets were $2.7 billion at March 31, 2008, an increaseof 4% from $2.6 billion at December 31, 2007. At March 31, 2008 total loanswere $2.4 billion, versus $2.2 billion at December 31, 2007. Non-performingassets to total assets were 1.21% at March 31, 2008 compared to 1.43% atMarch 31, 2007 and 1.26% at December 31, 2007. Of total non-performing assets,38.8% are commercial real estate loans, 37.4% are commercial loans, 10.3% isother real estate owned, 8.4% are real estate construction loans, 4.9% areresidential real estate mortgages, and other consumer loans are less than 1%.The allowance for loan losses as a percentage of portfolio loans was 1.31% atMarch 31, 2008, versus 1.66% at March 31, 2007 and 1.38% at December 31, 2007.
Total deposits were $2.1 billion at March 31, 2008, up $36.3 million fromDecember 31, 2007. On March 31, 2008, Southwest exceeded all applicableregulatory capital requirements and each of its banking subsidiaries met thecriteria for regulatory classification as "well-capitalized." Designation as awell-capitalized institution under regulations does not constitute arecommendation or endorsement by Federal bank or
