As filed with the Securities and Exchange Commission on August 14, 2001 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2001 Commission File No. 0-19341 BOK FINANCIAL CORPORATION Incorporated in the State of Oklahoma I.R.S. Employer Identification No. 73-1373454 Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Registrant's Telephone Number, Including Area Code (918) 588-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (NONE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK ($.00006 Par Value) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 50,964,349 shares of common stock ($.00006 par value) as of July 31, 2001. - --------------------------------------------------------------------------------
BOK Financial Corporation Form 10-Q Quarter Ended June 30, 2001 Index Part I. Financial Information Management's Discussion and Analysis 2 Report of Management on Consolidated Financial Statements 16 Consolidated Statements of Earnings 17 Consolidated Balance Sheets 19 Consolidated Statements of Changes in Shareholders' Equity 20 Consolidated Statements of Cash Flows 21 Notes to Consolidated Financial Statements 22 Financial Summaries - Unaudited 25 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 28 Signature 28 MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION ASSESSMENT OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial Corporation ("BOK Financial") recorded net income of $29.0 million or $0.50 per diluted common share for the second quarter of 2001 compared to $24.2 million or $0.42 per diluted common share for the second quarter of 2000. The returns on average assets and equity were 1.14% and 15.33%, respectively for the quarter ended June 30, 2001 compared to returns on average assets and equity of 1.13% and 16.64% for the same period of 2000. Prior year's earnings per share have been restated for a 3% dividend paid in shares of common stock in May 2001. Net interest revenue grew $11.7 million due primarily to a $1.5 billion increase in average earning assets. Fees and commissions increased $10.5 million. All major categories of fee income increased in the second quarter of 2001 when compared to the same quarter of 2000. Gains from the sale of securities totaled $1.7 million during the second quarter of 2001 compared to losses on the sale of securities of $682 thousand in the second quarter of 2000. Operating expenses increased $11.7 million to $86.6 million. Operating expenses included $4.5 million from Citizens National Bank of Texas, which was acquired in January, 2001. The provision for loan loss increased $5.0 million to $8.5 million. Net income for the first six months of 2001 totaled $56.4 million, an increase of 15% over the same period of 2000. Diluted earnings per share were $0.98 in 2001 compared to $0.85 in 2000. The returns on average assets and equity were 1.13% and 15.35%, respectively for the six months ended June 30, 2001 compared to returns on average assets and equity of 1.16% and 17.20% for the same period of 2000. The first half of 2000 included a $3.0 million reduction in income tax expense due to the favorable resolution of an Internal Revenue Service examination. Diluted earnings per share were $0.80, return on average equity was 16.14%, and return on average assets was 1.09% excluding the effect of this resolution.
NET INTEREST REVENUE Net interest revenue on a tax-equivalent basis was $81.9 million for the second quarter of 2001 compared to $69.9 million for the second quarter of 2000. The growth in net interest revenue was due primarily to a $1.5 billion increase in average earning assets. Additionally, the mix of earning assets improved in 2001. Average loans, which generally have higher yields than other types of earning assets, increased $1.1 billion and comprised 64% of average earning assets. Average loans were 62% of average earning assets for the second quarter of 2000. The growth in earning assets was funded by a $1.3 billion increase in average interest-bearing liabilities. Interest bearing liabilities comprised approximately 80% of all funding sources for both quarters. A $174 million increase in capital and a $130 million increase in demand deposits primarily funded the remaining growth in average earning assets. Table 1 shows how net interest revenue was affected by changes in average balances and interest rates for various types of earning assets and interest-bearing liabilities. Net interest margin, the ratio of net interest revenue to average earning assets, was 3.57% for the second quarters of 2001 compared to 3.66% for the second quarter of 2000 and 3.54% for the first quarter of 2001. This reflects the effect of changes in interest rates on BOK Financial's earning assets and interest bearing liabilities. BOK Financial's interest bearing liabilities react more quickly to changes in interest rates than its earning assets. This causes the net interest margin to increase during periods of declining interest rates. <TABLE> - ---------------------------------------------------------------------------------------------------------------------- TABLE 1 - VOLUME/RATE ANALYSIS (In thousands) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2001/2000 JUNE 30, 2001/2000 --------------------------------------------------------------------------- Change Due To (1) Change Due To (1) ------------------------ ------------------------ Yield Yield CHANGE Volume /Rate Change Volume /Rate --------------------------------------------------------------------------- Tax-equivalent interest revenue: <S> <C> <C> <C> <C> <C> <C> Securities $ 5,072 $ 7,054 $ (1,982) $ 12,363 $ 13,094 $ (731) Trading securities 17 91 (74) 57 178 (121) Loans 7,627 24,519 (16,892) 31,718 47,868 (16,150) Funds sold (489) (361) (128) (769) (676) (93) - ---------------------------------------------------------------------------------------------------------------------- Total 12,227 31,303 (19,076) 43,369 60,464 (17,095) - ---------------------------------------------------------------------------------------------------------------------- Interest expense: Interest bearing transaction deposits (67) 2,212 (2,279) 2,354 4,130 (1,776) Savings deposits (89) (7) (82) (113) (28) (85) Time deposits 6,910 8,283 (1,373) 19,368 16,786 2,582 Other borrowings (6,489) 4,643 (11,132) (2,271) 10,210 (12,481) Subordinated debenture (56) 591 (647) (129) 779 (908) - ---------------------------------------------------------------------------------------------------------------------- Total 209 15,722 (15,513) 19,209 31,877 (12,668) - ---------------------------------------------------------------------------------------------------------------------- Tax-equivalent net interest revenue 12,018 $ 15,581 $ (3,563) 24,160 $ 28,587 $ (4,427) Change in tax-equivalent adjustment 271 479 - ---------------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE $ 11,747 $ 23,681 - ---------------------------------------------------------------------------------------------------------------------- (1) Changes attributable to both volume and yield are allocated to both volume and yield/rate on an equal basis. </TABLE> Since inception, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth in order to fund increased investments in securities. Although this strategy frequently results in a net interest margin that falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. Management estimates that for the second quarter of 2001, this strategy resulted in a 39 basis point decrease in net interest margin. However, this strategy contributed $7.3 million to net interest revenue. Net interest margin, excluding this strategy was 3.95% for the second quarter of 2001. Management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy, the results of which are presented in the Market Risk section.
OTHER OPERATING REVENUE Other operating revenue increased $12.9 million compared to the same quarter of 2000. Total fees and commissions, which are included in other operating revenue, increased $10.5 million. Approximately $760 thousand of this increase was due to the CNBT acquisition, including $570 thousand of fees on deposit accounts. All major categories of fees and commissions increased over the same period of 2000. Most notably, mortgage banking revenue increased $2.5 million or 26% due to improved conditions for sales of loans into the secondary market. Transaction card revenue increased $2.1 million or 22% compared to the same quarter of last year due primarily to increases in both check card revenue and merchant discount fees. Brokerage and trading revenue increased 39% due primarily to improved performance of securities trading. Securities and derivatives gains totaled $1.7 million for the second quarter of 2001. This included gains of $3.9 million from the general securities portfolio, losses of $1.9 million on a securities portfolio that management has designated as an economic hedge against the risk of loss on mortgage servicing rights, and losses of $303 thousand from fair value adjustments of derivative instruments. Additional discussion about the mortgage servicing rights and related hedge portfolio and BOK Financial's use of derivative instruments is located in the Market Risk section of this report. <TABLE> - ------------------------------------------------------------------------------------------------------ TABLE 2 - OTHER OPERATING REVENUE (In thousands) THREE MONTHS ENDED --------------------------------------------------------------------- JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 --------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Brokerage and trading revenue $ 5,858 $ 5,100 $ 3,978 $ 3,451 $ 4,219 Transaction card revenue 11,411 9,902 10,063 10,739 9,331 Trust fees and commissions 10,679 9,937 9,978 10,072 9,743 Service charges and fees on deposit accounts 12,793 11,789 10,929 11,012 10,736 Mortgage banking revenue 11,900 10,833 10,144 9,774 9,427 Leasing revenue 901 1,119 1,377 931 1,192 Other revenue 4,947 5,221 5,277 4,371 3,344 - ------------------------------------------------------------------------------------------------------- Total fees and commissions 58,489 53,901 51,746 50,350 47,992 - ------------------------------------------------------------------------------------------------------- Gain on student loan sales 7 521 30 28 38 Gain on sale of other assets - - (148) - - Gain (loss) on securities 1,727 13,280 3,296 (538) (682) - ------------------------------------------------------------------------------------------------------- Total other operating revenue $ 60,223 $ 67,702 $ 54,924 $ 49,840 $ 47,348 - ------------------------------------------------------------------------------------------------------- </TABLE> Year-to-date other operating revenue increased $33.8 million to $127.9 million in 2001 compared to the same period of 2000. Fees and commissions increased $18.0 million. Mortgage banking revenue increased $5.5 million or 32% due to improved conditions for sales of loans into the secondary market. Transaction card revenue increased $3.4 million or 19% compared to last year due primarily to increases in both check card revenue and merchant discount fees. Brokerage and trading revenue increased 27% due primarily to improved performance of securities trading. Net securities gains increased $15.7 million due primarily to gains in the mortgage servicing hedge portfolio realized in the first quarter of 2001. Management expects continued growth in other operating revenue. However, increased competition, market saturation and the level of economic activity could affect the future rate of increase. Additionally, many of BOK Financial's fee generating activities are indirectly affected by changes in interest rates. Increases in interest rates may decrease the volume of trading activities and may lower the value of trust assets managed, which is the basis for certain fees, but would tend to decrease mortgage loan prepayments and increase the value of loan servicing rights. A corresponding decrease in economic activity would decrease transaction card revenue. Significant decreases in interest rates could have the opposite effect by increasing the fees earned on trading and brokerage activities and trust fees. However, decreasing interest rates could reduce revenue from mortgage loan servicing due to increased prepayment activity.
OTHER OPERATING EXPENSE Operating expenses for the second quarter of 2001 increased $11.7 million or 16% compared to the second quarter of 2000. However, the second quarter of 2001 included operating expenses of $4.5 million from CNBT (primarily personnel expense and amortization of intangible assets). Excluding the effect of CNBT, operating expenses increased $7.2 million or 10%. The following discussion of operating expenses excludes CNBT to improve comparability. <TABLE> - ---------------------------------------------------------------------------------------------------------------------- TABLE 3 - OTHER OPERATING EXPENSE (In thousands) THREE MONTHS ENDED --------------------------------------------------------------------- JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 --------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Personnel $ 40,833 $ 39,936 $ 37,200 $ 35,937 $ 35,789 Business promotion 2,428 2,872 1,971 1,941 2,148 Professional fees and services 3,162 3,057 2,994 2,145 2,161 Occupancy & equipment 10,767 10,343 9,568 9,061 8,318 Data processing & communications 9,981 9,373 8,753 8,601 9,087 FDIC and other insurance 443 443 399 403 387 Printing, postage and supplies 3,065 2,991 2,808 2,546 3,095 Net gains and operating expenses on repossessed assets (56) 29 (8) (574) (118) Amortization of intangible assets 5,057 5,027 3,444 3,940 4,016 Mortgage banking costs 7,140 6,418 5,697 5,600 5,540 Provision for impairment of mortgage servicing rights (535) 9,723 2,900 - - Other expense 4,299 3,574 3,592 4,364 4,494 - -------------------------------------------------------------------------------------------------------- Total $ 86,584 $ 93,786 $ 79,318 $ 73,964 $ 74,917 - -------------------------------------------------------------------------------------------------------- </TABLE> Personnel costs increased $3.3 million or 9%. Regular compensation (including overtime and temporary assistance) increased $1.4 million or 5% while benefit expense increased $149 thousand or 3%. Average staffing on a full time equivalent ("FTE") basis increased by 72 employees or 2% while average compensation expense per FTE increased 3%. Incentive compensation, which varies directly with the performance of the respective business unit over pre-determined targets, increased by $1.8 million to $5.9 million for the second quarter of 2001. Net occupancy and equipment expense increased $2.1 million or 25% due primarily to a $1.1 million increase in depreciation expense. This reflects additional investments in facilities and technology improvements over the past two years. Mortgage banking costs increased 29% or $1.6 million due primarily to amortization of mortgage servicing rights, which was caused by an increase in loan prepayments. <TABLE> - --------------------------------------------------------------------------------------------------- TABLE 4 - OTHER OPERATING EXPENSE, EXCLUDING SIGNIFICANT OR NONRECURRING ITEMS (In thousands) THREE MONTHS ENDED ------------------------------------------------------------- JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 ------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Total other operating expense $ 86,584 $ 93,786 $ 79,318 $ 73,964 $ 74,917 Net gains and operating costs from repossessed assets 56 (29) 8 574 118 Provision for impairment of mortgage servicing rights 535 (9,723) (2,900) - - - --------------------------------------------------------------------------------------------------- Total $ 87,175 $ 84,034 $ 76,426 $ 74,538 $ 75,035 - --------------------------------------------------------------------------------------------------- </TABLE> Year-to-date, other operating expenses increased 15% or $22.2 million, excluding $8.6 million of CNBT operating expenses. Operating expenses for the first half of 2001 included a provision for impairment of mortgage servicing rights of $9.2 million. Excluding this provision, operating expenses increased $13.0 million or 9% primarily due to increased personnel expenses, occupancy and equipment expenses, and mortgage-banking costs.
LINES OF BUSINESS BOK Financial operates four principal lines of business under its Bank of Oklahoma ("BOk") franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth line of business, regional banks, which includes all functions for Bank of Arkansas, N.A., Bank of Texas, N.A. (including CNBT), and Bank of Albuquerque, N.A. Other lines of business include the TransFund ATM system and BOSC, Inc., a securities broker-dealer. CORPORATE BANKING The Corporate Banking Division, which provides loan and lease financing and treasury and cash management services to businesses throughout Oklahoma and seven surrounding states, contributed $11.3 million or 39% to consolidated net income for the second quarter of 2001. This is compared to $10.6 million or 44% of consolidated net income for the first quarter of 2000. The increased amount of contribution from the Corporate Banking Division was due primarily to a 15% increase in average assets. The reduction in the percent of consolidated earnings contributed by the Corporate Banking Division reflects the growth in the Regional Banks Division, most notably Bank of Texas. Additionally, the Corporate Banking Division's contribution was reduced by net credit losses, which increased from $184 thousand in the second quarter of 2000 to $2.9 million in the second quarter of 2001. <TABLE> TABLE 5 CORPORATE BANKING (In thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2001 2000 2001 2000 ----------- -- ------------ ------------------ ----------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 58,045 $ 65,175 $ 123,616 $ 125,432 Revenue (expense) from internal sources (22,623) (34,167) (51,911) (64,456) Operating expense 14,043 13,492 28,394 26,367 Net income 11,298 10,591 22,336 20,909 Average assets $ 3,832,429 $ 3,318,864 $ 3,818,034 $ 3,286,728 Average equity 431,242 385,256 431,928 378,697 Return on assets 1.18% 1.28% 1.18% 1.28% Return on equity 10.51 11.06 10.43 11.10 Efficiency ratio 39.64 43.51 39.60 43.24 </TABLE> CONSUMER BANKING The Consumer Banking Division, which provides a full line of deposit, loan and fee-based services to customers throughout Oklahoma, contributed $5.0 million or 17% to consolidated net income for the second quarter of 2001. This is compared to $4.6 million or 19% of consolidated net income for the second quarter of 2000. Fee income in the second quarter of 2001 increased 16% to $7.4 million compared to the previous year. <TABLE> TABLE 6 CONSUMER BANKING (In thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2001 2000 2001 2000 ------------- -------------- ------------- ------------ <S> <C> <C> <C> <C> Revenue (expense) from external sources $ (1,856) $ (4,750) $ (6,702) $ (8,371) Revenue (expense) from internal sources 25,196 26,455 53,002 50,694 Operating expense 14,465 13,454 29,368 27,140 Net income 4,989 4,552 9,168 8,410 Average assets $2,182,712 $2,137,439 $2,179,714 $2,154,937 Average equity 70,041 58,584 67,251 60,948 Return on assets 0.92% 0.86% 0.85% 0.78% Return on equity 28.57 31.25 27.49 27.75 Efficiency ratio 61.98 61.99 63.43 64.13 </TABLE>
MORTGAGE BANKING The Mortgage Banking Division contributed $1.9 million or 7% to consolidated net income for the second quarter of 2001. This is compared to $681 thousand or 3% of consolidated net income for the second quarter of 2000. Loan servicing fees were $8.3 million, unchanged from the second quarter of 2000. Gains on loans sold were $3.6 million in 2001 compared to gains on loans sold of $1.1 million for the same period of 2000. Mortgage loans originated during the second quarter of 2001 totaled $293 million compared to $162 million for 2000 due to lower interest rates. Operating expenses increased $1.9 million or 20% due primarily to increased amortization of mortgage servicing rights. Capitalized mortgage servicing rights totaled $101.4 million at June 30, 2001 compared to $112.1 million at June 30, 2000 and $110.8 million at December 31, 2000. These amounts are net of a valuation allowance of $12.1 million at June 30, 2001 and $2.9 million at December 31, 2000. No valuation allowance was required at June 30, 2000. A valuation allowance is required when the fair value of the loan servicing rights is less than the carrying value for identified risk categories. This generally occurs when interest rate reductions increase the probability that loans will be refinanced or otherwise prepay. BOK Financial maintains a securities portfolio that serves as an economic hedge against this risk. The effect of net losses realized on sales of securities held in the hedge portfolio and reduction in the valuation allowance was $1.4 million for the second quarter of 2001. Additional discussion about the sensitivity of the mortgage loan servicing portfolio to changes in interest rates and the hedging strategy is the Market Risk section. <TABLE> TABLE 7 MORTGAGE BANKING (In thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2001 2000 2001 2000 -------------- -------------- -------------- ------------ <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 21,821 $ 13,707 $ 40,824 $ 24,668 Revenue (expense) from internal sources (6,064) (3,176) (12,594) (5,585) Operating expense 11,287 9,395 22,246 18,707 Provision for impairment of mortgage servicing rights (535) - 9,188 - Gains (losses) on sales of securities (1,922) - 9,387 - Net income 1,884 681 3,763 217 Average assets $ 687,089 $ 385,206 $ 638,590 $ 355,116 Average equity 44,340 31,237 41,369 29,323 Return on assets 1.10% 0.71% 1.19% 0.12% Return on equity 17.04 8.77 18.34 1.49 Efficiency ratio 81.58 89.21 78.80 98.03 </TABLE> TRUST SERVICES Trust Services, which includes institutional, investment and retirement products and services to affluent individuals, businesses, not-for-profit organizations, and governmental agencies, contributed $2.8 million or 10% of consolidated net income for the second quarter of 2001. This is compared to $2.5 million or 10% of consolidated net income for the same quarter of 2000. At June 30, 2001, trust assets with an aggregate market value of $17.6 billion were subject to various fiduciary arrangements. BOK Financial has sole or joint discretionary authority over $8.9 billion of trust assets.
<TABLE> TABLE 8 TRUST SERVICES (In thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2001 2000 2001 2000 --------------------------- ------------------------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 10,639 $ 10,894 $20,373 $ 21,894 Revenue (expense) from internal sources 3,466 2,244 7,104 3,767 Operating expense 9,597 8,895 19,358 18,088 Net income 2,755 2,476 4,961 4,509 Average assets $481,681 $356,683 $465,343 $ 332,787 Average equity 40,685 37,279 40,187 36,799 Return on assets 2.29% 2.78% 2.15% 2.72% Return on equity 27.16 26.71 24.89 24.64 Efficiency ratio 68.04 67.70 70.45 70.49 </TABLE> REGIONAL BANKS Regional banks provide a full range of corporate and consumer banking, trust services, treasury services and retail investments in their respective markets. Small businesses and middle-market corporations are the regional banks' primary customer focus. Regional banks contributed $7.9 million or 27% to consolidated net income for the second quarter of 2001. This is compared to $4.1 million or 17% of consolidated net income for the second quarter of 2000. BOK Financial's operations in Texas, New Mexico and Arkansas contributed $5.3 million, $2.0 million and $619 thousand, respectively, to consolidated net income in the second quarter of 2001. This is compared to net income of $2.8 million, $1.0 million and $309 thousand for the second quarter of 2000. Average equity assigned to regional banks included both an amount based on management's assessment of risk and an additional amount based on BOK Financial's investment in these entities. Management measures performance for regional banks based on tangible net income, return on assets and return on equity as reflected below: <TABLE> TABLE 9 REGIONAL BANKS (In thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2001 2000 2001 2000 -------------- ------------------------------- ------------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 39,506 $ 29,184 $ 76,115 $ 56,082 Revenue (expense) from internal sources (2,944) (3,967) (4,892) (7,045) Operating expense 22,627 17,871 43,833 34,515 Net income 7,874 4,135 15,712 8,491 Tangible net income 11,687 7,586 23,368 13,859 Average assets $3,287,849 $2,401,048 $3,221,471 $2,359,837 Average equity 408,579 275,110 392,654 264,264 Tangible return on assets 1.43% 1.27% 1.46% 1.18% Tangible return on equity 11.47 11.09 12.00 10.55 Efficiency ratio 61.89 70.87 61.54 70.39 </TABLE> INCOME TAXES Income tax expense totaled $15.8 million for the second quarter of 2001 or 35% of pre-tax income compared to $12.6 million or 34% of pre-tax income for the second quarter of 2000. Year-to-date, income tax expense was 35% and 30% of pre-tax income for 2001 and 2000, respectively. The Internal Revenue Service closed its examination of 1996 and management completed a review of the various tax issues during the first quarter of 2000. As a result of these events, BOK Financial reduced its tax reserve by $3.0 million. Income tax expense for the half of 2000 was $24.0 million or 34% of pre-tax book income excluding the reduction in this reserve.
ASSESSMENT OF FINANCIAL CONDITION The aggregate loan portfolio at June 30, 2001 totaled $6.1 billion, an increase of $181 million since March 31, 2001 and $1.1 billion since June 30, 2000. Commercial and industrial loans increased $152 million during the quarter. This increase was primarily in the services and wholesale/retail sectors of the loan portfolio. During this same period, total commercial real estate loans decreased $48 million, including a $37 million reduction in multifamily real estate loans. Loans to service industries totaled $1.1 billion or 17% of loan portfolio at June 30, 2001. The services industry included loans totaling $110 million to the healthcare industry, $145 million to nursing homes and $63 million to the hotel industry. Energy loans comprised 15% of total loans. The energy category included loans to oil and gas producers which totaled $640 million, loans to borrowers involved in the transportation and sale of oil and gas, and loans to borrowers that manufacture equipment and provide other services to the energy industry. Other notable loan concentrations by the primary industry of the borrowers are presented in Table 10. Agriculture includes $175 million of loans to the cattle industry. The major components of other commercial real estate loans were office buildings, $246 million and retail facilities, $228 million. At June 30, 2001, loans secured by 1 - 4 family residential properties included $125 million of adjustable rate mortgage loans and $288 million of home improvement and home equity loans. <TABLE> - ---------------------------------------------------------------------------------------------------------- TABLE 10 - LOANS (In thousands) JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 ----------------------------------------------------------------------- Commercial: <S> <C> <C> <C> <C> <C> Energy $ 885,546 $ 881,128 $ 837,223 $ 774,284 $ 665,550 Manufacturing 510,421 507,207 421,046 418,986 389,823 Wholesale/retail 580,421 544,097 499,017 450,337 450,681 Agricultural 202,041 203,345 185,407 159,099 185,473 Services 1,059,779 983,454 963,171 901,749 817,871 Other commercial and industrial 307,062 273,847 342,169 289,787 323,162 Commercial real estate: Construction and land development 313,453 321,578 311,700 303,965 291,871 Multifamily 257,489 294,548 271,459 268,595 258,658 Other real estate loans 712,043 714,640 687,335 676,176 635,089 Residential mortgage: Secured by 1-4 family residential properties 727,579 696,033 638,044 597,464 573,346 Residential mortgages held for 107,627 93,117 48,901 58,888 55,332 sale Consumer 394,583 364,288 312,390 299,199 294,466 - ----------------------------------------------------------------------------------------------------------- Total $ 6,058,044 $ 5,877,282 $5,517,862 $ 5,198,529 $ 4,941,322 - ----------------------------------------------------------------------------------------------------------- </TABLE>
While BOK Financial continues to increase geographic diversification through expansion into Texas and New Mexico, geographic concentration continues to subject the loan portfolio to the general economic conditions in Oklahoma. Table 11 reflects the distribution of the major categories of the loan portfolio among BOK Financial's principal market areas. <TABLE> - ------------------------------------------------------------------------------------------------------------- TABLE 11 - LOANS BY PRINCIPAL MARKET AREA (In thousands) JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 ------------------------------------------------------------------------------- Oklahoma: <S> <C> <C> <C> <C> <C> Commercial $ 2,571,565 $ 2,474,355 $ 2,480,825 $ 2,275,402 $ 2,246,304 Commercial real estate 710,098 754,709 768,232 763,498 728,317 Residential mortgage 596,651 541,755 458,395 431,377 402,852 Consumer 285,951 259,345 250,298 244,636 239,329 ------------------------------------------------------------------------------- Total Oklahoma $ 4,164,265 $ 4,030,164 $ 3,957,750 $ 3,714,913 $ 3,616,802 ------------------------------------------------------------------------------- Texas: Commercial $ 722,403 $ 684,648 $ 549,505 $ 556,921 $ 460,690 Commercial real estate 350,881 361,192 299,357 276,438 260,409 Residential mortgage 140,176 144,699 122,082 117,771 117,540 Consumer 98,341 95,502 53,397 46,238 44,899 ------------------------------------------------------------------------------- Total Texas $ 1,311,801 $ 1,286,041 $ 1,024,341 $ 997,368 $ 883,538 ------------------------------------------------------------------------------- Albuquerque: Commercial $ 201,713 $ 180,822 $ 167,023 $ 115,549 $ 85,060 Commercial real estate 133,159 133,383 118,492 126,260 112,303 Residential mortgage 93,608 97,800 101,920 102,757 103,881 Consumer 7,810 6,678 6,107 5,652 6,837 ------------------------------------------------------------------------------- Total Albuquerque $ 436,290 $ 418,683 $ 393,542 $ 350,218 $ 308,081 ------------------------------------------------------------------------------- Northwest Arkansas: Commercial $ 49,589 $ 53,253 $ 50,680 $ 46,370 $ 40,506 Commercial real estate 88,847 81,482 84,413 82,540 84,589 Residential mortgage 4,771 4,896 4,548 4,447 4,405 Consumer 2,481 2,763 2,588 2,673 3,401 ------------------------------------------------------------------------------- Total Northwest Arkansas $ 145,688 $ 142,394 $ 142,229 $ 136,030 $ 132,901 ------------------------------------------------------------------------------- </TABLE> SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $90 million at June 30, 2001, $83 million at December 31, 2000 and $79 million at June 30, 2000. This represented 1.51%, 1.51% and 1.63% of total loans, excluding loans held for sale, at June 30, 2001, December 31, 2000 and June 30, 2000, respectively. Losses on loans held for sale, principally mortgage loans accumulated for placement in securitized pools, are charged to earnings through adjustments in carrying value to the lower of cost or market value in accordance with accounting standards applicable to mortgage banking. Table 12 presents statistical information regarding the reserve for loan losses for the past five quarters. The adequacy of the reserve for loan losses is assessed by management based upon an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, including probable losses on both outstanding loans and unused financing commitments. A consistent methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based upon a statistical migration analysis for each category of loans, and unallocated reserves that are based upon an analysis of current economic conditions, loan concentrations, portfolio growth, and other relevant factors. An independent Credit Administration department is responsible for performing this evaluation for all of BOK Financial's subsidiaries to ensure that the methodology is applied consistently.
All significant criticized loans are reviewed quarterly. Written documentation of these reviews is maintained. Specific reserves for impairment are determined in accordance with generally accepted accounting principles and appropriate regulatory standards. At June 30, 2001 specific impairment reserves totaled $3.2 million on loans that totaled $15 million. <TABLE> - ------------------------------------------------------------------------------------------------------------------- TABLE 12 - SUMMARY OF LOAN LOSS EXPERIENCE (In thousands) THREE MONTHS ENDED -------------------------------------------------------------------------------- JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Beginning balance $ 86,535 $ 82,655 $ 81,445 $ 79,405 $ 77,828 Loans charged-off: Commercial 4,514 5,484 3,990 1,747 1,165 Commercial real estate - 9 - 615 311 Residential mortgage 68 101 139 63 62 Consumer 1,575 1,698 1,605 1,511 1,329 - ------------------------------------------------------------------------------------------------------------------- Total 6,157 7,292 5,734 3,936 2,867 - ------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Commercial 391 279 396 121 348 Commercial real estate 150 359 24 100 39 Residential mortgage 13 12 3 17 3 Consumer 607 649 521 707 520 - ------------------------------------------------------------------------------------------------------------------- Total 1,161 1,299 944 945 910 - ------------------------------------------------------------------------------------------------------------------- Net loans charged-off (recoveries) 4,996 5,993 4,790 2,991 1,957 Provision for loan losses 8,497 7,573 6,000 5,031 3,534 Additions due to acquisitions - 2,300 - - - - ------------------------------------------------------------------------------------------------------------------- Ending balance $ 90,036 $ 86,535 $ 82,655 $ 81,445 $ 79,405 - ------------------------------------------------------------------------------------------------------------------- Reserve to loans outstanding at period-end (1) 1.51% 1.50% 1.51% 1.58% 1.63% Net loan losses (annualized) to average loans (1) 0.34 0.42 0.22 0.24 0.16 - ------------------------------------------------------------------------------------------------------------------- <FN> (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. </FN> </TABLE> The adequacy of the general loan loss reserve is determined primarily through an internally developed migration analysis model. Management uses an eight-quarter aggregate accumulation of net loan losses as the basis for this model. Greater emphasis is placed on net losses in the more recent periods. This model is used to assign general loan loss reserves to commercial loans and capital leases, residential loans, and consumer loans. All loans, capital leases, and letters of credit are allocated a migration factor by this model. Management can override the general allocation only by utilizing a specific allocation based on a measure of impairment of the loan. A nonspecific reserve for loan losses is maintained for risks beyond those factors specified to a particular loan or those identified by the migration analysis. These factors include trends in general economic conditions in BOK Financial's primary lending areas, duration of the business cycle, specific conditions in industries where BOK Financial has a concentration of loans and overall growth in the loan portfolio. Additional risk factors considered in the evaluation of the allowance for loan losses included bank regulatory examination results and error potential in either the migration analysis model or in the underlying data. A range of potential losses is then determined for each factor identified. At June 30, 2001 the loss potential for the more significant factors was: Concentration of large loans - $1.3 million to $2.5 million Loan portfolio growth and expansion into new markets - $1.5 million to $3.0 million A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. These provisions were $8.5 million for the second quarter of 2001, compared to $3.5 million for the second quarter of 2000. The provision for loan losses for the first half of 2001 was $16.1 million compared to $6.2 million for the first half of 2000.
NONPERFORMING ASSETS Information regarding nonperforming assets, which totaled $56 million at June 30, 2001, $44 million at December 31, 2000 and $29 million at June 30, 2000, is presented in Table 13. Nonperforming loans included nonaccrual loans and renegotiated loans and excluded loans 90 days or more past due but still accruing. Quarterly changes in nonaccrual loans are also presented in Table 13. During the second quarter of 2001, newly identified nonperforming loans totaled $5.9 million. Nonperforming loans was reduced by $3.7 million for cash payments received and $3.4 million for charge-offs. <TABLE> - --------------------------------------------------------------------------------------------------------------------- TABLE 13 - NONPERFORMING ASSETS (In thousands) JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 ---------------------------------------------------------------------- Nonperforming assets: Nonperforming loans: Nonaccrual loans: <S> <C> <C> <C> <C> <C> Commercial $ 41,752 $ 46,956 $ 37,146 $ 34,421 $ 21,445 Commercial real estate 2,899 680 161 169 823 Residential mortgage 3,362 2,255 1,855 2,115 2,410 Consumer 217 218 499 474 709 - --------------------------------------------------------------------------------------------------------------------- Total nonaccrual loans 48,230 50,109 39,661 37,179 25,387 Renegotiated loans 85 86 87 88 89 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 48,315 50,195 39,748 37,267 25,476 Other nonperforming assets 7,305 7,492 3,851 3,790 3,805 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 55,620 $ 57,687 $ 43,599 $ 41,057 $ 29,281 - --------------------------------------------------------------------------------------------------------------------- Ratios: Reserve for loan losses to nonperforming loans 186.35% 172.40% 207.95% 219.06% 311.69% Nonperforming loans to period-end loans (2) 0.82 0.87 0.73 0.73 0.52 - --------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) (1) $ 10,040 $ 14,750 $ 15,467 $ 10,931 $ 9,828 - --------------------------------------------------------------------------------------------------------------------- <FN> (1) Includes residential mortgages guaranteed by agencies of the U.S. Government $ 6,649 $ 7,277 $ 7,616 $ 7,369 $ 7,363 Excludes residential mortgages guaranteed by agencies of the U.S. Government in foreclosure. 5,509 5,276 5,630 5,202 6,817 (2) Excludes residential mortgage loans held for sale </FN> - --------------------------------------------------------------------------------------------------------------------- </TABLE> The loan review process also identifies loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are performing in accordance with the original terms of the loan agreements and no loss of principal or interest is anticipated, such loans are not included in the nonperforming assets totals. However, known information causes management to have serious doubts as to the borrower's ability to comply with the current repayment terms. These potential problem loans totaled $52 million at June 30, 2001 and $24 million at December 31, 2000. Potential problem loans increased $12 million during the second quarter of 2001 due to loans to a nursing home that is experiencing cash flow difficulties. MARKET RISK Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices. Additionally, the financial instruments subject to market risk can be classified either as held for trading or held for purposes other than trading.
BOK Financial is subject to market risk primarily through the effect of changes in interest rates on its portfolio of assets held for purposes other than trading and trading assets. The effect of other changes, such as foreign exchange rates, commodity prices or equity prices, is not material to BOK Financial. The responsibility for managing market risk rests with the Asset/Liability Committee which operates under policy guidelines which have been established by the Board of Directors. The negative acceptable variation in net interest revenue and economic value of equity due to a 200 basis point increase or decrease in interest rates is limited by these guidelines to +/- 10%. These guidelines also establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. INTEREST RATE RISK MANAGEMENT (OTHER THAN TRADING) BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue, net income and economic value of equity. A simulation model is used to estimate the effect of changes in interest rates over the next twelve months based three interest rate scenarios. These are a "most likely" rate scenario and two "shock test" scenarios, the first assuming a sustained parallel 200 basis point increase and the second a sustained parallel 200 basis point decrease in interest rates. An independent source is used to determine the most likely interest rates for the next year. BOK Financial's primary interest rate exposures included the Federal Reserve Bank's discount rate which affects short-term borrowings and the prime lending rate and the London InterBank Offering Rate ("LIBOR") which are the basis for much of the variable-rate loan pricing. Additionally, BOK Financial has exposure to the 30-year mortgage rate, which directly affects the prepayment speeds for mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. The sensitivity of fee income to market interest rate levels, such as those related to cash management services and mortgage servicing, are included. The model incorporates management's assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate changes. The assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Interest rate swaps on all products are included to the extent that they are effective in the 12-month simulation period. Additionally, changes in prepayment behavior of mortgage-backed securities, residential mortgage loans and mortgage servicing in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. Finally, the impact of planned growth and new business activities is factored into the simulation model. At June 30, 2001 and 2000, this modeling indicated interest rate sensitivity as follows: <TABLE> TABLE 14 - INTEREST RATE SENSITIVITY (Dollars in Thousands) 200 bp Increase 200 bp Decrease Most Likely -------------------------- --------------------------- ----------------------- 2001 2000 2001 2000 2001 2000 ------------- ------------ ------------ -------------- ------------ ---------- Anticipated impact over the next twelve months: <S> <C> <C> <C> <C> <C> <C> Net interest revenue $ 5,998 $ 1,245 $(7,379) $ (609) $(2,197) $ 486 1.7% 0.4% (2.1)% (0.2)% (0.6)% 0.2% - -------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ----------- Net income $ 3,749 $ 778 $(4,612) $ (380) $(1,373) $ 304 2.8% 0.8% (3.4)% (0.4)% (1.0)% 0.3% - -------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ----------- Economic value of equity $(22,319) $(25,019) $(59,828) $(43,938) $ 3,690 $ 5,926 (1.7)% (2.1)% (4.5)% (3.7)% 0.3% 0.5% - -------------------------------- --------------- ------------ --- ----------- -------------- -- ------------ ---------- </TABLE> The estimated changes in interest rates on net interest revenue, net income, and economic value of equity was within guidelines established by the Board of Directors for all interest rate scenarios.
BOK Financial hedges its portfolio of mortgage servicing rights by acquiring mortgage-backed and principal only securities whenever the prepayment risk exceeds certain levels. The fair value of these securities is expected to vary inversely to the value of the mortgage servicing rights. Management may sell these securities and to recognize gains when necessary to offset losses on the mortgage servicing rights. At June 30, 2001, securities with a fair value of $270 million and an aggregate unrealized loss of $1.0 million were held for this program. The interest rate sensitivity of the mortgage servicing portfolio and the securities held as hedges is modeled over a range of +/- 50 basis points. At June 30, 2001, the pre-tax results of this modeling are: 50 BP INCREASE 50 BP DECREASE Anticipated change in: Mortgage servicing rights $ 13,085 $ (19,325) Hedging securities ( 8,960) 8,140 ----------------- ----------------- Net $ 4,125 $ (11,185) ----------------- ----------------- The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. DERIVATIVE INSTRUMENTS BOK Financial uses interest rate swaps, a form of off-balance sheet derivative product, in managing its interest rate sensitivity. These products are generally used to match interest received or paid on certain long-term, fixed rate loans, certificates of deposit and subordinated debt with other variable rate assets and liabilities. These interest rate swaps are carried at fair value as shown in Table 15. Changes in fair value are recorded in current period income. BOK Financial accrues and periodically receives a fixed amount from the counterparties to these swaps and accrues and periodically makes a variable payment to the counterparties. During the second quarter of 2001, BOK Financial terminated interest rate swaps with a notional amount of $150 million that had been designated as a fair value hedges against the effect of changes in market interest rates on BOk's long-term, fixed rate debt. The fair value adjustment of the hedged debt was $8.1 million when the rate swaps were terminated. This adjustment will reduce interest expense on the BOk debt over its remaining term. - -------------------------------------------------------------------------------- TABLE 15 - INTEREST RATE SWAPS (In thousands) Notional Pay Receive Fair Amount Rate Rate Value ---------------------------------------------------------------- Expiration: 2002 $20,000,000 3.84 - 3.86 (1) 6.65 - 6.88 $ 230,647 2003 7,400,000 3.84 (1) 7.5 5,798 2004 60,000,000 3.84 (1) - 3.86 6.98 - 7.36 3,106,416 2006 141,500,000 3.84 (1) - 7.26 3.84 (1) - 5.99 (888,996) 2007 10,000,000 7.48 3.84 (1) (374,987) 2009 5,656,000 2.59 (1) - 4.75 2.59 (1) - 4.75 - 2011 49,058,797 5.21 - 5.51 3.86(1) 388,349 - -------------------------------------------------------------------------------- (1) Rates are variable based on LIBOR and reset monthly, quarterly or semiannually. BOK Financial is an intermediary for its energy-producing customers that want to hedge the risk of changing prices. Fixed price vs. floating price swap contracts are executed between BOK Financial and its customers. BOK Financial then executes offsetting fixed price vs. floating price swap contracts with energy dealers. The gross positive and negative fair values of these contracts each totaled $24 million. The fair values of these contracts are included in other assets and other liabilities.
TRADING ACTIVITIES BOK Financial enters into trading account activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations, and other financial institutions. BOK Financial may also take trading positions in U.S. Treasury securities, mortgage-backed securities, municipal bonds, and financial futures for its own account through BOk and BOSC, Inc. These positions are taken with the objective of generating trading profits. Both of these activities involve interest rate risk. A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading positions. The Risk Management Department monitors trading activity daily and reports to senior management and the Risk Oversight and Audit Committee of the Board of Directors on any exceptions to trading position limits and risk management policy. BOK Financial uses a Value at Risk ("VAR") methodology to measure the market risk inherent in its trading activities. VAR is calculated based upon historical simulations over the past five years. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the nominal aggregate trading positions to $360 million, the VAR to $6.5 million. At June 30, 2001, the nominal aggregate trading positions was $35.2 million, the VAR was $458 thousand. - -------------------------------------------------------------------------------- TABLE 16 - CAPITAL RATIOS JUNE 30, March 31, Dec. 31, Sept. 30, June 30, 2001 2001 2000 2000 2000 ---------------------------------------------------- Average shareholders' equity to average assets 7.42% 7.31% 7.00% 6.89% 6.79% Risk-based capital: Tier 1 capital 7.59 7.39 8.06 8.14 7.80 Total capital 11.02 10.89 11.23 11.49 11.15 Leverage 5.85 5.73 6.51 6.48 6.23 NEW ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), subsequently amended by Statements No. 137 and 138. BOK Financial adopted FAS 133 effective January 1, 2001. All derivative instruments are now recognized on the balance sheet at fair value. Derivatives that do not qualify for special hedge accounting treatment are adjusted to fair value through income. BOK Financial recorded a one-time after-tax transition adjustment that increased income by $236 thousand for the adoption of FAS 133. The effect of the fair value adjustments required by FAS 133 since the transition date increased income before taxes by $344 thousand. In 2001, the Financial Accounting Standards Board adopted Statements of Financial Accounting Standards No. 141 "Business Combinations" ("FAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 eliminated the pooling of interests method of accounting for business combinations. All business combinations initiated after June 30, 2001 will be accounted for by the purchase method. FAS 142 eliminated the requirement to amortize goodwill over an arbitrary period. Goodwill will be carried as an asset and tested for impairment at least annually or when circumstances indicate that the goodwill might be impaired. Other identifiable intangible assets that have finite lives will continue to be amortized. FAS 142 will become effective for BOK Financial on January 1, 2002.
The pro forma effect of this proposed standard on previously reported earnings are (dollars in thousand, except per share data): TABLE 17 - TANGIBLE RESULTS THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------- Net income $ 31,215 $ 25,825 $ 60,754 $ 52,199 Diluted earnings per share 0.54 0.45 1.05 0.91 Return on average equity 16.51% 17.76% 16.54% 18.32% Return on average assets 1.22% 1.21% 1.22% 1.24% FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about BOK Financial, the financial services industry, and the economy in general. Words such as "anticipates", "believes", "estimates", "expects", "forecasts", "plans", "projects", variations of such words, and similar expressions are intended to identify such forward-looking statements. Management judgments relating to, and discussion of the provision and reserve for loan losses involve judgments as to future events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others which BOK Financial has not independently verified. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to, (1) the ability to fully realize expected cost savings from mergers with the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies, and assessments, (7) the impact of technological advances, and (8) trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. REPORT OF MANAGEMENT ON CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial condition, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods presented. The financial information included in this interim report has been prepared by management without audit by independent public accountants and should be read in conjunction with BOK Financial's 2000 Form 10-K filed with the Securities and Exchange Commission which contains audited financial statements.
<TABLE> - ---------------------------------------------- --- ------------- --- ------------- --- ------------ --- ------------- CONSOLIDATED STATEMENT OF EARNINGS (In Thousands Except Share Data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ------------------------- 2001 2000 2001 2000 -------------- ------------- ---------- -------------- INTEREST REVENUE <S> <C> <C> <C> <C> Loans $ 116,835 $ 109,198 $ 241,939 $ 210,236 Taxable securities 47,078 42,737 93,982 83,013 Tax-exempt securities 3,866 3,384 7,372 6,351 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- Total securities 50,944 46,121 101,354 89,364 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- Trading securities 300 315 641 675 Funds sold 191 680 614 1,383 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- Total interest revenue 168,270 156,314 344,548 301,658 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- INTEREST EXPENSE Deposits 55,552 48,798 116,443 94,834 Other borrowings 30,605 37,094 67,939 70,210 Subordinated debenture 2,496 2,552 4,937 5,066 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- Total interest expense 88,653 88,444 189,319 170,110 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- NET INTEREST REVENUE 79,617 67,870 155,229 131,548 PROVISION FOR LOAN LOSSES 8,497 3,534 16,070 6,173 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- NET INTEREST REVENUE AFTER PROVISION FOR LOAN LOSSES 71,120 64,336 139,159 125,375 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- OTHER OPERATING REVENUE Brokerage and trading revenue 5,858 4,219 10,958 8,645 Transaction card revenue 11,411 9,331 21,313 17,951 Trust fees and commissions 10,679 9,743 20,616 19,266 Service charges and fees on deposit accounts 12,793 10,736 24,582 20,991 Mortgage banking revenue, net 11,900 9,427 22,733 17,261 Leasing revenue 901 1,192 2,020 1,936 Other revenue 4,947 3,344 10,168 8,317 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- TOTAL FEES AND COMMISSIONS REVENUE 58,489 47,992 112,390 94,367 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- Gain on sale of student loans 7 38 528 471 Financial instrument gains (losses), net 1,727 (682) 15,007 (699) - ---------------------------------------------- --- -------------- ------------- ------------- -------------- TOTAL OTHER OPERATING REVENUE 60,223 47,348 127,925 94,139 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- OTHER OPERATING EXPENSE Personnel 40,833 35,789 80,769 73,078 Business promotion 2,428 2,148 5,300 4,483 Professional fees and services 3,162 2,161 6,219 4,479 Occupancy & equipment 10,767 8,318 21,110 16,818 Data processing & communications 9,981 9,087 19,354 17,608 FDIC and other insurance 443 387 886 767 Printing, postage and supplies 3,065 3,095 6,056 5,906 Net gains and operating expenses on repossessed assets (56) (118) (27) (701) Amortization of intangible assets 5,057 4,016 10,084 8,094 Mortgage banking costs 7,140 5,540 13,558 10,977 Provision for impairment of mortgage servicing rights (535) - 9,188 - Other expense 4,299 4,494 7,873 8,024 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- Total other operating expense 86,584 74,917 180,370 149,533 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- INCOME BEFORE TAXES 44,759 36,767 86,714 69,981 Federal and state income tax 15,778 12,573 30,567 20,974 - ---------------------------------------------- --- -------------- ------------- ------------- -------------- INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX 28,981 24,194 56,147 49,007 Transition adjustment of adoption of FAS 133 - - 236 - - ---------------------------------------------- --- -------------- ------------- ------------- ------------- NET INCOME $ 28,981 $ 24,194 $ 56,383 $ 49,007 - ---------------------------------------------- --- -------------- ------------- ---------- ---------------- EARNINGS PER SHARE: Basic: Before cumulative effect of change in accounting principle $ 0.56 $ 0.47 $ 1.09 $ 0.95 Transition adjustment of adoption of FAS 133 - - - - - ---------------------------------------------- --- ---------------- ------------ ------------ ------------- Net Income $ 0.56 0.47 $ 1.09 $ 0.95 - ---------------------------------------------- --- ---------------- ------------ ------------ ------------- Diluted: Before cumulative effect of change in accounting principle $ 0.50 0.42 $ 0.98 $ 0.85 Transition adjustment of adoption of FAS 133 - - - - - ---------------------------------------------- --- ---------------- ------------ ------------ ------------- Net Income $ 0.50 $ 0.42 $ 0.98 $ 0.85 - ---------------------------------------------- --- ---------------- ---------- -- ------------ ------------ AVERAGE SHARES USED IN COMPUTATION: Basic 50,874,172 50,685,695 50,835,385 50,689,709 - ---------------------------------------------- --------------------------------------------- -------------- Diluted 57,805,474 57,338,299 57,693,230 57,350,142 - ---------------------------------------------- --------------------------------------------- -------------- See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) JUNE 30, December 31, June 30, 2001 2000 2000 -------------------------------------------------- ASSETS <S> <C> <C> <C> Cash and due from banks $ 527,547 $ 701,424 $ 438,921 Funds sold 4,900 49,305 112,636 Trading securities 20,719 39,865 20,051 Securities: Available for sale 2,040,405 2,105,619 1,791,182 Available for sale securities pledged to creditors 918,795 658,201 755,884 Investment (fair value: JUNE 30, 2001 - $237,839; December 31, 2000 -$233,867; June 30, 2000 - $226,248) 236,706 233,371 227,449 - -------------------------------------------------------------------------------------------------------------------- Total securities 3,195,906 2,997,191 2,774,515 - -------------------------------------------------------------------------------------------------------------------- Loans 6,058,044 5,517,862 4,941,322 Less reserve for loan losses 90,036 82,655 79,405 - -------------------------------------------------------------------------------------------------------------------- Net loans 5,968,008 5,435,207 4,861,917 - -------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 142,682 132,066 125,492 Accrued revenue receivable 64,874 74,981 68,258 Excess cost over fair value of net assets acquired and core deposit premiums (net of accumulated amortization: JUNE 30, 2001 - $90,854; December 31, 2000 - $80,770; June 30, 2000 - $73,386) 162,105 109,045 116,918 Mortgage servicing rights, net 101,439 110,791 112,091 Real estate and other repossessed assets 7,305 3,851 3,805 Bankers' acceptances 7,036 6,925 58,617 Other assets 82,948 87,683 126,002 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 10,285,469 $ 9,748,334 $ 8,819,223 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing demand deposits $ 1,230,814 $ 1,243,766 $ 1,119,690 Interest-bearing deposits: Transaction 2,212,888 1,985,670 1,840,828 Savings 155,872 143,381 155,263 Time 2,981,414 2,673,188 2,485,127 - -------------------------------------------------------------------------------------------------------------------- Total deposits 6,580,988 6,046,005 5,600,908 - -------------------------------------------------------------------------------------------------------------------- Funds purchased and repurchase agreements 1,558,822 1,853,073 1,448,879 Other borrowings 1,037,455 882,204 877,512 Subordinated debenture 186,744 148,816 148,727 Accrued interest, taxes and expense 76,153 77,860 59,363 Bankers' acceptances 7,036 6,925 58,617 Other liabilities 62,951 29,875 19,352 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 9,510,149 9,044,758 8,213,358 - -------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock 25 25 25 Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding JUNE 30, 2001 - 51,339,485 December 31, 2000 - 49,706,055; June 30, 2000 - 49,479,553) 3 3 3 Capital surplus 314,525 278,882 276,005 Retained earnings 452,133 431,390 381,007 Treasury stock (shares at cost: JUNE 30, 2001 - 435,027; December 31, 2000 - 487,553; June 30, 2000 - 378,579) (9,233) (10,044) (8,109) Accumulated other comprehensive income (loss) 17,867 3,320 (43,066) - -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 775,320 703,576 605,865 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 10,285,469 $ 9,748,334 $ 8,819,223 - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> - -------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In Thousands) Accumulated Preferred Stock Common Stock Other Treasury Stock ------------------------------------ Comprehensive Capital Retained ----------------- Shares Amount Shares Amount Income(loss) Surplus Earnings Shares Amount Total ---------------------------------------------------------------------------------------------------- Balances at <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> December 31, 1999 250,000 $ 25 49,382 $ 3 $(43,577) $274,980 $332,751 316 $(7,018) $557,164 Other Comprehensive income, net of tax: Unrealized gains(loss) on securities available for sale (1) - - - - 511 - - - - 511 ----------- Comprehensive income 49,518 ----------- Exercise of stock - - 77 - - 594 - 27 (546) 48 options Preferred stock - - - - - - (1) - - (1) dividend Director retainer - - 4 - - 60 - (5) 98 158 shares Treasury stock - - - - - - - 58 (1,022) (1,022) purchase Dividends paid in shares of common stock: Preferred stock - - 17 - - 371 (750) (18) 379 - - --------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 2000 250,000 $ 25 49,480 $ 3 $(43,066) $276,005 $381,007 378 $(8,109) $ 605,865 - --------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 2000 250,000 $ 25 49,706 $ 3 $ 3,320 $278,882 $431,390 488 $(10,044) $703,576 Comprehensive income: Net income - - - - - - 56,383 - - 56,383 Other Comprehensive income, net of tax: Unrealized gains(loss) on securities available for sale (1) - - - - 14,547 - - - - 14,547 ----------- Comprehensive income 70,930 ----------- Exercise of stock - - 237 - - 2,513 - 79 (1,832) 682 options Director retainer - - - - - 26 - (7) 126 152 shares Dividends paid in shares of common stock: Common stock - - 1,515 - - 32,740 (34,890) 15 2,131 (20) Preferred stock - - - - - 364 (750) (21) 386 - - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 2001 250,000 $ 25 51,458 $ 3 $ 17,867 $ 314,525 $452,133 $ 554 $(9,233) $ 775,320 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> (1) JUNE 30, 2001 JUNE 30, 2000 ------------- ------------- Reclassification adjustments: Unrealized (gains) losses on available for $ 37,045 $ (76) sale securities Tax (expense) benefit on unrealized gains (losses) on available for sale securities (12,966) 26 Reclassification adjustment for (gains) losses realized included in net income, (14,664) 699 net of tax Reclassification adjustment for tax expense (benefit) on realized (gains) 5,132 (238) losses -------------------------------- Net unrealized losses on securities $ 14,547 $ 511 --------------------------------
<TABLE> - ------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) SIX MONTHS ENDED JUNE 30, ------------------------------------- 2001 2000 ------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: <S> <C> <C> Net income $ 56,383 $ 49,007 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 16,070 6,173 Provision for mortgage servicing rights 9,188 - Transition adjustment of adoption of FAS 133 (236) - Unrealized losses from financial instruments 7,677 - Depreciation and amortization 33,579 25,456 Tax reserve reversal - (3,000) Net amortization of financial instrument discounts and premiums (2,320) (1,649) Net gain on sale of assets (23,917) (3,231) Mortgage loans originated for resale (479,645) (242,956) Proceeds from sale of mortgage loans held for resale 428,283 303,862 Change in trading securities 19,146 (5,318) Change in accrued revenue receivable 10,107 40,870 Change in other assets 27,398 (30,358) Change in accrued interest, taxes and expense (1,835) (967) Change in other liabilities 2,304 24,937 - ------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 102,182 162,826 - ------------------------------------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities 37,331 27,419 Proceeds from maturities of available for sale securities 668,447 177,467 Purchases of investment securities (42,829) (41,945) Purchases of available for sale securities (2,651,451) (542,081) Proceeds from sales of available for sale securities 2,055,505 393,405 Proceeds from sales of investment securities 2,040 175 Loans originated or acquired net or principal collected (352,552) (443,726) Proceeds from disposition of assets 63,692 44,201 Purchases of assets (45,114) (32,634) Cash and cash equivalents of branches & subsidiaries acquired and sold, net (73,475) - - ------------------------------------------------------------------------------------------------------- Net cash used by investing activities (338,406) (417,719) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in demand deposits, transaction deposits, money market deposits, and savings accounts (139,030) 72,447 Net change in certificates of deposit 306,158 265,277 Net change in other borrowings (180,000) 42,688 Issuance of subordinated debenture 30,000 - Purchase of treasury stock - (1,022) Common stock dividend (19) - Preferred stock dividend - (1) Issuance of preferred, common and treasury stock, net 833 206 - ------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 17,942 379,595 - ------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (218,282) 124,702 Cash and cash equivalents at beginning of period 750,729 426,855 - ------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 532,447 $ 551,557 - ------------------------------------------------------------------------------------------------------- CASH PAID FOR INTEREST $ 183,316 $ 168,170 - ------------------------------------------------------------------------------------------------------- CASH PAID FOR TAXES $ 21,086 $ 28,353 - ------------------------------------------------------------------------------------------------------- NET LOANS TRANSFERRED TO REPOSSESSED REAL ESTATE AND OTHER ASSETS $ 4,639 $ 1,214 - ------------------------------------------------------------------------------------------------------- PAYMENT OF DIVIDENDS IN COMMON STOCK $ 35,640 $ 750 - ------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of BOK Financial Corporation conform to accounting principles generally accepted in the United States and generally accepted practices within the banking industry. The Consolidated Financial Statements of BOK Financial include the accounts of BOK Financial and its subsidiaries, primarily Bank of Oklahoma, N.A. ("BOk"), Bank of Arkansas N.A., Bank of Texas, N.A., Bank of Albuquerque, N.A., and BOSC, Inc. Certain prior period balances have been reclassified to conform with the current period presentation. (2) MORTGAGE BANKING ACTIVITIES At June 30, 2001, BOk owned the rights to service 89,952 mortgage loans with outstanding principal balances of $6.6 billion, including $230.6 million serviced for BOk. The weighted average interest rate and remaining term was 7.42% and 270 months, respectively. Activity in capitalized mortgage servicing rights and related valuation allowance during the six months ending June 30, 2001 is as follows: <TABLE> Capitalized Mortgage Servicing Rights ----------------------------------------------------------------------------------------- Valuation Hedging Purchased Originated Total Allowance (Gain)/Loss Net ---------------- ------------ --------------- -------------- ---------------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000 $ 69,238 $ 34,448 $ 103,686 $ (2,900) $ 10,005 $ 110,791 Additions 2,311 7,700 10,011 - - 10,011 Amortization expense (6,388) (3,075) (9,463) - (712) (10,175) Provision for impairment - - - (9,188) - (9,188) - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- BALANCE AT JUNE 30, 2001 $ 65,161 $ 39,073 $ 104,234 $ (12,088) $ 9,293 $ 101,439 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- Estimated fair value of mortgage servicing rights (1) $ 60,265 $ 44,030 $ 104,295 - - $ 104,295 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- <FN> (1) Excludes approximately $6.4 million of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122. </FN> </TABLE> Stratification of the mortgage loan servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at June 30, 2001 follows (in thousands): <TABLE> < 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total ---------------- --------------- ---------------- ----------- ------------- <S> <C> <C> <C> <C> <C> Cost less accumulated amortization $ 11,477 $ 60,267 $ 29,839 $ 2,651 $ 104,234 Deferred hedge losses - 7,888 1,405 - 9,293 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Adjusted cost $ 11,477 $ 68,155 $ 31,244 $ 2,651 $ 113,527 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Fair value $ 11,566 $ 64,601 $ 24,785 $ 3,343 $ 104,295 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Impairment $ 1,000 $ 4,492 $ 6,559 $ 37 $ 12,088 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Outstanding principal of loans serviced(1) $643,700 $3,623,200 $1,745,500 $225,900 $6,238,300 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- <FN> (1) Excludes outstanding principal of $383.2 million for loans serviced for which there is no capitalized mortgage servicing rights. </FN> </TABLE>
(3) DISPOSAL OF AVAILABLE FOR SALE SECURITIES Sales of available for sale securities resulted in gains and losses as follows (in thousands): SIX MONTHS ENDED JUNE 30, ------------------------------- 2001 2000 -------------- ------------ Proceeds $ 2,055,505 $ 393,405 Gross realized gains 20,396 187 Gross realized losses 5,732 886 Related federal and state income tax expense (benefit) 5,132 (238) (4) EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands except share data): <TABLE> THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- ------------------------- JUNE 30, June 30, JUNE 30, June 30, 2001 2000 2001 2000 --------------------------- ------------------------- Numerator: <S> <C> <C> <C> <C> Net income $ 28,981 $ 24,194 $ 56,383 $ 49,007 Preferred stock dividends 375 375 750 750 - --------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common stockholders 28,606 23,819 55,633 48,257 - --------------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Preferred stock dividends 375 375 750 750 - --------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $ 28,981 $ 24,194 $ 56,383 $ 49,007 - --------------------------------------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share -weighted average shares 50,874,172 50,685,695 50,835,385 50,689,709 Effect of dilutive securities: Employee stock options (1) 597,456 318,758 523,999 326,587 Convertible preferred stock 6,333,846 6,333,846 6,333,846 6,333,846 - --------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 6,931,302 6,652,604 6,857,845 6,660,433 - --------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 57,805,474 57,338,299 57,693,230 57,350,142 - --------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.56 $ 0.47 $ 1.09 $ 0.95 - --------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.50 $ 0.42 $ 0.98 $ 0.85 - --------------------------------------------------------------------------------------------------------------- (1) Excludes employee stock options with exercise price - 1,692,850 - 1,696,207 greater than current market price - --------------------------------------------------------------------------------------------------------------- </TABLE>
(5) REPORTABLE SEGMENTS Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2001 is as follows: <TABLE> OTHER OTHER NET INTEREST OPERATING OPERATING AVERAGE REVENUE REVENUE(1) EXPENSE ASSETS -------------- -- ------------- --- -------------- -- -------------- <S> <C> <C> <C> <C> Total reportable lines of business $ 161,495 $ 83,440 $ 152,387 $ 10,323,152 Total non-reportable lines of business 438 29,383 21,079 29,859 Unallocated items: Tax-equivalent adjustment 4,329 - - - Funds management 917 (220) 3,949 243,036 Eliminations and all others, net (11,950) 315 2,955 (537,871) -------------- -- ------------- --- -------------- -- -------------- BOK Financial consolidated $ 155,229 $ 112,918 $ 180,370 $ 10,058,176 ============== == ============= === ============== == ============== </TABLE> (1) Excludes securities gains/losses. Reportable segments reconciliation to the Consolidated Financial Statements for the six months ended June 30, 2000 is as follows: <TABLE> OTHER OTHER NET INTEREST OPERATING OPERATING AVERAGE REVENUE REVENUE(1) EXPENSE ASSETS -------------- -- ------------- --- -------------- -- -------------- <S> <C> <C> <C> <C> Total reportable lines of business $ 127,073 $ 70,007 $ 124,817 $ 8,489,405 Total non-reportable lines of business 246 23,901 18,650 28,228 Unallocated items: Tax-equivalent adjustment 4,329 - - - Funds management 10,592 603 4,506 217,594 Eliminations and all others, net (10,692) 327 1,560 (266,453) -------------- -- ------------- --- -------------- -- -------------- BOK Financial consolidated $ 131,548 $ 94,838 $ 149,533 $ 8,468,774 ============== == ============= === ============== == ============== </TABLE> (1) Excludes securities gains/losses. (6) CONTINGENT LIABILITIES In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not be material in the aggregate.
<TABLE> - ----------------------------------------------------------------------------------------------------------------------------- SIX MONTH FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (In Thousands Except Share Data) FOR SIX MONTHS ENDED ------------------------------------------------------------------------------------ JUNE 30, 2001 June 30, 2000 ----------------------------------------- ----------------------------------- AVERAGE REVENUE/ YIELD Average Revenue/ Yield BALANCE EXPENSE(1) /RATE Balance Expense(1) /Rate ------------------------------------------------------------------------------------ ASSETS <S> <C> <C> <C> <C> <C> <C> Taxable securities $ 2,955,669 $ 93,982 6.41% $ 2,586,403 $ 83,013 6.45% Tax-exempt securities 302,915 11,107 7.39 264,114 9,713 7.40 - ------------------------------------------------------------------------------------------------------------------------------ Total securities 3,258,584 105,089 6.50 2,850,517 92,726 6.54 - ------------------------------------------------------------------------------------------------------------------------------ Trading securities 17,488 732 8.44 13,577 675 10.00 Funds sold 22,612 614 5.48 46,257 1,383 6.01 Loans(2) 5,841,522 242,442 8.37 4,723,484 210,724 8.97 Less reserve for loan losses 88,000 78,655 - ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 5,753,522 242,442 8.50 4,644,829 210,724 9.12 - ------------------------------------------------------------------------------------------------------------------------------ Total earning assets(2) 9,052,206 348,877 7.77 7,555,180 305,508 8.13 - ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 1,005,970 913,594 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 10,058,176 $ 8,468,774 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 2,178,434 28,043 2.60% $ 1,865,912 25,689 2.77% Savings deposits 152,860 1,217 1.61 156,109 1,330 1.71 Other time deposits 2,985,489 87,183 5.89 2,398,052 67,815 5.69 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 5,316,783 116,443 4.42 4,420,073 94,834 4.31 - ------------------------------------------------------------------------------------------------------------------------------ Other borrowings 2,629,722 67,939 5.21 2,267,335 70,210 6.23 Subordinated debenture 173,797 4,937 5.73 148,684 5,066 6.85 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing 8,120,302 189,319 4.70 6,836,092 170,110 5.00 liabilities(2) - ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,083,632 971,988 Other liabilities 113,424 87,615 Shareholders' equity 740,818 573,079 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' $ 10,058,176 $ 8,468,774 equity - ------------------------------------------------------------------------------------------------------------------------------ TAX-EQUIVALENT NET INTEREST 159,558 3.07% 135,398 3.13% REVENUE(1)(3) TAX-EQUIVALENT NET INTEREST REVENUE (1)(3) TO EARNING ASSETS 3.55 3.60 Less tax-equivalent adjustment 4,329 3,850 - ------------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE 155,229 131,548 Provision for loan losses 16,070 6,173 Other operating revenue (3) 128,289 94,139 Other operating expense 180,370 149,533 - ------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE TAXES 87,078 69,981 Federal and state income tax (3) 30,695 20,974 - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 56,383 $ 49,007 - ------------------------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE: NET INCOME Basic $ 1.09 $ 0.95 - ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 0.98 $ 0.85 - ------------------------------------------------------------------------------------------------------------------------------ </TABLE> (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. (3) Includes cumulative effect of transition adjustment in adopting FAS 133 in first quarter 2001. (3) Yield/Rate excludes $1,468 million of non-recurring collection of foregone interest in June 30, 1998.
<TABLE> - ------------------------------------------------------------------------------------------------------------------------------ QUARTERLY FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (In Thousands Except Share Data) FOR THREE MONTHS ENDED ------------------------------------------------------------------------------------- JUNE 30, 2001 March 31, 2001 ------------------------------------------ ------------------------------------- AVERAGE REVENUE/ YIELD Average Revenue/ Yield BALANCE EXPENSE(1) /RATE Balance Expense(1) /Rate ------------------------------------------------------------------------------------- ASSETS <S> <C> <C> <C> <C> <C> <C> Taxable securities $ 3,012,148 $ 47,080 6.27% $ 2,910,580 $ 46,902 6.54% Tax-exempt securities 310,517 5,841 7.54 282,656 5,266 7.56 - ------------------------------------------------------------------------------------------------------------------------------ Total securities 3,322,665 52,921 6.39 3,193,236 52,168 6.63 - ------------------------------------------------------------------------------------------------------------------------------ Trading securities 16,566 332 8.04 18,421 400 8.81 Funds sold 17,221 191 4.45 28,063 423 6.11 Loans(2) 5,944,358 117,080 7.90 5,737,543 125,362 8.86 Less reserve for loan losses 89,824 86,156 - ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 5,854,534 117,080 8.02 5,651,387 125,362 9.00 - ------------------------------------------------------------------------------------------------------------------------------ Total earning assets 9,210,986 170,524 7.43 8,891,107 178,353 8.14 - ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 1,010,404 999,606 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 10,221,390 $ 9,890,713 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 2,222,838 12,821 2.31% $ 2,133,537 15,222 2.89% Savings deposits 154,312 569 1.48 151,392 648 1.74 Other time deposits 3,009,880 42,162 5.62 2,960,828 45,021 6.17 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 5,387,030 55,552 4.14 5,245,757 60,891 4.71 - ------------------------------------------------------------------------------------------------------------------------------ Other borrowings 2,653,008 30,605 4.63 2,606,177 37,334 5.81 Subordinated debenture 187,299 2,496 5.35 160,144 2,441 6.18 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 8,227,337 88,653 4.32 8,012,078 100,666 5.10 - ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,119,597 1,047,267 Other liabilities 116,200 108,514 Shareholders' equity 758,256 722,854 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' $ 10,221,390 $ 9,890,713 Equity - ------------------------------------------------------------------------------------------------------------------------------ TAX-EQUIVALENT NET INTEREST REVENUE 81,871 3.11% 77,687 3.04% TAX-EQUIVALENT NET INTEREST REVENUE TO EARNING ASSETS 3.57 3.54 Less tax-equivalent adjustment 2,254 2,075 - ------------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE 79,617 75,612 Provision for loan losses 8,497 7,573 Other operating revenue (3) 60,223 68,066 Other operating expense 86,584 93,786 - ------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE TAXES 44,759 42,319 Federal and state income tax (3) 15,778 14,917 - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 28,981 $ 27,402 - ------------------------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE: NET INCOME Basic $ 0.56 $ 0.53 - ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 0.50 $ 0.48 - ------------------------------------------------------------------------------------------------------------------------------ </TABLE> (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. (3) Includes cumulative effect of transition adjustment in adopting FAS 133 in first quarter 2001. (3) Yield/Rate excludes $1,468 million of non-recurring collection of foregone interest in June 30, 1998.
<TABLE> - ------------------------------------------------------------------------------------------------------------------------- For Three months ended - ------------------------------------------------------------------------------------------------------------------------- December 31, 2000 September 30, 2000 June 30, 2000 - ------------------------------------------------------------------------------------------------------------------------- Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield Balance Expense(1) /Rate Balance Expense(1) /Rate Balance Expense(1) /Rate - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> $ 2,654,996 $ 43,345 6.49% $ 2,520,917 $ 41,135 6.49% $ 2,625,306 $ 42,738 6.55% 276,478 5,172 7.44 274,402 4,692 6.80 267,320 5,111 7.69 - ------------------------------------------------------------------------------------------------------------------------- 2,931,474 48,517 6.58 2,795,319 45,827 6.52 2,892,626 47,849 6.65 - ------------------------------------------------------------------------------------------------------------------------- 18,458 405 8.73 16,873 370 8.72 12,562 315 10.09 45,310 788 6.92 47,053 791 6.69 44,731 680 6.11 5,265,300 125,854 9.51 5,020,994 118,523 9.39 4,796,948 109,453 9.18 83,246 81,194 79,503 - ------------------------------------------------------------------------------------------------------------------------- 5,182,054 125,854 9.66 4,939,800 118,523 9.55 4,717,445 109,453 9.33 - ------------------------------------------------------------------------------------------------------------------------- 8,177,296 175,564 8.54 7,799,045 165,511 8.44 7,667,364 158,297 8.30 - ------------------------------------------------------------------------------------------------------------------------- 955,024 910,737 920,169 - ------------------------------------------------------------------------------------------------------------------------- $ 9,132,320 $ 8,709,782 $ 8,587,533 - ------------------------------------------------------------------------------------------------------------------------- $ 1,910,167 15,646 3.26% $ 1,916,712 13,684 2.84% $ 1,875,180 12,888 2.76% 143,969 673 1.86 151,385 700 1.84 156,369 658 1.69 2,671,285 43,237 6.44 2,510,655 39,475 6.26 2,431,978 35,252 5.83 - ------------------------------------------------------------------------------------------------------------------------- 4,725,421 59,556 5.01 4,578,752 53,859 4.68 4,463,527 48,798 4.40 - ------------------------------------------------------------------------------------------------------------------------- 2,503,706 42,080 6.69 2,299,155 38,867 6.73 2,318,426 37,094 6.44 148,794 2,667 7.13 148,750 2,704 7.23 148,705 2,552 6.90 - ------------------------------------------------------------------------------------------------------------------------- 7,377,921 104,303 5.62 7,026,657 95,430 5.40 6,930,658 88,444 5.13 - ------------------------------------------------------------------------------------------------------------------------- 1,002,969 974,478 989,716 86,403 87,439 82,438 665,027 621,208 584,721 - ------------------------------------------------------------------------------------------------------------------------- $ 9,132,320 $ 8,709,782 $ 8,587,533 - ------------------------------------------------------------------------------------------------------------------------- 71,261 2.92% 70,081 3.04% 69,853 3.17% 3.05 3.47 3.57 3.66 2,069 1,934 1,983 - ------------------------------------------------------------------------------------------------------------------------- 69,192 68,147 67,870 6,000 5,031 3,534 54,924 49,840 47,348 79,318 73,964 74,917 - ------------------------------------------------------------------------------------------------------------------------- 38,798 38,992 36,767 13,302 13,355 12,573 - ------------------------------------------------------------------------------------------------------------------------- $ 25,496 $ 25,637 $ 24,194 - ------------------------------------------------------------------------------------------------------------------------- $ 0.50 $ 0.50 $ 0.47 - ------------------------------------------------------------------------------------------------------------------------- $ 0.44 $ 0.45 $ 0.42 - ------------------------------------------------------------------------------------------------------------------------- </TABLE>
PART II. Other Information Item 6. Exhibits and Reports on Form 8-K (A) Exhibits: No. 27.0 Financial Data Schedule filed herewith electronically. (B) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended June 30, 2001. 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. BOK FINANCIAL CORPORATION ------------------------- (Registrant) Date: AUGUST 14, 2000 /S/ STEVEN E. NELL ------------------- --------------------------- Steven E. Nell Executive Vice President and Chief Financial Officer /S/ JOHN C. MORROW John C. Morrow --------------------------- Senior Vice President and Director of Financial Accounting & Reporting