As filed with the Securities and Exchange Commission on November 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 September 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 ($.00006 Par Value) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 51,095,830 shares of common stock ($.00006 par value) as of October 31, 2001. - -------------------------------------------------------------------------------- BOK Financial Corporation Form 10-Q Quarter Ended September 30, 2001 Index Part I. Financial Information Management's Discussion and Analysis 2 Report of Management on Consolidated Financial Statements 17 Consolidated Statements of Earnings 18 Consolidated Balance Sheets 20 Consolidated Statements of Changes in Shareholders' Equity 21 Consolidated Statements of Cash Flows 22 Notes to Consolidated Financial Statements 23 Financial Summaries - Unaudited 26 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 29 Signature 29 MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION ASSESSMENT OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial Corporation ("BOK Financial") recorded net income of $29.8 million or $0.51 per diluted common share for the third quarter of 2001 compared to $25.6 million or $0.45 per diluted common share for the third quarter of 2000. Prior year's earnings per share have been restated for a 3% dividend paid in shares of common stock in May 2001. The returns on average assets and equity were 1.16% and 14.82%, respectively for the quarter ended September 30, 2001 compared to 1.17% and 16.42% for the same period of 2000. Returns on average equity excluding accumulated comprehensive income, which consists primarily of unrealized gains and losses on available for sale securities, were 15.25% and 15.46% for the third quarter of 2001 and 2000, respectively. Net interest revenue grew $16.4 million due primarily to an increase in average earning assets of $1.4 billion. Fees and commissions revenue grew $7.1 million with increases in all major categories of fee income in the third quarter of 2001 compared to the same quarter 2000. Gains on sales of financial instruments included gains on sales of securities used to hedge the mortgage servicing portfolio. The net impact of these gains and the provision for impairment of the mortgage servicing portfolio was a loss of $764 thousand. Excluding the securities gains on this hedge, net gains on sales of financial instruments was $4.2 million. Operating expenses increased $6.2 million or 8% excluding $8.2 million from Citizens National Bank of Texas, which was acquired in January 2001 and $15.2 million provision for impairment of mortgage servicing rights. The provision for loan loss increased $6.0 million to $11.0 million. Net income for the nine months ended September 30, 2001 totaled $86.2 million, an increase of 15% over the same period of 2000. Diluted earnings per share were $1.49 in 2001 compared to $1.30 in 2000. The returns on average assets and equity were 1.14% and 15.16%, respectively for the nine months ended September 30, 2001 compared to returns on average assets and equity of 1.17% and 16.92% for the same period of 2000. The first quarter 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 $1.25, return on equity was 16.24%, and return on average assets was 1.12% excluding this resolution.
NET INTEREST REVENUE Net interest revenue on a tax-equivalent basis was $86.4 million for the third quarter of 2001 compared to $70.1 million for the third quarter 2000. The growth in net interest revenue was due primarily to a $1.3 billion growth in average earning assets, most notably average loan growth of $1.0 billion, over the same period 2000. This growth in loans improved the mix of earning assets since loans generally have higher yields than other types of earning assets. Average loans now comprise 66% of average earning assets compared to 64% in same period 2000. The growth in average earning assets was funded by a $1.1 billion increase in interest bearing liabilities, including an $886 million increase in interest bearing deposits. Total sources of funding grew $1.4 billion from same quarter 2000. Table 1 shows how net interest revenue was affected by changes in average balances and interest rates for the various types of earning assets and interest-bearing liabilities. Net interest margin, the ratio of net interest revenue to average earning assets, was 3.75% for the third quarter of 2001 compared to 3.57% for the third quarter of 2000 and 3.57% for the second 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. Management expects the favorable effect of declining interest rates to moderate as yields on earning assets decline. <TABLE> - ---------------------------------------------------------------------------------------------------------------------- TABLE 1 - VOLUME/RATE ANALYSIS (In thousands) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2001/2000 SEPTEMBER 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 3,432 5,472 (2,040) 15,794 18,523 (2,729) Trading securities (147) (6) (141) (90) 156 (246) Loans (4,358) 22,287 (26,645) 27,360 70,148 (42,788) Funds sold (661) (425) (236) (1,429) (1,128) (301) - ---------------------------------------------------------------------------------------------------------------------- Total (1,734) 27,328 (29,062) 41,635 87,699 (46,064) - ---------------------------------------------------------------------------------------------------------------------- Interest expense: Interest bearing transaction deposits (1,767) 2,251 (4,018) 587 6,399 (5,812) Savings deposits (125) 20 (145) (238) (9) (229) Time deposits (1,188) 7,417 (8,605) 18,180 24,203 (6,023) Other borrowings (15,025) 2,165 (17,190) (17,296) 12,263 (29,559) Subordinated debenture 12 623 (611) (117) 1,397 (1,514) - ---------------------------------------------------------------------------------------------------------------------- Total (18,093) 12,476 (30,569) 1,116 44,253 (43,137) - ---------------------------------------------------------------------------------------------------------------------- Tax-equivalent net interest revenue 16,359 14,852 1,507 40,519 43,446 (2,927) Change in tax-equivalent adjustment (20) 459 - ---------------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE 16,379 40,060 - ---------------------------------------------------------------------------------------------------------------------- (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 third quarter of 2001, this strategy resulted in a 29 basis point decrease in net interest margin. However, this strategy contributed $10.9 million to net interest revenue. Net interest margin, excluding this strategy was 4.04% for the third quarter 2001. Year-to-date 2001 this strategy resulted in a 40 basis point decrease in net interest margin but contributed $22.5 million to net interest revenue. Excluding this strategy, net interest margin was 4.02%. 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 $26.3 million, including $19.2 million increase from gains on financial instruments, over same period 2000. Total fees and commissions increased $7.1 million. Included in third quarter 2001 were fees and commissions of $620 thousand from the CNBT acquisition, including service charges on deposit accounts of $557 thousand. All major categories of fees and commissions increased over same period 2000. Most notably mortgage banking revenue increased $2.7 million or 28% due to improved conditions for sales of loans into the secondary market. Service charges and fees on deposit accounts increased $1.9 million or 18% compared to same quarter last year due mostly to growth in deposit accounts. Transaction card revenue increased 20% or $1.9 million, excluding a $1.0 million early buyout of several ATM servicing contracts and the favorable resolution of a revenue dispute during the third quarter of 2000. Also, brokerage and trading revenue increased 43% due primarily to improved performance of securities trading. Securities and derivatives gains totaled $18.6 million for the third quarter 2001. This included gains of $5.3 million from the general securities portfolio, gains of $14.4 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 $1.1 million 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 ------------------------------------------------------------------------------- SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Brokerage and trading revenue $ 4,938 $ 5,858 $ 5,100 $ 3,978 $ 3,451 Transaction card revenue 11,679 11,411 9,902 10,063 10,739 Trust fees and commissions 10,211 10,679 9,937 9,978 10,072 Service charges and fees on deposit accounts 12,961 12,793 11,789 10,929 11,012 Mortgage banking revenue 12,499 11,900 10,833 10,144 9,774 Leasing revenue 810 901 1,119 1,377 931 Other revenue 4,341 4,947 5,221 5,277 4,371 - -------------------------------------------------------------------------------------------------------------------------- Total fees and commissions 57,439 58,489 53,901 51,746 50,350 - -------------------------------------------------------------------------------------------------------------------------- Gain on student loan sales 11 7 521 30 28 Gain (loss) on sale of other assets - - - (148) - Financial instruments gains (losses), net 18,641 1,727 13,280 3,296 (538) - -------------------------------------------------------------------------------------------------------------------------- Total other operating revenue $ 76,091 $ 60,223 $ 67,702 $ 54,924 $ 49,840 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> Year-to-date other operating revenue increased $60.0 million to $204.0 million in 2001 compared to the same period of 2000. Fees and commissions increased $25.1 million. Included are $2.1 million of revenues from the CNBT acquisition, including $1.7 million of service charges and fees on deposit accounts. Mortgage banking revenue increased $8.2 million or 30% due to improved conditions for sales of loans into secondary market. Service charges and fees on deposit accounts increased $5.5 million or 17%, $3.9 million or 12% excluding the CNBT acquisition. Transaction card revenue increased $5.3 million or 19% compared to last year, excluding $1.0 million of non-recurring items in the third quarter of 2000 discussed above, due primarily to increases in both check card revenue and merchant discount fees. Brokerage and trading increased 31% due to improved performance of securities trading. 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, BOK Financial's ability to generate fee revenue is affected by interest rates, values in the equity market and consumer spending, all of which can be volatile.
OTHER OPERATING EXPENSE Operating expenses for the third quarter of 2001 increased $6.2 million or 8%, excluding $8.2 million of operating expenses from CNBT (mostly personnel and amortization of intangible assets) and the $15.2 million provision for impairment of mortgage servicing rights. The following discussion of operating expenses excludes CNBT to improve comparability. <TABLE> - ---------------------------------------------------------------------------------------------------------------------- TABLE 3 - OTHER OPERATING EXPENSE (In thousands) THREE MONTHS ENDED ---------------------------------------------------------------------------------- SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Personnel $ 40,491 $ 40,833 $ 39,936 $ 37,200 $ 35,937 Business promotion 2,560 2,428 2,872 1,971 1,941 Professional fees and services 2,983 3,162 3,057 2,994 2,145 Occupancy & equipment 11,017 10,767 10,343 9,568 9,061 Data processing & communications 10,173 9,981 9,373 8,753 8,601 FDIC and other insurance 443 443 443 399 403 Printing, postage and supplies 3,141 3,065 2,991 2,808 2,546 Net gains and operating expenses on repossessed assets 1,189 (56) 29 (8) (574) Amortization of intangible assets 5,015 5,057 5,027 3,444 3,940 Mortgage banking costs 7,191 7,140 6,418 5,697 5,600 Provision for impairment of mortgage servicing rights 15,224 (535) 9,723 2,900 - Other expense 4,164 4,299 3,574 3,592 4,364 - --------------------------------------------------------------------------------------------------------------------- Total $ 103,591 $ 86,584 $ 93,786 $ 79,318 $ 73,964 - --------------------------------------------------------------------------------------------------------------------- </TABLE> Personnel costs increased $3.1 million or 9%. Regular compensation increased $2.4 million or 9% while benefit expense increased $614 thousand or 11%. Average staffing on a full time equivalent ("FTE") basis increased 125 employees or 4% while average compensation expense per FTE increased 5%. Net occupancy and equipment expense increased $1.5 million or 16% due primarily to a $830 thousand increase in depreciation expense. This reflects additional investments in facilities and technology improvements over the past two years. Data processing and communications increased $1.6 million or 18% primarily in transaction card servicing and external processing due to increased volumes. Mortgage banking costs increased $1.6 million or 28% due primarily to amortization of mortgage servicing rights, which is caused by an increase in loan prepayments. A provision for impairment of mortgage servicing rights of $15.2 million was taken during the third quarter 2001 due to the current rate and prepayment environment. <TABLE> - --------------------------------------------------------------------------------------------------------------------- TABLE 4 - OTHER OPERATING EXPENSE, EXCLUDING SIGNIFICANT OR NONRECURRING ITEMS (In thousands) THREE MONTHS ENDED ------------------------------------------------------------------------------- SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Total other operating expense $ 103,591 $ 86,584 $ 93,786 $ 79,318 $ 73,964 Net gains and operating costs from repossessed assets (1,189) 56 (29) 8 574 Provision for impairment of mortgage servicing rights (15,224) 535 (9,723) (2,900) - - --------------------------------------------------------------------------------------------------------------------- Total $ 87,178 $ 87,175 $ 84,034 $ 76,426 $ 74,538 - --------------------------------------------------------------------------------------------------------------------- </TABLE> Year-to-date, other operating expenses increased 9% or $20.1 million, excluding $15.9 million of operating expenses from CNBT and $24.4 million of provision for impairment of mortgage servicing rights. This increase was due primarily to personnel expenses, occupancy and equipment, data processing and communications 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 Albuquerque, N.A., Bank of Arkansas, N.A., and Bank of Texas, 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 $11.9 million or 40% to consolidated net income for the third quarter of 2001. This compares to $11.9 million or 46% of consolidated net income for the third quarter of 2000. 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 $921 thousand in the third quarter of 2000 to $2.8 million in the third quarter of 2001. <TABLE> TABLE 5 CORPORATE BANKING (In thousands) THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ----------------------------- --------------------------- 2001 2000 2001 2000 ------------ --------------- ---------------------------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 56,608 $ 68,834 $ 180,224 $ 194,266 Revenue (expense) from internal sources (20,172) (35,749) (72,083) (100,205) Operating expense 14,212 12,685 42,606 39,052 Net income 11,882 11,902 34,218 32,810 Average assets $3,854,846 $ 3,365,974 $ 3,836,440 $ 3,326,351 Average equity 443,376 392,879 437,652 385,788 Return on assets 1.22% 1.41% 1.19% 1.32% Return on equity 10.63% 12.05% 10.45% 11.36% Efficiency ratio 39.01% 38.34% 39.40% 41.52% </TABLE> Consumer Banking The Consumer Banking Division, which provides a full line of deposit, loan and fee-based services to customers throughout Oklahoma, contributed $4.0 million or 13% to consolidated net income for the third quarter of 2001. This compares to $4.7 million or 18% of consolidated net income for the third quarter of 2000. Fee income in the third quarter of 2001 increased 13% or $879 thousand compared to previous year. Net expense from external sources has decreased due primarily to lower rates paid on deposits. This decrease was partially offset by lower revenue from internal sources due to rates charged to other operating units. Operating expenses were up $921thousand or 7%. <TABLE> TABLE 6 CONSUMER BANKING (In thousands) THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ----------------------------- ---------------------------- 2001 2000 2001 2000 ----------- -- ------------ -------------- -------------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ (18) $ (5,130) $ (6,720) $ (13,501) Revenue (expense) from internal sources 22,284 27,720 75,286 78,414 Operating expense 14,835 13,914 44,203 41,054 Net income 4,001 4,676 13,168 13,086 Average assets $ 2,189,960 $ 2,127,745 $ 2,184,837 $ 2,141,341 Average equity 69,393 60,724 68,322 60,836 Return on assets 0.72% 0.87% 0.81% 0.82% Return on equity 22.87% 30.63% 25.77% 28.73% Efficiency ratio 66.63% 61.59% 64.47% 63.24% </TABLE>
Mortgage Banking The Mortgage Banking Division contributed $2.4 million or 8% to consolidated net income for the third quarter of 2001. This compared to $1.0 million or 4% of consolidated net income for the third quarter of 2000. Loan servicing fees declined to $7.7 million for the third quarter 2001 compared to $8.2 million in the same quarter 2000 due directly to a decrease in the volume of loans serviced. Gains on loans sold were $5.9 million for the third quarter 2001 compared to $2.4 million in the same quarter 2000. Mortgage loans originated during the third quarter of 2001 totaled $264 million compared to $164 million in the third quarter 2000 due to lower interest rates. Included in mortgage loans originated were refinancings of $108 million for the third quarter 2001 and $25 million for same period 2000. Operating expenses increased $1.6 million or 28% due primarily to increased amortization of mortgage servicing rights. Capitalized mortgage servicing rights totaled $91 million at September 30, 2001 compared to $111 million at December 31, 2000. These amounts are net of a valuation allowance of $27 million at September 30, 2001 and $2.9 million at December 31, 2000. No valuation allowance was required at September 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 gains realized on sales of securities held in the hedge portfolio and provision for impairment was a $764 thousand loss for the third quarter of 2001. Additional discussion about the sensitivity of the mortgage loan servicing portfolio to changes in interest rates and the hedging strategy is in the Market Risk section. <TABLE> TABLE 7 MORTGAGE BANKING (In thousands) THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------- ------------- -------------- ------------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 20,676 $ 14,907 $ 61,500 $ 39,575 Revenue (expense) from internal sources (4,645) (3,942) (17,239) (9,527) Operating expense 11,383 9,318 33,629 28,025 Provision for impairment of mortgage servicing rights 15,224 - 24,412 - Gains (losses) on sales of securities 14,460 31 23,847 31 Net income 2,364 1,014 6,127 1,231 Average assets $ 628,462 $ 410,346 $ 633,526 $ 382,731 Average equity 43,827 31,439 42,598 30,381 Return on assets 1.49% 0.98% 1.29% 0.43% Return on equity 21.40% 12.83% 19.23% 5.41% Efficiency ratio 71.01% 84.98% 75.98% 93.27% </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 $2.7 million or 9% of consolidated net income for the third quarter 2001. This compared to $2.8 million or 11% of consolidated net income for the third quarter of 2000. At September 30, 2001 trust assets with an aggregate market value of $16.6 billion were subject to various fiduciary arrangements compared to $18.4 billion at September 30, 2000. The overall decline in fair value of trust assets reflected changes in the equity market during the past year. BOK Financial has sole or joint discretionary authority over $8.6 billion of trust assets.
<TABLE> TABLE 8 TRUST SERVICES (In thousands) THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ---------------------------------------------------------- 2001 2000 2001 2000 ------------- -------------- ----------------------------- <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 10,293 $ 11,010 $ 30,666 $ 32,904 Revenue (expense) from internal sources 3,695 2,403 10,799 6,170 Operating expense 9,580 8,844 28,938 26,932 Net income 2,693 2,792 7,654 7,301 Average assets $ 477,785 $ 353,869 $ 471,564 $ 343,328 Average equity 40,527 37,855 40,357 37,327 Return on assets 2.24% 3.14% 2.17% 2.84% Return on equity 26.36% 29.34% 25.36% 26.13% Efficiency ratio 68.49% 65.94% 69.79% 68.93% </TABLE> Regional Banks Regional banks provide a full range of corporate and consumer banking, trust services and retail investments in their respective markets. Small businesses and middle-market corporations are the regional banks' primary customer focus. Regional banks contributed $7.8 million or 26% to consolidated net income for the third quarter 2001. This compared to $5.9 million or 23% of consolidated net income for the third quarter of 2000. BOK Financial's operations in Texas, New Mexico and Arkansas contributed $5.4 million, $2.0 million, and $428 thousand, respectively, to consolidated net income for the third quarter of 2001. This compared to net income of $4.9 million, $1.0 million, and $2 thousand for the third quarter 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 SEPT. 30, NINE MONTHS ENDED SEPT. 30, ------------------------------------------------------------- 2001 2000 2001 2000 -------------- --------------- ------------------------------ <S> <C> <C> <C> <C> Revenue (expense) from external sources $ 40,037 $ 30,136 $ 116,152 $ 86,218 Revenue (expense) from internal sources (3,163) (2,746) (8,055) (9,791) Operating expense 23,455 17,071 67,288 51,586 Gains (losses) on sales of securities 279 (7) (70) (53) Net income 7,789 5,921 23,501 14,412 Tangible net income 11,560 8,536 34,927 22,395 Average assets $ 3,352,223 $ 2,457,975 $ 3,286,847 $ 2,408,906 Average equity 412,874 285,064 402,764 274,664 Tangible return on assets 1.37% 1.38% 1.42% 1.24% Tangible return on equity 11.11% 11.91% 11.59% 10.89% Efficiency ratio 63.61% 62.33% 62.25% 67.50% </TABLE>
ASSESSMENT OF FINANCIAL CONDITION The aggregate loan portfolio at September 30, 2001 totaled $6.2 billion, an increase of $160 million since June 30, 2001 and $1.0 billion since September 30, 2000. Commercial and industrial loans increased $74 million during the quarter. This increase was primarily in the energy and services sectors of the loan portfolio. During this same period, total commercial real estate loans increased $67 million. Outstanding loans to service industries totaled $1.1 billion or 17% of loan portfolio at September 30, 2001. Services included loans totaling $111 million to the healthcare industry, $143 million to nursing homes and $70 million to the hotel industry. Energy loans comprised 15% of total loans. The energy category included loans to oil and gas producers that totaled $697 million, an increase of $57 million since June 30, 2001. The energy category also included 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 included $170 million of loans to the cattle industry. Construction and land development loans include $268 million for single family residential lots and premises. The major components of other commercial real estate loans were office buildings, $283 million and retail facilities, $236 million. Residential mortgage loans included $293 million of home equity loans, $199 million of mortgage loans held for business relationship purposes and $145 million of adjustable rate mortgage loans. <TABLE> - --------------------------------------------------------------------------------------------------------------------- TABLE 10 - LOANS (In thousands) SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 --------------------------------------------------------------------------------- Commercial: <S> <C> <C> <C> <C> <C> Energy $ 942,381 $ 885,546 $ 881,128 $ 837,223 $ 774,284 Manufacturing 490,839 510,421 507,207 421,046 418,986 Wholesale/retail 585,351 580,421 544,097 499,017 450,337 Agricultural 199,155 202,041 203,345 185,407 159,099 Services 1,087,329 1,059,779 983,454 963,171 901,749 Other commercial and industrial 313,801 307,062 273,847 342,169 289,787 Commercial real estate: Construction and land development 330,964 313,453 321,578 311,700 303,965 Multifamily 252,093 257,489 294,548 271,459 268,595 Other real estate loans 767,012 712,043 714,640 687,335 676,176 Residential mortgage: Secured by 1-4 family residential properties 753,153 727,579 696,033 638,044 597,464 Residential mortgages held for 94,219 107,627 93,117 48,901 58,888 sale Consumer 402,117 394,583 364,288 312,390 299,199 - --------------------------------------------------------------------------------------------------------------------- Total $ 6,218,414 $ 6,058,044 $ 5,877,282 $ 5,517,862 $ 5,198,529 - --------------------------------------------------------------------------------------------------------------------- </TABLE> BOK Financial has identified credit exposure to the travel and hospitality industry of approximately $215 million through loans and leases to hotels, commercial and charter airlines, rental car agencies and bus lines. Selected credits were reviewed in response to the events of September 11, 2001 and the grading of certain credits were reduced due to the current downturn in this industry. While these credits will continue to be closely monitored, management does not believe that the travel and hospitality industry represents a concentration that presents a significant additional risk of loss at this time. 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 reflected 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) SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 --------------------------------------------------------------------------------- Oklahoma: <S> <C> <C> <C> <C> <C> Commercial $ 2,610,357 $ 2,571,565 $ 2,474,355 $ 2,480,825 $ 2,275,402 Commercial real estate 741,978 710,098 754,709 768,232 763,498 Residential mortgage 613,565 596,651 541,755 458,395 431,377 Consumer 300,193 285,951 259,345 250,298 244,636 --------------------------------------------------------------------------------- Total Oklahoma $ 4,266,093 $ 4,164,265 $ 4,030,164 $ 3,957,750 $ 3,714,913 --------------------------------------------------------------------------------- Texas: Commercial $ 760,686 $ 722,403 $ 684,648 $ 549,505 $ 556,921 Commercial real estate 378,364 350,881 361,192 299,357 276,438 Residential mortgage 137,482 140,176 144,699 122,082 117,771 Consumer 91,513 98,341 95,502 53,397 46,238 --------------------------------------------------------------------------------- Total Texas $ 1,368,045 $ 1,311,801 $ 1,286,041 $ 1,024,341 $ 997,368 --------------------------------------------------------------------------------- Albuquerque: Commercial $ 195,054 $ 201,713 $ 180,822 $ 167,023 $ 115,549 Commercial real estate 146,512 133,159 133,383 118,492 126,260 Residential mortgage 90,864 93,608 97,800 101,920 102,757 Consumer 8,109 7,810 6,678 6,107 5,652 --------------------------------------------------------------------------------- Total Albuquerque $ 440,539 $ 436,290 $ 418,683 $ 393,542 $ 350,218 --------------------------------------------------------------------------------- Northwest Arkansas: Commercial $ 52,759 $ 49,589 $ 53,253 $ 50,680 $ 46,370 Commercial real estate 83,215 88,847 81,482 84,413 82,540 Residential mortgage 5,461 4,771 4,896 4,548 4,447 Consumer 2,302 2,481 2,763 2,588 2,673 --------------------------------------------------------------------------------- Total Northwest Arkansas $ 143,737 $ 145,688 $ 142,394 $ 142,229 $ 136,030 --------------------------------------------------------------------------------- </TABLE> SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $96 million at September 30, 2001, $83 million at December 31, 2000 and $81 million at September 30, 2000. This represented 1.57%, 1.51% and 1.58% of total loans, excluding loans held for sale, at September 30, 2001, December 31, 2000 and September 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.
<TABLE> - ------------------------------------------------------------------------------------------------------------------- TABLE 12 - SUMMARY OF LOAN LOSS EXPERIENCE (In thousands) THREE MONTHS ENDED -------------------------------------------------------------------------------- SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Beginning balance $ 90,036 $ 86,535 $ 82,655 $ 81,445 $ 79,405 Loans charged-off: Commercial 4,241 4,514 5,484 3,990 1,747 Commercial real estate - - 9 - 615 Residential mortgage 37 68 101 139 63 Consumer 1,561 1,575 1,698 1,605 1,511 - ------------------------------------------------------------------------------------------------------------------- Total 5,839 6,157 7,292 5,734 3,936 - ------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Commercial 285 391 279 396 121 Commercial real estate 5 150 359 24 100 Residential mortgage 7 13 12 3 17 Consumer 534 607 649 521 707 - ------------------------------------------------------------------------------------------------------------------- Total 831 1,161 1,299 944 945 - ------------------------------------------------------------------------------------------------------------------- Net loans charged-off (recoveries) 5,008 4,996 5,993 4,790 2,991 Provision for loan losses 11,023 8,497 7,573 6,000 5,031 Additions due to acquisitions - - 2,300 - - - ------------------------------------------------------------------------------------------------------------------- Ending balance $ 96,051 $ 90,036 $ 86,535 $ 82,655 $ 81,445 - ------------------------------------------------------------------------------------------------------------------- Reserve to loans outstanding at period-end (1) 1.57% 1.51% 1.50% 1.51% 1.58% Net loan losses (annualized) to average loans (1) 0.33 0.34 0.42 0.22 0.24 - ------------------------------------------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. </TABLE> 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 September 30, 2001 specific impairment reserves totaled $3.2 million on loans that totaled $10 million. 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 September 30, 2001 the loss potential for the more significant factors was: Concentration of large loans - $1.0 million to $2.1 million Loan portfolio growth and expansion into new markets - $900 thousand to $1.8 million A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. These provisions were $11.0 million for the third quarter of 2001, compared to $5.0 million for the third quarter of 2000. The year-to-date provisions for loan losses totaled $27.1 million for 2001 compared to $11.2 million for 2000. NONPERFORMING ASSETS Information regarding nonperforming assets, which totaled $55 million at September 30, 2001, $44 million at December 31, 2000 and $41 million at September 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. Nonperforming loans were reduced by $1.8 million for cash payments received and $2.9 million for charge-offs during the third quarter of 2001. <TABLE> - --------------------------------------------------------------------------------------------------------------------- TABLE 13 - NONPERFORMING ASSETS (In thousands) SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 ---------------------------------------------------------------------- Nonperforming assets: Nonperforming loans: Nonaccrual loans: <S> <C> <C> <C> <C> <C> Commercial $ 39,377 $ 41,752 $ 46,956 $ 37,146 $ 34,421 Commercial real estate 4,338 2,899 680 161 169 Residential mortgage 4,060 3,362 2,255 1,855 2,115 Consumer 333 217 218 499 474 - --------------------------------------------------------------------------------------------------------------------- Total nonaccrual loans 48,108 48,230 50,109 39,661 37,179 Renegotiated loans 618 85 86 87 88 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 48,726 48,315 50,195 39,748 37,267 Other nonperforming assets 6,522 7,305 7,492 3,851 3,790 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 55,248 $ 55,620 $ 57,687 $ 43,599 $ 41,057 - --------------------------------------------------------------------------------------------------------------------- Ratios: Reserve for loan losses to nonperforming loans 197.12% 186.35% 172.40% 207.95% 219.06% Nonperforming loans to period-end loans (2) 0.80 0.82 0.87 0.73 0.73 - --------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) (1) $ 16,143 $ 10,040 $ 14,750 $ 15,467 $ 10,931 - --------------------------------------------------------------------------------------------------------------------- (1) Includes residential mortgages guaranteed by agencies of the U.S. Government $ 6,200 $ 6,649 $ 7,277 $ 7,616 $ 7,369 Excludes residential mortgages guaranteed by agencies of the U.S. Government in foreclosure. 4,925 5,509 5,276 5,630 5,202 (2) Excludes residential mortgage loans held for sale - --------------------------------------------------------------------------------------------------------------------- </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 $38 million at September 30, 2001, $52 million at June 30, 2001, and $24 million at December 31, 2000. Potential problem loans decreased during the third quarter of 2001 due to a $20 million cash payment received.
BORROWINGS AND CAPITAL On October 16, 2001 BOK Financial negotiated a $122.5 million variable rate, unsecured line of credit which matures in October 2004. This line of credit replaced a $125 million line of credit that would have matured in November 2002. Interest on amounts outstanding under this line is based on either the London Interbank Offering Rate ("LIBOR"), plus a defined margin which is determined by the amount of principal outstanding and BOK Financial's debt rating or a base rate. The base rate is defined as the greater of either the daily federal funds rate plus 1/2% or the prime rate. The current outstanding balance of this line is $95 million. Shareholders' equity totaled $821 million at September 30, 2001 compared to $647 million at September 30, 2000. The increase in equity was due primarily to net income of $112 million and an increase in unrealized gains on securities of $59 million. BOK Financial and its subsidiary banks are subject to various capital requirements administered by the federal banking agencies. These capital requirements include quantitative measures of assets, liabilities and certain off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulatory agencies about components, risk weightings and other factors. At September 30, 2001, BOK Financial and each of its subsidiary banks exceeded the regulatory definition of well capitalized. <TABLE> - -------------------------------------------------------------------------------------------- TABLE 14 - CAPITAL RATIOS SEPT. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2001 2000 2000 ------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Average shareholders' equity to average assets 7.86% 7.42% 7.31% 7.00% 6.89% Risk-based capital: Tier 1 capital 7.83 7.59 7.39 8.06 8.14 Total capital 11.35 11.02 10.89 11.23 11.49 Leverage 6.27 5.85 5.73 6.51 6.48 </TABLE> 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 on 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 mortgage rates, 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 September 30, 2001 and 2000, this modeling indicated interest rate sensitivity as follows: <TABLE> TABLE 15 - 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 $ 6,001 $2,752 $(9,525) $ (2,641) $ 3,124 $(554) 1.7% 1.0% (2.7)% (0.9)% 0.9% (0.2)% - -------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ----------- Net income $ 3,751 $1,720 $(5,953) $ (1,651) $ 1,953 $(346) 2.9% 1.7% (4.6)% (1.6)% 1.5% (0.3)% - -------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ----------- Economic value of equity $(27,563) $ (5,412) $(118,993) $(52,266) $10,258 $(3,427) (2.1)% (0.4)% (9.0)% (4.3)% 0.8% (0.3)% - -------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ----------- </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 recognize gains when necessary to offset losses on the mortgage servicing rights. At September 30, 2001, securities with a fair value of $265 million and an aggregate unrealized gain of $68 thousand 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 September 30, 2001, the pre-tax results of this modeling were: 50 bp increase 50 bp decrease Anticipated change in: Mortgage servicing rights $ 12,242 $ (20,696) Hedging securities (12,741) 16,308 ----------------- ----------------- Net $ ( 499) $(4,388) ----------------- ----------------- The current hedging program is designed to protect against changes in value due to prepayment speeds that result from changes in interest rates. Since September 30, 2001, industry projections of prepayment speeds have increased substantially due to factors other than interest rates, including duration of the current low interest rate environment and borrower prepayment behavior. As a result, management anticipates that the hedge program may be less effective. 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 16. 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. - -------------------------------------------------------------------------------- TABLE 16 - INTEREST RATE SWAPS Notional Pay Receive Fair Amount Rate Rate Value ----------------------------------------------------------------- Expiration: 2002 $10,000,000 2.59 (1) 6.88 $ 221,113 2004 147,210,000 2.59 (1) - 4.22 2.63 (1) - 7.36 5,872,129 2006 386,920,469 2.59 (1) - 7.26 2.59 (1) - 5.99 (5,127,690) 2007 10,000,000 7.48 2.59 (1) (315,397) 2009 5,656,000 2.63 (1) - 4.75 2.63 (1) - 4.75 - 2011 49,058,797 5.21 - 5.51 2.63 (1) (1,915,763) - -------------------------------------------------------------------------------- (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 $36 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 September 30, 2001, the nominal aggregate trading positions was $35.2 million, the VAR was $458 thousand.
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 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> TABLE 17 - TANGIBLE RESULTS THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, 2001 2000 2001 2000 ----------------------------------------------------------- <S> <C> <C> <C> <C> Net income $ 32,168 $ 27,396 $ 93,327 $ 80,000 Diluted earnings per share $ 0.55 $ 0.48 $ 1.61 $ 1.40 Return on average equity 16.01% 17.54% 16.42% 18.14% Return on average assets 1.26% 1.25% 1.24% 1.25% </TABLE> 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------ 2001 2000 2001 2000 ------------- --- ------------- ------------ ---- ------------ INTEREST REVENUE <S> <C> <C> <C> <C> Loans $ 113,936 $ 118,250 $ 355,875 $ 328,486 Taxable securities 44,705 41,135 138,687 124,150 Tax-exempt securities 2,898 3,031 10,270 9,381 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Total securities 47,603 44,166 148,957 133,531 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Trading securities 194 370 835 1,045 Funds sold 130 791 744 2,173 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Total interest revenue 161,863 163,577 506,411 465,235 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ INTEREST EXPENSE Deposits 50,779 53,859 167,222 148,693 Other borrowings 23,842 38,867 91,781 109,077 Subordinated debenture 2,716 2,704 7,653 7,770 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Total interest expense 77,337 95,430 266,656 265,540 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ NET INTEREST REVENUE 84,526 68,147 239,755 199,695 PROVISION FOR LOAN LOSSES 11,023 5,031 27,093 11,204 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ NET INTEREST REVENUE AFTER PROVISION FOR LOAN LOSSES 73,503 63,116 212,662 188,491 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ OTHER OPERATING REVENUE Brokerage and trading revenue 4,938 3,451 15,896 12,096 Transaction card revenue 11,679 10,739 32,992 28,690 Trust fees and commissions 10,211 10,072 30,827 29,338 Service charges and fees on deposit accounts 12,961 11,012 37,543 32,003 Mortgage banking revenue, net 12,499 9,774 35,232 27,035 Leasing revenue 810 931 2,830 2,867 Other revenue 4,341 4,371 14,509 12,688 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ TOTAL FEES AND COMMISSIONS REVENUE 57,439 50,350 169,829 144,717 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Gain on sale of student loans 11 28 539 499 Financial instrument gains (losses), net 18,641 (538) 33,648 (1,237) - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ TOTAL OTHER OPERATING REVENUE 76,091 49,840 204,016 143,979 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ OTHER OPERATING EXPENSE Personnel 40,491 35,937 121,260 109,015 Business promotion 2,560 1,941 7,860 6,424 Professional fees and services 2,983 2,145 9,202 6,624 Occupancy & equipment 11,017 9,061 32,127 25,879 Data processing & communications 10,173 8,601 29,527 26,209 FDIC and other insurance 443 403 1,329 1,170 Printing, postage and supplies 3,141 2,546 9,197 8,452 Net gains and operating expenses on repossessed assets 1,189 (574) 1,162 (1,275) Amortization of intangible assets 5,015 3,940 15,099 12,034 Mortgage banking costs 7,191 5,600 20,749 16,577 Provision for impairment of mortgage servicing rights 15,224 - 24,412 - Other expense 4,164 4,364 12,037 12,388 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Total other operating expense 103,591 73,964 283,961 223,497 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ INCOME BEFORE TAXES 46,003 38,992 132,717 108,973 Federal and state income tax 16,216 13,355 46,783 34,329 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX 29,787 25,637 85,934 74,644 Transition adjustment of adoption of FAS 133 - - 236 - - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ NET INCOME $ 29,787 $ 25,637 $ 86,170 $ 74,644 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ EARNINGS PER SHARE: Basic: Before cumulative effect of change in accounting principle $ 0.58 0.50 $ 1.67 $ 1.45 Transition adjustment of adoption of FAS 133 - - - - - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Net Income $ 0.58 0.50 $ 1.67 $ 1.45 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Diluted: Before cumulative effect of change in accounting principle $ 0.51 0.45 $ 1.49 $ 1.30 Transition adjustment of adoption of FAS 133 - - - - - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ Net Income $ 0.51 $ 0.45 $ 1.49 $ 1.30 - ---------------------------------------------- --- ------------- --- ------------- --- ------------ ---- ------------ AVERAGE SHARES USED IN COMPUTATION: Basic 50,999,897 50,610,479 50,902,073 50,660,513 - ---------------------------------------------- ----------------- ----------------- ---------------- ----------------- Diluted 58,080,466 57,277,303 57,834,159 57,323,077 - ---------------------------------------------- ----------------- ----------------- ---------------- ----------------- See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) SEPTEMBER 30, December 31, September 30, 2001 2000 2000 -------------------------------------------------- ASSETS <S> <C> <C> <C> Cash and due from banks $ 516,675 $ 701,424 $ 503,583 Funds sold 22,100 49,305 38,690 Trading securities 17,753 39,865 18,218 Securities: Available for sale 2,542,135 2,105,619 1,789,803 Available for sale securities pledged to creditors 435,725 658,201 779,919 Investment (fair value: SEPTEMBER 30, 2001 - $245,368; December 31, 2000 -$233,867; September 30, 2000 - $230,081) 242,735 233,371 230,453 - -------------------------------------------------------------------------------------------------------------------- Total securities 3,220,595 2,997,191 2,800,175 - -------------------------------------------------------------------------------------------------------------------- Loans 6,218,414 5,517,862 5,198,529 Less reserve for loan losses 96,051 82,655 81,445 - -------------------------------------------------------------------------------------------------------------------- Net loans 6,122,363 5,435,207 5,117,084 - -------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 139,356 132,066 128,449 Accrued revenue receivable 70,984 74,981 68,596 Excess cost over fair value of net assets acquired and core deposit premiums (net of accumulated amortization: SEPTEMBER 30, 2001 - $95,869; December 31, 2000 - $80,770; September 30, 2000 - $77,326) 157,090 109,045 112,489 Mortgage servicing rights, net 91,338 110,791 114,076 Real estate and other repossessed assets 6,522 3,851 3,790 Bankers' acceptances 5,969 6,925 9,104 Other assets 134,338 87,683 101,746 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 10,505,083 $ 9,748,334 $ 9,016,000 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing demand deposits $ 1,206,858 $ 1,243,766 $ 1,100,178 Interest-bearing deposits: Transaction 2,317,882 1,985,670 1,883,749 Savings 157,158 143,381 146,954 Time 2,994,422 2,673,188 2,615,454 - -------------------------------------------------------------------------------------------------------------------- Total deposits 6,676,320 6,046,005 5,746,335 - -------------------------------------------------------------------------------------------------------------------- Funds purchased and repurchase agreements 1,634,355 1,853,073 1,501,221 Other borrowings 1,021,736 882,204 882,954 Subordinated debenture 186,523 148,816 148,771 Accrued interest, taxes and expense 79,031 77,860 59,595 Bankers' acceptances 5,969 6,925 9,104 Other liabilities 80,510 29,875 21,141 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 9,684,444 9,044,758 8,369,121 - -------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock 25 25 25 Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding SEPTEMBER 30, 2001 - 51,563,050 December 31, 2000 - 49,706,055; September 30, 2000 - 49,535,381) 3 3 3 Capital surplus 317,643 278,882 276,445 Retained earnings 481,544 431,390 406,269 Treasury stock (shares at cost: SEPTEMBER 30, 2001 - 498,502; December 31, 2000 - 487,553; September 30, 2000 - 453,501) (11,142) (10,044) (9,391) Accumulated other comprehensive income (loss) 32,566 3,320 (26,472) - -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 820,639 703,576 646,879 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 10,505,083 $ 9,748,334 $ 9,016,000 - -------------------------------------------------------------------------------------------------------------------- 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> <C> December 31, 1999 250,000 $ 25 49,382 $ 3 $(43,577) $274,980 $332,751 316 $(7,018) $557,164 Comprehensive income: Net income - - - - - - 74,644 - - 74,644 Other Comprehensive income, net of tax: Unrealized gains(loss) on securities available for sale (1) - - - - 17,105 - - - - 17,105 ----------- Comprehensive income 91,749 ----------- Exercise of stock - - 123 - - 1,088 - 36 (724) 364 options Preferred dividends paid In shares of common stock - - 26 - - 328 (1,125) (40) 797 - Preferred stock dividend - - - - - - (1) - - (1) Director retainer shares - - 4 - - 49 - (9) 187 236 Treasury stock purchase - - - - - - - 151 (2,633) (2,633) - --------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 250,000 $ 25 49,535 $ 3 $(26,472) $276,445 $406,269 454 $(9,391) $ 646,879 - --------------------------------------------------------------------------------------------------------------------------- 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 - - - - - - 86,170 - - 86,170 Other Comprehensive income, net of tax: Unrealized gains(loss) on securities available for sale(1) - - - - 29,246 - - - - 29,246 ----------- Comprehensive income 115,416 ----------- Exercise of stock options - - 441 - - 5,185 - 142 (3,741) 1,444 Director retainer shares - - 3 - - 97 - (7) 126 223 Preferred stock dividend - - - - - (1) - - (1) Dividends paid in shares of common stock: Common stock - - 1,396 - - 32,740 (34,890) (103) 2,131 (19) Preferred stock - - 17 - - 739 (1,125) (21) 386 - - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 2001 250,000 $ 25 51,563 $ 3 $ 32,566 $317,643 $481,544 499 $(11,142) $820,639 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> (1) SEPTEMBER 30, 2001 September 30, 2000 -------------- ------------------ Other comprehensive income: Unrealized (gains) losses on available for sale securities $ 79,403 $ 23,909 Tax (expense) benefit on unrealized gains (losses) on available for sale securities (27,791) (7,651) Reclassification adjustment for (gains) losses realized included in net income (34,409) 1,237 Reclassification adjustment for tax expense (benefit) on realized (gains) 12,043 (390) losses ------------------------------------ Net unrealized losses on securities $ 29,246 $ 17,105 ------------------------------------
<TABLE> - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------- 2001 2000 -------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: <S> <C> <C> Net income $ 86,170 $ 74,644 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 27,093 11,204 Provision for mortgage servicing rights 24,412 - Transition adjustment of adoption of FAS 133 (236) - Unrealized losses from financial instruments 8,782 - Depreciation and amortization 49,994 38,251 Tax reserve reversal - 3,000 Net amortization of financial instrument discounts and premiums (2,974) (3,145) Net gain on sale of assets (48,522) (5,768) Mortgage loans originated for resale (743,638) (389,980) Proceeds from sale of mortgage loans held for resale 711,631 394,440 Change in trading securities 22,112 (3,485) Change in accrued revenue receivable 3,997 (956) Change in other assets (5,453) 42,770 Change in accrued interest, taxes and expense (8,146) (17,376) Change in other liabilities (1,344) (24,577) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 123,878 119,022 - -------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities 49,852 38,017 Proceeds from maturities of available for sale securities 893,667 307,490 Purchases of investment securities (73,456) (55,607) Purchases of available for sale securities (5,414,885) (1,008,079) Proceeds from sales of available for sale securities 4,618,978 734,978 Proceeds from sales of investment securities 14,040 175 Loans originated or acquired net of principal collected (533,097) (603,816) Proceeds from disposition of assets 66,067 45,200 Purchases of assets (57,669) (43,551) Cash and cash equivalents of branches & subsidiaries acquired and sold, net (73,475) - - -------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (509,978) (585,193) - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in demand deposits, transaction deposits, money market deposits, and savings accounts (56,706) 87,547 Net change in certificates of deposit 319,391 395,604 Net change in other borrowings (120,186) 100,472 Issuance of subordinated debenture 30,000 - Purchase of treasury stock - (2,633) Common stock dividend (20) - Preferred stock dividend - (1) Issuance of preferred, common and treasury stock, net 1,667 600 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 174,146 581,589 - -------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (211,954) 115,418 Cash and cash equivalents at beginning of period 750,729 426,855 - -------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 538,775 $ 542,273 - -------------------------------------------------------------------------------------------------------------------- CASH PAID FOR INTEREST $ 269,298 $ 236,628 - -------------------------------------------------------------------------------------------------------------------- CASH PAID FOR TAXES $ 24,540 $ 38,591 - -------------------------------------------------------------------------------------------------------------------- NET LOANS TRANSFERRED TO REPOSSESSED REAL ESTATE AND OTHER ASSETS $ 6,398 $ 1,481 - -------------------------------------------------------------------------------------------------------------------- PAYMENT OF DIVIDENDS IN COMMON STOCK $ 1,125 $ 1,125 - -------------------------------------------------------------------------------------------------------------------- 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 September 30, 2001, BOk owned the rights to service 88,168 mortgage loans with outstanding principal balances of $6.9 billion, including $260 million serviced for BOk. The weighted average interest rate and remaining term was 7.38% and 270 months, respectively. Activity in capitalized mortgage servicing rights and related valuation allowance during the nine months ending September 30, 2001 is as follows (in thousands): <TABLE> Capitalized Mortgage Servicing Rights ----------------------------------------------------------------------------------------- Valuation Hedging Purchased Originated Total Allowance (Gain)/Loss Net ---------------- ------------ --------------- -------------- ---------------- ----------- <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000 $ 69,238 $ 34,448 $ 103,686 $ (2,900) $ 10,005 $ 110,791 Additions 8,098 12,548 20,646 - - 20,646 Amortization expense (9,699) (4,919) (14,618) - (1,069) (15,687) Provision for impairment - - - (24,412) - (24,412) - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- BALANCE AT SEPT. 30, 2001 $ 67,637 $ 42,077 $ 109,714 $ (27,312) $ 8,936 $ 91,338 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- Estimated fair value of mortgage servicing rights (1) $ 53,309 $ 39,768 $ 93,077 - - $ 93,077 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- (1) Excludes approximately $5.2 million of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122. </TABLE> Stratification of the mortgage loan servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at September 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 $ 12,970 $ 64,888 $ 29,426 $ 2,430 $ 109,714 Deferred hedge losses - 7,736 1,200 - 8,936 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Adjusted cost $ 12,970 $ 72,624 $ 30,626 $ 2,430 $ 118,650 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Fair value $ 11,920 $ 58,234 $ 20,171 $ 2,752 $ 93,077 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Impairment $ 1,608 $ 15,061 $ 10,456 $ 187 $ 27,312 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Outstanding principal of loans serviced(1) $ 668,200 $ 3,939,401 $ 1,729,415 $ 210,500 $ 6,547,516 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- (1) Excludes outstanding principal of $361.0 million for loans serviced for which there is no capitalized mortgage servicing rights. </TABLE>
(3) DISPOSAL OF AVAILABLE FOR SALE SECURITIES Sales of available for sale securities resulted in gains and losses as follows (in thousands): NINE MONTHS ENDED SEPT. 30, ------------------------------- 2001 2000 -------------- ------------ Proceeds $ 4,618,978 $ 734,978 Gross realized gains 40,985 624 Gross realized losses 6,576 1,861 Related federal and state income tax expense (benefit) 12,043 (390) (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 NINE MONTHS ENDED --------------------------- ------------------------- SEPT. 30, Sept. 30, SEPT. 30, Sept. 30, 2001 2000 2001 2000 --------------------------- ------------------------- Numerator: <S> <C> <C> <C> <C> Net income $ 29,787 $ 25,637 $ 86,170 $ 74,644 Preferred stock dividends 375 375 1,125 1,125 - --------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common stockholders 29,412 25,262 85,045 73,519 - --------------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Preferred stock dividends 375 375 1,125 1,125 - --------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $ 29,787 $ 25,637 $ 86,170 $ 74,644 - --------------------------------------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share -weighted average shares 50,999,897 50,610,479 50,902,073 50,660,513 Effect of dilutive securities: Employee stock options (1) 746,723 332,978 598,240 328,718 Convertible preferred stock 6,333,846 6,333,846 6,333,846 6,333,846 - --------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 7,080,569 6,666,824 6,932,086 6,662,564 - --------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 58,080,466 57,277,303 57,834,159 57,323,077 - --------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.58 $ 0.50 $ 1.67 $ 1.45 - --------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.51 $ 0.45 $ 1.49 $ 1.30 - --------------------------------------------------------------------------------------------------------------- (1) Excludes employee stock options with exercise price - 1,640,647 - 1,668,230 greater than current market price - --------------------------------------------------------------------------------------------------------------- </TABLE>
(5) REPORTABLE SEGMENTS Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2001 is as follows (in thousands): <TABLE> OTHER OTHER NET INTEREST OPERATING OPERATING AVERAGE REVENUE REVENUE(1) EXPENSE ASSETS -------------- -------------- --------------- --------------- <S> <C> <C> <C> <C> Total reportable lines of business $ 244,066 $ 126,464 $ 241,076 $ 10,413,214 Total non-reportable lines of business 491 44,089 32,343 29,108 Unallocated items: Tax-equivalent adjustment 6,243 - - - Funds management 6,628 (602) 5,703 245,112 Eliminations and all others, net (17,673) 417 4,839 (607,441) -------------- -------------- --------------- --------------- BOK Financial consolidated $ 239,755 $ 170,368 $ 283,961 $ 10,079,993 ============== ============== =============== =============== (1) Excludes securities gains/losses. </TABLE> Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2000 is as follows (in thousands): <TABLE> OTHER OTHER NET INTEREST OPERATING OPERATING AVERAGE REVENUE REVENUE(1) EXPENSE ASSETS -------------- ------------- --------------- -------------- <S> <C> <C> <C> <C> Total reportable lines of business $ 197,416 $ 107,107 $ 186,649 $ 8,602,657 Total non-reportable lines of business 470 36,751 27,481 28,520 Unallocated items: Tax-equivalent adjustment 5,784 - - - Funds management 11,583 926 6,928 182,777 Eliminations and all others, net (15,558) 432 2,439 (265,926) -------------- ------------- --------------- -------------- BOK Financial consolidated $ 199,695 $ 145,216 $ 223,497 $ 8,548,028 ============== ============= =============== ============== (1) Excludes securities gains/losses. </TABLE> (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> - ----------------------------------------------------------------------------------------------------------------------------- NINE MONTH FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (In Thousands Except Share Data) FOR NINE MONTHS ENDED ------------------------------------------------------------------------------------ SEPTEMBER 30, 2001 September 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 $ 2,926,690 $ 138,687 6.34% $ 2,564,415 $ 124,150 6.47% Tax-exempt securities 290,343 15,661 7.21 267,465 14,404 7.19 - ------------------------------------------------------------------------------------------------------------------------------ Total securities 3,217,033 154,348 6.41 2,831,880 138,554 6.54 - ------------------------------------------------------------------------------------------------------------------------------ Trading securities 17,155 955 7.44 14,684 1,045 9.51 Funds sold 19,787 744 5.03 46,524 2,173 6.24 Loans(2) 5,917,006 356,607 8.06 4,823,378 329,247 9.12 Less reserve for loan losses 89,983 79,508 - ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 5,827,023 356,607 8.18 4,743,870 329,247 9.27 - ------------------------------------------------------------------------------------------------------------------------------ Total earning assets(2) 9,080,998 512,654 7.55 7,636,958 471,019 8.24 - ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 998,995 911,070 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 10,079,993 $ 8,548,028 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 2,212,120 39,960 2.42% $ 1,882,969 39,373 2.79% Savings deposits 153,887 1,792 1.56 154,523 2,030 1.75 Other time deposits 3,000,745 125,470 5.59 2,435,860 107,290 5.88 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 5,366,752 167,222 4.17 4,473,352 148,693 4.44 - ------------------------------------------------------------------------------------------------------------------------------ Other borrowings 2,572,418 91,781 4.77 2,278,019 109,077 6.40 Subordinated debenture 178,122 7,653 5.74 148,706 7,770 6.98 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities(2) 8,117,292 266,656 4.39 6,900,077 265,540 5.14 - ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,086,938 972,824 Other liabilities 115,939 85,951 Shareholders' equity 759,824 589,176 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders'equity $ 10,079,993 $ 8,548,028 - ------------------------------------------------------------------------------------------------------------------------------ TAX-EQUIVALENT NET INTEREST REVENUE(1)(3) 245,998 3.16% 205,479 3.10% TAX-EQUIVALENT NET INTEREST REVENUE (1)(3) TO EARNING ASSETS 3.62 3.59 Less tax-equivalent adjustment 6,243 5,784 - ------------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE 239,755 199,695 Provision for loan losses 27,093 11,204 Other operating revenue (3) 204,380 143,979 Other operating expense 283,961 223,497 - ------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE TAXES 133,081 108,973 Federal and state income tax (3) 46,911 34,329 - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 86,170 $ 74,644 - ------------------------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE: NET INCOME Basic $ 1.67 $ 1.45 - ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 1.49 $ 1.30 - ------------------------------------------------------------------------------------------------------------------------------ <FN> (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. </FN> </TABLE>
<TABLE> - ------------------------------------------------------------------------------------------------------------------------------ QUARTERLY FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (In Thousands Except Share Data) FOR THREE MONTHS ENDED ------------------------------------------------------------------------------------- SEPTEMBER 30, 2001 June 30, 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 $ 2,869,680 $ 44,705 6.18% $ 3,012,148 $ 47,080 6.27% Tax-exempt securities 265,608 4,554 6.80 310,517 5,841 7.54 - ------------------------------------------------------------------------------------------------------------------------------ Total securities 3,135,288 49,259 6.23 3,322,665 52,921 6.39 - ------------------------------------------------------------------------------------------------------------------------------ Trading securities 16,498 223 5.36 16,566 332 8.04 Funds sold 14,229 130 3.62 17,221 191 4.45 Loans(2) 6,065,512 114,165 7.47 5,944,358 117,080 7.90 Less reserve for loan losses 93,884 89,824 - ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 5,971,628 114,165 7.58 5,854,534 117,080 8.02 - ------------------------------------------------------------------------------------------------------------------------------ Total earning assets 9,137,643 163,777 7.11 9,210,986 170,524 7.43 - ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 1,007,684 1,010,404 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 10,145,327 $ 10,221,390 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 2,278,393 11,917 2.08 $ 2,222,838 12,821 2.31% Savings deposits 155,908 575 1.46 154,312 569 1.48 Other time deposits 3,030,759 38,287 5.01 3,009,880 42,162 5.62 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 5,465,060 50,779 3.69 5,387,030 55,552 4.14 - ------------------------------------------------------------------------------------------------------------------------------ Other borrowings 2,459,679 23,842 3.85 2,653,008 30,605 4.63 Subordinated debenture 186,631 2,716 5.77 187,299 2,496 5.35 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 8,111,370 77,337 3.78 8,227,337 88,653 4.32 - ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,093,442 1,119,597 Other liabilities 143,298 116,200 Shareholders' equity 797,217 758,256 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' $ 10,145,327 $ 10,221,390 Equity - ------------------------------------------------------------------------------------------------------------------------------ TAX-EQUIVALENT NET INTEREST REVENUE 86,440 3.33% 81,871 3.11% TAX-EQUIVALENT NET INTEREST REVENUE TO EARNING ASSETS 3.75 3.57 Less tax-equivalent adjustment 1,914 2,254 - ------------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE 84,526 79,617 Provision for loan losses 11,023 8,497 Other operating revenue (3) 76,091 60,223 Other operating expense 103,591 86,584 - ------------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE TAXES 46,003 44,759 Federal and state income tax (3) 16,216 15,778 - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 29,787 $ 28,981 - ------------------------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE: NET INCOME Basic $ 0.58 $ 0.56 - ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 0.51 $ 0.50 - ------------------------------------------------------------------------------------------------------------------------------ <FN> (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. </FN> </TABLE>
<TABLE> - ------------------------------------------------------------------------------------------------------------------------- For Three months ended - ------------------------------------------------------------------------------------------------------------------------- March 31, 2001 December 31, 2000 September 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> $ 2,910,580 $ 46,902 6.54% $ 2,654,996 $ 43,345 6.49% $ 2,520,917 $ 41,135 6.49% 282,656 5,266 7.56 276,478 5,172 7.44 274,402 4,692 6.80 - ------------------------------------------------------------------------------------------------------------------------- 3,193,236 52,168 6.63 2,931,474 48,517 6.58 2,795,319 45,827 6.52 - ------------------------------------------------------------------------------------------------------------------------- 18,421 400 8.81 18,458 405 8.73 16,873 370 8.72 28,063 423 6.11 45,310 788 6.92 47,053 791 6.69 5,737,543 125,362 8.86 5,265,300 125,854 9.51 5,020,994 118,523 9.39 86,156 83,246 81,194 - ------------------------------------------------------------------------------------------------------------------------- 5,651,387 125,362 9.00 5,182,054 125,854 9.66 4,939,800 118,523 9.55 - ------------------------------------------------------------------------------------------------------------------------- 8,891,107 178,353 8.14 8,177,296 175,564 8.54 7,799,045 165,511 8.44 - ------------------------------------------------------------------------------------------------------------------------- 999,606 955,024 910,737 - ------------------------------------------------------------------------------------------------------------------------- $ 9,890,713 $ 9,132,320 $ 8,709,782 - ------------------------------------------------------------------------------------------------------------------------- $ 2,133,537 15,222 2.89% $ 1,910,167 15,646 3.26% $ 1,916,712 13,684 2.84% 151,392 648 1.74 143,969 673 1.86 151,385 700 1.84 2,960,828 45,021 6.17 2,671,285 43,237 6.44 2,510,655 39,475 6.26 - ------------------------------------------------------------------------------------------------------------------------- 5,245,757 60,891 4.71 4,725,421 59,556 5.01 4,578,752 53,859 4.68 - ------------------------------------------------------------------------------------------------------------------------- 2,606,177 37,334 5.81 2,503,706 42,080 6.69 2,299,155 38,867 6.73 160,144 2,441 6.18 148,794 2,667 7.13 148,750 2,704 7.23 - ------------------------------------------------------------------------------------------------------------------------- 8,012,078 100,666 5.10 7,377,921 104,303 5.62 7,026,657 95,430 5.40 - ------------------------------------------------------------------------------------------------------------------------- 1,047,267 1,002,969 974,478 108,514 86,403 87,439 722,854 665,027 621,208 - ------------------------------------------------------------------------------------------------------------------------- $ 9,890,713 $ 9,132,320 $ 8,709,782 - ------------------------------------------------------------------------------------------------------------------------- 77,687 3.04% 71,261 2.92% 70,081 3.04% 3.54 3.47 3.57 2,075 2,069 1,934 - ------------------------------------------------------------------------------------------------------------------------- 75,612 69,192 68,147 7,573 6,000 5,031 68,066 54,924 49,840 93,786 79,318 73,964 - ------------------------------------------------------------------------------------------------------------------------- 42,319 38,798 38,992 14,917 13,302 13,355 - ------------------------------------------------------------------------------------------------------------------------- $ 27,402 $ 25,496 $ 25,637 - ------------------------------------------------------------------------------------------------------------------------- $ 0.53 $ 0.50 $ 0.50 - ------------------------------------------------------------------------------------------------------------------------- $ 0.48 $ 0.44 $ 0.45 - ------------------------------------------------------------------------------------------------------------------------- </TABLE>
PART II. Other Information Item 6. Exhibits and Reports on Form 8-K (A) Exhibits: None (B) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended September 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: November 14, 2001 /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