As filed with the Securities and Exchange Commission on November 14, 2002
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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, 2002
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 ($.00006 Par Value)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: 55,243,707 shares of
common stock ($.00006 par value) as of October 31, 2002.
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BOK Financial Corporation
Form 10-Q
Quarter Ended September 30, 2002
Index
Part I. Financial Information
Management's Discussion and Analysis 2
Report of Management on Consolidated
Financial Statements 18
Unaudited Consolidated Statements of Earnings 19
Unaudited Consolidated Balance Sheets 21
Unaudited Consolidated Statements of Changes
in Shareholders' Equity 22
Unaudited Consolidated Statements of Cash Flows 23
Unaudited Notes to Consolidated Financial Statements 24
Financial Summaries - Unaudited 27
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 30
Signature 30
CFO Certification 32
CEO Certification 33
MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION
ASSESSMENT OF OPERATIONS
SUMMARY OF PERFORMANCE
BOK Financial Corporation ("BOK Financial") recorded net income of $44.1 million
or $0.73 per diluted common share for the third quarter of 2002 compared to
$29.8 million or $0.50 per diluted common share for the third quarter of 2001.
Prior year's earnings per share have been restated for a 3% dividend paid in
common shares in May 2002. The returns on average assets and equity were 1.55%
and 18.44%, respectively for the quarter ended September 30, 2002 compared to
1.16% and 14.82% for the same period of 2001.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (FAS 142) was implemented January 1, 2002 and Statement of
Financial Accounting Standards No. 147, "Acquisitions of Certain Financial
Institutions" (FAS 147) was implemented during the third quarter. The first and
second quarters of 2002 have been restated to reflect the retroactive
application of FAS 147 to January 1, 2002. These statements require that certain
intangible assets are no longer amortized. If these rules had been applied
retroactively to 2001 the proforma net income and earnings per diluted common
share for the third quarter of 2001 would have been $31.5 million and $0.53. BOK
Financial has completed its first required goodwill impairment test according to
FAS 142, and no impairment was indicated.
Net interest revenue for the third quarter of 2002 grew $7.5 million over same
period 2001 due to increases in average earning assets, partially offset by the
net effect of declining interest rates. Fees and commissions revenue grew $8.5
million during the third quarter of 2002 with increases in brokerage and
trading, transaction card revenue and service charges on deposit accounts,
offset slightly from declines in trust fees and commissions. Operating expense,
excluding the provision for impairment of mortgage servicing rights of $29.0
million and pro forma impact of FAS 142 and FAS 147 on prior year increased
$21.2 million or 8% due to personnel costs, data processing and communications
and mortgage banking costs. The provision for loan loss decreased $3.0 million.
Net gains on sales of securities totaled $34.3 million for the quarter ending
September 30, 2002, which included net gains from sales of securities held as an
economic hedge of the mortgage servicing rights portfolio of $27.5 million. The
impact of the mortgage servicing rights hedge net gains and the provision for
impairment of the mortgage servicing portfolio was a net loss of $1.6 million
during the third quarter of 2002. Net gains on derivatives of $7.2 million for
the quarter ending September 30, 2002 represented mark to market on derivatives
used to manage interest rate risk.
On October 25, 2002, BOK Financial acquired Bank of Tanglewood, National
Association, located in Houston, Texas for 2,003,352 shares of stock valued at
approximately $64.5 million. BOK Financial has a contingent obligation to issue
additional shares over the next five years based on certain predetermined market
valuations of its common stock. Based upon current market prices, a total of
189,237 shares of BOK Financial common stock would be issued to satisfy this
contingent obligation and under no circumstances will BOK Financial be obligated
to issue more than 10 million shares. The estimated fair value of this
contingent price guarantee was $3.2 million, which will be included in the total
purchase price. Bank of Tanglewood had total assets, deposits and equity of $248
million, $223 million and $16 million, respectively, at the acquisition date
before push-down accounting is applied. Conversion and merger into Bank of
Texas, N.A. is expected to be completed during the fourth quarter of 2002.
Net income for the nine months ended September 30, 2002 totaled $111.6 million,
an increase of 30% over the same period of 2001. Diluted earnings per share were
$1.85 compared to $1.45 in 2001. Proforma results of FAS 142 and FAS 147 on the
nine months ending September 30, 2001 were net income of $91.1 million and $1.53
per diluted share.
The returns on average assets and equity were 1.34% and 16.64%, respectively,
for the nine months ended September 30, 2002 compared to 1.14% and 15.16% for
the same period of 2001.
NET INTEREST REVENUE
Net interest revenue on a tax-equivalent basis was $93.4 million for the third
quarter of 2002 compared to $86.4 million for the third quarter of 2001. The
growth in net interest revenue was primarily due to a $1.2 billion increase in
average earning assets, offset by a $739 million increase in interest bearing
liabilities. The growth in average earning assets included securities, which
increased by $853 million, and loans, which increased by $379 million. Average
transaction deposit accounts increased by $517 million and federal funds
purchased and repurchase agreements increased by $175 million. Yields on average
earning assets and rates paid on average interest bearing liabilities both
continued to decline during the third quarter of 2002. This resulted in a net
interest margin, the ratio of tax-equivalent net interest revenue to average
earning assets, of 3.58% in the third quarter of 2002 compared to 3.75% in the
third quarter of 2001 and 3.63% in the second quarter of 2002. 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.
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TABLE 1 - VOLUME/RATE ANALYSIS
(In thousands)
Three months ended Nine months ended
September 30, 2002/2001 September 30, 2002/2001
------------------------------------------------------------------------
Change Due To (1) Change Due To (1)
-------------------------------------------------------------
Yield Yield
Change Volume /Rate Change Volume /Rate
------------------------------------------------------------------------
Tax-equivalent interest revenue:
Securities $ 549 $ 11,633 $ (11,084) $ (1,774) $ 29,743 $ (31,517)
Trading securities (2) (47) 45 (292) (51) (241)
Loans (18,434) 6,389 (24,823) (74,171) 19,111 (93,282)
Funds sold (73) (21) (52) (545) (178) (367)
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Total (17,960) 17,954 (35,914) (76,782) 48,625 (125,407)
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Interest expense:
Interest bearing transaction deposits (2,035) 2,266 (4,301) (10,336) 7,597 (17,933)
Savings deposits (73) 30 (103) (306) 102 (408)
Time deposits (11,614) 633 (12,247) (44,524) (257) (44,267)
Federal funds purchased and repurchase
agreements (6,341) 1,144 (7,485) (35,798) (1,828) (33,970)
Other borrowings (4,748) (165) (4,583) (16,205) 3,216 (19,421)
Subordinated debentures (146) (13) (133) 12 349 (337)
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Total (24,957) 3,895 (28,852) (107,157) 9,179 (116,336)
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Tax-equivalent net interest revenue 6,997 14,059 (7,062) 30,375 39,446 (9,071)
Decrease in tax-equivalent adjustment 527 1,528
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Net interest revenue $ 7,524 $ 31,903
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(1) Changes attributable to both volume and yield/rate are allocated to both
volume and yield/rate on an equal basis.
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. The primary
objective of this strategy is to reduce total interest rate risk. The interest
rate on these borrowed funds, which generally reacts quickly to changes in
market interest rates, tends to match the effect of changes in interest rates on
the loan portfolio. Interest rates earned on the securities purchased with the
proceeds of these borrowed funds are affected less quickly by changes in market
interest rates. The timing of changes in interest rates earned on securities
more closely matches the timing of changes in interest rates paid on deposit
accounts. Although this strategy may result 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 2002, this strategy enhanced net interest revenue $13.8 million. Year-to-date
2002 this strategy enhanced net interest revenue $42.7 million. Excluding this
strategy, net interest margin for the third quarter of 2002 was 3.72% and 3.79%
for the year ending September 30, 2002. 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 for the third quarter 2002 increased $9.0 million or
16%, excluding net gains on sales of securities and derivatives, over the same
period in 2001. Service charges and fees on deposit accounts grew 42% or $5.4
million during the third quarter of 2002 compared to the third quarter of 2001,
due mostly to increases in service charges from an overdraft privilege product
initiated in 2002. Transaction card revenues have increased $2.0 million or 17%
due to growth in merchant fees, ATM network fees (TransFund) and check card
fees. Brokerage and trading increased $940 thousand or 19% during the third
quarter compared to the same period of 2001 due to increased institutional sales
offset by $1.1 million of trading losses and mark-to-market adjustments. Trust
fees declined $606 thousand or 6% when compared to the same quarter 2001 due to
declines in the asset values on which many fees are based.
Net gain on sales of securities of $34.3 million included net gains from the
general securities portfolio of $6.8 million and $27.5 million from the
securities portfolio that management has designated as an economic hedge against
the risk of loss on mortgage servicing rights. Net gain on derivatives
represents the mark to market of the derivative portfolio used for interest rate
risk management. 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.
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TABLE 2 - OTHER OPERATING REVENUE
(In thousands)
Three Months Ended
---------------------------------------------------------------
Sept. 30, June 30, March 31, Dec.31, Sept. 30,
2002 2002 2002 2001 2001
---------------------------------------------------------------
Brokerage and trading revenue $ 5,878 $ 7,014 $ 7,092 $ 5,926 $ 4,938
Transaction card revenue 13,654 13,439 12,486 11,489 11,679
Trust fees and commissions 9,605 10,300 10,374 9,740 10,211
Service charges and fees
on deposit accounts 18,395 16,391 13,855 13,741 12,961
Mortgage banking revenue, net 12,556 10,759 10,652 14,923 12,499
Leasing revenue 790 822 892 915 810
Other revenue 5,105 5,698 5,042 5,578 4,341
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Total fees and commissions 65,983 64,423 60,393 62,312 57,439
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Gain on sale of assets 444 7 676 18 11
Gain (loss) on sales of securities, net 34,341 21,602 (7,581) (3,770) 19,746
Gain (loss) on derivatives, net 7,218 (1,453) (536) (3,300) (1,105)
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Total other operating revenue $ 107,986 $ 84,579 $ 52,952 $ 55,260 $ 76,091
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Year to date other operating revenue increased $21.6 million or 13%, excluding
net gains on sales of securities and derivatives. Service charges on deposits
increased $11.1 million or 30% during the first nine months of 2002 compared to
the same period of 2001 due to increases in growth in overdraft privilege fees
and growth of treasury services revenue. Transaction card revenue increased $6.6
million or 20% for the nine months ending September 30, 2002 as compared to the
same period of 2001 due to increases in merchant fees, ATM network fees and
check card fees. Brokerage and trading fees increased 26% or $4.1 million due
mostly to institutional sales. These increases are offset slightly by declines
in mortgage banking revenue of $1.3 million due to lower servicing fees; see
additional discussion in the Lines of Business section of this report.
Year to date net gains on sales of securities of $48.4 million included net
gains from the general securities portfolio of $29.3 million and net gains of
$19.1 million from the securities portfolio that management has designated as an
economic hedge against the risk of loss on mortgage servicing rights. Net gains
on sales of derivatives included $519 thousand realized gains from sale of
options designated as an economic hedge against the risk of loss on mortgage
servicing rights and $4.7 million net gains on interest rate risk management
instruments.
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 numerous market, economic and demographic
factors such as equity market performance, consumer spending, and cash
management preferences.
OTHER OPERATING EXPENSE
Operating expense for the third quarter of 2002 increased $9.9 million or 12%
over the same period of 2001 to $94.5 million, excluding certain significant or
nonrecurring items as presented in Table 4. Personnel costs increased $4.5
million or 11%, of which $2.9 million was salaries and benefits attributable to
a 2% increase in full time equivalent employees (FTE) and a 6% increase in
salaries and benefits per FTE plus a $1.6 million to increases in incentive
bonuses tied directly to production. Data processing & communications increased
19% or $2.0 million from the same period 2001 due to transaction costs relating
to transaction cards and external processing charges due both to increased
volumes. Mortgage banking costs have increased $4.4 million due to an increase
in amortization of capitalized mortgage servicing rights. An impairment of
mortgage servicing rights of $29.0 million was also recognized due to market
conditions existing at this time. These market conditions and impact on the
mortgage banking business are more thoroughly discussed in the Lines of Business
- - Mortgage Banking section of this report.
During the third quarter of 2002, BOK Financial entered into a contract to
change its primary data processing servicer. Expenses incurred to date on this
project totaled $218 thousand and quarterly operating expenses are expected to
increase by amounts ranging from $950 thousand to $1.6 million over the next
year. Management anticipates this change to occur during the second half of
2003.
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TABLE 3 - OTHER OPERATING EXPENSE
(In thousands)
Three Months Ended
-----------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
---------------------------------------------------------
Personnel $ 44,963 $ 44,885 $ 43,332 $ 42,575 $ 40,491
Business promotion 2,483 3,208 2,878 2,798 2,560
Professional fees and services 2,816 3,732 2,908 4,189 2,983
Occupancy & equipment 10,578 10,299 10,340 10,637 11,017
Data processing & communications 12,138 11,216 10,438 10,486 10,173
FDIC and other insurance 468 483 439 388 443
Printing, postage and supplies 3,172 3,018 3,057 3,132 3,141
Net gains and operating
expenses on repossessed assets 108 656 47 239 1,189
Amortization of intangible assets 1,867 1,882 1,887 5,014 5,015
Mortgage banking costs 11,635 7,791 8,357 9,512 7,191
Provision (recovery) for
impairment
of mortgage servicing rights 29,042 23,774 (5,278) (8,861) 15,224
Other expense 4,425 2,854 4,746 4,692 4,164
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Total $ 123,695 $ 113,798 $ 83,151 $ 84,801 $ 103,591
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Amortization of intangible assets decreased $3.1 million for the quarter ending
September 30, 2002 and $9.5 million year to date. The implementation of FAS 142
and FAS 147 accounted for $2.6 million of the quarter ending September 30, 2002
change and $7.7 million of the year to date change. FAS 142 established new
rules of accounting for intangible assets. FAS 147 applied FAS 142 to goodwill
resulting from certain business combinations, such as branch acquisitions. Under
these new rules, intangible assets with indefinite lives such as goodwill are no
longer be amortized but are subject to impairment testing. Other intangible
assets will continue to be amortized over their useful lives. FAS 142 was
applied to periods after adoption on January 1, 2002. FAS 147 was adopted
September 30, 2002, effective January 1, 2002, restating the first and second
quarter of 2002; prior years are not restated for this change in accounting. If
these rules had been applied retroactively to the prior year, operating expense
would have decreased $2.6 million for the quarter ended September 30, 2001 and
$7.7 million for the nine months ended September 30, 2001.
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TABLE 4 - OTHER OPERATING EXPENSE, EXCLUDING CERTAIN SIGNIFICANT OR NONRECURRING ITEMS
(In thousands)
Three Months Ended
----------------------------------------------------------------
Sept. 30, June 30, March 31, Dec.31, Sept. 30,
2002 2002 2002 2001 2001
----------------------------------------------------------------
Total other operating expense $ 123,695 $ 113,798 $ 83,151 $ 84,801 $ 103,591
Net gains and operating costs from
repossessed assets (108) (656) (47) (239) (1,189)
Proforma effect of FAS 142 and 147 - - - (2,575) (2,575)
(Provision) recovery for impairment of
mortgage servicing rights (29,042) (23,774) 5,278 8,861 (15,224)
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Total $ 94,545 $ 89,368 $ 88,382 $ 90,848 $ 84,603
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Year to date other operating expense increased $21.6 million or 9% over same
period of 2001, excluding certain significant or nonrecurring items. Personnel
costs increased $11.9 million or 10% due to increased full time equivalent
employees and incentive compensation tied directly to production. Data
processing and communications increased $4.3 million due to volume. Mortgage
banking costs increased $7.0 million due to increased amortization of mortgage
servicing rights, detailed discussion can be found in the Lines of Business -
Mortgage Banking section of this report.
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 banking 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 network and BOSC, Inc., a securities broker-dealer.
BOK Financial allocates resources and evaluates performance of its lines of
business after the allocation of funds, certain indirect expenses, taxes and
capital costs. The cost of funds provided from one segment to another is
transfer-priced at rates that approximate market for funds with similar
duration. Deposit accounts with indeterminate maturities are transfer-priced at
a rolling average rate based on expected duration of the accounts. Over the past
year, the average transfer-pricing rate for these deposit accounts decreased by
approximately 250 basis points. The impact of this significant decline in
transfer-pricing rates shifted net interest revenue from the providers of funds,
primarily consumer banking, trust services and regional banks, to funds
management. This is reflected in net interest revenue in the funds management
department of $13.8 million for the quarter ended September 30, 2002 compared to
$10.9 million for the third quarter of 2001.
Corporate Banking
The Corporate Banking Division provides loan and lease financing and treasury
and cash management services to businesses throughout Oklahoma and seven
surrounding states. In addition to serving the banking needs of small
businesses, middle market and larger customers, the Corporate Banking Division
has specialized groups that serve customers in the energy, agriculture,
healthcare and banking/finance industries. The Corporate Banking Division
contributed $12.7 million or 29% to consolidated net income for the third
quarter of 2002 and $36.2 million or 32% for the nine months ending September
31, 2002. This compares to $11.8 million or 39% of consolidated net income for
the third quarter of 2001 and $34.1 million or 40% for the nine months ended
September 30, 2001. The decrease in net interest revenue from external sources
was due to lower loan yields. The provision for loan loss represents net loans
charged off or recovered for the Corporate Banking Division.
Table 5 Corporate Banking
(In thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------ --------------- -------------------------------
NIR (expense) from external sources $ 39,424 $ 49,458 $ 117,568 $ 158,456
NIR (expense) from internal sources (11,948) (20,172) (36,077) (72,083)
------------ ------------- ------------- -------------
Total net interest revenue 27,476 29,286 81,491 86,373
Other operating revenue 8,030 7,150 24,629 21,768
Operating expense 14,271 14,212 43,154 42,606
Provision for loan loss 507 2,775 4,037 9,520
Net income 12,689 11,761 36,238 34,103
Average assets $3,957,383 $ 3,810,837 $ 3,981,424 $ 3,803,639
Average equity 446,537 436,475 448,619 437,638
Return on assets 1.27% 1.22% 1.22% 1.20%
Return on equity 11.27% 10.69% 10.80% 10.42%
Efficiency ratio 40.19% 39.01% 40.67% 39.40%
Consumer Banking
The Consumer Banking Division, which provides a full line of deposit, loan and
fee-based services to customers throughout Oklahoma, contributed $2.2 million or
5% to consolidated net income for the third quarter of 2002 and $5.9 million or
5% for the nine months ended September 30, 2002. This compares to $4.0 million
or 13% of consolidated net income for the third quarter of 2001 and $13.2
million or 15% for the nine months ended September 30, 2001. Revenue from
internal sources, primarily funds provided to other business lines, decreased
$7.2 million due to lower transfer pricing rates. At the same time, expense from
external sources decreased $2.9 million due to lower interest paid on deposit
accounts. Other operating revenue increased $3.3 million or 44% over third
quarter of 2001 due primarily to increases in service charges from an overdraft
privilege product initiated during the second quarter of 2002. The increase in
provision for loan loss, which represents actual net charge-offs, of $1.6
million during the third quarter compared to same quarter 2001, was due to $863
thousand of charge-offs from the overdraft privilege product and $696 thousand
to indirect auto loans.
Table 6 Consumer Banking
(In thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
--------------------------------- -----------------------------------
2002 2001 2002 2001
------------- -- -------------- ---------------------- -------------
NIR (expense) from external sources $ (4,599) $ (7,514) $ (13,335) $ (28,886)
NIR (expense) from internal sources 15,126 22,284 46,543 75,286
------------- -------------- --------------- -------------
Total net interest revenue 10,527 14,770 33,208 46,400
Other operating revenue 10,784 7,496 27,953 22,166
Operating expense 15,315 14,835 46,606 44,203
Provision for loan loss 2,444 885 4,830 2,821
Net income 2,171 4,000 5,942 13,162
Average assets $ 2,311,550 $ 2,182,276 $ 2,322,765 $ 2,184,837
Average equity 72,929 67,755 72,964 68,301
Return on assets 0.37% 0.73% 0.34% 0.81%
Return on equity 11.81% 23.42% 10.89% 25.77%
Efficiency ratio 71.86% 66.63% 76.20% 64.47%
Mortgage Banking
The Mortgage Banking Division contributed $4.9 million or 11% to consolidated
net income for the third quarter of 2002 compared to $2.4 million or 8% for the
third quarter of 2001. Year to date September 30, 2002 the Mortgage Banking
Division contributed $13.1 million or 12% to consolidated net income compared to
$7.2 million or 8% for the same period of 2001. Economic hedging activities
contributed realized gains of $27.5 million that substantially offset a $29.0
million provision for impairment of mortgage servicing rights.
Revenue from loan production activities was $11.8 million for the third quarter
of 2002 compared to $8.1 million for the same period of 2001 due primarily to an
increase in loan volumes. Mortgage loans originated totaled $347 million
compared to $264 million for the third quarter of 2001. Pre-tax income from loan
origination activities totaled $7.3 million in 2002 compared to $3.6 million in
2001. Approximately 66% of the loans originated during the third quarter of 2002
were in Oklahoma.
Mortgage servicing fees totaled $6.9 million for the third quarter of 2002
compared to $7.3 million in 2001. The decrease in mortgage servicing revenue was
due primarily to a lower outstanding principal balance of loans serviced.
Amortization of mortgage servicing rights, which is included in operating
expenses, totaled $10.2 million in the third quarter of 2002 compared to $5.5
million in 2001 due to an increase in loan prepayments. The valuation allowance
from impairment of mortgage servicing rights totaled $29.0 million. Net realized
gains from sales of securities designated as an economic hedge of the mortgage
servicing portfolio totaled $27.5 million. These factors combined for pre-tax
income on mortgage servicing activities of $342 thousand for the third quarter
of 2002 compared to a pre-tax loss of $165 thousand for 2001. See the Market
Risk section of this report for additional discussion of the prepayment risk of
the mortgage servicing portfolio and related hedging strategies.
Table 7 Mortgage Banking
(In thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- --------------------------
2002 2001 2002 2001
------------ -------------- ---------------------------
NIR (expense) from external sources $ 8,508 $ 7,511 $ 24,291 $ 24,435
NIR (expense) from internal sources (3,258) (4,645) (11,222) (17,239)
------------ ------------ ----------- ----------
Total net interest revenue 5,250 2,866 13,069 7,196
Capitalized mortgage servicing rights 4,318 3,773 14,235 11,572
Other operating revenue 12,301 9,392 25,512 25,493
Operating expense 15,247 11,383 38,719 33,629
Provision (recovery) for impairment of
mortgage servicing rights 29,042 15,224 47,538 24,412
Gains (losses) on sales of financial 27,490 13,165 19,587 23,847
instruments
Net income (loss) 4,888 2,364 (6,719) 6,127
Average assets $ 666,978 $ 636,058 $ 672,565 $ 633,526
Average equity 53,249 41,975 60,251 42,592
Return on assets 2.91% 1.47% (1.34)% 1.29%
Return on equity 36.42% 22.34% (14.91)% 19.23%
Efficiency ratio 69.72% 71.01% 73.31% 75.98%
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 $1.2 million or 3% of consolidated net
income for the third quarter of 2002 and $4.9 million or 4% for the nine months
ending September 30, 2002. This compared to $2.5 million or 8% of consolidated
net income for the third quarter of 2001 and $7.6 million or 9% for the nine
months ending September 30, 2001. Other operating revenue declined $705 thousand
compared to the third quarter of 2001 due to declines in the asset values on
which many fees are based. At September 30, 2002, trust assets with an aggregate
market value of $16.4 billion were subject to various fiduciary arrangements
compared to $16.6 billion at September 30, 2001.
Table 8 Trust Services
(In thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ------------- ---------------------------
NIR (expense) from external sources $ 279 $ 42 $ 1,078 $ (391)
NIR (expense) from internal sources 2,148 3,366 6,153 10,799
----------- ------------ ------------ -----------
Total net interest revenue 2,427 3,408 7,231 10,408
Other operating revenue 9,554 10,259 30,162 31,065
Operating expense 9,691 9,640 29,044 29,024
Net income 1,208 2,460 4,879 7,606
Average assets $ 522,299 $ 468,457 $ 527,098 $ 471,569
Average equity 44,080 40,345 44,312 40,380
Return on assets 0.92% 2.08% 1.24% 2.16%
Return on equity 10.88% 24.19% 14.72% 25.18%
Efficiency ratio 80.89% 70.53% 77.67% 69.98%
Regional Banking
Regional banks include Bank of Texas, Bank of Albuquerque, and Bank of Arkansas.
Each of these banks provides 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 $10.3 million or 23% to consolidated
net income for the third quarter 2002 and $26.4 million or 24% for the nine
months ended September 30, 2002. This compared to $7.8 million or 26% of
consolidated net income for the third quarter of 2001 and $23.6 million or 27%
for the nine months ended September 30, 2001. BOK Financial's operations in
Texas, New Mexico and Arkansas contributed $6.8 million, $3.1 million, and $397
thousand, respectively, to consolidated net income for the third quarter of
2002. This compared to net income of $5.4 million, $2.0 million, and $428
thousand, respectively, for the third quarter 2001.
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. Tangible net income is defined as net income excluding the after-tax
effect of goodwill and core deposit intangible asset amortization.
Table 9 Regional Banking
(In thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------ -------------- ------------------------------
NIR (expense) from external sources $ 28,794 $ 35,076 $ 100,950 $ 101,744
NIR (expense) from internal sources 2,359 (3,164) (9,615) (8,055)
------------ ------------- ------------ ------------
Total net interest revenue 31,153 31,912 91,335 93,689
Other operating revenue 7,309 4,954 19,261 14,400
Operating expense 22,688 23,397 67,335 67,204
Provision for loan loss 1,583 1,357 5,119 3,542
Gains (losses) on sales of financial 519 279 3,480 (70)
instruments
Net income 10,317 7,836 26,423 23,587
Tangible net income 11,895 11,606 31,158 35,013
Average assets $3,763,527 $3,254,156 $ 3,787,722 $ 3,286,842
Average equity 441,080 397,677 443,454 402,729
Tangible return on assets 1.25% 1.41% 1.10% 1.42%
Tangible return on equity 10.70% 11.58% 9.39% 11.62%
Efficiency ratio 58.99% 63.46% 60.88% 62.17%
ASSESSMENT OF FINANCIAL CONDITION
SECURITIES PORTFOLIO
The securities portfolio totaled $4.3 billion at September 30, 2002 compared to
$3.8 billion at June 30, 2002 and $3.7 billion at December 31, 2001.
Mortgage-backed securities classified as available for sale were $4.0 billion at
September 30, 2002, $3.5 billion at June 30, 2002 and $3.3 billion at December
31, 2001. Management's strategy during the third quarter was to sell securities
that had limited potential for further appreciation and to replace them with
lower-yielding securities with less prepayment risk. This strategy resulted in
realized gains of $6.8 million, excluding net gains on sales of securities
designated as an economic hedge of the mortgage servicing portfolio. The net
growth in mortgage-backed securities since June 30, 2002 was intended to take
advantage of a steeper yield curve for such securities and anticipated
prepayments during the fourth quarter. Net unrealized gains in the securities
portfolio increased from $55.3 million at June 30, 2002 to $71.5 million at
September 30, 2002.
LOANS
The aggregate loan portfolio at September 30, 2002 totaled $6.6 billion compared
to $6.3 billion at June 30, 2002. Total loans increased by $228 million or 4%,
excluding a $54 million increase in residential mortgage loans held for sale.
The increase in loans was due primarily to a $135 million increase in commercial
loans. Commercial loan demand accelerated in the third quarter after being flat
during the first half of 2002.
- ---------------------------------------------------------------------------------------------------------------------
TABLE 10 - LOANS
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
---------------------------------------------------------------------------------
Commercial:
Energy $ 1,006,151 $ 936,381 $ 970,234 $ 987,556 $ 942,381
Manufacturing 507,798 513,019 499,870 467,260 490,839
Wholesale/retail 671,127 655,081 613,612 600,470 585,351
Agricultural 154,221 134,612 156,334 170,861 199,155
Services 1,166,193 1,118,239 1,075,852 1,084,480 1,087,329
Other commercial and industrial 286,972 300,239 339,355 364,123 313,801
- ---------------------------------------------------------------------------------------------------------------------
Total commercial 3,792,462 3,657,571 3,655,257 3,674,750 3,618,856
- ---------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Construction and land development 331,073 320,730 329,335 327,455 330,964
Multifamily 309,173 297,576 301,402 291,687 252,093
Other real estate loans 767,083 744,391 739,646 722,633 767,012
- ---------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,407,329 1,362,697 1,370,383 1,341,775 1,350,069
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage:
Secured by 1-4 family
residential properties 849,254 795,834 726,228 703,080 753,153
Residential mortgages held for 136,330 82,714 89,439 166,093 94,219
sale
- ---------------------------------------------------------------------------------------------------------------------
Total residential mortgage 985,584 878,548 815,667 869,173 847,372
- ---------------------------------------------------------------------------------------------------------------------
Consumer 409,779 414,571 407,909 409,680 402,117
- ---------------------------------------------------------------------------------------------------------------------
Total $ 6,595,154 $ 6,313,387 $ 6,249,216 $ 6,295,378 $ 6,218,414
- ---------------------------------------------------------------------------------------------------------------------
Outstanding loans to the services industry totaled $1.2 billion or 18% of total
loans at September 30, 2002. Services included loans of $107 million to the
healthcare industry, $214 million to nursing homes and $69 million to the hotel
industry. Energy loans represent 15% of the total loan portfolio. This category
included loans to oil and gas producers that totaled $819 million, an increase
of $60 million during the quarter. Agriculture included $135 million of loans to
the cattle industry, an increase of $16 million. Other notable loan
concentrations by primary industry of the borrowers are presented in Table 10.
Commercial real estate loans totaled $1.4 billion or 21% of total loans at
September 30, 2002. Construction and land development loans included $269
million for single-family residential lots and premises. The major components of
other commercial real estate loans were office buildings, $306 million and
retail facilities, $189 million. Loans secured by office buildings increased $34
million during the quarter while loans secured by retail facilities decreased
$11 million.
Residential mortgage loans included $315 million of home equity loans, $316
million of mortgage loans held for business relationship and community
investment purposes, and $200 million of adjustable rate mortgage loans. The
increase in residential mortgage loans during the third quarter included $34
million of loans held for business relationship and community investment
purposes and $23 million of adjustable rate mortgages. Consumer loans included
$179 million of indirect automobile loans. Substantially all of these loans were
purchased from dealers in Oklahoma. Approximately 25% of the indirect automobile
loan portfolio was considered sub-prime.
While BOK Financial continues to increase geographic diversification through
expansion into Texas and New Mexico, geographic concentration subjects the loan
portfolio to the general economic conditions in Oklahoma. Loan growth attributed
to Oklahoma, excluding mortgage loans held for sale, totaled $207 million or 5%
during the third quarter. This included $40 million of commercial loan growth in
the Denver loan production office. Table 11 reflects the distribution of the
major loan categories among BOK Financial's principal market areas.
- ---------------------------------------------------------------------------------------------------------------------
TABLE 11 - LOANS BY PRINCIPAL MARKET AREA
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
---------------------------------------------------------------------
Oklahoma:
Commercial $2,663,752 $ 2,547,218 $ 2,594,237 $2,606,977 $ 2,610,357
Commercial real estate 790,638 752,757 743,728 739,419 741,978
Residential mortgage 750,293 642,080 588,329 642,116 613,565
Consumer 311,877 314,061 312,505 314,060 300,193
---------------------------------------------------------------------
Total Oklahoma $4,516,560 $ 4,256,116 $ 4,238,799 $4,302,572 $ 4,266,093
---------------------------------------------------------------------
Texas:
Commercial $ 789,846 $ 773,649 $ 771,167 $ 775,788 $ 760,686
Commercial real estate 391,207 381,068 400,350 380,602 378,364
Residential mortgage 149,983 148,463 138,987 136,181 137,482
Consumer 85,651 88,783 83,985 85,347 91,513
---------------------------------------------------------------------
Total Texas $1,416,687 $ 1,391,963 $ 1,394,489 $1,377,918 $ 1,368,045
---------------------------------------------------------------------
Albuquerque:
Commercial $ 276,222 $ 270,278 $ 222,960 $ 219,257 $ 195,054
Commercial real estate 141,298 142,829 139,044 136,425 146,512
Residential mortgage 80,298 82,926 83,310 85,309 90,864
Consumer 10,191 9,711 9,245 8,200 8,109
---------------------------------------------------------------------
Total Albuquerque $ 508,009 $ 505,744 $ 454,559 $ 449,191 $ 440,539
---------------------------------------------------------------------
Northwest Arkansas:
Commercial $ 62,642 $ 66,426 $ 66,893 $ 72,728 $ 52,759
Commercial real estate 84,186 86,043 87,260 85,329 83,215
Residential mortgage 5,010 5,079 5,042 5,567 5,461
Consumer 2,060 2,016 2,174 2,073 2,302
---------------------------------------------------------------------
Total Northwest Arkansas $ 153,898 $ 159,564 $ 161,369 $ 165,697 $ 143,737
---------------------------------------------------------------------
OTHER DERIVATIVES WITH CREDIT RISK
During 2001, BOK Financial developed a program that permits its energy-producing
customers to hedge against price fluctuations through energy option and swap
contracts. These contracts are executed between BOk and its customers.
Offsetting contracts are executed between BOk and selected energy dealers to
minimize the risk of changes in energy prices. The dealer contracts are
identical to the customer contracts, except for a fixed pricing spread paid to
BOk as compensation for administrative costs, credit risk and profit.
The fair values of energy derivative contracts included in other assets and
other liabilities each totaled $40 million at September 30, 2002. The primary
dealer counterparties on asset contracts were BankOne, $1.8 million; Coral
Energy, $4.7 million; JP Morgan Chase, $5.6 million; Morgan Stanley, $1.7
million. A deterioration of the credit standing of one or more of the
counterparties may result in BOK Financial recognizing a loss as the fair value
of the affected contracts may no longer move in tandem with the offsetting
contract.
SUMMARY OF LOAN LOSS EXPERIENCE
The reserve for loan losses, which is available to absorb losses inherent in the
loan portfolio, totaled $111 million at September 30, 2002, compared to $108
million at June 30, 2002 and $96 million at September 30, 2001. This represented
1.72%, 1.73% and 1.57% of total loans, excluding loans held for sale, at
September 30, 2002, June 30, 2002 and September 30, 2001, respectively. Losses
on loans held for sale, principally residential mortgage loans, 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.
Consumer loans charged off increased to $3.2 million in the third quarter of
2002 compared to $2.3 million in the preceding quarter and $1.6 million in the
third quarter of 2001. This reflected increased losses on indirect automobile
loans and on a consumer overdraft privilege that was initiated earlier in 2002.
Table 12 presents statistical information regarding the reserve for loan losses
for the past five quarters.
- -------------------------------------------------------------------------------------------------
TABLE 12 - SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands)
Three Months Ended
--------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
--------------------------------------------------------------
Beginning balance $ 108,084 $ 105,900 $ 101,905 $ 96,051 $ 90,036
Loans charged-off:
Commercial 2,873 3,378 3,525 3,803 4,241
Commercial real estate - - 123 62 -
Residential mortgage 88 11 94 102 37
Consumer 3,164 2,258 2,514 1,993 1,561
- -------------------------------------------------------------------------------------------------
Total 6,125 5,647 6,256 5,960 5,839
- -------------------------------------------------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial 332 169 334 196 285
Commercial real estate 9 45 49 139 5
Residential mortgage 118 6 20 25 7
Consumer 779 777 982 937 534
- -------------------------------------------------------------------------------------------------
Total 1,238 997 1,385 1,297 831
- -------------------------------------------------------------------------------------------------
Net loans charged-off 4,887 4,650 4,871 4,663 5,008
Provision for loan losses 8,029 6,834 8,866 10,517 11,023
- -------------------------------------------------------------------------------------------------
Ending balance $ 111,226 $ 108,084 $ 105,900 $ 101,905 $ 96,051
- -------------------------------------------------------------------------------------------------
Reserve to loans outstanding
at period-end (1) 1.72% 1.73% 1.72% 1.66% 1.57%
Net loan losses (annualized)
to average loans (1) .31 0.30 0.32 0.30 0.33
- -------------------------------------------------------------------------------------------------
(1) Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
The reserve for loan losses is assessed by management based upon an ongoing
evaluation of the probable estimated losses inherent in the portfolio, including
probable losses on both outstanding loans and unused commitments to provide
financing. A consistent, well-documented methodology has been developed that
includes reserves assigned to specific criticized loans, general reserves that
are based on statistical migration analysis and nonspecific reserves that are
based on 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. Specific reserves for
impairment are determined through evaluation of future cash flow and collateral
value in accordance with generally accepted accounting principles and regulatory
standards. At September 30, 2002, specific impairment reserves totaled $3.4
million on total impaired loans of $48 million.
The adequacy of the general loan loss reserve is determined primarily through an
internally developed migration analysis model. The purpose of this model is to
determine the probability that each loan in the portfolio has an inherent loss
based on historic trends. Management uses an eight-quarter aggregate
accumulation of net loan losses as the basis for this model. Greater emphasis is
placed on loan losses in more recent periods. This model assigns a general
allowance to commercial loans and leases, excluding loans that have a specific
impairment reserve, residential mortgage loans and consumer loans.
A nonspecific reserve for loan losses is maintained for risks beyond those
factors specific to a particular loan or those identified by the migration
analysis. These factors include trends in the 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 factors considered are bank
regulatory examination results, error potential in the migration analysis model
or the underlying data and other relevant factors. A range of potential losses
is determined for each factor identified. At September 30, 2002, the range of
potential losses for the more significant factors were:
General economic conditions - $4.5 million to $5.5 million
Concentration of large loans - $1.2 million to $2.5 million
Loan portfolio growth - $1.4 million to $2.8 million
Evaluation of the loan loss reserve requires a significant level of assumptions
by management including estimation of future cash flows, collateral values,
relevance of historic loss trends to the loan portfolio and assessment of
current economic conditions on the borrowers' ability to repay. The required
loan loss reserve could be materially affected by changes in these assumptions.
The loan loss reserve is adequate to absorb losses inherent in the loan
portfolio based upon current conditions and information available to management.
However, actual losses may differ significantly due to changing conditions or
information that is currently not available.
NONPERFORMING ASSETS
Information regarding nonperforming assets, which totaled $60 million at
September 30, 2002, $45 million at June 30, 2002 and $55 million at September
30, 2001, is presented in Table 13. Nonperforming assets included nonaccrual and
renegotiated loans and excluded loans 90 days or more past due but still
accruing interest. Newly identified nonaccruing loans totaled $22.8 million
during the third quarter of 2002, including $14.7 million of loans related to
the cattle industry and $4.6 million of loans related to the energy industry.
Total nonaccruing loans decreased by $1.0 million from cash payments received
and $1.0 million from losses charged against the loan loss reserve. Two loans
with a combined outstanding balance of $5.5 million were returned to accruing
status based on a satisfactory payment history and improved outlook.
- ---------------------------------------------------------------------------------------------------------------------
TABLE 13 - NONPERFORMING ASSETS
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
----------------------------------------------------------------------
Nonperforming assets:
Nonperforming loans:
Nonaccrual loans:
Commercial $ 41,093 $ 28,803 $ 33,784 $ 35,075 $ 39,377
Commercial real estate 5,788 4,388 3,360 3,856 4,338
Residential mortgage 6,025 4,486 4,182 4,140 4,060
Consumer 556 605 555 469 333
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 53,462 38,282 41,881 43,540 48,108
Renegotiated loans - - - 27 618
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 53,462 38,282 41,881 43,567 48,726
Other nonperforming assets 6,427 6,630 7,655 7,141 6,522
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 59,889 $ 44,912 $ 49,536 $ 50,708 $ 55,248
- ---------------------------------------------------------------------------------------------------------------------
Ratios:
Reserve for loan losses to
nonperforming loans 208.05% 282.34% 252.86% 233.90% 197.12%
Nonperforming loans to
period-end loans (2) 0.83 0.72 0.68 0.71 0.80
- ---------------------------------------------------------------------------------------------------------------------
Loans past due (90 days) (1) $ 10,274 $ 12,215 $ 13,023 $ 8,108 $ 16,143
- ---------------------------------------------------------------------------------------------------------------------
(1) Includes residential mortgages guaranteed by agencies of the U.S.
Government
$ 6,640 $ 6,764 $ 6,314 $ 6,222 $ 6,200
Excludes residential mortgages guaranteed
by agencies of the U.S. Government in
foreclosure. 4,931 4,853 4,044 4,396 4,925
(2) Excludes residential mortgage loans held for sale
- ---------------------------------------------------------------------------------------------------------------------
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. These loans are not included in nonperforming
assets because the borrowers are still performing in accordance with the
original terms of the loan agreements and no loss of principal or interest is
anticipated. However, known information causes management to have concerns as to
the borrower's ability to comply with the current repayment terms. Potential
problem loans totaled $71 million at September 30, 2002 compared to $68 million
at June 30, 2002 and $38 million at September 30, 2001. At September 30, 2002,
the composition of potential problem loans by primary industry categories
included management of recreational properties, $16 million; manufacturing, $12
million; healthcare, $11 million and energy, $11 million.
CAPITAL
Shareholders' equity totaled $980 million at September 30, 2002 compared to $924
million at June 30, 2002. The increase in equity was due primarily to net income
of $44 million and a $10 million increase in unrealized gains on available for
sale securities.
BOK Financial and its subsidiary banks are subject to various capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can result in certain mandatory and additional
discretionary actions by regulators that could have a material effect on
operations. 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. Management has developed and the Board of
Directors has approved an internal capital policy that is more restrictive than
the regulatory capital standards. At September 30, 2002, BOK Financial and each
of its subsidiary banks exceeded the regulatory definition of well capitalized.
- --------------------------------------------------------------------------------
TABLE 14 - CAPITAL RATIOS
Sept. 30 June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
-----------------------------------------------------
Average shareholders' equity
to average assets 8.38% 8.01% 7.93% 7.91% 7.86%
Risk-based capital:
Tier 1 capital 9.03 8.69 8.49 8.08 7.83
Total capital 12.43 12.11 11.99 11.56 11.35
Leverage 6.99 6.78 6.63 6.38 6.27
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 prices, commodity
prices or equity prices. Financial instruments that are 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 both its assets held for trading and held for purposes
other than trading. The effects of other changes, such as foreign exchange
rates, commodity prices or equity prices do not pose significant market risk to
BOK Financial.
Responsibility for managing market risk rests with the Asset / Liability
Committee that operates under policy guidelines established by the Board of
Directors. The acceptable negative variation in net interest revenue, net income
or economic value of equity due to a 200 basis point increase or decrease in
interest rates is generally limited by these guidelines to +/- 10%. These
guidelines also set maximum levels for short-term borrowings, short-term assets,
public funds, and brokered deposits, and establish minimum levels for unpledged
assets, among other things. Compliance with these guidelines is reviewed
monthly.
INTEREST RATE RISK - 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, first assuming a sustained parallel 200 basis
point increase and second assuming a sustained parallel 100 basis point decrease
in interest rates. Management historically evaluated interest rate sensitivity
for a sustained 200 basis point decrease in rates. However, these results are
not meaningful in the current low-rate environment. An independent source is
used to determine the most likely interest rate scenario.
BOK Financial's primary interest rate exposures that can affect the simulation
model are included the Federal Reserve Bank's discount rate, which affects
short-term borrowings, and the prime lending rate and the London Interbank
Offering Rate, which are the basis for much of the variable-rate loan pricing.
Additionally, mortgage rates directly affect 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 model incorporates assumptions regarding
the effects of changes in interest rates and account balances on indeterminable
maturity deposits based on a combination of historical analysis and expected
behavior. The impact of planned growth and new business activities is factored
into the simulation model. The effects of changes in interest rates on the value
of mortgage servicing rights are excluded from Table 15 due to the extreme
volatility over such a large rate range. The effects of interest rate changes on
the value of mortgage servicing rights and securities identified as economic
hedges are shown in Table 16.
Table 15 - INTEREST RATE SENSITIVITY
(Dollars in Thousands)
Increase Decrease
-------------------------- ----------------------------------------------
200 bp 100 bp 200 bp Most Likely
------------------------ ------------------------ --------------------
2002 2001 2002 2001 2002 2001
------------- ---------- ----------- ------------ ---------- ---------
Anticipated impact over the next twelve months:
Net interest revenue $10,380 $ 6,001 $ (4,928) $ (9,525) $3,769 $ 3,124
2.8% 1.7% (1.3)% (2.7)% 1.0% 0.9%
- -------------------------------- --------------------------- ------------------------ ---------------------
Net income $ 6,487 $ 3,751 $ (3,080) $ (5,953) $2,355 $ 1,953
4.7% 2.9% (2.3)% (4.6)% 1.7% 1.5%
- -------------------------------- --------------------------- ------------------------ ---------------------
Economic value of equity $12,919 $(27,563) $(40,374) $(118,993) $49,822 $10,258
1.0% (2.1)% (3.0)% (9.0)% 3.7% 0.8%
- -------------------------------- --------------------------- ------------------------ ---------------------
BOK Financial has market risk associated with its portfolio of mortgage
servicing rights. The primary risk is due to loan prepayments. Generally, the
value of mortgage servicing rights declines when interest rates fall due to an
increase in loan prepayments. The decrease in value of the servicing rights is
recorded as an impairment allowance. Both the amortized cost and the fair value
of the servicing rights are stratified by interest rate and loan type. An
impairment provision is charged against earnings whenever the amortized cost
exceeds the fair value of each stratum. Generally, the value of mortgage
servicing rights increases when interest rates rise due to a decrease in loan
prepayments. This increase in value can only be recognized up to the amortized
cost. Any increase in fair value beyond amortized cost is not recognized.
There is no active market for trading servicing rights. Fair value is determined
by using projected prepayment speeds and assumed servicing costs, earnings on
escrow deposits, ancillary income and discount rates. Management uses
independent sources for many of these assumptions. However, actual fair values
may differ significantly from computed fair values due to assumption changes or
modeling error.
BOK Financial designates a portion of its securities portfolio as an economic
hedge against the risk of loss on its mortgage servicing rights. Mortgage-backed
and principal only securities are acquired and held as available for sale when
prepayment risk exceeds certain levels. The fair value of these securities is
expected to vary inversely to the fair value of the mortgage servicing rights.
Management may sell these securities and realize gains or losses when necessary
to offset losses or gains on the mortgage servicing rights. However, this
strategy presents certain risks. A well-developed market determines the fair
value for securities. As previously noted, there is no comparable market for
mortgage servicing rights. Therefore, the computed change in value of the
servicing rights for a specified change in interest rates may not correlate to
the change in value of the securities.
At September 30, 2002, securities with a fair value of $175 million and an
unrealized gain of $6.0 million were held for the hedge program. This unrealized
gain, net of income taxes, is included in shareholders' equity as part of other
comprehensive income. The interest rate sensitivity of the mortgage servicing
rights and securities held as a hedge is modeled over a range of +/- 50 basis
points. At September 30, 2002, the pre-tax results of this modeling on reported
earnings were:
TABLE 16 - Interest Rate Sensitivity - Mortgage Servicing
(Dollars in Thousands)
50 bp increase 50 bp decrease
Anticipated change in: -------------- ---------------
Mortgage servicing rights $ 21,681 $(10,491)
Hedging securities ( 341)(1) 6,283
----------------- ----------------
Net $ 21,340 $ (4,208)
----------------- ----------------
(1) Anticipated decrease in value of hedging instruments totals $6.3 million,
which would reduce the existing unrealized gain before any losses would be
realized.
The simulations used to manage market risk are based on numerous assumptions
regarding the effects 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, market conditions and management strategies, among other factors.
BOK Financial uses interest rate swaps, a derivative product, in managing its
interest rate sensitivity. These products are generally used to more closely
match interest paid on certain fixed rate loans with funding sources and
long-term certificates of deposits with earning assets. Credit risk from these
swaps is closely monitored and counterparties to these contracts are assigned
swap limits based on a credit analysis of the counterparties. Derivative
products are not used for speculative purposes.
BOK Financial recorded net unrealized gains on interest rate swaps of $7.2
million during the third quarter of 2002. These gains are primarily attributable
to the interest rate swaps associated with fixed-rate certificates of deposit.
These swaps increased in value as interest rates declined. Concurrently, the
fixed-rate certificates of deposit decreased in value. Because management did
not designate these interest rate swaps as hedges for accounting purposes, the
decreased value of the certificates of deposit is not currently recognized.
These gains may be reversed in future periods either due to rising interest
rates or through periodic settlements of the interest rate swaps over their
remaining lives.
- ---------------------------------------------------------------------------------------------------
TABLE 17 - INTEREST RATE SWAPS
(In Thousands)
Notional Pay Receive Positive Negative
Amount Rate Rate Fair Value Fair Value
--------------------------------------------------------------------------------------
Expiration:
2004 $71,945 1.79%(1) - 4.22% 1.81%(1) - 7.36% $ 4,532 $ (437)
2006 220,739 1.79%(1) - 5.85% 1.81%(1) - 5.85% 5,368 (1,657)
2007 275,000 1.79%(1) 4.09% - 4.51% 5,488 -
2009 5,466 1.81%(1) - 4.75% 1.81%(1) - 4.75% 357 (357)
2011 45,033 5.21% - 5.51% 1.81% - (3,642)
- ----------------------------------------------------------------------------------------------------
$ 15,745 $ (6,093)
-----------------------------
(1) Rates are variable based on LIBOR and reset monthly, quarterly or
semiannually.
TRADING ACTIVITIES
BOK Financial enters into trading 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 financial
institutions. BOK Financial will also take trading positions in U.S. Treasury
securities, mortgage-backed securities, municipal bonds and financial futures
for its own account. 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 programs. The Risk Management
Department monitors trading activity daily and reports to senior management and
the Risk Oversight and Audit Committee of the BOK Financial Board of Directors
any exceptions to trading position limits and risk management policy exceptions.
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 using a variance / covariance matrix of
interest rate changes. 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 $100 million and the VAR to
$6.5 million. At September 30, 2002, the nominal aggregate trading positions was
$16.9 million and the VAR was $418 thousand. The greatest value at risk during
the third quarter of 2002 was $1.1 million.
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.
As of September 30, 2002, an evaluation was performed under the supervision and
with the participation of BOK Financial's management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of BOK Financial's disclosure controls and
procedures. Based on that evaluation, BOK Financial's management, including the
CEO and CFO, concluded that BOK Financial's disclosure controls and procedures
were effective as of September 30, 2002. There have been no significant changes
in BOK Financial's internal controls or in other factors that could
significantly affect internal controls subsequent to September 30, 2002.
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 2001 Form 10-K filed with the Securities and
Exchange Commission which contains audited financial statements.
- --------------------------------------------------- -- --------- --- ------------- -- ------------- --- ------------
Unaudited Consolidated Statement of Earnings
(In Thousands Except Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -- ------------------------------
2002 2001 2002 2001
----------- --- ------------- -- ------------- --- ------------
Interest Revenue
Loans $ 95,588 $ 113,936 $ 281,978 $ 355,875
Taxable securities 46,473 44,705 141,191 138,687
Tax-exempt securities 2,103 2,898 7,206 10,270
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Total securities 48,576 47,603 148,397 148,957
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Trading securities 209 194 583 835
Funds sold 57 130 199 744
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Total interest revenue 144,430 161,863 431,157 506,411
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Interest Expense
Deposits 37,057 50,779 112,055 167,221
Other borrowings 12,598 23,687 39,273 91,276
Subordinated debenture 2,725 2,871 8,171 8,159
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Total interest expense 52,380 77,337 159,499 266,656
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Net Interest Revenue 92,050 84,526 271,658 239,755
Provision for Loan Losses 8,029 11,023 23,729 27,093
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Net Interest Revenue After Provision for Loan
Losses 84,021 73,503 247,929 212,662
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Other Operating Revenue
Brokerage and trading revenue 5,878 4,938 19,984 15,896
Transaction card revenue 13,654 11,679 39,579 32,992
Trust fees and commissions 9,605 10,211 30,279 30,827
Service charges and fees on deposit accounts 18,395 12,961 48,641 37,543
Mortgage banking revenue, net 12,556 12,499 33,967 35,232
Leasing revenue 790 810 2,504 2,830
Other revenue 5,105 4,341 15,845 14,509
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Total fees and commissions revenue 65,983 57,439 190,799 169,829
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Gain on sales of assets 444 11 1,127 539
Gain (loss) on sales of securities, net 34,341 19,746 48,362 34,409
Gain (loss) on derivatives 7,218 (1,105) 5,229 (761)
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Total other operating revenue 107,986 76,091 245,517 204,016
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Other Operating Expense
Personnel 44,963 40,491 133,180 121,260
Business promotion 2,483 2,560 8,569 7,860
Professional fees and services 2,816 2,983 9,456 9,202
Occupancy & equipment 10,578 11,017 31,217 32,127
Data processing & communications 12,138 10,173 33,792 29,527
FDIC and other insurance 468 443 1,390 1,329
Printing, postage and supplies 3,172 3,141 9,247 9,197
Net gains and operating expenses on
repossessed assets 108 1,189 811 1,162
Amortization of intangible assets 1,867 5,015 5,636 15,099
Mortgage banking costs 11,635 7,191 27,783 20,749
Provision (recovery) for impairment of
mortgage servicing rights 29,042 15,224 47,538 24,412
Other expense 4,425 4,164 12,025 12,037
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Total other operating expense 123,695 103,591 320,644 283,961
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Income Before Taxes 68,312 46,003 172,802 132,717
Federal and state income tax 24,183 16,216 61,172 46,783
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Income before cumulative effect of a change
in accounting principle, net of tax 44,129 29,787 111,630 85,934
Transition adjustment of adoption of FAS 133 - - - 236
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Net Income $ 44,129 $ 29,787 111,630 $86,170
- ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------
Earnings Per Share:
Basic:
Before cumulative effect of change in
accounting principle $ 0.83 $ 0.56 $ 2.09 $ 1.62
Transition adjustment of adoption of FAS 133 - - - -
- ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------
Net Income $ 0.83 $ 0.56 $ 2.09 $ 1.62
- ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------
Diluted:
Before cumulative effect of change in
accounting principle $ 0.73 $ 0.50 $ 1.85 $ 1.45
Transition adjustment of adoption of FAS 133 - - - -
- ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------
Net Income $ 0.73 $ 0.50 $ 1.85 $ 1.45
- ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------
Average Shares Used in Computation:
Basic 53,008,737 52,582,819 52,937,235 52,482,061
- -------------------------------------------- -- ----------------- ----------------- ---------------- ----------------
Diluted 60,240,222 59,875,805 60,198,389 59,622,109
- ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
- --------------------------------------------------------------------------------------------------------------------
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
September 30, December 31, September 30,
2002 2001 2001
--------------------------------------------------
ASSETS
Cash and due from banks $ 531,269 $ 643,938 $ 516,675
Funds sold 8,315 3,400 22,100
Trading securities 6,791 10,327 17,753
Securities:
Available for sale 3,463,280 2,815,070 2,542,135
Available for sale securities pledged to creditors 657,655 634,479 435,725
Investment (fair value: September 30, 2002 - $199,739;
December 31, 2001 -$242,628;
September 30, 2001 - $245,368) 195,643 241,113 242,735
- --------------------------------------------------------------------------------------------------------------------
Total securities 4,316,578 3,690,662 3,220,595
- --------------------------------------------------------------------------------------------------------------------
Loans 6,595,154 6,295,378 6,218,414
Less reserve for loan losses (111,226) (101,905) (96,051)
- --------------------------------------------------------------------------------------------------------------------
Net loans 6,483,928 6,193,473 6,122,363
- --------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 144,389 141,425 139,356
Accrued revenue receivable 65,935 68,728 70,984
Intangible assets, net 145,940 152,076 157,090
Mortgage servicing rights, net 42,252 98,796 91,338
Real estate and other repossessed assets 6,427 7,141 6,522
Bankers' acceptances 28,365 15,393 25,294
Other assets 125,221 116,243 134,338
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 11,905,410 $ 11,141,602 $ 10,524,408
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Noninterest-bearing demand deposits $ 1,359,893 $ 1,366,690 $ 1,206,858
Interest-bearing deposits:
Transaction 2,821,579 2,559,714 2,317,882
Savings 164,188 158,234 157,158
Time 3,128,317 2,821,106 2,994,422
- --------------------------------------------------------------------------------------------------------------------
Total deposits 7,473,977 6,905,744 6,676,320
- --------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase
agreements 1,730,894 1,601,989 1,634,355
Other borrowings 1,098,242 1,220,948 1,021,736
Subordinated debentures 185,640 186,302 186,523
Accrued interest, taxes and expense 78,187 67,014 79,031
Amount due on unsettled security transactions 242,148 231,660 -
Bankers' acceptances 28,365 15,393 25,294
Other liabilities 87,945 84,069 80,510
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 10,925,398 10,313,119 9,703,769
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 25 25 25
Common stock ($.00006 par value; 2,500,000,000
shares authorized; shares issued and outstanding
September 30, 2002 -53,690,698; December 31, 2001
- 51,737,154; September 30, 2001 - 51,563,050) 3 3 3
Capital surplus 382,489 323,860 317,643
Retained earnings 570,114 511,301 481,544
Treasury stock (shares at cost: September 30, 2002 -
654,217;
December 31, 2001 - 541,240; September 30, 2001 - 498,502) (16,362) (12,498) (11,142)
Accumulated other comprehensive income (loss) 43,743 5,792 32,566
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 980,012 828,483 820,639
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,905,410 $ 11,141,602 $ 10,524,408
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(In Thousands)
Accumulated
Other
Preferred Stock Common Stock Comprehensive Capital Retained Treasury Stock
------------------------------------ --------------------
Shares Amount Shares Amount Income(loss) Surplus Earnings Shares Amount Total
----------------------------------------------------------------------------------------------------
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 - - 441 - - 5,185 - 142 (3,741) 1,444
options
Director retainer - - 3 - - 97 - (7) 126 223
shares
Preferred stock - - - - - - (1) - - (1)
dividend
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
Sept. 30, 2001 250,000 $ 25 51,563 $ 3 $32,566 $317,643 $481,544 499 $(11,142) $820,639
- ---------------------------------------------------------------------------------------------------------------------------
Balances at
December 31, 2001 250,000 $ 25 51,737 $ 3 $ 5,792 $ 323,860 $511,301 541 $(12,498) $828,483
Comprehensive income:
Net income - - - - - - 111,630 - - 111,630
Other Comprehensive
income, net of tax:
Unrealized gains(loss)
on securities available
for sale(1) - - - - 37,951 - - - - 37,951
----------
Comprehensive income 149,581
----------
Exercise of stock - - 369 - - 5,057 - 96 (3,284) 1,773
options
Director retainer - - 6 - - 203 - - - 203
shares
Dividends paid in
shares of common
stock:
Common stock - - 1,542 - - 52,244 (51,692) 17 (580) (28)
Preferred stock - - 37 - - 1,125 (1,125) - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance at
Sept. 30, 2002 250,000 $ 25 53,691 $ 3 $43,743 $ 382,489 $ 570,114 654 $(16,362) $980,012
- ---------------------------------------------------------------------------------------------------------------------------
(1) Sept. 30, 2002 Sept. 30, 2001
-------------- --------------
Change in other comprehensive income:
Unrealized gains (losses) on available for
sale securities $ 107,110 $ 79,403
Tax (expense) benefit on unrealized gains
(losses) on available for sale securities (37,917) (27,791)
Reclassification adjustment for (gains)
losses realized included in net income (48,362) (34,409)
Reclassification adjustment for tax
expense (benefit) on realized (gains) 17,120 12,043
losses
---------------------------------
Net unrealized gains (losses) on securities $ 37,951 $ 29,246
---------------------------------
- ---------------------------------------------------------------------------------------------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
---------------------------------
2002 2001
---------------------------------
Cash Flow From Operating Activities:
Net income $ 111,630 $ 86,170
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 23,729 27,093
Provision (recovery) for mortgage servicing rights 47,538 24,412
Transition adjustment of adoption of FAS 133 - (236)
Unrealized (gains) losses from derivatives (4,688) 8,782
Depreciation and amortization 50,028 49,994
Net amortization of financial instrument discounts and premiums 4,024 (2,974)
Net gain on sale of assets (64,044) (48,522)
Mortgage loans originated for resale (657,926) (743,638)
Proceeds from sale of mortgage loans held for resale 711,329 711,631
Change in trading securities 3,536 22,112
Change in accrued revenue receivable 2,793 3,997
Change in other assets (35,824) (5,453)
Change in accrued interest, taxes and expense 4,932 (8,146)
Change in other liabilities 16,292 (1,344)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 213,349 123,878
- ---------------------------------------------------------------------------------------------------------------
Cash Flow From Investing Activities:
Proceeds from maturities of investment securities 74,762 49,852
Proceeds from maturities of available for sale securities 1,080,274 893,667
Purchases of investment securities (29,445) (73,456)
Purchases of available for sale securities (7,267,804) (5,414,885)
Proceeds from sales of available for sale securities 5,621,370 4,618,978
Proceeds from sales of investment securities - 14,040
Loans originated or acquired net of principal collected (407,936) (533,097)
Proceeds from disposition of assets 57,940 66,067
Purchases of assets (37,763) (57,669)
Cash and cash equivalents of branches & subsidiaries
acquired and sold, net - (73,475)
- ---------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (908,602) (509,978)
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in demand deposits, transaction
deposits, money market deposits, and savings accounts 261,022 (56,706)
Net change in certificates of deposit 307,842 319,391
Net change in other borrowings 6,199 (120,186)
Change in amount due on unsettled security transactions 10,488 -
Issuance of subordinated debenture - 30,000
Issuance of preferred, common and treasury stock, net 1,976 1,667
Payment of dividends (28) (20)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 587,499 174,146
- ---------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (107,754) (211,954)
Cash and cash equivalents at beginning of period 647,338 750,729
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 539,584 $ 538,775
- ---------------------------------------------------------------------------------------------------------------
Cash paid for interest $ 165,958 $ 269,298
- ---------------------------------------------------------------------------------------------------------------
Cash paid for taxes $ 38,898 $ 24,540
- ---------------------------------------------------------------------------------------------------------------
Net loans transferred to repossessed real estate
and other assets $ 2,761 $ 6,398
- ---------------------------------------------------------------------------------------------------------------
Payment of dividends in common stock $ 52,789 $ 35,996
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of BOK Financial Corporation ("BOK
Financial") 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.
Effect of Implementation of Recent Financial Accounting Standards
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (FAS 142) was implemented January 1, 2002. Under these new
rules, intangible assets with indefinite lives such as goodwill are no longer
amortized over their useful lives. FAS 142 did not apply to goodwill from
certain business combinations, such as branch acquisitions. On October 3, 2002,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions"
(FAS 147). FAS 147 was implemented and applied retroactively to January 1, 2002,
therefore restating the previously reported quarters of 2002. The below table
discloses the impact on previously reported net income and earnings per share
after application of FAS 147.
Three months ended
------------------------------
March 31, 2002 June 30, 2002
-------------- -------------
Net income previously reported $ 32,416 $ 34,054
Restated net income 32,932 34,569
Diluted earnings per share as previously
reported $ 0.54 $ 0.57
Restated diluted earnings per share 0.55 0.57
FAS 142 and FAS 147 are not applied retroactively to prior years, therefore we
have provided the following proforma information on net income and fully diluted
earnings per share in 2001 for comparability purposes.
Three months ended
------------------------------------------------------------------
March 31, 2001 June 30, 2001 Sept. 30, 2001 Dec. 31, 2001
-------------- ------------- -------------- -------------
Net income previously reported $ 27,402 $ 28,981 $ 29,787 $ 30,132
Proforma net income 29,634 31,202 31,450 31,795
Diluted earnings per share as
previously reported $ 0.46 $ 0.49 $ 0.50 $ 0.50
Proforma diluted earnings per share 0.50 0.52 0.53 0.53
(2) MORTGAGE BANKING ACTIVITIES
At September 30, 2002, BOk owned the rights to service 81,162 mortgage loans
with outstanding principal balances of $6.1 billion, including $324 million
serviced for BOk. The weighted average interest rate and remaining term was
7.17% and 266 months, respectively.
Activity in capitalized mortgage servicing rights and related valuation
allowance during the nine months ending September 30, 2002 is as follows (in
thousands):
Capitalized Mortgage Servicing Rights
-----------------------------------------------------------------------------------------
Valuation Hedging
Purchased Originated Total Allowance (Gain)/Loss Net
---------------- ------------ --------------- -------------- ---------------- -----------
Balance at December 31, 2001 $ 55,056 $ 53,611 $ 108,667 $ (18,451) $ 8,580 $ 98,796
Additions, net (157) 14,235 14,078 - - 14,078
Write-off - (7,435) (7,435) 7,435 - -
Amortization expense (11,117) (10,898) (22,015) - (1,069) (23,084)
Provision for impairment - - - (47,538) - (47,538)
- ------------------------------- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- -----------
Balance at Sept. 30, 2002 $ 43,782 $ 49,513 $ 93,295 $ (58,554) $ 7,511 $ 42,252
- ------------------------------- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- -----------
Estimated fair value of
mortgage servicing rights(1)$ 21,601 $ 21,881 $ 43,482 - - $ 43,482
- ------------------------------- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- -----------
(1) Excludes approximately $2 million of loan servicing rights on mortgage loans
originated prior to the adoption of FAS 122.
Stratification of the mortgage loan servicing portfolio, outstanding principal
of loans serviced, and related hedging information by interest rate at September
30, 2002 follows (in thousands):
< 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total
---------------- --------------- ---------------- ----------- -------------
Cost less accumulated amortization $ 14,934 $ 57,563 $ 19,601 $ 1,197 $ 93,295
Deferred hedge losses - 6,988 523 - 7,511
- ----------------------------------- ---------------- --------------- ---------------- ----------- -------------
Adjusted cost $ 14,934 $ 64,551 $ 20,124 $ 1,197 $ 100,806
- ----------------------------------- ---------------- --------------- ---------------- ----------- -------------
Fair value $ 9,111 $ 24,999 $ 7,806 $ 1,566 $ 43,482
- ----------------------------------- ---------------- --------------- ---------------- ----------- -------------
Impairment $ 6,236 $ 39,552 $ 12,429 $ 337 $ 58,554
- ----------------------------------- ---------------- --------------- ---------------- ----------- -------------
Outstanding principal of loans
serviced (1) $ 922,500 $ 3,389,900 $ 1,062,900 $ 148,900 $ 5,524,200
- ----------------------------------- ---------------- --------------- ---------------- ----------- -------------
(1) Excludes outstanding principal of $248 million for loans serviced for which
there is no capitalized mortgage servicing rights.
(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,
----------------------------------
2002 2001
-------------- ---------------
Proceeds $ 5,621,370 $ 4,618,978
Gross realized gains 73,253 40,985
Gross realized losses 24,891 6,576
Related federal and state income
tax expense (benefit) 17,120 12,043
(4) STOCKHOLDERS' EQUITY
On October 25, 2002 BOK Financial acquired Bank of Tanglewood, N.A. for
2,003,352 shares of common stock valued at approximately $64.5 million.
Additionally, BOK Financial agreed to provide benchmark price protection rights
for 50% of the common shares issued in the transaction. These rights are
non-transerable. One-fifth of the rights must be exercised within each defined
period over teh next five years. The rights are non-cumulative. Under the
benchmark price protection, BOK Financial will compensate shareholders for the
difference between actual price and certain guaranteed prices of BOK Financial
shares sold in a 60 day period after each anniversary date. The guaranteed
prices range from $34.81 per share at the first anniversary date to $45.12 per
share at the fifth anniversary date. This compensation may be paid in cash or in
additional shares of common stock determined at BOK Financial's sole discretion.
In no case will BOK Financial be required to issue more than 10 million common
shares. The value of these benchmark price protection rights was determined to
be $3.2 million at the date of acquisition, based on the Black-Scholes
option-pricing model, bringing the total purchase price for Bank of Tanglewood
to $67.7 million.
(5) EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per
share (dollars in thousands except share data):
Three Months Ended Nine Months Ended
-----------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 (2) 2002 2001 (2)
-----------------------------------------------------
Numerator:
Net income $ 44,129 $ 29,787 $ 111,630 $ 86,170
Preferred stock dividends 375 375 1,125 1,125
- ---------------------------------------------------------------------------------------------------------------
Numerator for basic earnings per share - income
available to common stockholders 43,754 29,412 110,505 85,045
- ---------------------------------------------------------------------------------------------------------------
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 $ 44,129 $ 29,787 $ 111,630 $ 86,170
- ---------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share -weighted
average shares 53,008,737 52,582,819 52,937,235 52,482,061
Effect of dilutive securities:
Employee stock options (1) 707,624 769,125 737,293 616,187
Convertible preferred stock 6,523,861 6,523,861 6,523,861 6,523,861
- ---------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 7,231,485 7,292,986 7,261,154 7,140,048
- ---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 60,240,222 59,875,805 60,198,389 59,622,109
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.83 $ 0.56 $ 2.09 $ 1.62
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.73 $ 0.50 $ 1.85 $ 1.45
- ---------------------------------------------------------------------------------------------------------------
(1) Current market price was greater than exercise price on all employee stock
options (2) Restated for 3% dividend paid in common shares in May 2002.
(6) REPORTABLE SEGMENTS
Reportable segments reconciliation to the Consolidated Financial Statements for
the nine months ended September 30, 2002 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
--------- ------------- ----------- ------------ --------------
Total reportable lines of business $ 226,334 $ 141,753 $ 272,396 $ 66,763 $ 11,291,574
Total non-reportable lines of 452 51,538 40,763 18,259 45,097
business
Unallocated items:
Tax-equivalent adjustment 4,715 - - 4,715 -
Funds management 53,815 (1,450) 8,556 36,256 546,705
Eliminations and all others, net (13,658) 85 (1,071) (14,363) (754,230)
--------- ------------- ----------- ------------ --------------
BOK Financial consolidated $ 271,658 $ 191,926 $ 320,644 $ 111,630 $ 11,129,146
========= ============= =========== ============ ==============
(1) Excludes securities and derivatives gains/losses.
Reportable segments reconciliation to the Consolidated Financial Statements for
the nine months ended September 30, 2001 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
---------- ------------ ----------- ------------- -------------
Total reportable lines of business $ 244,066 $ 126,464 $ 241,078 $ 84,896 $ 10,413,214
Total non-reportable lines of 491 44,089 32,343 18,587 29,108
business
Unallocated items:
Tax-equivalent adjustment 6,243 - - 6,243 -
Funds management 6,628 (602) 5,703 (3,424) 245,113
Eliminations and all others, net (17,673) 417 4,837 (20,132) (582,960)
---------- ------------ ----------- ------------- -------------
BOK Financial consolidated $ 239,755 $ 170,368 $ 283,961 $ 86,170 $ 10,104,475
========== ============ =========== ============= =============
(1) Excludes securities and derivatives gains/losses.
(7) 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.
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTH FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands Except Share Data)
For Nine months ended
------------------------------------------------------------------------------------
September 30, 2002 September 30, 2001
----------------------------------------- -----------------------------------
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate
------------------------------------------------------------------------------------
Assets
Taxable securities $ 3,720,835 $ 141,191 5.07% $ 2,926,690 $ 138,687 6.34%
Tax-exempt securities 213,192 11,383 7.14 290,343 15,661 7.21
- ------------------------------------------------------------------------------------------------------------------------------
Total securities 3,934,027 152,574 5.19 3,217,033 154,348 6.41
- ------------------------------------------------------------------------------------------------------------------------------
Trading securities 16,095 663 5.51 17,155 955 7.44
Funds sold 13,047 199 2.04 19,787 744 5.03
Loans(2) 6,280,195 282,436 6.01 5,917,006 356,607 8.06
Less reserve for loan losses 108,393 89,983
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 6,171,802 282,436 6.12 5,827,023 356,607 8.18
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets(2) 10,134,971 435,872 5.75 9,080,998 512,654 7.55
- ------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 994,175 1,023,477
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,129,146 $ 10,104,475
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 2,734,492 29,624 1.45% $ 2,212,120 39,960 2.42%
Savings deposits 163,528 1,486 1.21 153,887 1,792 1.56
Other time deposits 2,993,374 80,945 3.62 3,000,745 125,469 5.59
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,891,394 112,055 2.54 5,366,752 167,221 4.17
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and repurchase
agreements 1,557,479 19,747 1.70 1,635,891 55,545 4.54
Other borrowings 1,049,990 19,526 2.49 936,527 35,731 5.10
Subordinated debenture 185,967 8,171 5.87 178,122 8,159 6.12
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing 8,684,830 159,499 2.46 8,117,292 266,656 4.39
liabilities(2)
- ------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,143,752 1,086,938
Other liabilities 403,762 140,421
Shareholders' equity 896,802 759,824
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' $ 11,129,146 $ 10,104,475
equity
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue(1) 276,373 3.29% 245,998 3.16%
Tax-Equivalent Net Interest Revenue (1)(3)
To Earning Assets 3.65 3.62
Less tax-equivalent adjustment (1) 4,715 6,243
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 271,658 239,755
Provision for loan losses 23,729 27,093
Other operating revenue (3) 245,517 204,380
Other operating expense 320,644 283,961
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 172,802 133,081
Federal and state income tax (3) 61,172 46,911
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 111,630 $ 86,170
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Net Income
Basic $ 2.09 $ 1.62
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 1.85 $ 1.45
- ------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent at the statutory federal and state rates for the periods
presented. The taxable equivalent adjustments shown are forcomparative
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.
- ------------------------------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates
(In Thousands Except Share Data)
For Three months ended
-------------------------------------------------------------------------------------
September 30, 2002 June 30, 2002
------------------------------------------ -------------------------------------
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate
-------------------------------------------------------------------------------------
Assets
Taxable securities $ 3,794,732 46,473 4.86% $ 3,696,603 $ 46,564 5.05%
Tax-exempt securities 193,645 3,335 6.83 218,747 3,948 7.24
- ------------------------------------------------------------------------------------------------------------------------------
Total securities 3,988,377 49,808 4.95 3,915,350 50,512 5.17
- ------------------------------------------------------------------------------------------------------------------------------
Trading securities 13,341 221 6.57 19,989 238 4.78
Funds sold 11,331 57 2.00 17,148 92 2.15
Loans(2) 6,444,933 95,731 5.89 6,225,134 93,787 6.04
Less reserve for loan losses 110,590 109,366
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 6,334,343 95,731 6.00 6,115,768 93,787 6.15
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 10,347,392 145,817 5.59 10,068,255 144,629 5.76
- ------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 981,246 1,005,122
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,328,638 $ 11,073,377
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 2,795,449 9,882 1.40% $ 2,740,454 9,841 1.44%
Savings deposits 164,952 502 1.21 165,496 503 1.22
Other time deposits 3,090,272 26,673 3.42 2,969,488 27,529 3.72
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,050,673 37,057 2.43 5,875,438 37,873 2.59
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and repurchase
agreements 1,615,075 6,635 1.63 1,485,816 6,197 1.67
Other borrowings 999,140 5,963 2.37 1,032,685 6,637 2.58
Subordinated debenture 185,748 2,725 5.82 185,968 2,724 5.88
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,850,636 52,380 2.35 8,579,907 53,431 2.50
- ------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,188,441 1,129,412
Other liabilities 340,264 476,886
Shareholders' equity 949,297 887,172
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' $ 11,328,638 $ 11,073,377
Equity
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (1) 93,437 3.24% 91,198 3.26%
Tax-Equivalent Net Interest Revenue (1)
To Earning Assets 3.58 3.63
Less tax-equivalent adjustment (1) 1,387 1,632
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 92,050 89,566
Provision for loan losses 8,029 6,834
Other operating revenue (3) 107,986 84,579
Other operating expense 123,695 113,798
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 68,312 53,513
Federal and state income tax (3) 24,183 18,944
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 44,129 $ 34,569
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Net Income
Basic $ 0.83 $ 0.65
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.73 $ 0.57
- ------------------------------------------------------------------------------------------------------------------------------
(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.
- -------------------------------------------------------------------------------------------------------------------------
For Three months ended
- -------------------------------------------------------------------------------------------------------------------------
March 31, 2002 December 31, 2001 September 30, 2001
- -------------------------------------------------------------------------------------------------------------------------
Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate Balance Expense(1) /Rate
- -------------------------------------------------------------------------------------------------------------------------
$ 3,442,504 $ 48,153 5.67% $ 3,177,731 $ 45,777 5.72% $ 2,869,680 $ 44,705 6.18%
230,755 4,101 7.21 238,634 4,274 7.11 265,608 4,554 6.80
- -------------------------------------------------------------------------------------------------------------------------
3,673,259 52,254 5.77 3,416,365 50,051 5.81 3,135,288 49,259 6.23
- -------------------------------------------------------------------------------------------------------------------------
14,971 204 5.53 22,508 245 4.32 16,498 223 5.36
10,656 50 1.90 14,362 85 2.35 14,229 130 3.62
6,164,060 92,918 6.11 6,203,512 99,643 6.37 6,065,512 114,165 7.47
105,166 99,541 93,884
- -------------------------------------------------------------------------------------------------------------------------
6,058,894 92,918 6.22 6,103,971 99,643 6.48 5,971,628 114,165 7.58
- -------------------------------------------------------------------------------------------------------------------------
9,757,780 145,426 6.04 9,557,206 150,024 6.23 9,137,643 163,777 7.11
- -------------------------------------------------------------------------------------------------------------------------
999,738 1,024,243 1,028,385
- -------------------------------------------------------------------------------------------------------------------------
$ 10,757,518 $ 10,581,449 $ 10,166,028
- -------------------------------------------------------------------------------------------------------------------------
$ 2,666,154 9,902 1.51% $ 2,429,978 9,933 1.62% $ 2,278,393 11,917 2.08%
160,082 481 1.22 158,040 489 1.23 155,908 575 1.46
2,918,473 26,743 3.72 2,839,770 30,744 4.30 3,030,759 38,287 5.01
- -------------------------------------------------------------------------------------------------------------------------
5,744,709 37,126 2.62 5,427,788 41,166 3.01 5,465,060 50,779 3.69
- -------------------------------------------------------------------------------------------------------------------------
1,571,063 6,915 1.79 1,701,655 8,813 2.05 1,440,556 12,976 3.57
1,119,466 6,925 2.51 1,088,792 8,460 3.08 1,019,123 10,711 4.17
186,189 2,722 5.92 186,409 2,764 5.88 186,631 2,871 6.10
- -------------------------------------------------------------------------------------------------------------------------
8,621,427 53,688 2.53 8,404,644 61,203 2.89 8,111,370 77,337 3.78
- -------------------------------------------------------------------------------------------------------------------------
1,112,571 1,150,498 1,093,442
170,643 191,023 163,999
852,877 835,284 797,217
- -------------------------------------------------------------------------------------------------------------------------
$ 10,757,518 $ 10,581,449 $ 10,166,028
- -------------------------------------------------------------------------------------------------------------------------
91,738 3.52% 88,821 3.34% 86,440 3.33%
3.05
3.81 3.69 3.75
1,696 1,802 1,914
- -------------------------------------------------------------------------------------------------------------------------
90,042 87,019 84,526
8,866 10,517 11,023
52,952 55,260 76,091
83,151 84,801 103,591
- -------------------------------------------------------------------------------------------------------------------------
50,977 46,961 46,003
18,045 16,829 16,216
- -------------------------------------------------------------------------------------------------------------------------
$ 32,932 $ 30,132 $ 29,787
- -------------------------------------------------------------------------------------------------------------------------
$ 0.62 $ 0.56 $ 0.56
- -------------------------------------------------------------------------------------------------------------------------
$ 0.55 $ 0.50 $ 0.50
- -------------------------------------------------------------------------------------------------------------------------
PART II. Other Information
(A) Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 10.30 - Remote Outsourcing Services Agreement between Bank of
Oklahoma, N.A. and Alltel Information Services, Inc., dated September
1, 2002.
(B) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
September 30, 2002.
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 13, 2002 /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
CFO Certification
I, Steven E. Nell, Executive Vice President and Chief Financial Officer of BOK
Financial Corporation ("BOK Financial"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of BOK Financial;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Steven E. Nell
-------------------
Steven E. Nell
Executive Vice President
Chief Financial Officer
BOK Financial Corporation
CEO Certification
I, Stan A. Lybarger, President and Chief Executive Officer of BOK Financial
Corporation ("BOK Financial"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of BOK Financial;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Stanley A. Lybarger
------------------------
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation