As filed with the Securities and Exchange Commission on May 15, 2003
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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 March 31, 2003
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 ($.00006 Par Value)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: 55,262,679 shares of
common stock ($.00006 par value) as of April 30, 2003.
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BOK Financial Corporation
Form 10-Q
Quarter Ended March 31, 2003
Index
Part I. Financial Information
Management's Discussion and Analysis 2
Report of Management on Consolidated
Financial Statements 19
Consolidated Statements of Earnings (Unaudited) 20
Consolidated Balance Sheets (Unaudited) 21
Consolidated Statements of Changes
in Shareholders' Equity (Unaudited) 22
Consolidated Statements of Cash Flows (Unaudited) 23
Notes to Consolidated Financial Statements (Unaudited) 24
Quarterly Financial Summary (Unaudited) 29
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 31
CFO Certification 32
CEO Certification 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
SUMMARY OF PERFORMANCE
BOK Financial Corporation ("BOK Financial") recorded net income of $44.2 million
or $0.71 per diluted common share for the first quarter of 2003 compared to
$32.9 million and $0.55 per diluted common share for the first quarter of 2002.
The annualized returns on average assets and equity were 1.45% and 16.06% for
the quarter ended March 31, 2003 compared to returns on average assets and
equity of 1.24% and 15.66% for the same period of 2002.
On April 29, 2003, BOK Financial announced a 3% stock dividend payable on or
about May 30, 2003 to shareholders of record on May 12, 2003. Earnings per share
have not been restated for this dividend, see Note 4.
Fees and commissions increased $13.5 million or 23% over the same period of 2002
due to increases in service charges and fees on deposit accounts, mortgage
banking revenue, transaction card revenue and brokerage and trading revenue. Net
gains on sales of securities, including gains on sales of securities used as an
economic hedge of the mortgage-servicing portfolio, were $9.7 million at March
31, 2003 compared to net losses of $7.6 million during the same period of 2002.
Operating expenses increased $15.8 million or 19% primarily due to a $9.3
million increase in personnel expense and a $6.1 million increase in mortgage
banking costs.
NET INTEREST REVENUE
Tax-equivalent net interest revenue totaled $96.9 million for the first quarter
of 2003 compared to $92.8 million for the same period of 2002. The increase in
net interest revenue was due to a $1.5 billion increase in average earning
assets and a $871 million increase in interest-bearing liabilities offset by a
decline in net interest margin of 29 basis points to 3.57% at March 31, 2003.
The growth in average earning assets included a $670 million increase in
securities and a $770 million increase in net loans. The increase in average
interest-bearing liabilities was due to growth in average interest-bearing
deposits of $1.1 billion, in transaction and time deposits, and was offset by a
reduction in other borrowings of $241 million. Table 1 reflects the effect on
net interest revenue of changes in average balances and interest rates for the
various types of earning assets and interest-bearing liabilities.
Yields on average earning assets and rates paid on average interest-bearing
liabilities both continued to decline during the first quarter of 2003 as
compared to the same period of 2002. The net interest margin, the ratio of
tax-equivalent net interest revenue to average earning assets, declined to 3.57%
from 3.86% at March 31, 2002. Net interest revenue has stabilized from the
fourth quarter of 2002's rate of 3.55%. As compared to the fourth quarter 2002,
yields on interest-earning assets declined 10 basis points but were offset by
declines in yields on interest-bearing liabilities of 16 basis points. The
effects of the declining interest rates on yields and rates paid during the
first quarter of 2003 are reflected in the Quarterly Financial Summary.
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Table 1 - Volume / Rate Analysis
(In thousands)
Three months ended
March 31, 2003/2002
-----------------------------------
Change Due To (1)
------------------------
Yield
Change Volume /Rate
-----------------------------------
Tax-equivalent interest revenue:
Securities $ $ 5,825 $ (9,558)
(3,733)
Trading securities (88) (57) (31)
Loans 1,694 11,261 (9,567)
Funds sold 56 78 (22)
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Total (2,071) 17,107 (19,178)
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Interest expense:
Interest bearing transaction deposits (1,125) 1,987 (3,112)
Savings deposits (175) 21 (196)
Time deposits 276 3,961 (3,685)
Federal funds purchased and repurchase
agreements (2,892) (543) (2,349)
Other borrowings (2,004) (326) (1,678)
Subordinated debentures (302) (466) 164
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Total (6,222) 4,634 (10,856)
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Tax-equivalent net interest revenue 4,151 12,473 (8,322)
Decrease in tax-equivalent adjustment 293
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Net interest revenue $ 4,444
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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 first quarter
of 2003, this strategy enhanced net interest revenue $13.6 million, compared to
$17.8 million for the first quarter of 2002. Excluding this strategy, net
interest margin for the first quarter of 2003 was 3.62% compared to 3.84% for
the first quarter of 2002. Average securities purchased and funds borrowed under
this strategy were $1.9 billion during the first quarter of 2003 and $2.0
billion during the same period 2002. As more fully discussed in the subsequent
Market Risk Section, management employs various techniques to manage, within
established parameters, the interest rate and liquidity risk inherent in this
strategy. The effectiveness of these strategies is reflected in the overall
changes in net interest revenue due to changes in interest rates, as shown in
Table 1.
OTHER OPERATING REVENUE
Other operating revenue increased $30.2 million or 58% for the first quarter
2003 compared to the same period of 2002. Fees and commissions increased $13.5
million or 23%. Fees and commissions continue to represent a significant portion
of BOK Financial's total revenue at 43%, excluding gains and losses on
securities and derivatives, for the quarter ended March 31, 2003. Service
charges and fees on deposit accounts increased $5.1 million or 37% due mostly to
an overdraft privilege product initiated in the second quarter of 2002. Mortgage
banking revenues increased $4.9 million or 46%. See discussion of mortgage
banking in the lines of business section of this report for further discussion.
Brokerage and trading revenue increased $2.6 million due to
increased sales of fixed income securities to institutional customers.
Transaction card revenue increased $1.1 million or 9% due to increases in
merchant fees and check card revenue. Trust fees remained relatively flat
despite growth in customers due to declines in the asset values on which many
fees are based.
BOK Financial realized net gains on sales of securities of $9.7 million during
the quarter ended March 31, 2003 compared to a net loss of $7.6 million during
the same period of 2002. These amounts included net gains from sales of
securities designated as economic hedges of the mortgage-servicing portfolio of
$3.2 million during the first quarter 2003 compared to net losses of $19.9
million during the same period 2002. Net gains in general securities portfolio
were $6.5 million for the quarter ended March 31, 2003 compared to $12.3 million
for the same period of 2002. Management's strategy during 2002 and the first
quarter of 2003 was to sell securities that had limited potential for further
appreciation and to replace them with securities with less prepayment risk. Net
gain (loss) on derivatives primarily represented the mark to market of the
derivative portfolio used for interest rate risk management. Additional
discussion regarding 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
-------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
-------------------------------------------------------------------------------
Brokerage and trading revenue $ 8,679 $ 6,725 $ 5,359 $ 6,299 $ 6,067
Transaction card revenue 13,599 13,973 13,654 13,439 12,486
Trust fees and commissions 10,180 9,813 9,605 10,300 10,374
Service charges and fees
on deposit accounts 18,984 18,991 18,395 16,391 13,855
Mortgage banking revenue, net 15,535 14,943 12,556 10,759 10,652
Leasing revenue 859 826 790 822 892
Other revenue 5,001 4,431 5,105 5,698 5,042
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Total fees and commissions 72,837 69,702 65,464 63,708 59,368
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Gain on sale of assets 730 30 444 7 676
Gain (loss) on sales of securities, net 9,689 10,342 34,341 21,602 (7,581)
Gain (loss) on derivatives, net (1,102) 665 7,218 (1,453) (536)
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Total other operating revenue $ 82,154 $ 80,739 $ 107,467 $ 83,864 $ 51,927
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OTHER OPERATING EXPENSE
Other operating expense for the quarter ending March 31, 2003 increased $15.8
million or 19% compared to the same period of 2002.
Mortgage banking costs increased $6.1 million or 73% over the same period of
2002 due to increased amortization of mortgage servicing rights. A recovery of
impairment on mortgage servicing rights was also recognized due to current
market conditions. These market conditions and impact of prepayment speeds on
the mortgage banking business are more thoroughly discussed in the Lines of
Business - Mortgage Banking section of this report. Excluding the increases in
amortization of mortgage servicing rights and the recovery of impairment on
mortgage servicing rights, other operating expense increased $11.8 million or
14%.
Personnel expense increased $9.3 million or 21% for the first quarter of 2003
compared to the same quarter of 2002. Salaries and benefits rose $5.8 million
during this period due to a $3.3 million increase in salaries and a $2.5 million
increase in benefits. Average compensation per full-time equivalent employee
("FTE") rose 8%. Benefits per FTE rose 33% due to increases in the cost of
insurance benefits and pension costs. Bonuses and incentive compensation, which
can be directly tied to growth in revenue, accounted for $3.5 million of the
increase in personnel expense.
Data processing and communication expense increased $2.2 million or 21%. Data
processing costs increased $827 thousand due to transaction card processing and
$924 thousand due to expenses related to the current project to upgrade BOK
Financial's core processing system. Total expenses related to the upgrade of the
core processing system in the first quarter of 2003 were $1.0 million at March
31, 2003.
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TABLE 3 - OTHER OPERATING EXPENSE
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
----------------------------------------------------------------------------------
Personnel expense $ 52,632 $ 50,134 $ 44,963 $ 44,885 $ 43,332
Business promotion 3,471 2,798 2,483 3,208 2,878
Professional fees and services 3,765 3,531 2,816 3,732 2,908
Net occupancy and equipment 11,061 11,130 10,578 10,299 10,340
Data processing & communications 12,643 13,459 12,138 11,216 10,438
FDIC and other insurance 516 513 468 483 439
Printing, postage and supplies 3,359 3,418 3,172 3,018 3,057
Net gains and operating
expenses on repossessed assets 8 203 108 656 47
Amortization of intangible assets 1,777 2,002 1,867 1,882 1,887
Mortgage banking costs 14,442 14,488 11,635 7,791 8,357
Provision (recovery) for
impairment
of mortgage servicing rights (7,830) (1,615) 29,042 23,774 (5,278)
Other expense 3,082 4,932 4,425 2,854 4,746
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Total $ 98,926 $ 104,993 $ 123,695 $ 113,798 $ 83,151
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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 principal 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 non-reportable lines
of business include the TransFund ATM network and BOSC, Inc., a securities
broker/dealer. In addition to its lines of business, BOK Financial has a funds
management unit. The primary purpose of this unit is to manage the overall
liquidity needs and interest rate risk of the company. Each line of business
borrows funds from and provides funds to the funds management unit as needed to
support their operations.
BOK Financial allocates resources and evaluates performance of its lines of
business after allocation of funds, certain indirect expenses, taxes and capital
costs. The cost of funds borrowed from the funds management unit by the
operating lines of business is transfer priced at rates that approximate market
for funds with similar duration. Market is generally based on the applicable
LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of
transfer-pricing funds that support assets of the operating lines of business
tends to insulate them from interest rate risk.
The value of funds provided by the operating lines of business to the funds
management unit is based on applicable Federal Home Loan Bank advance rates.
Deposit accounts with indeterminate maturities, such as demand deposit accounts
and interest-bearing transaction accounts, are transfer-priced at a rolling
average based on expected duration of the accounts. The expected duration ranges
from 90 days for certain rate-sensitive deposits to five years. Over the past
year, the average transfer-pricing rate for these deposit accounts decreased by
approximately 60 basis points. Since many of these deposit accounts are either
noninterest bearing accounts or interest-bearing accounts whose rates cannot be
readily reset lower due to market constraints, the decline in the
transfer-pricing rates shifted net interest revenue from providers of funds,
primarily consumer banking and trust services, to the funds management unit.
CORPORATE BANKING
The Corporate Banking Division provides loan and lease financing and treasury
and cash management services to businesses throughout Oklahoma and surrounding
states. BOk's Corporate Banking Division includes the Denver loan production
office. 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 $12.1
million or 27% to consolidated net income for the first quarter of 2003. This
compares to $11.6 million or 35% of consolidated net income for the first
quarter of 2002. The decrease in net interest revenue from external sources was
due to the diminishing market rates on loans which was offset by a decline in
net interest expense from internal sources. Net interest revenue from internal
sources decreased due to lower transfer-pricing rates, as discussed above.
Operating expenses increased to $15.2 million for the first quarter of 2003 from
$14.0 million for the same period of the prior year mostly due to an increase in
transaction processing costs. The provision for loan loss represents net loans
charged off or recovered for the Corporate Banking Division. Average assets
increased $500 million or 13% for the first quarter of 2003 from the same period
of the prior year due primarily to loan growth of $290 million.
TABLE 4 - CORPORATE BANKING
(In thousands)
Three months ended March 31,
--------------------------------
2003 2002
------------- -- --------------
NIR (expense) from external sources $ 37,981 $ 38,636
NIR (expense) from internal sources (8,638) (12,206)
------------- --------------
Total net interest revenue 29,343 26,430
Other operating revenue 8,566 8,231
Operating expense 15,222 13,967
Provision for loan loss 3,034 2,214
Net income 12,128 11,574
Average assets $ 4,430,692 $ 3,930,867
Average equity 481,632 444,483
Return on assets 1.11% 1.19%
Return on equity 10.21% 10.56%
Efficiency ratio 40.15% 40.30%
CONSUMER BANKING
The Consumer Banking Division provides a full line of deposit, loan and
fee-based services to customers throughout Oklahoma through four major
distribution channels: traditional branches, supermarket branches, the 24-hour
ExpressBank call center and the Internet. Additionally, the division is a
significant referral source for the Bank of Oklahoma Mortgage Division ("BOk
Mortgage") and BOSC's retail brokerage division. The Consumer Banking Division
contributed $1.9 million or 4% to consolidated net income for the first quarter
of 2003. This compares to $1.5 million or 5% of consolidated net income for the
first quarter of 2002. Revenue from internal sources, primarily funds provided
to other business lines, decreased $1.1 million due to lower transfer-pricing
rates. Other operating revenue increased $3.2 million, or 41%, over the first
quarter of 2002 due primarily to increases in service charges from an overdraft
privilege product initiated during the second quarter of 2002. The provision for
loan losses, which represents actual net loans charged off, increased $321
thousand in the first quarter of 2003 as compared to the same period of 2002 due
primarily to the overdraft privilege product.
TABLE 5 - CONSUMER BANKING
(In thousands)
Three months ended March 31,
--------------------------------
2003 2002
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NIR (expense) from external sources $ (4,457) $ (4,084)
NIR (expense) from internal sources 14,518 15,609
------------- --------------
Total net interest revenue 10,061 11,525
Other operating revenue 11,115 7,874
Operating expense 16,007 15,449
Provision for loan loss 2,045 1,440
Net income 1,910 1,534
Average assets $ 2,447,169 $ 2,264,618
Average equity 75,069 72,130
Return on assets 0.32% 0.27%
Return on equity 10.32% 8.63%
Efficiency ratio 75.59% 79.64%
MORTGAGE BANKING
BOK Financial engages in mortgage banking activities through the BOk Mortgage
Division of Bank of Oklahoma. These activities include the origination,
marketing and servicing of conventional and government-sponsored mortgage loans.
BOK Mortgage contributed $9.3 million or 21% to consolidated net income in the
first quarter of 2003 compared to a loss of $6.3 million in the first quarter of
2002.
BOK Mortgage is comprised of two sectors, loan production and loan servicing.
The loan production sector generally performs best when mortgage interest rates
are low and loan origination volumes are high. Conversely, the loan servicing
sector generally performs best when mortgage interest rates are relatively high
and prepayments are low. The historically low mortgage interest rate environment
that continued throughout the first quarter of 2003 produced net profits for the
loan production sector. The loan servicing sector also produced a profit for the
first quarter of 2003 due primarily to hedging activities.
LOAN PRODUCTION SECTOR
Revenue from loan production was $12.3 million in the first quarter of 2003,
including $5.5 million of capitalized mortgage servicing rights, compared to
revenue from loan production of $4.7 million in the first quarter of 2002,
including $4.0 million of capitalized mortgage servicing rights. The increase in
revenue was due to increased volume of loans originated and an improved market
for loan sales. Mortgage loans funded totaled $378 million in the first quarter
of 2003, including $97 million for home purchases and $281 million of refinanced
loans. Mortgage loans funded in the first quarter of 2002 totaled $245 million.
Approximately 66% of the loans funded in the first quarter of 2003 were in
Oklahoma. The combination of increased volume and improved market conditions
increased pre-tax income from loan production to $10.8 million in 2003 compared
to $3.1 million in 2002. The pipeline of mortgage loan applications totaled $451
million at March 31, 2003, an increase of 39% since year end.
LOAN SERVICING SECTOR
The loan servicing sector had pre-tax income of $4.6 million for the first
quarter of 2003 compared to a pre-tax loss of $13.3 million for the same period
of 2002. The increase in pre-tax income was due primarily to improved hedging
performance. BOK Financial realized net gains on sales of securities held as an
economic hedge of its mortgage servicing rights of $3.2 million in the first
quarter of 2003. This is compared to net losses of $19.9 million realized in the
first quarter of 2002.
Excluding hedge performance, the loan servicing sector incurred a $1.1 million
pre-tax loss in the first quarter of 2003 compared to pre-tax income of $4.0
million in 2002. Amortization expense, which is based on both actual and
anticipated loan prepayments, increased to $14.2 million in 2003 compared to
$6.6 million in 2002. This increase in amortization expense was partially offset
by reductions in the valuation allowance for impairment of mortgage servicing
rights of $7.8 million in 2003 and $5.3 million in 2002.
Servicing revenue totaled $6.1 million in 2003 compared to $7.0 million in 2002.
The decrease in servicing revenue was due primarily to a lower outstanding
principal balance of loans serviced. The average outstanding balance of loans
serviced was $5.6 billion for the first quarter of 2003 compared to $6.5 billion
for the first quarter of 2002. The decrease in loans serviced reflected both the
rapid refinancing of mortgage loans and BOK Mortgage's decision to curtail
purchases of mortgage loan servicing.
The valuation allowance for impairment of mortgage servicing rights totaled $47
million at March 31, 2003 compared to $13 million at March 31, 2002. BOK
Financial provides a valuation allowance to reduce the carrying value of its
servicing rights to the lower of fair value or amortized cost segregated by
impairment strata. Impairment strata are determined by interest rate bands and
by loan types, either conventional or government-backed. The fair value of
servicing rights is based on estimated revenues that will be generated over the
servicing period, less estimated costs to service the loans. The valuation
allowance may be reversed, in part or in whole, if the fair value of servicing
rights in a particular impairment strata increase or if the amortized cost of
servicing rights in a particular strata decrease. Fair value may increase if
anticipated loan prepayment speeds decrease. Amortized cost of a particular
impairment stratum will decrease through amortization.
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
securities and U.S. government agency debentures are acquired and held as
available for sale when prepayment risks exceed certain levels. The fair value
of these securities is expected to vary inversely to the fair value of the
servicing rights. 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 6 - MORTGAGE BANKING
(In thousands)
Three months ended March 31,
--------------------------------
2003 2002
------------- -- --------------
NIR (expense) from external sources $ 7,689 $ 8,945
NIR (expense) from internal sources (2,798) (4,239)
------------- --------------
Total net interest revenue 4,891 4,706
Capitalized mortgage servicing rights 5,521 4,033
Other operating revenue 12,798 7,675
Operating expense 18,833 12,004
Provision (recovery) for impairment of
mortgage servicing rights (7,830) (5,278)
Gains (losses) on sales of financial 3,193 (19,922)
instruments
Net income (loss) 9,306 (6,292)
Average assets $ 656,632 $ 711,053
Average equity 69,972 48,191
Return on assets 5.75% (3.59)%
Return on equity 53.94% (52.95)%
Efficiency ratio 81.14% 73.13%
TRUST SERVICES
BOK Financial provides a wide range of trust and private financial services,
including institutional, investment and retirement products, loans and other
services to affluent individuals, businesses, not-for-profit organizations, and
governmental agencies. Trust services are primarily provided to clients in
Oklahoma, Texas, Arkansas and New Mexico. Additionally, Trust Services include a
nationally competitive, self-directed 401-(k) program with clients in Dallas,
Chicago, New York and Los Angeles. At March 31, 2003 and 2002, trust assets with
an aggregate market value of $17.1 billion and $18.2 billion, respectively, were
subject to various fiduciary arrangements. The $1.1 billion decline in trust
assets has been due to the significant declines in the equities markets. These
declines in the market value of trust assets have been offset somewhat by new
business. BOK Financial has sole or joint discretionary authority over $7.7
billion of trust assets at March 31, 2003 compared to $9.6 billion of trust
assets at March 31, 2002. Trust Services contributed $1.4 million or 3% to
consolidated net income for the first quarter 2003. This compared to $1.7
million or 5% of consolidated net income for the first quarter of 2002. Average
assets increased $111 million or 22% for the first quarter of 2003 from the same
period of the prior year. The growth in assets is largely attributable to an
increase in funds provided by the personal financial services units of Trust
Services. Interest-bearing transaction deposits have increased as customers
respond to the equities market downturn.
TABLE 7 - TRUST SERVICES
(In thousands)
Three months ended March 31,
--------------------------------
2003 2002
------------- -- --------------
NIR (expense) from external sources $ 192 $ 473
NIR (expense) from internal sources 2,314 1,874
------------- --------------
Total net interest revenue 2,506 2,347
Other operating revenue 10,081 10,360
Operating expense 10,266 9,813
Net income 1,398 1,737
Average assets $ 610,163 $ 499,222
Average equity 45,527 43,955
Return on assets 0.93% 1.41%
Return on equity 12.45% 16.03%
Efficiency ratio 81.56% 77.23%
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
services in their respective markets. Small businesses and middle-market
corporations are the regional banks' primary customer focus. Regional banks
contributed $9.2 million or 21% to consolidated net income for the first quarter
of 2003. This compares to $7.8 million or 24% of consolidated net income for the
first quarter of 2002. Net interest revenue from external customers increased
$3.6 million or 10% in the first quarter of 2003 from the same period of the
prior year due to growth in average earning assets, offset by declines in
yields. Net interest expense from internal sources decreased $1.9 million or 30%
due to lower transfer-pricing rates, as described above. Other operating revenue
increased $2.4 million or 45% in the first quarter of 2003 from the same period
of the prior year due primarily to service charges on deposit accounts,
including an overdraft privilege product initiated in the second quarter of
2002. Operating expenses increased $5.0 million or 23% in the first quarter of
2003 from the first quarter of 2002. Personnel costs accounted for approximately
$3.0 million of this increase due to increases in the number of employees,
overall increases in salary and benefits expense per employee, and incentive
bonuses directly related to revenue growth.
BOK Financial's operations in Texas, New Mexico and Arkansas contributed $6.2
million, $2.7 million, and $341 thousand, respectively, to consolidated net
income for the first quarter of 2003. This compared to $5.8 million, $1.6
million, and $455 thousand, respectively, for the first quarter 2002.
Average assets increased $793 million or 21% for the first quarter of 2003 from
the same period of the prior year due to the acquisition of $252 million of Bank
of Tanglewood assets in the fourth quarter of 2002 and due to growth at Bank of
Texas and Bank of Albuquerque of approximately $300 million and $215 million,
respectively.
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 core deposit intangible asset amortization.
Table 8 - Regional Banking
(In thousands)
Three months ended March 31,
--------------------------------
2003 2002
------------- -- --------------
NIR (expense) from external sources $ 39,010 $ 35,437
NIR (expense) from internal sources (4,438) (6,317)
------------- --------------
Total net interest revenue 34,572 29,120
Other operating revenue 7,845 5,407
Operating expense 26,889 21,852
Provision for loan loss 1,403 1,116
Gains (losses) on sales of financial 339 827
instruments
Net income 9,159 7,833
Tangible net income 10,677 9,606
Average assets $ 4,487,196 $ 3,693,984
Average equity 536,818 432,662
Tangible return on assets 0.97% 1.05%
Tangible return on equity 8.07% 9.00%
Efficiency ratio 63.39% 63.29%
DISCUSSION AND ANALYSIS OF OPERATIONS
LOANS
The aggregate loan portfolio at March 31, 2003 totaled $7.0 billion compared to
$6.9 billion at December 31, 2002. Commercial loans increased $23 million and
commercial real estate loans increased $26 million during the quarter.
- ---------------------------------------------------------------------------------------------------------------------
Table 9 - Loans
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
---------------------------------------------------------------------------------
Commercial:
Energy $ 1,147,875 $ 1,132,178 $ 1,006,151 $ 936,381 $ 970,234
Manufacturing 523,055 501,506 507,798 513,019 499,870
Wholesale/retail 626,362 627,422 671,127 655,081 613,612
Agriculture 163,823 186,976 154,221 134,612 156,334
Services 1,254,894 1,249,622 1,166,193 1,118,239 1,075,852
Other commercial and industrial 297,226 292,094 286,972 300,239 339,355
- ---------------------------------------------------------------------------------------------------------------------
Total commercial 4,013,235 3,989,798 3,792,462 3,657,571 3,655,257
- ---------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Construction and land development 371,680 356,227 331,073 320,730 329,335
Multifamily 306,409 307,119 309,173 297,576 301,402
Other real estate loans 783,674 772,492 767,083 744,391 739,646
- ---------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,461,763 1,435,838 1,407,329 1,362,697 1,370,383
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage:
Secured by 1-4 family
residential properties 951,415 929,759 849,254 795,834 726,228
Residential mortgages held for 146,092 133,421 136,330 82,714 89,439
sale
- ---------------------------------------------------------------------------------------------------------------------
Total residential mortgage 1,097,507 1,063,180 985,584 878,548 815,667
- ---------------------------------------------------------------------------------------------------------------------
Consumer 403,984 412,167 409,779 414,571 407,909
- ---------------------------------------------------------------------------------------------------------------------
Total $ 6,976,489 $ 6,900,983 $ 6,595,154 $ 6,313,387 $ 6,249,216
- ---------------------------------------------------------------------------------------------------------------------
Outstanding loans to energy customers totaled $1.1 billion or 16% of total loans
at March 31, 2003. Approximately $939 million of the energy loan portfolio was
to oil and gas producers. The amount of credit available to these customers
generally depends on the value of their proven energy reserves based on current
prices. The energy loan category also included loans to borrowers involved in
the transportation of oil and gas and loans to borrowers that manufacture
equipment and provide other services to the energy industry. Outstanding loans
to the services industry totaled $1.3 billion at March 31, 2003. Services
included loans that totaled $233 million to nursing homes, $109 million to the
healthcare industry and $65 million to the hotel industry. Agriculture included
$148 million of loans to the cattle industry. Other notable loan concentrations
by primary industry of the borrowers are presented in Table 9.
Commercial real estate loans totaled $1.5 billion at March 31, 2003 or 21% of
the total loan portfolio. This represented a $26 million or 2% increase during
the quarter. Construction and land development loans increased $15 million.
Construction and land development loans included $297 million for single-family
residential lots and premises, an increase of $10 million during the quarter.
The major components of other commercial real estate loans were office buildings
- - $288 million and retail facilities - $221 million.
Residential mortgage loans, excluding loans held for sale, included $320 million
of home equity loans, $256 million of loans held for business relationship, $240
million of adjustable rate mortgage loans and $117 million of loans held for
community development. Consumer loans included $178 million of indirect
automobile loans. Substantially all of these loans were purchased from dealers
in Oklahoma. Approximately 21% of the indirect automobile loan portfolio was
considered sub-prime.
While BOK Financial continued to increase geographic diversification through
expansion into Texas and New Mexico, geographic concentration subjects the loan
portfolio to the general economic conditions in Oklahoma. Table 10 presents the
distribution of the major loan categories among BOK Financial's principal market
areas.
- ---------------------------------------------------------------------------------------------------------------------
Table 10 - Loans by Principal Market Area
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
---------------------------------------------------------------------------------
Oklahoma (1):
Commercial $ 2,764,252 $ 2,773,158 $ 2,663,752 $ 2,547,218 $ 2,594,237
Commercial real estate 782,842 763,469 790,638 752,757 743,728
Residential mortgage 679,727 656,391 613,963 559,366 498,890
Residential mortgage held for 146,092 133,421 136,330 82,714 89,439
sale
Consumer 299,404 294,404 311,877 314,061 312,505
---------------------------------------------------------------------------------
Total Oklahoma $ 4,672,317 $ 4,620,843 $ 4,516,560 $ 4,256,116 $ 4,238,799
---------------------------------------------------------------------------------
Texas:
Commercial $ 889,127 $ 866,905 $ 789,846 $ 773,649 $ 771,167
Commercial real estate 459,605 455,364 391,207 381,068 400,350
Residential mortgage 195,179 192,575 149,983 148,463 138,987
Consumer 91,182 104,353 85,651 88,783 83,985
---------------------------------------------------------------------------------
Total Texas $ 1,635,093 $ 1,619,197 $ 1,416,687 $ 1,391,963 $ 1,394,489
---------------------------------------------------------------------------------
Albuquerque:
Commercial $ 298,051 $ 286,622 $ 276,222 $ 270,278 $ 222,960
Commercial real estate 155,240 150,293 141,298 142,829 139,044
Residential mortgage 71,598 76,020 80,298 82,926 83,310
Consumer 11,040 11,399 10,191 9,711 9,245
---------------------------------------------------------------------------------
Total Albuquerque $ 535,929 $ 524,334 $ 508,009 $ 505,744 $ 454,559
---------------------------------------------------------------------------------
Northwest Arkansas:
Commercial $ 61,805 $ 63,113 $ 62,642 $ 66,426 $ 66,893
Commercial real estate 64,076 66,712 84,186 86,043 87,260
Residential mortgage 4,911 4,773 5,010 5,079 5,042
Consumer 2,358 2,011 2,060 2,016 2,174
---------------------------------------------------------------------------------
Total Northwest Arkansas $ 133,150 $ 136,609 $ 153,898 $ 159,564 $ 161,369
---------------------------------------------------------------------------------
Total BOK Financial loans $ 6,976,489 $ 6,900,983 $ 6,595,154 $ 6,313,387 $ 6,249,216
---------------------------------------------------------------------------------
(1) Includes Denver loan production office.
OTHER DERIVATIVES WITH CREDIT RISK
BOK Financial offers a program that permits its energy-producing customers to
hedge against price fluctuations and to take positions 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 value of energy derivative contracts carried as assets totaled $112
million and the fair value of energy contracts carried as liabilities totaled
$113 million at March 31, 2003. Approximately 68% of the fair value of asset
contracts was with customers of BOK Financial. The remaining 32% was with energy
dealers, primarily Bank of Montreal and J.P. Morgan-Chase. Conversely,
approximately 69% of the fair value of liability contracts was with energy
dealers, primarily Morgan Stanley, Coral Energy and Bank of Montreal. The
remaining 31% was due to various customers. Deterioration in the credit standing
of one or more 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 contracts. This could occur if the credit standing of a counterparty
deteriorated such that either the fair value of the energy production no longer
supported the contract or the counterparty's ability to provide margin
collateral was impaired.
SUMMARY OF LOAN LOSS EXPERIENCE
The reserve for loan losses, which is available to absorb losses inherent in the
loan portfolio, totaled $120 million at March 31, 2003 compared to $116 million
at December 31, 2002. These amounts represent 1.75% and 1.72%, respectively, of
total loans, excluding loans held for sale. Losses on loans held for sale,
principally mortgage loans accumulated for placement in security pools, are
charged to earnings through adjustments in the carrying value. The reserve for
loan losses also represented 236% of nonperforming loans at March 31, 2003
compared to 233% at December 31, 2002. Net loans charged-off during the first
quarter totaled $6.3 million, compared to $6.5 million in the fourth quarter of
2002 and $4.9 million in the first quarter of 2002. Table 11 presents
statistical information regarding the reserve for loan losses.
- -------------------------------------------------------------------------------------------------------------------
Table 11 - Summary of Loan Loss Experience
(In thousands)
Three Months Ended
--------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
--------------------------------------------------------------------------------
Beginning balance $ 116,070 $ 111,226 $ 108,084 $ 105,900 $ 101,905
Loans charged-off:
Commercial 4,144 3,550 2,873 3,378 3,525
Commercial real estate 5 163 - - 123
Residential mortgage 400 219 88 11 94
Consumer 3,502 3,945 3,164 2,258 2,514
- -------------------------------------------------------------------------------------------------------------------
Total 8,051 7,877 6,125 5,647 6,256
- -------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 95 441 332 169 334
Commercial real estate 8 15 9 45 49
Residential mortgage 38 2 118 6 20
Consumer 1,627 898 779 777 982
- -------------------------------------------------------------------------------------------------------------------
Total 1,768 1,356 1,238 997 1,385
- -------------------------------------------------------------------------------------------------------------------
Net loans charged off 6,283 6,521 4,887 4,650 4,871
Provision for loan losses 9,912 10,001 8,029 6,834 8,866
Additions due to acquisitions - 1,364 - - -
- -------------------------------------------------------------------------------------------------------------------
Ending balance $ 119,699 $ 116,070 $ 111,226 $ 108,084 $ 105,900
- -------------------------------------------------------------------------------------------------------------------
Reserve to loans outstanding
at period-end (1) 1.75% 1.72% 1.72% 1.73% 1.72%
Net loan losses (annualized)
to average loans (1) 0.37 0.39 0.31 0.30 0.32
- -------------------------------------------------------------------------------------------------------------------
(1) Excludes residential mortgage loans held for sale.
Specific reserves for impairment are determined through evaluation of estimated
future cash flows and collateral value. At March 31, 2003 specific impairment
reserves totaled $2.9 million on total impaired loans of $42 million.
Nonspecific reserves are maintained for risks beyond factors specific to an
individual loan or those identified through migration analysis. A range of
potential losses is determined for each factor identified. At March 31, 2003 the
range of potential losses for the more significant factors were:
General economic conditions $ 6.5 million - $8.7 million
Concentration of large loans $ 1.2 million - $2.4 million
Loan portfolio growth $724 thousand - $1.4 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 historical 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 not currently available.
NONPERFORMING ASSETS
Information regarding nonperforming assets, which totaled $56 million at March
31, 2003, $57 million at December 31, 2002 and $50 million at March 31, 2002, is
presented in Table 12. Nonperforming assets included nonaccrual and renegotiated
loans and excluded loans 90 days or more past due but still accruing interest.
Nonaccrual loans increased $858 thousand during the first quarter of 2003,
including newly identified nonaccruing loans of $6.9 million. This increase was
partially offset by nonaccruing loans decreasing $3.7 million from charge-offs
and foreclosure and $2.6 million from cash payments received.
- ---------------------------------------------------------------------------------------------------------------------
Table 12 - Nonperforming Assets
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
----------------------------------------------------------------------
Nonperforming loans:
Nonaccrual loans:
Commercial $ 39,576 $ 39,114 $ 41,093 $ 28,803 $ 33,784
Commercial real estate 3,585 3,395 5,788 4,388 3,360
Residential mortgage 6,202 5,950 6,025 4,486 4,182
Consumer 1,350 1,396 556 605 555
- ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 50,713 49,855 53,462 38,282 41,881
Renegotiated loans - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 50,713 49,855 53,462 38,282 41,881
Other nonperforming assets 5,350 6,719 6,427 6,630 7,655
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 56,063 $ 56,574 $ 59,889 $ 44,912 $ 49,536
- ---------------------------------------------------------------------------------------------------------------------
Ratios:
Reserve for loan losses to
nonperforming loans 236.03% 232.82% 208.05% 282.34% 252.86%
Nonperforming loans to
period-end loans (2) 0.74 0.74 0.83 0.72 0.68
- ---------------------------------------------------------------------------------------------------------------------
Loans past due (90 days) (1) $ 7,921 $ 8,117 $ 10,274 $ 12,215 $ 13,023
- ---------------------------------------------------------------------------------------------------------------------
(1) Includes residential mortgages guaranteed
by agencies of the U.S. Government. $ 5,185 $ 4,956 $ 6,640 $ 6,764 $ 6,314
Excludes residential mortgages guaranteed
by agencies of the U.S.
Government in foreclosure. 3,853 3,630 4,931 4,853 4,044
(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 value of the collateral. 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, these loans are not included in
nonperforming assets. Known information does, however, cause management to have
concerns as to the borrowers' ability to comply with current repayment terms.
Potential problem loans totaled $62 million at March 31, 2003 compared to $75
million at December 31, 2002 and $60 million at March 31, 2002. At March 31,
2003 the composition of potential problem loans by primary industry categories
included management of recreational properties - $14 million, manufacturing -
$11 million, healthcare - $11 million and energy - $9 million.
DEPOSITS
Total deposits increased 6% to $8.6 billion during the first quarter of 2003.
Time deposits increased $279 million or 9% and interest-bearing transaction
accounts increased $288 million or 9%. These were partially offset by a $71
million decrease in demand deposit accounts. Average core deposits were 54% of
total deposits for the first quarter of 2003 compared to 56% at December 31,
2002 and 58% at March 31, 2002. Core deposits represent all deposits, excluding
public funds, broker deposits, sweep accounts and time deposits greater than
$100 thousand. Average uninsured deposits represented 38% of total deposits at
March 31, 2003, compared to 37% at December 31, 2002 and 29% at March 31, 2002.
Uninsured deposits as used in this presentation are based on a simple analysis
of account balances and do not reflect combined ownership and other account
styling that would determine insurance based on FDIC regulations.
The distribution of deposit accounts among BOK Financial's principal markets is
shown in Table 13.
- ---------------------------------------------------------------------------------------------------------------------
TABLE 13 - DEPOSITS BY PRINCIPAL MARKET AREA
(In thousands)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
---------------------------------------------------------------------------------
Oklahoma:
Demand $ 1,014,983 $ 1,044,628 $ 951,301 $ 834,240 $ 764,276
Interest-bearing:
Transaction 2,099,096 1,897,353 1,762,593 1,689,404 1,696,436
Savings 109,954 103,749 104,864 105,226 107,564
Time 2,572,531 2,334,949 2,263,729 2,212,642 2,193,447
---------------------------------------------------------------------------------
Total interest-bearing 4,781,581 4,336,051 4,131,186 4,007,272 3,997,447
---------------------------------------------------------------------------------
Total Oklahoma $ 5,796,564 $ 5,380,679 $ 5,082,487 $ 4,841,512 $ 4,761,723
---------------------------------------------------------------------------------
Texas:
Demand $ 344,228 $ 394,164 $ 320,108 $ 318,334 $ 289,850
Interest-bearing:
Transaction 1,023,917 953,550 776,991 749,516 747,917
Savings 36,965 33,071 31,058 30,253 30,456
Time 542,101 510,512 450,387 464,948 429,971
---------------------------------------------------------------------------------
Total interest-bearing 1,602,983 1,497,133 1,258,436 1,244,717 1,208,344
---------------------------------------------------------------------------------
Total Texas $ 1,947,211 $ 1,891,297 $ 1,578,544 $ 1,563,051 $ 1,498,194
---------------------------------------------------------------------------------
Albuquerque:
Demand $ 89,464 $ 79,953 $ 77,286 $ 70,892 $ 60,638
Interest-bearing:
Transaction 307,411 295,174 264,188 249,771 264,789
Savings 27,036 26,704 27,048 27,215 27,346
Time 296,492 287,607 285,968 280,073 257,611
---------------------------------------------------------------------------------
Total interest-bearing 630,939 609,485 577,204 557,059 549,746
---------------------------------------------------------------------------------
Total Albuquerque $ 720,403 $ 689,438 $ 654,490 $ 627,951 $ 610,384
---------------------------------------------------------------------------------
Northwest Arkansas:
Demand $ 11,761 $ 12,949 $ 11,198 $ 12,548 $ 11,560
Interest-bearing:
Transaction 21,756 18,025 17,807 15,791 16,598
Savings 1,269 1,214 1,218 1,425 1,410
Time 135,756 134,923 128,233 119,968 117,090
---------------------------------------------------------------------------------
Total interest-bearing 158,781 154,162 147,258 137,184 135,098
---------------------------------------------------------------------------------
Total Northwest Arkansas $ 170,542 $ 167,111 $ 158,456 $ 149,732 $ 146,658
---------------------------------------------------------------------------------
Total BOK Financial deposits $ 8,634,720 $ 8,128,525 $ 7,473,977 $ 7,182,246 $ 7,016,959
---------------------------------------------------------------------------------
CAPITAL
Shareholders' equity increased $43 million during the first quarter of 2003 and
totaled $1.1 billion at March 31, 2003. The increase was primarily due to net
income for the quarter. 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. For a banking institution to
qualify as well capitalized, as defined by the banking agencies, its Tier I,
Total and Leverage capital ratios must be at least 6%, 10% and 5%, respectively.
BOK Financial's capital ratios are presented in Table 14. Additionally, each
subsidiary bank exceeds the regulatory definition of well capitalized.
- --------------------------------------------------------------------------------------------------------
TABLE 14 - CAPITAL RATIOS
March 31, Dec. 31, Sept. 30, June 30, March 31,
2003 2002 2002 2002 2002
------------------------------------------------------------------------
Average shareholders' equity
to average assets 9.02% 8.81% 8.38% 8.01% 7.93%
Risk-based capital:
Tier 1 capital 9.20 8.98 9.03 8.69 8.49
Total capital 12.11 11.95 12.43 12.11 11.99
Leverage 7.03 6.88 6.99 6.78 6.63
During 2002, BOK Financial issued shares of common stock for its purchase of
Bank of Tanglewood. In addition, BOK Financial agreed to a limited price
guarantee on a portion of the shares issued in this purchase. Pursuant to this
guarantee, any holder of BOK Financial common shares issued in this acquisition
may annually make a claim for the excess of the guaranteed price and the actual
sales price of any shares sold during a 60-day period after each of the first
five anniversary dates after October 25, 2002. The maximum annual number of
shares subject to this guarantee is 198,010. BOK Financial may elect, in its
sole discretion, to issue additional shares of common stock to satisfy any
obligation under the price guarantee or to pay cash.
The following table presents the estimated number of common shares that would be
required to be issued and the cash value equivalent if the market value of BOK
Financial's common stock remained at $32.67, its closing price on March 31, 2003
and if all holders exercised their rights under the price guarantee agreement.
Cash
Equivalent
of
Additional Additional
Number Shares Shares
Benchmark Benchmark Of To (In
Period Price Shares Issue Thousands)
- ------------------------------------------------------------------------------------------------------------
October 25, 2003 - December 24, 2003 $34.81 198,010 12,948 $ 423
October 25, 2004 - December 24, 2004 37.38 198,010 28,574 933
October 25, 2005 - December 24, 2005 39.96 198,010 44,201 1,444
October 25, 2006 - December 24, 2006 42.54 198,010 59,827 1,955
October 25, 2007 - December 24, 2007 45.12 198,010 75,454 2,465
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 purposes other than trading and
trading assets. The effects of other changes, such as foreign exchange rates,
commodity prices or equity prices do not pose significant market risk to BOK
Financial. BOK Financial has no material investments in assets that are affected
by changes in foreign exchange rates or equity prices. Energy derivative
contracts, which are affected by changes in commodity prices, are matched
against offsetting contracts as previously discussed.
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 specified 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 has a large portion of its earning assets in variable rate loans
and a large portion of its liabilities in demand deposit accounts and interest
bearing transaction accounts. Changes in interest rates affect earning assets
more rapidly than interest bearing liabilities in the short term. Management has
adopted several strategies to reduce this interest rate sensitivity. As
previously noted in the Net Interest Revenue section of this report, management
acquires securities that are funded by borrowings in the capital markets. These
securities have an expected average duration of 2.05 years while the related
funds borrowed have an average duration of 90 days. Average securities purchased
and funds borrowed under this strategy were $1.9 billion during the first
quarter of 2003.
Additionally, BOK Financial uses interest rate swaps in managing its interest
rate sensitivity. These products are generally used to more closely match
interest on certain fixed-rate loans with funding sources and long-term
certificates of deposit with earning assets. During the first quarters of 2003
and 2002, net interest revenue increased $3.3 million and $3.2 million,
respectively, from periodic settlements of these swaps. Additionally, net losses
of $1.3 million were recognized in the first quarter of 2003 compared to net
losses of $1.0 million in the first quarter of 2002 from adjustments of interest
rate swaps to fair value. Credit risk from these swaps is closely monitored
Derivative contracts are not used for speculative purposes.
The effectiveness of these strategies in managing the overall interest rate risk
is evaluated through the use of an asset/liability model. 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 eight interest
rate scenarios. Three specified interest rate scenarios are used to evaluate
interest rate risk against policy guidelines. 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 included the Federal Funds 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 Most Likely
-------------------------- --------------------------- ------------------------
2003 2002 2003 2002 2003 2002
------------- ------------ ------------ -------------- ------------ -----------
Anticipated impact over the next twelve months:
Net interest revenue $ 12,724 $ 10,235 $(8,050) $ (5,921) $ 5,178 $ 6,292
3.1% 2.9% (1.9)% (1.7)% 1.3% 1.8%
- -----------------------------------------------------------------------------------------------------------------
Net income $ 7,953 $ 6,397 $ (5,031) $ (3,700) $ 3,237 $ 3,933
4.9% 4.9% (3.1)% (2.9)% 2.0% 3.0%
- -----------------------------------------------------------------------------------------------------------------
Economic value of equity $ 20,145 $ 53,607 $(49,972) $(73,385) $46,077 $55,282
1.4% 4.3% (3.5)% (6.3)% 3.2% 4.4%
- -----------------------------------------------------------------------------------------------------------------
BOK Financial has market risk associated with its portfolio of mortgage
servicing rights, primarily due to loan prepayments. 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 U.S. government
agency debentures 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. This strategy
presents certain risks. A well-developed market determines the fair value for
securities, however 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 March 31, 2003, securities with a fair value of $207 million and an
unrealized gain of $1.8 million were held for the economic 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 March 31, 2003, 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 $ 16,218 $ (9,789)
Hedging securities (2,583) 5,223
-------------------- ---------------------
Net $ 13,635 $ (4,566)
-------------------- ---------------------
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.
- -----------------------------------------------------------------------------------------------
TABLE 17 - INTEREST RATE SWAPS
(In Thousands)
Notional Pay Receive Positive Negative
Amount Rate Rate Fair Value Fair Value
------------------------------------------------------------------------------------
Expiration:
2004 $ 71,869 1.28%(1) - 4.22% 1.30%(1) - 7.36% $ 3,243 $ (372)
2006 222,585 1.28%(1) - 8.80% 1.30%(1) - 8.80% 3,922 (1,634)
2007 275,000 1.28%(1) 4.09% - 4.51% 7,114 -
2008 30,000 1.28%(1) - 2.74% 1.28%(1) - 2.74% 206 (206)
2009 5,466 1.30%(1) - 4.75% 1.30%(1) - 4.75% 339 (347)
2011 43,723 5.21% - 5.51% 1.30%(1) - (3,537)
- -----------------------------------------------------------------------------------------------
$ 14,824 $ (6,096)
---------------------------
(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, the VAR to $1.6
million. At March 31, 2003, the nominal aggregate trading positions was $12
million, the VAR was $307 thousand. The greatest value at risk during the first
quarter of 2003 was $1.2 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
expected 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 that BOK Financial has not independently
verified. These statements are not guarantees of future performance and involve
certain 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 within 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 conditions, results of
operations and cash flows of BOK Financial and its subsidiaries at the dates and
for the periods presented.
As of March 31, 2003, 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 March 31, 2003. There have been no significant changes in BOK Financial's
internal controls or in other factors that could significantly affect internal
controls subsequent to March 31, 2003.
BOK Financial and its subsidiaries maintain a system of internal accounting
controls designed to provide reasonable assurance that transactions are executed
in accordance with management's general or specific authorization, and are
recorded as necessary to maintain accountability for assets and to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States. This system includes written policies
and procedures, a corporate code of conduct, an internal audit program and
standards for the hiring and training of qualified personnel.
The Board of Directors of BOK Financial maintains a Risk Oversight and Audit
Committee consisting of outside directors that meet periodically with management
and BOK Financial's internal and independent auditors. The Committee considers
the audit and nonaudit services to be performed by the independent auditors,
makes arrangements for the internal and independent audits and recommends BOK
Financial's selection of independent auditors. The Committee also reviews the
results of the internal and independent audits, critical accounting policies and
practices, and various shareholder reports and other reports and filings.
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 2002 Form 10-K filed with the Securities and
Exchange Commission which contains audited financial statements.
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars In Thousands, Except Per Share Data)
Three Months Ended
March 31,
-----------------------------
2003 2002
-----------------------------
Interest Revenue
Loans $ 94,476 $ 92,755
Taxable securities 45,134 48,153
Tax-exempt securities 2,136 2,601
- --------------------------------------------------------------------------------------
Total securities 47,270 50,754
- --------------------------------------------------------------------------------------
Trading securities 100 171
Funds sold and resell agreements 106 50
- --------------------------------------------------------------------------------------
Total interest revenue 141,952 143,730
- --------------------------------------------------------------------------------------
Interest Expense
Deposits 35,077 36,101
Borrowed funds 8,944 13,840
Subordinated debentures 2,420 2,722
- --------------------------------------------------------------------------------------
Total interest expense 46,441 52,663
- --------------------------------------------------------------------------------------
Net Interest Revenue 95,511 91,067
Provision for Loan Losses 9,912 8,866
- --------------------------------------------------------------------------------------
Net Interest Revenue After Provision for Loan Losses 85,599 82,201
- --------------------------------------------------------------------------------------
Other Operating Revenue
Brokerage and trading revenue 8,679 6,067
Transaction card revenue 13,599 12,486
Trust fees and commissions 10,180 10,374
Service charges and fees on deposit accounts 18,984 13,855
Mortgage banking revenue, net 15,535 10,652
Leasing revenue 859 892
Other revenue 5,001 5,042
- --------------------------------------------------------------------------------------
Total fees and commissions 72,837 59,368
- --------------------------------------------------------------------------------------
Gain on sale of assets 730 676
Gain (loss) on sales of securities, net 9,689 (7,581)
Loss on derivatives, net (1,102) (536)
- --------------------------------------------------------------------------------------
Total other operating revenue 82,154 51,927
- --------------------------------------------------------------------------------------
Other Operating Expense
Personnel expense 52,632 43,332
Business promotion 3,471 2,878
Professional fees and services 3,765 2,908
Net occupancy and equipment 11,061 10,340
Data processing and communications 12,643 10,438
FDIC and other insurance 516 439
Printing, postage and supplies 3,359 3,057
Net gains and operating expenses on repossessed assets 8 47
Amortization of intangible assets 1,777 1,887
Mortgage banking costs 14,442 8,357
Recovery for impairment of mortgage servicing rights (7,830) (5,278)
Other expense 3,082 4,746
- --------------------------------------------------------------------------------------
Total other operating expense 98,926 83,151
- --------------------------------------------------------------------------------------
Income Before Taxes 68,827 50,977
Federal and state income tax 24,640 18,045
- --------------------------------------------------------------------------------------
Net Income $ 44,187 $ 32,932
- --------------------------------------------------------------------------------------
Earnings Per Share:
Net Income
Basic $ 0.79 $ 0.62
Diluted $ 0.71 $ 0.55
.......................................................................................
Average Shares Used in Computation:
Basic 55,154,698 52,868,907
Diluted 62,567,374 60,122,929
- --------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars In Thousands, Except Per Share Data)
March 31, December 31, March 31,
2003 2002 2002
----------------------------------------------
Assets
Cash and due from banks $ 563,674 $ 604,680 $ 394,407
Funds sold and resell agreements 26,642 19,535 6,300
Trading securities 10,658 5,110 22,433
Securities:
Available for sale 3,931,517 3,204,973 2,787,635
Available for sale securities pledged to creditors 670,852 728,370 687,356
Investment (fair value: March 31, 2003 - $201,892;
December 31, 2002 -$202,153; March 31, 2002 - $228,315) 199,463 197,950 227,058
- ----------------------------------------------------------------------------------------------------------------
Total securities 4,801,832 4,131,293 3,702,049
- ----------------------------------------------------------------------------------------------------------------
Loans 6,976,489 6,900,983 6,249,216
Less reserve for loan losses (119,699) (116,070) (105,900)
- ----------------------------------------------------------------------------------------------------------------
Net loans 6,856,790 6,784,913 6,143,316
- ----------------------------------------------------------------------------------------------------------------
Premises and equipment, net 154,943 151,715 139,644
Accrued revenue receivable 61,935 72,018 69,375
Intangible assets, net 196,256 197,868 149,689
Mortgage servicing rights, net 37,526 37,288 102,319
Real estate and other repossessed assets 5,350 6,719 7,655
Bankers' acceptances 33,210 3,728 11,673
Receivable on unsettled security transactions - 65,395 -
Derivative contracts 130,158 90,776 42,638
Other assets 83,993 74,007 75,011
- ----------------------------------------------------------------------------------------------------------------
Total assets $12,962,967 $12,245,045 $10,866,509
- ----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Noninterest-bearing demand deposits $ 1,460,436 $ 1,531,694 $ 1,126,324
Interest-bearing deposits:
Transaction 3,452,180 3,164,102 2,725,740
Savings 175,224 164,738 166,776
Time 3,546,880 3,267,991 2,998,119
- ----------------------------------------------------------------------------------------------------------------
Total deposits 8,634,720 8,128,525 7,016,959
- ----------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase agreements 1,465,907 1,567,686 1,280,399
Other borrowings 1,057,550 1,088,022 1,120,769
Subordinated debentures 155,198 155,419 186,081
Accrued interest, taxes and expense 73,200 74,043 62,833
Bankers' acceptances 33,210 3,728 11,673
Due on unsettled security transactions 233,491 - 241,500
Derivative contracts 122,253 80,079 46,823
Other liabilities 50,598 53,986 44,292
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 11,826,127 11,151,488 10,011,329
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock 25 25 25
Common stock ($.00006 par value; 2,500,000,000
shares authorized; shares issued and outstanding:
March 31, 2003 - 55,886,144; December 31, 2002
- 55,749,596; March 31, 2002 - 51,918,270) 3 3 3
Capital surplus 462,151 459,347 327,008
Retained earnings 652,327 608,515 543,858
Treasury stock (shares at cost: March 31, 2003 - 700,327;
December 31, 2002 - 682,967; March 31, 2002 - 576,681) (17,979) (17,421) (13,664)
Accumulated other comprehensive income (loss) 40,313 43,088 (2,050)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,136,840 1,093,557 855,180
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $12,962,967 $12,245,045 $10,866,509
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(In Thousands)
Accumulated
Preferred Stock Common Stock Other Treasury Stock
------------------------------------ Comprehensive Capital Retained --------------------
Shares Amount Shares Amount Income(Loss) Surplus Earnings Shares Amount Total
----------------------------------------------------------------------------------------------------
Balances at
December 31, 2001 250,000 $ 25 51,737 $ 3 $ 5,792 $323,860 $511,301 541 $(12,498) $828,483
Net income - - - - - - 32,932 - - 32,932
Other Comprehensive
income, net of tax:
Unrealized loss
on securities
available for
sale (1) - - - - (7,842) - - - - (7,842)
----------
Comprehensive income 25,090
----------
Exercise of stock options - - 171 - - 2,706 - 35 (1,166) 1,540
Director retainer shares - - (2) - - 67 - - - 67
Dividends paid in shares
of common stock:
Preferred stock - - 12 - - 375 (375) - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 2002 250,000 $ 25 51,918 $ 3 $ (2,050) $327,008 $543,858 576 $(13,664) $855,180
- ---------------------------------------------------------------------------------------------------------------------------
Balances at
December 31, 2002 250,000 $ 25 55,750 $ 3 $ 43,088 $459,347 $608,515 683 $(17,421)$1,093,557
Comprehensive income:
Net income - - - - - - 44,187 - - 44,187
Other Comprehensive
income, net of tax:
Unrealized loss
on securities
available for
sale (1) - - - - (2,775) - - - - (2,775)
----------
Comprehensive income 41,412
----------
Exercise of stock options - - 122 - - 2,361 - 17 (558) 1,803
Director retainer shares - - 2 - - 68 - - - 68
Dividends paid in shares
of common stock:
Preferred stock - - 12 - - 375 (375) - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 2003 250,000 $ 25 55,886 $ 3 $ 40,313 $462,151 $652,327 700 $(17,979)$1,136,840
- ---------------------------------------------------------------------------------------------------------------------------
(1) March 31, 2003 March 31, 2002
Change in other comprehensive income:
Unrealized gains (losses) on available for
sale securities $ 5,367 $ (21,056)
Tax (expense) benefit on unrealized gains
(losses) on available for sale securities (1,921) 8,317
Reclassification adjustment for (gains)
losses realized included in net income (9,689) 7,581
Reclassification adjustment for tax
expense (benefit) on realized (gains)
losses 3,468 (2,684)
--------------------------------------
Net change in unrealized gains (losses) on
securities $ (2,775) $ (7,842)
--------------------------------------
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three Months Ended
March 31,
----------------------------
2003 2002
----------------------------
Cash Flows From Operating Activities:
Net income $ 44,187 $ 32,932
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 9,912 8,866
Recovery for mortgage servicing rights (7,830) (5,278)
Unrealized losses from derivatives 1,005 536
Depreciation and amortization 9,338 13,829
Net amortization of financial instrument discounts and premiums 2,611 1,755
Net gain on sale of assets (20,785) 2,546
Mortgage loans originated for resale (331,162) (207,756)
Proceeds from sale of mortgage loans held for resale 330,300 293,502
Change in trading securities (5,548) (12,106)
Change in accrued revenue receivable 10,083 (647)
Change in other operating assets (15,999) 13,480
Change in accrued interest, taxes and expense (843) (4,463)
Change in other liabilities 26,311 (2,532)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,580 134,664
- ----------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of investment securities 6,646 13,994
Proceeds from maturities of available for sale securities 392,756 526,946
Purchases of investment securities (8,215) -
Purchases of available for sale securities (2,198,059) (3,025,150)
Proceeds from sales of available for sale securities 1,138,490 2,450,262
Loans originated or acquired net of principal collected (128,254) (94,198)
Purchases of derivative asset contracts (14,385) (338)
Net change in other investment assets 953 (313)
Proceeds from disposition of assets 70,612 54,251
Purchases of assets (13,820) (7,867)
- ----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (753,276) (82,413)
- ----------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in demand deposits, transaction
deposits, money market deposits, and savings accounts 227,306 (65,798)
Net change in certificates of deposit 279,079 177,238
Net change in other borrowings (132,251) (421,769)
Proceeds from derivative liability contracts 15,337 -
Net change in derivative margin accounts (22,431) -
Change in amount due on unsettled security transactions 298,886 9,840
Issuance of preferred, common and treasury stock, net 1,871 1,607
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 667,797 (298,882)
- ----------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (33,899) (246,631)
Cash and cash equivalents at beginning of period 624,215 647,338
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 590,316 $ 400,707
- ----------------------------------------------------------------------------------------------------------
Cash paid for interest $ 47,933 $ 57,575
- ----------------------------------------------------------------------------------------------------------
Cash paid for taxes $ 8,798 $ 3,858
- ----------------------------------------------------------------------------------------------------------
Net loans transferred to repossessed real estate and other assets $ 356 $ 1,248
- ----------------------------------------------------------------------------------------------------------
Payment of dividends in common stock $ 375 $ 375
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Consolidated Financial Statements of BOK Financial Corporation ("BOK
Financial") have been prepared in conformity with accounting principles
generally accepted in the United States, including general practices of the
banking industry. The consolidated financial statements include the accounts of
BOK Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its
subsidiaries ("BOk"), Bank of Texas, N.A., Bank of Arkansas N.A., Bank of
Albuquerque, N.A. and BOSC, Inc. Certain prior period amounts have been
reclassified to conform to current period classifications.
EXECUTIVE BENEFIT PLANS
BOK Financial has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock options on the date of grant, no compensation expense is
recorded. BOK Financial has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"), as amended by Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("FAS 148").
The following table represents the required pro forma disclosures for options
granted subsequent to December 31, 1994 (in thousands, except per share data):
Three months ended March 31,
----------------------------
2003 2002
----------------------------
Net income as reported $ 44,187 $ 32,932
Stock-based employee compensation, net of tax,
reported in current net income - -
Stock-based employee compensation, net of tax,
as if fair value method were applied (720) (638)
----------------------------
Pro forma net income $ 43,467 $ 32,294
----------------------------
Earnings per share as reported:
Basic $ 0.79 $ 0.62
Diluted 0.71 0.55
Pro forma earnings per share:
Basic $ 0.78 $ 0.60
Diluted 0.69 0.54
(2) MORTGAGE BANKING ACTIVITIES
At March 31, 2003, BOk owned the rights to service 72,226 mortgage loans with
outstanding principal balances of $5.4 billion, including $368 million serviced
for BOk. The weighted average interest rate and remaining term was 6.94% and 264
months, respectively.
Activity in capitalized mortgage servicing rights and related valuation
allowance during the three months ending March 31, 2003 is as follows (in
thousands):
Capitalized Mortgage Servicing Rights Valuation Hedging
Purchased Originated Total Allowance (Gain)/Loss Net
------------------------------------------------------------------------------------
Balance at December 31, 2002 $ 37,223 $ 49,849 $ 87,072 $ (54,918) $ 5,134 $ 37,288
Additions, net (2) 5,521 5,519 - - 5,519
Amortization expense (5,914) (6,841) (12,755) - (356) (13,111)
Recovery for impairment provision - - - 7,830 - 7,830
- ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- --------
Balance at March 31, 2003 $ 31,307 $ 48,529 $ 79,836 $ (47,088) $ 4,778 $ 37,526
- ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- --------
Estimated fair value of
mortgage servicing rights (1)$ 15,656 $ 22,432 $ 38,088 - - $ 38,088
- ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- --------
(1) Excludes approximately $1.7 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 March 31,
2003 follows (in thousands):
< 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total
---------------- --------------- ---------------- ----------- -------------
Cost less accumulated amortization $ 23,528 $ 41,335 $ 13,828 $ 1,145 $ 79,836
Deferred hedge losses - 3,830 948 - 4,778
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Adjusted cost $ 23,528 $ 45,165 $ 14,776 $ 1,145 $ 84,614
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Fair value $ 13,204 $ 17,778 $ 5,848 $ 1,258 $ 38,088
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Impairment (2) $ 10,514 $ 27,388 $ 8,930 $ 256 $ 47,088
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Outstanding principal of loans serviced(1)$ 1,455,900 $ 2,552,300 $ 749,800 $ 121,400 $ 4,879,400
- ------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
(1) Excludes outstanding principal of $368 million for loans serviced for BOk
and $192 million of mortgage loans originated prior to FAS 122, for which
there are no capitalized mortgage servicing rights.
(2) Impairment is determined by both an interest rate and loan type
stratification.
(3) DISPOSAL OF AVAILABLE FOR SALE SECURITIES
Sales of available for sale securities resulted in gains and losses as follows
(in thousands):
Three Months Ended March 31,
----------------------------------
2003 2002
-------------- ---------------
Proceeds $ 1,138,490 $ 2,450,262
Gross realized gains 9,897 14,457
Gross realized losses 208 22,038
Related federal and state income
tax expense (benefit) 3,469 (2,684)
(4) SHAREHOLDERS' EQUITY
On April 29, 2003, the Board of Directors of BOK Financial declared a 3% stock
dividend payable in shares of BOK Financial common stock. The dividend is
payable on May 30, 2003 to shareholders of record on May 12, 2003. Generally
accepted accounting principles require earnings per share information to be
retroactively restated to reflect the new capital structure upon consummation of
a stock dividend. Accordingly, for all financial statements issued after May 30,
2003, earnings per share will be restated as follows:
Fully Diluted Earnings Per Share:
As Reported Restated
----------- --------
2002:
1st Quarter $ 0.55 $ 0.53
2nd Quarter 0.57 0.56
3rd Quarter 0.73 0.71
4th Quarter 0.63 0.61
Year Ended December 31 2.48 2.41
2003: 1st Quarter $ 0.71 $ 0.69
(5) EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per
share (dollars in thousands, except per share data):
Three Months Ended
------------------------
March 31, March 31,
2003 2002
------------------------
Numerator:
Net income $ 44,187 $ 32,932
Preferred stock dividends (375) (375)
- -------------------------------------------------------------------------------
Numerator for basic earnings per share - income
available to common shareholders 43,812 32,557
Effect of dilutive securities:
Preferred stock dividends 375 375
- -------------------------------------------------------------------------------
Numerator for diluted earnings per share - income
available to common shareholders after assumed
conversion $ 44,187 $ 32,932
- -------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share -weighted
average shares 55,154,698 52,868,907
Effect of dilutive securities:
Employee stock options (1) 655,076 730,161
Convertible preferred stock 6,523,861 6,523,861
Tanglewood market value guarantee 233,739 -
- -------------------------------------------------------------------------------
Dilutive potential common shares 7,412,676 7,254,022
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 62,567,374 60,122,929
- -------------------------------------------------------------------------------
Basic earnings per share $ 0.79 $ 0.62
Diluted earnings per share $ 0.71 $ 0.55
(1) Excludes employee stock options with exercise
prices greater than current market price. 720,267 -
(6) REPORTABLE SEGMENTS
Reportable segments reconciliation to the Consolidated Financial Statements for
the three months ended March 31, 2003 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
---------- ---------- ----------- ---------- -------------
Total reportable segments $ 81,373 $ 55,926 $ 79,387 $ 33,901 $12,631,852
Total nonreportable segments 174 20,276 15,509 7,678 62,103
Unallocated items:
Tax-equivalent adjustment 1,403 - - 1,403 -
Funds management 16,840 (2,662) 1,445 6,519 1,062,551
All others (including eliminations),net (4,279) 27 2,585 (5,314) (1,389,841)
---------- ---------- ----------- ---------- ----------
BOK Financial consolidated $ 95,511 $ 73,567 $ 98,926 $ 44,187 $12,366,665
========== ========== =========== ========== =============
(1) Excluding financial instruments gains/(losses).
Reportable segments reconciliation to the Consolidated Financial Statements for
the three months ended March 31, 2002 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
-------- ---------- ------------ ---------- ------------
Total reportable segments $ 74,128 $ 43,580 $ 67,807 $ 16,386 $ 11,099,744
Total nonreportable segments 221 17,078 13,440 6,102 34,560
Unallocated items:
Tax-equivalent adjustment 1,696 - - 1,696 -
Funds management 18,686 329 2,150 13,502 498,703
All others (including eliminations),net (3,664) (943) (246) (4,754) (875,489)
-------- ---------- ------------ ---------- ------------
BOK Financial consolidated $ 91,067 $ 60,044 $ 83,151 $ 32,932 $ 10,757,518
======== ========== ============ ========== =============
(1) Excluding financial instruments 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.
(8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
BOK Financial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to manage interest rate risk. Those financial instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in BOK
Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the notional
amount of those instruments.
As of March 31, 2003, outstanding commitments and letters of credit were as
follows (in thousands):
March 31,
2003
--------------
Commitments to extend credit $ 3,056,445
Standby letters of credit 391,125
Commercial letters of credit 3,502
Commitments to purchase securities 24,897
- -----------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Summary (Unaudited)
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands Except Per Share
Data)
Three Months Ended
-------------------------------------------------------------------------------------
March 31, 2003 December 31, 2002
------------------------------------------ -------------------------------------
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate
-------------------------------------------------------------------------------------
Assets
Taxable securities (3) $ 4,145,472 $ 45,134 4.64% $ 4,024,291 $ 45,710 4.73%
Tax-exempt securities (3) 197,902 3,387 6.94 194,586 3,407 6.95
- ------------------------------------------------------------------------------------------------------------------------------
Total securities(3) 4,343,374 48,521 4.75 4,218,877 49,117 4.84
- ------------------------------------------------------------------------------------------------------------------------------
Trading securities 10,342 116 4.55 8,639 87 4.00
Funds sold 29,392 106 1.46 24,856 92 1.47
Loans(2) 6,949,113 94,612 5.52 6,761,498 95,864 5.62
Less reserve for loan losses 119,959 - - 114,711 - -
- ------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 6,829,154 94,612 5.62 6,646,787 95,864 5.72
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 11,212,262 143,355 5.28 10,899,159 145,160 5.38
- ------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 1,154,403 1,032,760
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 12,366,665 $ 11,931,919
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 3,288,874 $ 8,777 1.08% $ 2,988,986 $ 9,648 1.28%
Savings deposits 168,730 306 0.74 173,286 491 1.12
Other time deposits 3,399,813 25,994 3.10 3,248,364 25,531 3.12
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,857,417 35,077 2.07 6,410,636 35,670 2.21
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and repurchase
agreements 1,420,781 4,023 1.15 1,523,923 5,471 1.42
Other borrowings 1,059,201 4,921 1.88 1,084,616 5,751 2.10
Subordinated debenture 155,304 2,420 6.32 169,874 2,580 6.03
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 9,492,703 46,441 1.98 9,189,049 49,472 2.14
- ------------------------------------------------------------------------------------------------------------------------------
Demand deposits 1,292,077 1,310,932
Other liabilities 465,820 380,204
Shareholders' equity 1,116,065 1,051,734
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' $ 12,366,665 $ 11,931,919
equity
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (3) 96,914 3.30% 95,688 3.24%
Tax-Equivalent Net Interest Revenue (3)
To Earning Assets 3.57 3.55
Less tax-equivalent adjustment (1) 1,403 1,404
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 95,511 94,284
Provision for loan losses 9,912 10,001
Other operating revenue 82,154 80,739
Other operating expense 98,926 104,993
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 68,827 60,029
Federal and state income tax 24,640 21,250
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 44,187 $ 38,779
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Net Income
Basic $ 0.79 $ 0.70
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.71 $ 0.63
- ------------------------------------------------------------------------------------------------------------------------------
(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) Yield calculations
exclude security trades that have been recorded on trade date with no
corresponding interest income.
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------
September 30, 2002 June 30, 2002 March 31, 2002
- -------------------------------------------------------------------------------------------------------------------------
Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate Balance Expense(1) /Rate
- -------------------------------------------------------------------------------------------------------------------------
$ 3,794,732 $ 46,473 5.06% $ 3,696,603 $ 46,564 5.50% $ 3,442,504 $ 48,153 5.68%
193,645 3,335 6.83 218,747 3,948 7.24 230,755 4,101 7.21
- -------------------------------------------------------------------------------------------------------------------------
3,988,377 49,808 5.15 3,915,350 50,512 5.60 3,673,259 52,254 5.77
- -------------------------------------------------------------------------------------------------------------------------
13,341 221 6.57 19,989 238 4.78 14,971 204 5.53
11,331 57 2.00 17,148 92 2.15 10,656 50 1.90
6,444,933 95,731 5.89 6,225,134 93,787 6.04 6,164,060 92,918 6.11
110,590 - - 109,366 - - 105,166 - -
- -------------------------------------------------------------------------------------------------------------------------
6,334,343 95,731 6.00 6,115,768 93,787 6.15 6,058,894 92,918 6.22
- -------------------------------------------------------------------------------------------------------------------------
10,347,392 145,817 5.67 10,068,255 144,629 5.94 9,757,780 145,426 6.05
- -------------------------------------------------------------------------------------------------------------------------
981,246 1,005,122 999,738
- -------------------------------------------------------------------------------------------------------------------------
$ 11,328,638 $ 11,073,377 $ 10,757,518
- -------------------------------------------------------------------------------------------------------------------------
$ 2,795,449 $ 9,882 1.40% $ 2,740,454 $ 9,841 1.44% $ 2,666,154 $ 9,902 1.51%
164,952 502 1.21 165,496 503 1.22 160,082 481 1.22
3,090,272 26,154 3.36 2,969,488 26,814 3.62 2,918,473 25,718 3.57
- -------------------------------------------------------------------------------------------------------------------------
6,050,673 36,538 2.40 5,875,438 37,158 2.54 5,744,709 36,101 2.55
- -------------------------------------------------------------------------------------------------------------------------
1,615,075 6,635 1.63 1,485,816 6,197 1.67 1,571,063 6,915 1.79
999,140 5,963 2.37 1,032,685 6,637 2.58 1,119,466 6,925 2.51
185,748 2,725 5.82 185,968 2,724 5.88 186,189 2,722 5.93
- -------------------------------------------------------------------------------------------------------------------------
8,850,636 51,861 2.32 8,579,907 52,716 2.46 8,621,427 52,663 2.48
- -------------------------------------------------------------------------------------------------------------------------
1,188,441 1,129,412 1,112,571
340,264 476,886 170,643
949,297 887,172 852,877
- -------------------------------------------------------------------------------------------------------------------------
$ 11,328,638 $ 11,073,377 $ 10,757,518
- -------------------------------------------------------------------------------------------------------------------------
93,956 3.35% 91,913 3.48% 92,763 3.57%
3.65 3.77 3.86
1,387 1,632 1,696
- -------------------------------------------------------------------------------------------------------------------------
92,569 90,281 91,067
8,029 6,834 8,866
107,467 83,864 51,927
123,695 113,798 83,151
- -------------------------------------------------------------------------------------------------------------------------
68,312 53,513 50,977
24,183 18,944 18,045
- -------------------------------------------------------------------------------------------------------------------------
$ 44,129 $ 34,569 $ 32,932
- -------------------------------------------------------------------------------------------------------------------------
$ 0.83 $ 0.65 $ 0.62
- -------------------------------------------------------------------------------------------------------------------------
$ 0.73 $ 0.57 $ 0.55
- -------------------------------------------------------------------------------------------------------------------------
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
99.1 Certification of Periodic Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K:
On January 23, 2003, a report on Form 8-K was filed reporting under Item 5
the announcement that BOK Financial Corporation issued a press release on
January 22, 2003 announcing its financial results for the fourth quarter
and full year ended December 31, 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: May 14, 2003 /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: May 14, 2003
/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: May 14, 2003
/s/ Stanley A. Lybarger
Stanley A. Lybarger
President
Chief Executive Officer
BOK Financial Corporation