EX-13 3 0003.txt 2000 ANNUAL REPORT TO SHAREHOLDER'S BOK FINANCIAL CORPORATION EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS Table of Contents Consolidated Selected Financial Data 9 Management's Assessment of Operations and Financial Condition 10 Selected Quarterly Financial Data 16 Report of Management on Financial Statements 25 Report of Independent Auditors 25 Consolidated Financial Statements 26 Notes to Consolidated Financial Statements 31 Annual Financial Summary - Unaudited 56 Quarterly Financial Summary - Unaudited 58 Appendix A 65 Financial Highlights (Dollars In Thousands Except Share Data) 2000 1999 1998(2) ------------------------------------------- For the Years Ended December 31 Net income $ 100,140 $ 89,226 $ 79,611 Earnings per share: Basic 2.01 1.79 1.59 Diluted 1.80 1.60 1.42 Book value per share $ 14.29 $ 11.36 $ 10.76 Return on average assets 1.15% 1.17% 1.34% Return on average shareholders' equity 16.46 16.45 16.38 ------------------------------------------------------------------------------------------- Tangible operating results4: Tangible net income $ 105,632 $ 94,849 $ 84,942 Tangible net income per diluted share 1.90 1.70 1.52 Tangible return on average assets 1.22% 1.25% 1.43% Tangible return on average shareholders' equity 17.37 17.49 17.48 ------------------------------------------------------------------------------------------- As of December 31 Loans, net of reserves $5,435,207 $4,567,255 $3,581,177 Assets 9,748,334 8,373,997 7,059,507 Deposits 6,046,005 5,263,184 4,607,727 Shareholders' equity 703,576 557,164 524,793 Nonperforming assets3 43,599 22,943 18,762 ------------------------------------------------------------------------------------------- Tier 1 capital ratio 8.06% 7.27% 7.93% Total capital ratio 11.23 10.72 12.02 Leverage ratio 6.51 5.92 6.60 Average shareholders' equity to average assets 7.00 7.12 8.17 Reserve for loan losses to nonperforming loans 207.95 391.65 467.70 Reserve for loan losses to loans(1) 1.51 1.66 1.86 Net charge offs to average loans .22 .04 .09 ------------------------------------------------------------------------------------------- 1 Excludes residential mortgage loans held for sale, which are carried at the lower of aggregate cost or market value. 2 Restated for pooling of interest in 1999. 3 Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing. 4 Operating results excluding the after-tax effect of goodwill amortization.
To Our Shareholders, Customers, Employees and Friends: From start to finish, 2000 was another record setting year. We are proud to report that BOK Financial Corporation reached a notable milestone in 2000. We set a record for our company by surpassing $100 million in earnings. This was a 12 percent increase over 1999, with diluted earnings per share up 13 percent to $1.80. Thanks to the efforts of our experienced bankers and a healthy economy, this marks our seventh consecutive year of record earnings. During that period, our earnings per share have jumped at a compounded annual growth rate of 13 percent. Our expansion is the result of strong internal growth, as well as a strategic acquisition effort. As of December 31, our assets stood at $9.7 billion - more than double what they were in 1996. Our net interest revenue last year grew by 14 percent. Fueled by a 22 percent gain in commercial lending, at year-end the loan portfolio stood at $5.5 billion. Our loan portfolio outside of Oklahoma grew by $419 million to $1.6 billion. Deposits grew as well - by 15 percent - and we will continue emphasizing deposit growth to bring it more in balance with loan growth. Fee-income lines comprised 42 percent of the total revenue for 2000 and included gains of 19 percent in transaction card revenue, and 12 percent in trust fees. Our growth strategy outside of Oklahoma continues to be successful. In August we announced our intent to acquire CNBT Bancshares Inc., providing us an entry into the Houston market with seven attractive locations. While these are our first physical branches in Houston, neither the territory nor the approach is new. Because of ties in the energy industry, we have served Houston customers for some time. The move into Houston closely resembles our entry into Dallas in 1997, when we started acquiring small, well-managed banks, then added the strength of our larger lending capabilities, a broader array of products and highly experienced local talent. The strategy has proven highly successful, and we look forward to implementing the same business plan in Houston. Our strategy is working in other markets as well. New Mexico, home to our 2-year-old Bank of Albuquerque, grew loans by 55 percent in 2000 and now makes up 11 percent of our total assets. Loans at Bank of Arkansas, based in Fayetteville, grew by 12 percent, and in Oklahoma, where we spent most of the '90s solidifying our position of market leadership, loans were up 13 percent. We continue making great strides in improving processes and controlling expenses, while also improving our service quality. The most visible step toward this goal is our recent move in Tulsa to the new BOK Technology Center, which allows us to quicken the pace of workflow, improve communications, and provide a more cost effective production environment. We also have a team dedicated to process improvement, looking for more effective and cost-efficient ways to serve our customers, while also increasing profitability. As we enter 2001 amidst forecasts of a softening economy, we believe our loss ratios will remain within acceptable levels. Our credit team is led by experienced professionals who worked through the last economic downturn. And, while our regional economy has diversified considerably over the last 20 years, we still have strong ties and experience in the counter-cyclical energy industry. We look forward to continued success in every line of business, and in every market we serve. As always, we appreciate your business and your interest in our company. George B. Kaiser Stanley A. Lybarger Chairman President and Chief Executive Officer Going the Distance TAKING THE LEAD One of our key objectives for the last several years has been to concentrate on expanding our business in high-growth markets in the states surrounding Oklahoma. As is evident in the results, our game plan is working. Loans saw double-digit increases in all the states where we have banking operations - Arkansas, New Mexico, Oklahoma and Texas - while a substantial portion of our growth continues to come from new markets. Our newest growth market is the Houston metropolitan area. In August we announced plans to acquire CNBT Bancshares Inc. The acquisition was completed in January 2001. Our strategic plan is to build the Houston franchise in a manner similar to our other Texas operations - by maintaining the bank's strong service culture and local management, and over time adding our larger lending capabilities and a broader array of products. Our other Texas operations continue their strong internal growth as well. Loans grew by 34 percent during 2000, led by a 91 percent gain in the energy portfolio. Bank of Texas also increased deposits by 44 percent, to $901 million. During the period, income from all non-interest sources grew from $4.9 million to $12.1 million. With the Houston addition, our assets in Texas now top $1.8 billion. RAISING THE BAR Our Bank of Albuquerque franchise, which we acquired in December 1998, continues to thrive. Business is growing, our product line-up is expanding and our position in local leadership is gaining. New Mexico is setting the pace in lending, having grown by 55 percent in 2000. At year-end our loan portfolio stood at $395 million - nearly triple the size of the original portfolio we purchased in 1998. At least partial credit goes to the addition of several new officers in trust, mortgage, brokerage and lending. The results in commercial lending, in particular, have been extraordinary as we have successfully moved market share to Bank of Albuquerque from other local banks. New Mexico now accounts for 11 percent of our total assets, at $1.1 billion. STRETCHING OUT Pushed by continued success in commercial lending, loans in Arkansas grew by 12 percent. Net interest revenue grew by 12 percent, while non-interest revenue grew by 22 percent. Bank of Arkansas also developed several sizable commercial relationships in Fort Smith and northwest Arkansas, primarily as a result of the bank's superior capabilities in 401(k) plans, treasury services and international services, all of which give Bank of Arkansas a competitive advantage. Our market leadership continues in our home state as well. Loans grew by 13 percent in Oklahoma, and we have Oklahoma's largest mortgage operation, trust company and securities firm. Passing the Test of Endurance ON YOUR MARK BOK Financial's 105-branch network continued broadening its products, services and delivery methods during 2000. For the last several years, BOK Financial has differentiated itself by offering a product and services line-up to rival our big-bank competitors, but delivered with the personalized service and responsiveness of a community bank. Last year was no exception as we continued emphasizing convenience and accessibility, giving our customers numerous choices for when, where and how they wish to do their banking. ExpressBank, our 24-hour live call center, had a landmark year, exceeding more than 1million incoming calls in 2000. Our in-store branches continue growing in popularity as well. Loans and deposits in our in-store branches grew by 20 percent and 14 percent, respectively, and Bank of Oklahoma opened its 28th in-store location. Our network of traditional branches also continues growing. We acquired land to build a new branch in the fast-growing Oklahoma City suburb of Edmond, added a branch in east Richardson, Texas, on the north side of Dallas, and in January 2001 opened a branch north of the Dallas-Fort Worth Airport in Grapevine. GAINING SPEED Internet banking is still our fastest-growing delivery method. Our four interactive banking web sites - www.bankofalbuquerque.com, www.bankofarkansas.com, www.bankofoklahoma.com and www.bankoftexas.com - collectively grew their number of registered users by 57 percent last year. More than 16 percent of our consumer banking customers are now signed up for Internet banking. We continued adding and redesigning Internet-based services, allowing us more flexibility in promoting our own products. Microbanker, a banking technology information portal, took notice and named our family of web sites one of the top six bank Internet sites in the country. At the end of 2000, our trust division's self-directed 401(k) went online, allowing participants to trade at rates competitive with retail online brokers. Many loan payments and other transactions are now handled online, and our online offerings to large and small businesses continue to grow. CONSISTENT PERFORMANCE BOK Financial also continued its track record as a leading commercial lender. Overall in 2000, commercial loans grew by 22 percent, and revenue from international trade set a new record, growing by 20 percent. Cash management revenues grew by 13 percent during the year, and in 2001 we will be actively expanding service delivery to customers in Texas, New Mexico and Arkansas. Our company remains the largest provider of retail remittance services in Oklahoma. We processed more than 4 million automated items per month, and installed a new imaging system as a way of enhancing customers' ability to store and retrieve transactions and documents. MARK OF A CHAMPION One of the hallmarks of BOK Financial is the high level of income that is generated from non-interest products and services. In 2000, despite market conditions that essentially kept brokerage and mortgage services flat, fee-income lines accounted for 42 percent of our total revenue. This far outpaces our peer banks, which average about 28 percent of income from non-credit sources. Included is TransFund, our fast-growing electronic funds transfer network, the 17th largest in the country. With more than 1,100 ATMs in an eight-state area, TransFund provides services for more than 280 financial institutions and 1.2 million cardholders. Revenues increased by 19 percent in 2000, while the TransFund Check Card was used to make 38 million purchases - an increase of 23 percent over 1999. The number of ATM and purchase transactions processed by TransFund has more than doubled since 1996, reaching 78.3 million transactions in 2000. VAULTING OVER THE COMPETITION Our trust division manages $18 billion in assets. Related fee income grew by 12 percent last year. More significantly, however, our trust services continue expanding into new fields. We introduced our successful Private Financial Services concept in Texas, in which teams of financial consultants, led by a relationship manager, coordinate financial services for high net-worth individuals. We also gained new fee income in Arkansas and Albuquerque after adding institutional and employee benefits trust professionals in those offices. Our self-directed 401(k) product continued prospering as well, adding another national law firm to a client list that includes major firms in Chicago, Los Angeles, Baltimore and Dallas. As one of the top five mineral management firms in the country, our trust group developed a unique oil and gas web site - www.bokproperties.com - to act as a nationwide clearinghouse for unleased mineral interests. The site links universities and other organizations that have been granted property or mineral rights with oil and gas producers, to provide a common vehicle for buying and selling the properties. BOK Financial then helps facilitate transactions by gathering title information, obtaining property insurance, inspecting the property and maintaining taxes. Our family of mutual funds, the American Performance Funds, continued its string of success. The funds reached $2 billion in assets for the first time in their 10-year history, and generated $8.9 million in fee-based revenue. Even more impressively, every one of our nine American Performance Funds ranked by Lipper outperformed the average of its peer group for the five-year period ending December 31, 2000. Oppenheim, the public finance arm of our securities division, BOSC Inc., continued as Oklahoma's dominant underwriter and financial advisor. Oppenheim was the lead banker for the $100 million expansion of the Oklahoma City airport, and was the investment banker for the new $15 million research facility of the Oklahoma Medical Research Foundation. Our mortgage division is one of the largest in the region, with a $6.9 billion servicing portfolio of 93,000 loans. Our Oklahoma City and Tulsa production offices have been the No. 1 originator of mortgage loans in their respective counties each month since May 1991 - more than 115 consecutive months, a marathon achievement. Clearing Hurdles POWER AND SPEED We continue making progress in technology and efficiency. In fact, after several years of concentrated effort, we have now reached the point where technology has become a key enabler for customer service, revenue generation and cost control. The investments we have made in the past three years are reflected in our improved efficiency and customer satisfaction. Internally, our intranet has become the way we do business. Annual benefits enrollment, customer-service monitoring, some training and database management, policy manuals and employee news are handled online - all with much more speed and ease than in previous years. And finally, a major service and technology project that has been in the works since the summer of 1999 came to fruition last year when we began moving our operations group in Tulsa to a new state-of-the-art technology center. The move was completed in February 2001. In reconfiguring the floor plan to optimize workflow and efficiency, we have seen the turnaround time of some of our work processes cut in half. The 184,000 square-foot center is now occupied by some 800 employees and is designed to accommodate future growth. THE FINISH LINE At BOK Financial Corporation, we're proud of our track record. At the same time, we know it's a race that has no finish line. Our ongoing goal is to be the premier financial services provider in every line of business, in every market we serve. We provide nationally competitive products with world-class service. Although we face able competitors, we have a team of talented bankers who relish the race and are proven winners. Table 1 Consolidated Selected Financial Data (Dollars In Thousands Except Share Data) December 31, ------------------------------------------------------------------- 2000 1999 19982 19972 19962 ------------------------------------------------------------------- Selected Financial Data For the year: Interest revenue $ 638,730 $ 500,274 $ 402,832 $ 357,074 $ 300,930 Interest expense 369,843 264,150 212,406 194,842 167,610 Net interest revenue 268,887 236,124 190,426 162,232 133,320 Provision for loan losses 17,204 10,365 14,591 9,256 4,419 Net income 100,140 89,226 79,611 68,155 56,263 Period-end: Loans, net of reserve 5,435,207 4,567,255 3,581,177 2,801,977 2,424,337 Assets 9,748,334 8,373,997 7,059,507 5,613,233 4,764,191 Deposits 6,046,005 5,263,184 4,607,727 3,924,405 3,384,874 Subordinated debenture 148,816 148,642 146,921 148,356 - Shareholders' equity 703,576 557,164 524,793 451,880 373,272 Nonperforming assets3 43,599 22,943 18,762 25,249 24,584 Profitability Statistics Earnings per share (based on average equivalent shares): Basic $ 2.01 $ 1.79 $ 1.59 $ 1.36 $ 1.12 Diluted 1.80 1.60 1.42 1.22 1.02 Percentages (based on daily averages): Return on average assets 1.15% 1.17% 1.34% 1.29% 1.27% Return on average shareholders' equity 16.46 16.45 16.38 16.78 16.89 Average shareholders' equity to average assets 7.00 7.12 8.17 7.71 7.49 Common Stock Performance Per Share: Book Value $ 14.29 $ 11.36 $ 10.76 $ 9.80 $ 8.38 Market price: December 31 close 21.25 20.19 23.38 19.40 13.50 Market range - High trade 21.25 25.94 25.63 22.00 14.00 - Low trade 15.31 18.94 19.50 13.88 9.62 Selected Balance Sheet Statistics Period-end: Tier 1 capital ratio (see Note 14) 8.06% 7.27% 7.93% 9.87% 10.57% Total capital ratio (see Note 14) 11.23 10.72 12.02 14.95 11.82 Leverage ratio (see Note 14) 6.51 5.92 6.60 7.06 7.48 Reserve for loan losses to nonperforming loans 207.95 391.65 467.70 270.65 229.95 Reserve for loan losses to loans1 1.51 1.66 1.86 1.95 1.93 Miscellaneous (at December 31) Number of employees (FTE) 3,003 3,101 2,850 2,404 2,179 Number of banking locations 105 100 91 76 72 Number of TransFund locations 1,111 1,020 998 785 638 Mortgage loan servicing portfolio $6,874,995 $7,028,247 $6,375,239 $6,981,744 $5,948,187 ------------------------------------------------------------------------------------------------------------------------- 1 Excludes residential mortgage loans held for sale, which are carried at the lower of aggregate cost or market value. 2 Restated for pooling of interest in 1999. 3 Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION BOK Financial Corporation ("BOK Financial") is a financial holding company that offers full service banking in Oklahoma, Northwest Arkansas, North Texas and New Mexico. BOK Financial's principal subsidiaries are Bank of Oklahoma, N.A., ("BOk"), Bank of Texas, N.A., Bank of Albuquerque, N.A., and Bank of Arkansas, N.A. Other subsidiaries include BOSC, Inc., a broker/dealer that engages in retail and institutional securities sales and municipal underwriting. On January 11, 2001, BOK Financial acquired CNBT Bancshares, Inc. This acquisition added seven branches in the Houston, Texas area and total assets of $498 million to Bank of Texas. ASSESSMENT OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial recorded net income of $100.1 million or $1.80 per diluted share for 2000 compared to $89.2 million or $1.60 per diluted share for 1999. Returns on average assets and average equity were 1.15% and 16.46%, respectively, for 2000 compared to 1.17% and 16.45%, respectively, for 1999. The increase in net income for 2000 was due to increases of $32.8 million or 14% in net interest revenue and $13.1 million or 7% in fees and commissions. These increases were partially offset by an increase of $22.3 million or 8% in operating expenses. The provision for loan losses increased by $6.8 million during 2000. Net income for the fourth quarter of 2000 was $25.5 million or $0.46 per diluted common share, an increase of 10% over the same period of 1999. The primary sources of increased quarterly earnings included net interest revenue, which increased $4.0 million or 6%, and fees and commissions, which increased $5.2 million or 11%. These increases were partially offset by a $5.1 million increase in operating expenses and a $3.7 million increase in the provision for loan losses. Net income for 1998 was $79.6 million or $1.42 per diluted common share. Returns on average assets and equity were 1.34% and 16.38%, respectively. NET INTEREST REVENUE Tax equivalent net interest revenue totaled $276.7 million for 2000 compared to $244.5 million for 1999. The increase in net interest revenue was primarily due to an increase in average earning assets. Average earning assets increased by $1.0 billion during 2000. Additionally, the mix of earning assets improved during 2000. Average loans, which generally have higher yields than other types of earning assets, increased to 63% of earning assets in 2000 compared to 60% in 1999. These volume factors contributed $87.9million to the increase in net interest revenue. Average interest bearing liabilities increased by $1.1 billion during 2000, including $376 million from borrowed funds and $674 million from deposits. The increase in average interest bearing liabilities decreased net interest revenue by $55.3 million. The change in net interest revenue due to net changes in interest rates was minimal for 2000. Table 2 Volume/Rate Analysis (In Thousands) 2000/1999 1999/1998 -------------------------------- ------------------------------ Change Due To(1) Change Due To(1) ---------------------- --------------------- Change Volume Yield/Rate Change Volume Yield/Rate --------------------------------------------------------------- Tax-equivalent interest revenue: Securities $ 20,384 $11,444 $ 8,940 $25,746 $ 27,741 $ (1,995) Trading securities (841) (1,683) 842 1,245 990 255 Loans 117,643 77,933 39,710 72,768 82,821 (10,053) Funds sold and resell agreements 743 164 579 (102) 122 (224) ---------------------------------------- --------------------------------------------------------------- Total 137,929 87,858 50,071 99,657 111,674 (12,017) ---------------------------------------- --------------------------------------------------------------- Interest expense: Transaction deposits 8,509 4,847 3,662 9,362 14,438 (5,076) Savings deposits (268) (174) (94) (866) 188 (1,054) Time deposits 49,387 28,452 20,935 4,121 10,323 (6,202) Borrowed funds 46,962 22,154 24,808 39,486 44,438 (4,952) Subordinated debenture 1,103 15 1,088 (359) 7 (366) ---------------------------------------- --------------------------------------------------------------- Total 105,693 55,294 50,399 51,744 69,394 (17,650) ---------------------------------------- ---------- --------- ---------------------- --------------------- Tax-equivalent net interest revenue 32,236 $32,564 $ (328) 47,913 $ 42,280 $ 5,633 ---------------------- --------------------- Change in nonrecurring foregone interest - (3,262) Decrease in tax-equivalent adjustment 527 1,047 ---------------------------------------- ---------- --------- Net interest revenue $ 32,763 $45,698 ---------------------------------------- ---------- --------- 1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
4th Qtr 2000/4th Qtr 1999 ------------------------------------ Change Due To(1) ------------------------ Change Volume Yield/Rate ----------- ------------ ----------- Tax-equivalent interest revenue: Securities $ 5,480 $ 3,461 $ 2,019 Trading securities 15 13 2 Loans 28,291 17,783 10,508 Funds sold and resell agreements 236 122 114 ------------------------------------------ ----------- ------------ ----------- Total 34,022 21,379 12,643 ------------------------------------------ ----------- ------------ ----------- Interest expense: Transaction deposits 3,007 161 2,846 Savings deposits (48) (72) 24 Time deposits 14,128 6,771 7,357 Borrowed funds 12,365 6,679 5,686 Subordinated debenture 280 (1) 281 ------------------------------------------ ----------- ------------ ----------- ------------------------------------------ ----------- ------------ ----------- Total 29,732 13,538 16,194 ------------------------------------------ ----------- ------------ ----------- Tax-equivalent net interest revenue 4,290 $ 7,841 $(3,551) ------------ ----------- Increase in tax-equivalent adjustment (241) ------------------------------------------ ----------- Net interest revenue $ 4,049 ------------------------------------------ ----------- 1 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis. Net interest margin, the ratio of net interest revenue to average earning assets, decreased from 3.63% in 1999 to 3.56% in 2000. This decrease was due primarily to growth in borrowed funds used to support the investment portfolio. Since inception in 1990, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth and to invest in securities. Although this strategy frequently results in a net interest margin that falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. Management estimates that this strategy resulted in an 83 basis point decrease in net interest margin in 2000 and a 59 basis point decrease in net interest margin in 1999 and 1998. Net interest margins, excluding this strategy, were 4.39% for 2000, 4.22% for 1999, and 4.31% for 1998. However, this strategy contributed $4.3 million, $13.2 million, and $8.4 million to net interest revenue for 2000, 1999, and 1998, respectively. As more fully discussed in the subsequent Market Risk Section, management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy. Tax-equivalent net interest revenue for the fourth quarter of 2000 was $71.3 million compared to $67.0 million for the fourth quarter of 1999. This increase was due to the growth in average earning assets, which increased $1.0 billion or 14%. Net interest margin decreased 23 basis points to 3.47% due to an increase in funding costs. The average cost of deposits increased 105 basis points from the fourth quarter of 1999 to the fourth quarter of 2000. Yields on earning assets increased by 71 basis points for these same periods. Tax-equivalent net interest revenue, totaled $244.5 million for 1999 compared to $199.9 million in 1998. The increase in net interest revenue was due to improvements in the mix of loans to total earning assets and lower rates paid on interest bearing liabilities. Loans, which generally have a higher yield, comprised 60% of earning assets in 1999 compared to 58% in 1998. This improvement in asset mix limited the decrease in yields on average earning assets to 19 bases points. The cost of interest-bearing liabilities decreased 35 bases points during this period due to falling interest rates. These factors combined to increase net interest revenue. The financial service environment in BOK Financial's primary markets is highly competitive due to a large number of commercial banks, thrifts, credit unions and brokerage firms. Additionally, many customers already have access to national and regional financial institutions for many products and services. Management expects that BOK Financial will continue to be able to successfully compete with these financial institutions by delivering the loan and deposit products and other financial services traditionally associated with a large bank with the responsiveness of a smaller, community bank. Other Operating Revenue Table 3 Other Operating Revenue (In Thousands) Years ended December 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 ----------- ------------------------------------------ Brokerage and trading revenue $ 16,074 $ 16,233 $ 15,301 $ 9,556 $ 7,896 Transaction card revenue 38,753 32,648 24,426 19,339 14,298 Trust fees and commissions 39,316 35,127 29,956 24,072 21,652 Service charges and fees on deposit accounts 42,932 41,067 33,920 30,181 25,363 Mortgage banking revenue 37,179 36,986 41,733 32,235 26,234 Leasing revenue 4,244 3,725 7,111 5,861 2,236 Other revenue 17,965 17,589 11,688 10,330 11,201 ------------------------------------------------------- ------------------------------------------ Total fees and commissions 196,463 183,375 164,135 131,574 108,880 ------------------------------------------------------- ------------------------------------------ Gain on student loan sale 529 600 1,548 1,311 1,069 Loss on branch sales - - - - (325) Gain on loan securitization - 270 - - - Gain (loss) on sale of other assets (148) 4,626 - - - Gain (loss) on securities 2,059 (419) 9,337 (1,329) (2,604) ------------------------------------------------------- ------------------------------------------ Total other operating revenue $198,903 $188,452 $175,020 $131,556 $107,020 ------------------------------------------------------- ------------------------------------------
Other operating revenue increased $10.5 million or 6% compared to 1999. Fees and commissions, which are included in other operating revenue, increased $13.1 million or 7% while net gains on sales of securities and other assets decreased $2.6 million. Fees and commissions continue to represent a significant portion of BOK Financial's total revenue. Revenue generated by card-based transactions such as the TransFund ATM network, bankcards, and related merchant discounts increased by 19% to $38.8 million. These increases are generally due to a higher volume of transactions processed in 2000. Other revenue included $4.5 million of private placement and underwriting fees. Other operating revenue for the fourth quarter of 2000 totaled $54.9 million compared to $46.7 million for the fourth quarter of 1999. The fourth quarter of 2000 included securities gains of $3.3 million compared to $80 thousand in the fourth quarter of 1999. Net securities gains from the portion of the available for sale portfolio, which serves as an economic hedge of mortgage servicing rights, totaled $5.2 million while net securities losses on the remaining available for sale portfolio totaled $1.9 million. Changes in the components of other revenue during the fourth quarter were consistent with the year to date changes. Transaction card revenue increased by $1.3 million. Mortgage banking revenue increased by $1.5 million. Other operating revenue for 1999 increased $13.4 million or 8% compared to 1998. Approximately $9.8 million of this increase was due to the net change in gains on securities sold. Additionally, BOK Financial recognized a gain of $3.6 million on the sale of interests in several leasing partnerships during the second quarter of 1999. Fee and commission income increased $19.2 million. Deposit fees increased $7.1 million, including $4.9 million from acquired banks. Transaction card fees increased $8.2 million due primarily to increased volume of transactions processed. Many of BOK Financial's fee generating activities, such as brokerage and trading activities, trust fees, and mortgage servicing revenue, are indirectly affected by changes in interest rates. Significant increases in interest rates may tend to decrease the volume of trading activities, and may lower the value of trust assets managed, which is the basis of certain fees, but would tend to decrease the incidence of mortgage loan prepayments. Similarly, a decrease in economic activity would decrease ATM, bankcard and related revenue. While management expects continued growth in other operating revenue, the future rate of increase could be affected by increased competition from national and regional financial institutions and from market saturation. Continued growth may require BOK Financial to introduce new products or to enter new markets. This growth introduces additional demands on capital and managerial resources. Lines of Business BOK Financial operates four principal lines of business under its Bank of Oklahoma franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth principal line of business, regional banks, which includes banking functions for Bank of Albuquerque, Bank of Arkansas and Bank of Texas. These five principal lines of business combined account for approximately 87% of total revenue. Other lines of business include the TransFund ATM network and BOSC, Inc. Corporate Banking The Corporate Banking Division provides loan and lease financing and treasury and cash management services to businesses throughout Oklahoma and seven surrounding states. In addition to serving the banking needs of small businesses, middle market and larger customers, the Corporate Banking Division has specialized groups which serve customers in the energy, agriculture, healthcare and banking/finance industries. The Corporate Banking Division contributed 52% of consolidated net income for 2000 compared to 58% of consolidated net income for 1999. Total revenue for this division increased 7% primarily due to a 15% increase in outstanding loans. This increase in revenue was partially offset by increases in internal funding rates charged to the Corporate Banking Division. Operating expense for this division increased 8%. Net loans charged off for the Corporate Banking Division were $4.0 million in 2000 compared to net recoveries of $1.1 million in 1999. Table 4 Corporate Banking (In Thousands) Years ended December 31, ---------------------------------------- 2000 1999 1998 ---------------------------------------- Revenue (interest expense) from external sources $ 262,857 $ 218,917 $ 182,595 Revenue (interest expense)from internal sources (121,430) (86,972) (68,539) Operating expense 52,666 48,943 51,190 Net income 51,815 51,390 38,373 Average assets $3,801,209 $3,381,502 $2,718,472 Average equity 411,214 352,396 271,420 Return on assets 1.36% 1.52% 1.41% Return on equity 12.60% 14.58% 14.14% Efficiency ratio 37.24% 37.09% 44.88% Consumer Banking The Consumer Banking Division provides its customers throughout Oklahoma with a full line of deposit, loan and fee-based services 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 17% of consolidated net income for 2000 and 13% of consolidated net income for 1999. Total revenue, which consists primarily of intercompany credit for funds provided to other divisions within BOK Financial and fees generated by various services, increased 18% during 2000. Increases in short-term interest rates during 2000 increased the internal rates paid to the Consumer Banking Division for funds they provided to BOK Financial. Operating expenses increased 7% during 2000. The result is an improvement in returns on average assets and equity for the division and a lower efficiency ratio. Table 5 Consumer Banking (In Thousands) Years ended December 31, ----------------------------------------- 2000 1999 1998 ------------- ------------ -------------- Revenue (interest expense)from external sources $ (8,603) $ (5,871) $ (12,984) Revenue (interest expense)from internal sources 85,329 70,665 75,445 Operating expense 45,606 42,562 47,368 Net income 16,917 11,722 7,937 Average assets $1,813,303 $1,728,209 $1,785,025 Average equity 54,706 46,098 43,640 Return on assets 0.93% 0.68% 0.44% Return on equity 30.92% 25.43% 18.19% Efficiency ratio 59.44% 65.69% 75.84% Mortgage Banking BOK Financial engages in mortgage banking activities through BOk Mortgage. These activities include the origination, marketing and servicing of mortgage loans. BOk Mortgage contributed 3% to consolidated net income in 2000 compared to 2% in 1999. Total revenue from BOk Mortgage decreased $1.7 million during 2000. Total mortgage loan production decreased to $531 million for 2000 from $688 million in 1999 due to higher interest rates during much of 2000. However, revenue provided by origination and marketing activities in 2000 increased $711 thousand or 20% compared to 1999 due to improved pricing of loans sold. Commitments to originate mortgage loans create both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, and interest rate risk is partially hedged through forward sales contracts. All fixed rate mortgage loans are generally sold in the secondary market pursuant to forward sales contracts. BOk Mortgage currently does not securitize pools of mortgage loans either for sale or retention. Mortgage loan servicing revenue totaled $32.9 million for 2000 compared to $33.4 million for 1999. Mortgage loans serviced by BOk Mortgage totaled $6.9 billion at December 31, 2000 compared to $7.0 billion at the end of 1999. These amounts include loans serviced for BOk of $167 million for 2000 and $107 million for 1999. Capitalized mortgage servicing rights, which totaled $111 million at December 31, 2000 and $114 million at December 31, 1999 represent mortgage loans serviced for others carried at the lower of amortized cost or fair value. Fair value is based on the present value of projected net servicing revenue over the estimated life of the mortgage loans serviced. This estimated life and the value of the servicing rights are very sensitive to changes in interest rates and loan prepayment assumptions. Rising interest rates tend to decrease loan prepayments and increase the value of mortgage servicing rights while falling interest rates have the opposite effect. A valuation allowance is provided for the excess of the carrying value of the servicing rights over their fair values. BOK Financial acquires mortgage-backed and principal only securities as an economic hedge against the impairment in the mortgage servicing portfolio. Additional discussion about the sensitivity of the mortgage servicing portfolio to changes in interest rates and this hedging strategy is in the Market Risk section. Table 6 Mortgage Banking (In Thousands) Years ended December 31, ------------------------------------- 2000 1999 1998 ------------------------------------- Revenue (interest expense)from external sources $ 56,175 $ 51,160 $ 60,512 Revenue (interest expense)from internal sources (15,006) (8,296) (10,456) Operating expense 38,028 39,754 41,926 Provision for impairment of mortgage servicing rights 2,900 - (2,290) Gains (losses) on sales of 5,257 - - securities Net income 3,325 1,850 6,288 Average assets $412,218 $355,888 $367,934 Average equity 32,333 32,010 30,229 Return on assets 0.81% 0.52% 1.71% Return on equity 10.28% 5.78% 20.80% Efficiency ratio 92.37% 92.74% 83.76% Trust Services BOK Financial provides a wide range of trust services, including institutional, investment and retirement products and services to affluent individuals and businesses, to not-for-profit organizations and governmental agencies through the Bank of Oklahoma Trust Division and Bank of Texas Trust Company. 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 December 31, 2000, trust assets with an aggregate market value of $18 billion were subject to various fiduciary arrangements, compared to $17 billion at December 31, 1999. Trust services contributed 10% to consolidated net income for 2000 compared to 9% for 1999. Total revenue from trust services increased $5.1 million or 11% during 2000 while operating expenses increased $2.2 million or 6%. Table 7 Trust Services (In Thousands) Years ended December 31, -------------------------------------- 2000 1999 1998 ------------- ----------- ------------ Revenue (interest expense)from external sources $ 43,692 $ 40,394 $ 33,398 Revenue (interest expense)from internal sources 8,968 7,208 6,468 Operating expense 36,277 34,065 30,985 Net income 10,008 8,228 5,351 Average assets $355,585 $332,839 $292,175 Average equity 38,756 34,300 27,243 Return on assets 2.81% 2.47% 1.83% Return on equity 25.82% 23.99% 19.64% Efficiency ratio 68.89% 71.56% 77.72% Regional Banks Regional banks include Bank of Texas, Bank of Arkansas, and Bank of Albuquerque. Each of these banks provides a full range of corporate and consumer banking, treasury services and retail investments in their respective markets. Small businesses and middle-market corporations are the regional banks' primary customer focus. Regional banks contributed $13.9 million or 14% to consolidated net income in 2000 compared to $7.4 million or 8% in 1999. Total revenue for 2000 increased $21.0 million compared to 1999 while operating expenses increased $7.6 million. The increase in operating expenses included a $3.7 million increase in intangible amortization expense. Average equity assigned to the regional banks included both an amount based on management's assessment of risk and an additional amount based upon BOK Financial's investment in these entities. Management excludes the amortization of all intangible assets when evaluating the performance of the regional banks on a tangible return basis. Table 8 Regional Banks (In Thousands) Years ended December 31, ----------------------------------------- 2000 1999 1998 ------------------------------------------- Revenue (interest expense)from external sources $ 110,468 $ 78,517 $ 33,670 Revenue (interest expense)from internal sources (18,250) (7,596) (1,673) Operating expense 63,894 56,249 21,562 Gains (losses) on sales of securities (356) (53) 613 Net income 13,868 7,405 5,742 Tangible net income 24,095 14,355 10,793 Average assets $2,381,886 $1,807,963 $644,235 Average equity 269,762 206,336 85,205 Tangible return on assets 1.01% 0.79% 1.68% Tangible return on equity 8.93% 6.96% 12.67% Efficiency ratio 69.29% 79.31% 67.39% OTHER OPERATING EXPENSE Other operating expense totaled $302.8 million for 2000 compared to $280.5 million in 1999, an increase of 8%. Personnel costs and occupancy, equipment and data processing comprised most of the increase. Personnel costs increased $10.2 million or 8%. Regular compensation (including overtime and temporary assistance) and benefits increased $6.1 million or 6%. Average staffing on a full time equivalent ("FTE") basis increased by 77 employees or 3% while average compensation expense per FTE increased by 5%. Incentive compensation increased by $3.4 million or 20% compared to 1999 due to growth in revenue over pre-determined targets and growth in the number of business units covered by incentive plans. Net occupancy, equipment and data processing expense for 2000 increased $7.7 million or 13%. Equipment expense increased by $3.1 million due primarily to depreciation of computer equipment purchased in 1998 and 1999. Data processing costs increased $3.0 million or 11% due primarily to a $1.6 million increase in processing charges. Other operating expenses for the fourth quarter of 2000 totaled $79.3 million compared to $74.3 million for the fourth quarter of 1999. The fourth quarter of 2000 included a $2.9 million provision for impairment of mortgage servicing rights compared to no impairment expense in the fourth quarter of 1999. Excluding the effects of this impairment charge, operating expenses for the fourth quarter of 2000 increased by 3% due to higher personnel costs. Other operating expense totaled $280.5 million for 1999 compared to $234.0 million in 1998, an increase of 20%. Approximately $30.2 million of this increase was related to acquisitions. Operating expenses for acquisitions increased personnel costs by $11.5 million, occupancy, equipment and data processing expenses by $5.5 million and amortization of intangible assets by $6.8 million. Excluding the effects of acquisitions, other operating expense increased $16.3 million or 7%. Personnel costs increased $26.6 million or 24% due to a 333 increase in the number of average FTE employees and a 9% increase in average compensation per employee. Additionally, incentive compensation increased by $5.4 million or 46% compared to 1998 due to growth in revenue over pre-determined targets and growth in the number of business units covered by incentive plans. Net occupancy, equipment and data processing expense for 1999 increased $14.5 million or 33%. Net occupancy expense increased by $4.4 million, including $2.5 million due to acquisitions. The remaining increase was due to additional locations in Oklahoma and Texas. Data processing expenses increased $5.9 million or 28%, including $1.2 million from acquisitions. Amortization and maintenance costs increased $1.3 million during 1999 to $3.3 million due primarily to various systems implemented over the past two years. The remaining increase was due to a higher volume of transactions processed. Table 9 Other Operating Expense (In Thousands) Years ended December 31, ------------------------------------------------- 2000 1999 1998 1997 1996 ------------------- ----------------------------- Personnel expense $146,215 $136,010 $109,437 $ 90,625 $ 74,460 Business promotion 8,395 9,077 8,220 8,886 6,552 Contribution of stock to BOk Charitable Foundation - - 2,257 3,638 - Professional fees and services 9,618 9,584 9,781 6,906 5,508 Net occupancy, equipment and data processing expense 65,718 58,024 43,519 36,265 31,460 FDIC and other insurance 1,569 1,356 1,368 1,380 1,812 Special deposit insurance assessment - - - - 3,820 Printing, postage and supplies 11,260 11,599 9,524 8,067 7,042 Net gains and operating expenses on repossessed assets (1,283) (3,473) (474) (3,831) (4,496) Amortization of intangible assets 15,478 15,823 9,515 8,968 5,555 Write-off of core deposit intangible assets related to SAIF-insured deposits - - - - 3,821 Mortgage banking costs 22,274 23,932 25,949 19,968 15,473 Provision for impairment of mortgage servicing rights 2,900 - (2,290) 4,100 361 Other expense 20,671 18,584 17,189 14,882 11,837 -------------------------------------------------------------------------- ----------------------------- Total $302,815 $280,516 $233,995 $199,854 $163,205 -------------------------------------------------------------------------- -----------------------------
INCOME TAXES Income tax expense was $47.6 million, $44.5 million and $37.2 million for 2000, 1999 and 1998, respectively, representing 32%, 33% and 32%, respectively, of book taxable income. Tax expense currently payable totaled $38.4 million in 2000 compared to $43.8 million in 1999 and $46.4 million in 1998. The Internal Revenue Service closed its examination of 1996 during 2000. As a result of the outcome of this examination, BOK Financial reduced its tax accrual by $3.0 million. Income tax expense for 2000 was 34% of pre-tax book income excluding the reversal of this accrual. During 1998 and 1999, Internal Revenue Service examinations for 1994 and 1995, respectively, were closed with no significant adjustments. Table 10 Selected Quarterly Financial Data (In Thousands Except Per Share Data) Fourth Third Second First ------------ ------------ ------------ ------------ 2000 --------------------------------------------------- Interest revenue $173,495 $163,577 $156,314 $145,344 Interest expense 104,303 95,430 88,444 81,666 -------------------------------------------------------- ------------ ------------ ------------ ------------ Net interest revenue 69,192 68,147 67,870 63,678 Provision for loan losses 6,000 5,031 3,534 2,639 -------------------------------------------------------- ------------ ------------ ------------ ------------ Net interest revenue after provision for loan losses 63,192 63,116 64,336 61,039 Other operating revenue 51,628 50,378 48,030 46,808 Securities gains (losses), net 3,296 (538) (682) (17) Other operating expense 79,318 73,964 74,917 74,616 -------------------------------------------------------- ------------ ------------ ------------ ------------ Income before taxes 38,798 38,992 36,767 33,214 Income tax expense 13,302 13,355 12,573 8,401 -------------------------------------------------------- ------------ ------------ ------------ ------------ Net income $ 25,496 $ 25,637 $ 24,194 $ 24,813 -------------------------------------------------------- ------------ ------------ ------------ ------------ Earnings per share: Basic .51 .51 .48 .50 -------------------------------------------------------- ------------ ------------ ------------ ------------ Diluted .46 .46 .43 .45 -------------------------------------------------------- ------------ ------------ ------------ ------------ Average shares: Basic 49,158 49,081 49,170 49,165 -------------------------------------------------------- ------------ ------------ ------------ ------------ Diluted 55,630 55,553 55,629 55,639 -------------------------------------------------------- ------------ ------------ ------------ ------------
1999 ---------------------------------------------------- Interest revenue $139,714 $131,734 $118,256 $110,570 Interest expense 74,571 69,347 61,673 58,559 -------------------------------------------------------- ------------ ------------ ------------ ------------- Net interest revenue 65,143 62,387 56,583 52,011 Provision for loan losses 2,255 2,142 2,538 3,430 -------------------------------------------------------- ------------ ------------ ------------ ------------- Net interest revenue after provision for loan losses 62,888 60,245 54,045 48,581 Other operating revenue 46,641 45,320 49,719 47,191 Securities gains (losses), net 80 (485) (288) 274 Other operating expense 74,257 70,755 70,678 64,826 -------------------------------------------------------- ------------ ------------ ------------ ------------- Income before taxes 35,352 34,325 32,798 31,220 Income tax expense 12,155 11,589 10,742 9,983 -------------------------------------------------------- ------------ ------------ ------------ ------------- Net income $ 23,197 $ 22,736 $ 22,056 $ 21,237 -------------------------------------------------------- ------------ ------------ ------------ ------------- Earnings per share: Basic .46 .46 .44 .43 -------------------------------------------------------- ------------ ------------ ------------ ------------- Diluted .42 .41 .39 .38 -------------------------------------------------------- ------------ ------------ ------------ ------------- Average shares: Basic 49,144 49,091 49,019 48,974 -------------------------------------------------------- ------------ ------------ ------------ ------------- Diluted 55,809 55,867 55,915 55,866 -------------------------------------------------------- ------------ ------------ ------------ -------------
ASSESSMENT OF FINANCIAL CONDITION SECURITIES PORTFOLIO Securities are identified as either investment or available for sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Investment securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Amortization or accretion of mortgage-backed securities is periodically adjusted for estimated prepayments. Available for sale securities are those that may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available for sale are carried at fair value. Unrealized gains or losses on available for sale securities, less applicable deferred taxes, are recorded as accumulated other comprehensive income in Shareholders' Equity. During 2000, BOK Financial increased its securities portfolio by $119 million. Most notably, mortgage-backed securities increased by $145 million while U.S. Treasury securities decreased by $27 million. Mortgage backed securities with an amortized cost of $203 million and a fair value of $210 million have been designated by management as an economic hedge portfolio against possible impairment in the mortgage servicing portfolio. The value of these securities is expected to increase during periods of falling interest rates to offset the decline of value in the mortgage servicing portfolio. Gains on sales of these securities may be recognized periodically to offset either the economic loss in the servicing portfolio or the impairment charges required by generally accepted accounting principles. BOK Financial's total securities portfolio value changed from an unrealized loss of $73 million at December 31, 1999 to an unrealized gain of $6 million at December 31, 2000 due to a decrease in market interest rates. The average expected life of the mortgage-backed securities was 2.9 years at December 31, 2000 compared to 4.4 years at December 31, 1999. The effect of changes in interest rates on BOK Financial's earnings and equity is discussed in the Market Risk section of this report. Table 11 presents the book values and fair values of BOK Financial's securities portfolio at December 31, 2000, 1999 and 1998. Additional information regarding the securities portfolio is presented in Note 3 to the Consolidated Financial Statements. Table 11 Securities (In Thousands) December 31, ----------------------------------------------------------------------------- 2000 1999 1998 ------------------------- ------------------------- ------------------------- Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value ------------ ------------ ------------ ------------ ------------ ------------ Investment: U.S. Treasury $ - $ - $ 196 $ 198 $ 600 $ 600 Municipal and other tax-exempt 207,177 207,641 186,177 184,748 184,988 184,521 Mortgage-backed U.S. agency securities 11,541 11,567 18,051 17,926 30,385 30,829 Other debt securities 14,653 14,659 8,756 8,752 11,804 11,804 ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------ Total $ 233,371 $ 233,867 $ 213,180 $ 211,624 $ 227,777 $ 227,754 ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------ Available for sale: U.S. Treasury $ 85,656 $ 85,564 $ 112,902 $ 111,860 $ 170,862 $ 171,707 Municipal and other tax-exempt 14,492 14,552 13,086 13,094 92,082 93,131 Mortgage-backed securities: U.S. agencies 2,050,100 2,046,318 2,174,916 2,106,094 1,902,568 1,913,869 Other 478,065 486,170 202,229 200,558 1,772 1,762 ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------ Total mortgage-backed securities 2,528,165 2,532,488 2,377,145 2,306,652 1,904,340 1,915,631 ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------ Other debt securities 242 245 353 353 456 462 Equity securities and mutual funds 129,823 130,971 156,476 156,745 142,460 148,444 ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------ Total $2,758,378 $2,763,820 $2,659,962 $2,588,704 $2,310,200 $2,329,375 ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
LOANS Loans increased $874 million or 19% during 2000. Commercial loans increased by $583 million or 22% over 1999. This continues a trend of strong growth in commercial loans. All identified segments of commercial loans grew by more than 10% except agriculture. Commercial loans now comprise 59% of total loans compared to 57% at December 31, 1999. Energy loans increased by $231 million or 38% during 2000 and totaled $837 million or 15% of the loan portfolio at year-end. Commercial loans to service entities increased by $156 million or 19% during 2000. Total commercial real estate loans grew by $176 million or 16% during 2000. Construction and land development loans, which consist primarily of single-family construction loans, increased by 25% during 2000. Management plans to decrease the rate of loan growth in 2001 through a selective tightening of credit standards. The primary focus will be on commercial lending activities that have an opportunity to provide other banking services to the customer. Table 12 Loans (In Thousands) December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------- ------------ Commercial: Energy $ 837,223 $ 606,561 $ 468,700 $ 333,988 $ 290,162 Manufacturing 421,046 344,175 245,268 205,836 147,931 Wholesale/retail 499,017 407,785 279,265 264,029 242,859 Agriculture 185,407 173,653 160,241 155,868 129,202 Services 963,171 807,184 635,585 482,476 340,956 Other commercial and industrial 342,169 325,343 200,214 107,260 128,158 Commercial real estate: Construction and land development 311,700 249,160 174,059 104,322 69,265 Multifamily 271,459 257,187 181,525 103,218 150,457 Other real estate loans 687,335 588,195 404,985 284,220 221,499 Residential mortgage: Secured by 1-4 family residential properties 638,044 531,058 500,690 435,753 403,958 Residential mortgages held for sale 48,901 57,057 100,269 79,779 96,789 Consumer 312,390 296,131 296,298 299,272 249,008 --------------------------------------------------------------------------------------------- ------------ Total $5,517,862 $4,643,489 $3,647,099 $2,856,021 $2,470,244 --------------------------------------------------------------------------------------------- ------------
While BOK Financial continues to increase geographic diversification through expansion into Texas and New Mexico, geographic concentration subjects the loan portfolio to the general economic conditions in Oklahoma. Notable loan concentrations by the primary industry of the borrowers are presented in Table 12. Agriculture includes loans totaling $147 million to the cattle industry. Services include loans totaling $132 million to the healthcare industry, $124 million to nursing homes and $65 million to the hotel industry. Approximately 41% of commercial real estate loans are secured by property located in Oklahoma, primarily in the Tulsa or Oklahoma City metropolitan areas. An additional 30% of commercial real estate loans are secured by property located in Texas. The major components of other real estate loans are office buildings, $240 million and retail facilities, $205 million. Table 13 Loan Maturity and Interest Rate Sensitivity at December 31, 2000 (In Thousands) Remaining Maturities of Selected Loans ------------------------------------- Total Within 1 Year 1-5 Years After 5 Years ------------------------ ----------- ------------ Loan maturity: Commercial $3,248,033 $1,369,971 $1,500,478 $377,584 Commercial real estate 1,270,494 479,599 592,626 198,269 ---------------------------------------- ------------------------ ----------- ------------ Total $4,518,527 $1,849,570 $2,093,104 $575,853 ---------------------------------------- ------------------------ ----------- ------------ Interest rate sensitivity for selected loans with: Predetermined interest rates $ 855,142 $ 116,016 $ 488,736 $250,390 Floating or adjustable interest rates 3,663,385 1,733,554 1,604,368 325,463 ---------------------------------------- ------------------------ ----------- ------------ Total $4,518,527 $1,849,570 $2,093,104 $575,853 ---------------------------------------- ------------------------ ----------- ------------
SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $83 million at December 31, 2000, compared to $76 million at December 31, 1999. This represents 1.51% and 1.66% of total loans, excluding loans held for sale, at December 31, 2000 and 1999, respectively. Losses on loans held for sale, principally mortgage loans accumulated for placement in securitized pools, are charged to earnings through adjustments in carrying value to the lower of cost or market value in accordance with accounting standards applicable to mortgage banking. Table 14 presents statistical information regarding the reserve for loan losses for the past five years. Table 14 Summary of Loan Loss Experience (Dollars In Thousands) Years ended December 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------- Beginning balance $76,234 $65,922 $54,044 $45,907 $39,116 Loans charged-off: Commercial 7,747 2,136 3,219 3,350 2,469 Commercial real estate 1,176 35 175 698 529 Residential mortgage 285 617 202 440 240 Consumer 5,593 4,560 4,000 4,791 3,515 ---------------------------------------------------------------------------------------------------------------- Total 14,801 7,348 7,596 9,279 6,753 ---------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Commercial 1,126 3,110 1,487 2,543 3,748 Commercial real estate 428 487 1,398 957 4,113 Residential mortgage 157 17 162 557 262 Consumer 2,307 2,156 1,836 1,578 1,002 ---------------------------------------------------------------------------------------------------------------- Total 4,018 5,770 4,883 5,635 9,125 ---------------------------------------------------------------------------------------------------------------- Net loans charged-off (recoveries) 10,783 1,578 2,713 3,644 (2,372) Provision for loan losses 17,204 10,365 14,591 9,256 4,419 Additions due to acquisitions - 1,525 - 2,525 - ---------------------------------------------------------------------------------------------------------------- Ending balance $82,655 $76,234 $65,922 $54,044 $45,907 ---------------------------------------------------------------------------------------------------------------- Reserve for loan losses to loans outstanding at 1.51% 1.66% 1.86% 1.95% 1.93% year-end(1) Net charge-offs (recoveries) to average loans .22 .04 .09 .14 (.10) Provision for loan losses to average loans .35 .26 .48 .35 .19 Recoveries to gross charge-offs 27.15 78.52 64.28 60.73 135.13 Reserve as a multiple of net charge-offs 7.67x 48.31x 24.30x 14.83x (19.35)x (recoveries) ---------------------------------------------------------------------------------------------------------------- Problem Loans ---------------------------------------------------------------------------------------------------------------- Loans past due (90 days) $15,467 $11,336 $ 9,553 $10,710 $ 9,729 Nonaccrual(2) 39,661 19,465 14,095 19,761 19,964 Renegotiated 87 - - 207 - ---------------------------------------------------------------------------------------------------------------- Total $55,215 $30,801 $23,648 $ 30,678 $ 29,693 ---------------------------------------------------------------------------------------------------------------- Foregone interest on nonaccrual loans(2) $ 3,803 $ 2,321 $ 2,271 $ 2,981 $ 3,088 ---------------------------------------------------------------------------------------------------------------- 1 Excludes residential mortgage loans held for sale, which are carried at the lower of aggregate cost or market value. 2 Interest collected and recognized on nonaccrual loans was $3.3 million in 1998 and was not significant in 2000 and previous years disclosed.
The adequacy of the reserve for loan losses is assessed by management based upon an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, and includes probable losses on both outstanding loans and unused commitments to provide financing. A consistent methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based upon a statistical migration analysis for each category of loans, and a nonspecific allowance that is based upon an analysis of current economic conditions, loan concentrations, portfolio growth, and other relevant factors. An independent Credit Administration department is responsible for performing this evaluation for all of BOK Financial's subsidiaries to ensure that the methodology is applied consistently. All significant criticized loans are reviewed quarterly. Written documentation of these reviews is maintained. Specific reserves for impairment are determined in accordance with generally accepted accounting principles and appropriate regulatory standards. At December 31, 2000 specific impairment reserves totaled $8.0 million on loans that totaled $38 million. The adequacy of general loan loss reserves is determined primarily through an internally developed migration analysis model. Management uses an eight-quarter aggregate accumulation of net loan losses as the basis for this model. Greater emphasis is placed on net loan losses in the more recent periods. This model is used to assign general loan loss reserves to commercial loans and leases, residential mortgage loans and consumer loans. All loans, leases and letters of credit are allocated a migration factor by this model. Management can override the general allocation only by utilizing a specific allocation based on a measure of impairment of the loan. A nonspecific allowance for loan losses is maintained for risks beyond those factors specific to a particular loan or those identified by the migration analysis. These factors include trends in general economic conditions in BOK Financial's primary lending areas, duration of the business cycle, specific conditions in industries where BOK Financial has a concentration of loans, overall growth in the loan portfolio, bank regulatory examination results, error potential in either the migration analysis model or in the underlying data, and other relevant factors. A range of potential losses is then determined for each factor identified. At December 31, 2000, the loss potential ranges for the more significant factors are: Concentration of large loans - $1.2 million to $2.3 million Loan portfolio growth and expansion into new markets - $1.2 million to $2.4 million A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate allowance for loan losses. These provisions totaled $17.2 million for 2000, $10.4 million for 1999 and $14.6 million for 1998. The provision for 2000 reflected management's assessment of changes in the risk of loan losses due primarily to an increase in net loans charged-off during the year and increased levels of nonperforming and potential problem loans. Table 15 Loan Loss Reserve Allocation (Dollars in Thousands) December 31, ---------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------- ------------------- ------------------ % of % of % of % of % of Reserve(3) Loans(1)Reserve(3) Loans(1)Reserve(3) Loans(1) Reserve(3) Loans(1) Reserve(3)Loans(1) --------- ---------------- ------------------ --------- --------- --------- --------- -------- Loan category: Commercial(2) $55,187 59.39% $47,261 58.10% $37,570 56.09% $35,009 55.81% $26,741 53.91% Commercial real estate 12,393 23.23 11,216 23.86 7,949 21.44 3,236 17.71 3,907 18.59 Residential mortgage 2,019 11.67 2,137 11.58 1,807 14.12 1,783 15.70 1,659 17.01 Consumer 6,407 5.71 6,721 6.46 6,689 8.35 5,763 10.78 5,174 10.49 Nonspecific allowance 6,649 - 8,899 - 11,907 - 8,253 - 8,426 - ----------------------------------- ---------------- ------------------ --------- --------- --------- --------- -------- Total $82,655 100.00 $76,234 100.00 $65,922 100.00 $54,044 100.00 $45,907 100.00 ----------------------------------- ---------------- ------------------ --------- --------- --------- --------- -------- 1 Excludes residential mortgage loans held for sale, which are carried at the lower of aggregate cost or market value. 2 Specific allocation for Year 2000 risks were $2.0 million in 1999, $3.6 million in 1998 and $4.8 million in 1997. 3 Specific allocation for the loan concentration risks are included in the appropriate category: Energy, Agriculture and Hotel/Motel.
NONPERFORMING ASSETS Information regarding nonperforming assets, which were $44 million at December 31, 2000 and $23 million at December 31, 1999 is presented in Table 16. Nonperforming loans include nonaccrual loans and renegotiated loans and exclude loans 90 days or more past due. The increase in nonaccrual loans since December 31, 1999 has generally been due to circumstances unique to two borrowers. One borrower filed for bankruptcy protection after its previously issued audited financial statements had to be restated due to improper accounting. The second borrower experienced operating problems due to a change in demand from its major customer. The specific impairment reserve for loan losses reflects losses that may be incurred on these loans. Excluding these two loans, the ratio of nonaccrual commercial loans to total commercial loans was .71%, .48% and .42% at December 31, 2000, 1999 and 1998. The loan review process also identifies loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are performing in accordance with the original terms of the loan agreements and no loss of principal or interest is anticipated, such loans are not included in the Nonperforming Assets totals. These loans are assigned to various risk categories in order to focus management's attention on the loans with higher risk of loss. At December 31, 2000, loans totaling $127 million were assigned to the substandard risk category and loans totaling $89 million were assigned to the special mention risk category, compared to $67 million and $29 million, respectively, at December 31, 1999. The increase in special mention and substandard loans generally reflects loans for business acquisitions or expansions that were either adversely affected by market conditions or ineffectively managed by the borrowers. Further deterioration of the borrowers' performance may occur and a more severe classification including additional loans classified as nonaccrual and charge-offs may be required before improvement is demonstrated. The growth in nonaccrual loans and potential problem loans was not concentrated in any particular segment of the commercial loan portfolio. Table 16 Nonperforming Assets (Dollars in Thousands) December 31, -------------------------------------------------- 2000 1999 1998 1997 1996 ------------------- ------------------------------ Nonperforming loans Nonaccrual loans: Commercial $37,146 $12,686 $ 8,394 $12,745 $13,495 Commercial real estate 161 2,046 1,950 3,276 2,813 Residential mortgage 1,855 3,383 2,583 2,985 3,070 Consumer 499 1,350 1,168 755 586 ------------------------------------------------------------------------------ ------------------------------ Total nonaccrual loans 39,661 19,465 14,095 19,761 19,964 Renegotiated loans 87 - - 207 - ------------------------------------------------------------------------------ ------------------------------ Total nonperforming loans 39,748 19,465 14,095 19,968 19,964 Other nonperforming assets 3,851 3,478 4,667 5,281 4,620 ------------------------------------------------------------------------------ ------------------------------ Total nonperforming assets $43,599 $22,943 $18,762 $25,249 $24,584 ------------------------------------------------------------------------------ ------------------------------ Ratios: Reserve for loan losses to nonperforming loans 207.95% 391.65% 467.70% 270.65% 229.95% Nonperforming loans to period-end loans(2) .73 .42 .40 .72 .84 ------------------------------------------------------------------------------ ------------------------------ Loans past due (90 days)(1) $15,467 $11,336 $ 9,553 $10,710 $ 9,729 ------------------------------------------------------------------------------ ------------------------------ 1 Includes residential mortgages guaranteed by agencies of the U.S. Government. $ 7,616 $ 8,538 $ 8,122 $ 7,072 $ 4,755 Excludes residential mortgages guaranteed by agencies of the U.S. Government in foreclosure. 5,630 8,310 6,953 7,396 9,177 2 Excludes residential mortgage loans held for sale.
LEASING BOK Financial expanded its equipment leasing activities during 2000 to include a much greater range of equipment financing than the natural gas compressors that were the focus of BOK Financial's previous leasing activities. Other assets included $37 million of equipment held for various operating leases at December 31, 2000, compared to $14 million at December 31, 1999. Capital leasing which totaled $37 million at December 31, 2000 and $14 million at December 31, 1999 are included in commercial loans. These activities introduce unique credit, collateral valuation, and transaction structure risk. All leases are subject to the same approval process as commercial loans and are reviewed regularly by the Credit Administration Department to mitigate these risks. DEPOSITS Average deposits for 2000 increased $655 million compared to 1999. Interest-bearing transaction accounts and time deposits increased by $172 million and $511 million, respectively. The average cost of these deposits has increased during 2000 due to higher market interest rates and management decisions to increase the amount of asset growth funded by deposits. Average core deposits increased $138 million to $3 billion. This represented 60% of average deposits in 2000 compared to 65% in 1999. Concurrently, uninsured deposits increased to 33% of total deposits for 2000 compared to 27% for 1999. Average uninsured deposits included approximately $352 million of brokered deposits. Uninsured deposits as used in this presentation is based on a simple analysis of account balances and does not reflect combined ownership and other account styling that would determine insurance based on FDIC regulations. Table 17 Deposit Analysis (In Thousands) Average Balances ---------------------------- 2000 1999 ---------------------------- Core deposits $3,293,456 $3,155,930 Public funds 400,467 383,329 Uninsured deposits 1,823,192 1,322,679 ------------------------------------------------------------ Total $5,517,115 $4,861,938 ------------------------------------------------------------ BOK Financial competes for deposits by offering a broad range of products and services to its customers. While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to the customers. BOk offers banking convenience to its customers through 74 locations including 26 locations with extended hours in local supermarkets and a 24-hour ExpressBank call center. During 2000, BOk opened four supermarket branches to further enhance customer convenience. Bank of Texas has 13 locations in the Dallas metropolitan area. Bank of Albuquerque has 15 banking locations in Albuquerque, New Mexico and Bank of Arkansas has 3 locations in northwest Arkansas. Table 18 Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More (In Thousands) December 31, --------------------------- 2000 1999 --------------------------- Months to maturity: 3 or less $ 534,960 $ 461,647 Over 3 through 6 395,537 274,456 Over 6 through 12 303,260 285,010 Over 12 210,107 167,670 ------------------------------------------------------------ Total $ 1,443,864 $ 1,188,783 ------------------------------------------------------------ BORROWINGS AND CAPITAL BOK Financial and its subsidiary banks use several borrowing sources to supplement deposits as a source of funds to support loan and securities growth. Primarily these sources include federal funds purchased and securities repurchase agreements, advances from the Federal Home Loan Bank, and borrowings from lines of credit through commercial banks. Average borrowed funds increased $376 million or 19% over 1999 and represented 29% of all funds for 2000 compared to 28% for 1999. Interest rates and maturity dates for the various sources of funds are matched with specific types of assets in the asset/liability management process. During 1999, BOK Financial negotiated a $125 million variable rate, unsecured line of credit which matures in November 2002. The outstanding balance of this line was $95 million at December 31, 2000. The proceeds of this line were primarily used to pay off bank debt that had been incurred to fund acquisitions. Interest on amounts outstanding under this line is based on either the London InterBank Offering Rate ("LIBOR") or a base rate, plus a defined margin which is determined by the amount of principal outstanding and BOK Financial's debt rating. The base rate is defined as the greater of either the daily federal funds rate or the prime rate. Equity capital for BOK Financial averaged $608 million and $542 million for 2000 and 1999, respectively. The $66 million increase resulted primarily from 2000 earnings. See Note 14 to the Consolidated Financial Statements for additional information regarding the capital adequacy of BOK Financial and its subsidiary banks. Management has identified capital and funding needs totaling approximately $113 million for anticipated growth in 2001, including the acquisition of CNBT Bancshares, Inc. Resources available to meet these needs include dividends from BOK Financial's subsidiary banks and subordinated borrowings from BOK Financial's principal shareholder. Management currently believes that its funding needs can be met by these resources. However, the timing and extent of future growth plans will be evaluated based upon available resources. MARKET RISK Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices. Additionally, the financial instruments subject to market risk can be classified either as held for trading or held for purposes other than trading. BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its portfolio of assets held for purposes other than trading and trading assets. The effect of other changes, such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. The responsibility for managing market risk rests with the Asset/Liability Committee that operates under policy guidelines established by the Board of Directors. The negative acceptable variation in net interest revenue and economic value of equity due to a 200 basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. Interest Rate Risk Management (Other than Trading) BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions on net interest revenue, net income and economic value of equity. A simulation model is used to estimate the effect of changes in interest rates over the next twelve months based on three interest rate scenarios. These are a "most likely" rate scenario and two "shock test" scenarios, the first assuming a sustained parallel 200 basis point increase and the second a sustained parallel 200 basis point decrease in interest rates. An independent source is used to determine the most likely interest rates for the next year. The Federal Reserve Bank's discount rate affects short-term borrowings, the prime lending rate and the LIBOR. These rates in turn are the basis for much of the variable-rate loan pricing. Additionally, the 30-year mortgage rate directly affects the prepayment speeds for mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. Sensitivity of fee income to market interest rate levels, such as those related to cash management services and mortgage servicing are also included. The model incorporates assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate changes. The assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Interest rate swaps on all products are included to the extent that they are effective in the 12-month simulation period. Changes in prepayment behavior of mortgage-backed securities, residential mortgage loans and mortgage servicing in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of planned growth and new business activities is factored into the simulation model. At December 31, 2000 and 1999, this modeling indicated interest rate sensitivity as follows: Table 19 Interest Rate Sensitivity (Dollars in Thousands) 200 bp Increase 200 bp Decrease Most Likely ----------------------------------------------------------------------- 2000 1999 2000 1999 2000 1999 -------------------------------------------------------------------- Anticipated impact over the next twelve months: Net interest revenue $ (199) $ (3,936) $ 2,269 $3,406 $ 3,837 $ (413) (0.1)% (1.4)% 0.7% 1.2% 1.3% (0.1)% ---------------------------------------------------------------------------------------------------------------- Net income $ (124) $ (2,440) $ 1,418 $2,112 $ 2,398 $ (256) (0.1)% (2.4)% 1.3% 2.1% 2.1% (0.3)% ---------------------------------------------------------------------------------------------------------------- Economic value of equity $ (32,142) $ (36,214) $ (10,113) $1,669 $ 33,255 $ (4,943) (2.8)% (3.2)% (0.9)% 0.1% 2.9% (0.4)% ----------------------------------------------------------------------------------------------------------------
The estimated changes in interest rates on net interest revenue, net income, and economic value of equity is within guidelines established by the Board of Directors for all interest rate scenarios. BOK Financial hedges its portfolio of mortgage servicing rights by acquiring mortgage-backed and principal only securities whenever the prepayment risk exceeds certain levels. The fair value of these securities is expected to vary inversely to the value of the mortgage servicing rights. Management may sell these securities and recognize gains when necessary to offset losses on the mortgage servicing rights. At December 31, 2000, securities with a fair value of $210 million and an aggregate unrealized gain of $7 million were held for this program. The interest rate sensitivity of the mortgage servicing portfolio and the securities held as hedges is modeled over a range of +/- 50 basis points. At December 31, 2000, the pre-tax results of this modeling were: Table 20 Mortgage Servicing Interest Rate Sensitivity (In Thousands) 2000 ------------------- 50 bp 50 bp Increase Decrease ------------------- Anticipated change in: Mortgage servicing rights $ 3,845 $(15,955) Hedging instruments (8,424) 20,347 ------------------------------------------------------- Net $(4,579)$ 4,392 ------------------------------------------------------- The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. BOK Financial uses interest rate swaps, a form of off-balance sheet derivative product, in managing its interest rate sensitivity. These products are generally used to more closely match interest paid on certain fixed rate loans, long-term certificates of deposit and subordinated debt with earning assets. During 2000, income from these swaps exceeded the cost of the swaps by $2.2 million. Credit risk from these swaps is closely monitored and counterparties to these contracts are selected on the basis of their credit worthiness, among other factors. Derivative products are not used for speculative purposes. See Note 13 to the Consolidated Financial Statements for additional information. During 2000, management terminated interest rate swaps with a notional amount of $270 million at a gain of $3.2 million. This gain was deferred and will be amortized over the lives of the hedged assets. TRADING ACTIVITIES BOK Financial enters into trading account activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations, and financial institutions. BOK Financial will also take trading positions in U.S. Treasury securities, mortgage-backed securities, municipal securities, and financial futures for its own account either through BOk or BOSC, Inc. These positions are taken with the objective of generating trading profits. Both of these activities involve interest rate risk. A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading 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. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the nominal aggregate trading positions to $360 million, the VAR to $6.5 million. At December 31, 2000, the nominal aggregate trading positions was $7.5 million, the VAR was $45 thousand. The greatest value at risk during 2000 was $482 thousand. NEW ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), subsequently amended by Statements No. 137 and 138. BOK Financial adopted FAS 133 effective January 1, 2001. FAS 133 requires the recognition of all derivatives on the balance sheet at fair value. Derivatives that do not qualify for special hedge accounting treatment must be adjusted to fair value through income. See Note 1 for additional information. BOK Financial recorded a one-time after-tax transition adjustment that will increase income in the first quarter of 2001 by less than $500 thousand for the adoption of FAS 133. The ongoing effect of FAS 133 may significantly increase earnings volatility in future periods. In 1999, the Financial Accounting Standards Board issued a proposed statement of financial accounting standards for business combinations and intangible assets. This standard would eliminate the pooling of interests method of accounting for business combinations. All business combinations initiated after the issuance date of this statement would be accounted for by the purchase method. In 2001, the Financial Accounting Standards Board issued a limited revision to this proposed standard that addresses accounting for goodwill. This revision would eliminate the requirement to amortize goodwill over an arbitrary period. Goodwill would be carried as an asset and would be tested for impairment at the reporting unit level when certain circumstances indicate that the goodwill might be impaired. Other identifiable intangible assets that have finite lives will continue to be amortized. The pro forma effect of this proposed standard on previously reported earnings are (dollars in thousands, except per share data): Years ended December 31, ------------------------------------ 2000 1999 1998 -------------------------------------- Net income $105,632 $94,849 $84,942 Diluted earnings per share 1.90 1.70 1.52 Return on average equity 17.37% 17.49% 17.48% Return on average assets 1.22 1.25 1.43 FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about BOK Financial, the financial services industry, and the economy in general. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans," "projects," variations of such words, and similar expressions are intended to identify such forward-looking statements. Management judgments relating to, and discussion of the provision and reserve for loan losses involve judgments as to future events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others which BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which 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 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 consolidated financial statements present fairly the financial conditions, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods indicated. 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, considers and approves certain of BOK Financial's accounting principles and practices, and reviews various shareholder reports and other reports and filings. Ernst & Young LLP, certified public accountants, have been engaged to audit the consolidated financial statements of BOK Financial and its subsidiaries. Their audit is conducted in accordance with auditing standards generally accepted in the United States and their report on BOK Financial's consolidated financial statements is set forth below. REPORT OF INDEPENDENT AUDITORS We have audited the accompanying consolidated balance sheets of BOK Financial Corporation as of December 31, 2000 and 1999, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BOK Financial Corporation at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Tulsa, Oklahoma January 23, 2001 BOK FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands Except Per Share Data) 2000 1999 1998(1) ---------------------------------------- Interest Revenue Loans $454,077 $336,630 $267,458 Taxable securities 167,493 144,901 115,733 Tax-exempt securities 12,782 14,233 16,274 ----------------------------------------------------------------------------------------------- Total securities 180,275 159,134 132,007 ----------------------------------------------------------------------------------------------- Trading securities 1,416 2,291 1,046 Funds sold and resell agreements 2,962 2,219 2,321 ----------------------------------------------------------------------------------------------- Total interest revenue 638,730 500,274 402,832 ----------------------------------------------------------------------------------------------- Interest Expense Deposits 208,249 150,621 138,004 Borrowed funds 151,157 104,195 64,709 Subordinated debenture 10,437 9,334 9,693 ----------------------------------------------------------------------------------------------- Total interest expense 369,843 264,150 212,406 ----------------------------------------------------------------------------------------------- Net Interest Revenue 268,887 236,124 190,426 Provision for Loan Losses 17,204 10,365 14,591 ----------------------------------------------------------------------------------------------- Net Interest Revenue After Provision for Loan Losses 251,683 225,759 175,835 ----------------------------------------------------------------------------------------------- Other Operating Revenue Brokerage and trading revenue 16,074 16,233 15,301 Transaction card revenue 38,753 32,648 24,426 Trust fees and commissions 39,316 35,127 29,956 Service charges and fees on deposit accounts 42,932 41,067 33,920 Mortgage banking revenue 37,179 36,986 41,733 Leasing revenue 4,244 3,725 7,111 Other revenue 17,965 17,589 11,688 ----------------------------------------------------------------------------------------------- Total fees and commissions 196,463 183,375 164,135 ----------------------------------------------------------------------------------------------- Gain on student loan sales 529 600 1,548 Gain on loan securitization - 270 - Gain (loss) on sale of other assets (148) 4,626 - Gain (loss) on securities 2,059 (419) 9,337 ----------------------------------------------------------------------------------------------- Total other operating revenue 198,903 188,452 175,020 ----------------------------------------------------------------------------------------------- Other Operating Expense Personnel expense 146,215 136,010 109,437 Business promotion 8,395 9,077 8,220 Contribution of stock to BOk Charitable Foundation - - 2,257 Professional fees and services 9,618 9,584 9,781 Net occupancy, equipment and data processing expense 65,718 58,024 43,519 FDIC and other insurance 1,569 1,356 1,368 Printing, postage and supplies 11,260 11,599 9,524 Net gains and operating expenses on repossessed assets (1,283) (3,473) (474) Amortization on intangible assets 15,478 15,823 9,515 Mortgage banking costs 22,274 23,932 25,949 Provision for impairment of mortgage servicing rights 2,900 - (2,290) Other expense 20,671 18,584 17,189 ----------------------------------------------------------------------------------------------- Total other operating expense 302,815 280,516 233,995 ----------------------------------------------------------------------------------------------- Income Before Taxes 147,771 133,695 116,860 Federal and state income tax 47,631 44,469 37,249 ----------------------------------------------------------------------------------------------- Net Income $100,140 $ 89,226 $ 79,611 ----------------------------------------------------------------------------------------------- Earnings Per Share: Basic: Net income $2.01 $1.79 $1.59 ----------------------------------------------------------------------------------------------- Diluted: Net income 1.80 1.60 1.42 ----------------------------------------------------------------------------------------------- Average Shares Used in Computation: Basic 49,120 49,055 48,977 Diluted 55,589 55,852 55,883 ----------------------------------------------------------------------------------------------- 1 Restated for pooling of interest in 1999.
See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) December 31, ------------------------------ 2000 1999 -------------- --------------- Assets Cash and due from banks $ 701,424 $ 397,895 Funds sold and resell agreements 49,305 28,960 Trading securities 39,865 14,452 Securities: Available for sale 2,105,619 2,219,488 Available for sale securities pledged to creditors 658,201 369,216 Investment (fair value: 2000 - $233,867; 1999 - $211,624) 233,371 213,180 ----------------------------------------------------------------------------------------- --------------- Total securities 2,997,191 2,801,884 ----------------------------------------------------------------------------------------- --------------- Loans 5,517,862 4,643,489 Less reserve for loan losses 82,655 76,234 ----------------------------------------------------------------------------------------- --------------- Net loans 5,435,207 4,567,255 ----------------------------------------------------------------------------------------- --------------- Premises and equipment, net 132,066 119,239 Accrued revenue receivable 74,981 67,640 Excess cost over fair value of net assets acquired and core deposit premiums (net of accumulated amortization: 2000 - $80,770; 1999 - $65,292) 109,045 125,011 Mortgage servicing rights, net 110,791 114,134 Real estate and other repossessed assets 3,851 3,478 Bankers' acceptances 6,925 6,801 Other assets 87,683 127,248 ----------------------------------------------------------------------------------------- --------------- Total assets $9,748,334 $8,373,997 ----------------------------------------------------------------------------------------- --------------- Liabilities and Shareholders' Equity Noninterest-bearing demand deposits $1,243,766 $1,020,996 Interest-bearing deposits: Transaction 1,985,670 1,866,499 Savings 143,381 155,839 Time 2,673,188 2,219,850 ----------------------------------------------------------------------------------------- --------------- Total deposits 6,046,005 5,263,184 ----------------------------------------------------------------------------------------- --------------- Funds purchased and repurchase agreements 1,853,073 1,345,683 Other borrowings 882,204 938,020 Subordinated debenture 148,816 148,642 Accrued interest, taxes and expense 77,860 62,431 Bankers' acceptances 6,925 6,801 Other liabilities 29,875 52,072 ----------------------------------------------------------------------------------------- --------------- Total liabilities 9,044,758 7,816,833 ----------------------------------------------------------------------------------------- --------------- Shareholders' equity: Preferred stock 25 25 Common stock ($.00006 par value; 2,500,000,000 shares authorized; issued: 2000 - 49,706,055; 1999 - 49,382,262) 3 3 Capital surplus 278,882 274,980 Retained earnings 431,390 332,751 Treasury stock (shares at cost: 2000 - 487,553; 1999 - 316,325) (10,044) (7,018) Accumulated other comprehensive income (loss) 3,320 (43,577) ----------------------------------------------------------------------------------------- --------------- Total shareholders' equity 703,576 557,164 ----------------------------------------------------------------------------------------- --------------- Total liabilities and shareholders' equity $9,748,334 $8,373,997 ----------------------------------------------------------------------------------------- ---------------
See accompanying notes to consolidated financial statements. BOK FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In Thousands) Preferred Stock(3) Common Stock(3) ---------------------------------- Shares Amount Shares Amount ---------------------------------- December 31, 1997 250,000 $ 23 47,002 $3 Comprehensive income: Net income - - - - Other comprehensive income, net of tax: Unrealized gain on securities available for sale - - - - Total comprehensive income Director retainer shares - - 12 - Issue preferred stock - 2 - - Treasury stock purchase - - - - Issuance of common stock to Thrift Plan - - - - Exercise of stock options - - 234 - Tax benefit on exercise of stock options - - - - Payments on stock options notes receivable - - - - Common stock dividend - - - - Dividends paid in shares of common stock: Preferred stock - - 69 - Common stock - - 795 - ------------------------------------------------------------------------------- December 31, 1998 250,000 25 48,112 3 Comprehensive income: - - - - Net income Other comprehensive loss, net of tax: Unrealized gain on securities available for sale - - - - Total comprehensive income Director retainer shares - - 9 - Treasury stock purchase - - - - Cancel treasury stock - - (725) - Issuance of common stock to Thrift Plan - - 17 - Exercise of stock options - - 480 - Tax benefit on exercise of stock options - - - - Common stock dividend - - - - Dividends paid in shares of common stock: Preferred stock - - 57 - Common stock - - 1,432 - ------------------------------------------------------------------------------- December 31, 1999 250,000 25 49,382 3 Comprehensive income: Net income - - - - Other comprehensive loss, net of tax: Unrealized gain on securities available for sale - - - - Total comprehensive income Director retainer shares - - 4 - Treasury stock purchase - - - - Exercise of stock options - - 294 - Tax benefit on exercise of stock options - - - - Preferred stock dividend - - - - Dividends paid in shares of common stock: Preferred stock - - 26 - ------------------------------------------------------------------------------- December 31, 2000 250,000 $25 49,706 $3 ------------------------------------------------------------------------------- (1) December 31, -------------------------- 2000 1999 1998 -------------------------- Reclassification adjustment: Unrealized gains (losses) on available for sale securities $78,759 $(90,852) $10,117 Tax (expense) benefit on unrealized gains (losses) on available for sale securities (30,467) 34,697 (3,332) Reclassification adjustment for (gains) losses realized and included in net income (2,059) 419 (9,337) Reclassification adjustment for tax expense (benefit) on realized (gains) losses 664 (138) 3,180 --------------------------- Net unrealized gains on securities $46,897 $(55,874) $ 628 -------------------------- 2 Notes receivable from exercise of stock options. 3 Restated for pooling of interest in 1999. See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued) (In Thousands) Accumulated Other Comprehensive Capital Retained Treasury Stock(3) Notes ------------------ Income(Loss)(1,3) Surplus(3)Earnings(3) Shares Amount Receivable(2,3)Total(3) -------------------------------------------------------------------------------- $ 11,669 $211,883 $232,620 881 $ (4,314) $(4) $451,880 - - 79,611 - - - 79,611 628 - - - - - 628 --------- 80,239 --------- - 292 - - - - 292 - - - - - - 2 - - - 386 (9,138) - (9,138) - 94 - (56) 1,204 - 1,298 - 2,923 - 55 (1,355) - 1,568 - 1,014 - - - - 1,014 - - - - - 4 4 - - (2,344) - - - (2,344) - 1,500 (1,500) - - - - - 19,020 (30,022) (517) 10,980 - (22) -------------------------------------------------------------------------------- 12,297 236,726 278,365 749 (2,623) - 524,793 - - 89,226 - - - 89,226 (55,874) - - - - - (55,874) --------- 33,352 --------- - 294 - - - - 294 - - - 74 (1,574) - (1,574) - (2,062) - (725) 2,062 - - - 406 - (1) 36 - 442 - 4,286 - 215 (4,823) - (537) - 3,138 - - - - 3,138 - - (2,734) - (2,734) - 1,500 (1,500) - - - 30,692 (30,606) 4 (96) - (10) -------------------------------------------------------------------------------- (43,577) 274,980 332,751 316 (7,018) - 557,164 - - 100,140 - - - 100,140 46,897 - - - - - 46,897 --------- 147,037 --------- - 50 - (13) 263 - 313 - - - 151 (2,633) - (2,633) - 2,554 - 97 (1,868) - 686 - 1,010 - - - - 1,010 - (1) - - - (1) - 288 (1,500) (63) 1,212 - - -------------------------------------------------------------------------------- $ 3,320 $278,882 $431,390 488 $(10,044) $ - $703,576 -------------------------------------------------------------------------------- BOK FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) 2000 1999 19981 ------------ ------------ ------------- Cash Flows From Operating Activities: Net income $ 100,140 $ 89,226 $ 79,611 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses 17,204 10,365 14,591 Provisions for mortgage servicing rights 2,900 - (2,290) Depreciation and amortization 54,444 41,088 39,962 Tax benefit on exercise of stock options 1,010 3,138 1,014 Tax accrual reversal 3,000 - - Net amortization of securities discounts and premiums (4,975) 1,413 701 Net gain on sale of assets (11,694) (15,039) (23,209) Contribution of stock to BOk Charitable Foundation - - 2,257 Mortgage loans originated for resale (531,471) (687,857) (922,585) Proceeds from sale of mortgage loans held for resale 547,140 738,109 913,700 (Increase) decrease in trading securities (25,132) 34,734 (36,139) (Increase) decrease in accrued revenue receivable (7,341) 21 (11,999) (Increase) decrease in other assets 73,177 (65,824) (14,971) Increase (decrease) in accrued interest, taxes and expense (18,393) 24,151 14,533 Increase (decrease) in other liabilities (15,992) 29,806 3,139 ------------------------------------------------------------------------------- ------------ ------------- Net cash provided by operating activities 184,017 203,331 58,315 ------------------------------------------------------------------------------- ------------ ------------- Cash Flows From Investing Activities: Proceeds from sales of investment securities 175 - - Proceeds from sales of available for sale securities 1,677,078 1,397,956 1,816,796 Proceeds from maturities of investment securities 41,764 59,684 33,163 Proceeds from maturities of available for sale securities 445,384 634,527 511,690 Purchases of investment securities (62,334) (45,330) (48,791) Purchases of available for sale securities (2,227,911) (2,223,829) (2,795,309) Loans originated or acquired net of principal collected (937,424) (1,045,516) (684,389) Proceeds from sales of assets 69,201 190,673 60,505 Purchases of assets (98,822) (93,755) (45,028) Cash and cash equivalents of subsidiaries and branches acquired and sold, net (14) 25,584 311,977 ------------------------------------------------------------------------------- ------------ ------------- Net cash used by investing activities (1,092,903) (1,100,006) (839,386) ------------------------------------------------------------------------------- ------------ ------------- Cash Flows From Financing Activities: Net increase (decrease) in demand deposits, transaction deposits, and savings accounts 329,483 (20,535) 118,411 Net increase in certificates of deposit 453,338 321,702 68,730 Net increase in other borrowings 451,574 554,433 675,128 Repurchase of subordinated debt - - (1,538) Issuance of preferred, common and treasury stock, net 999 823 3,138 Purchase of treasury stock (2,633) (1,574) (9,138) Dividends paid (1) (2,744) (2,344) Payments on notes receivable - - 4 ------------------------------------------------------------------------------- ------------ ------------- Net cash provided by financing activities 1,232,760 852,105 852,391 ------------------------------------------------------------------------------- ------------ ------------- Net increase (decrease) in cash and cash equivalents 323,874 (44,570) 71,320 Cash and cash equivalents at beginning of period 426,855 471,425 400,105 ------------------------------------------------------------------------------- ------------ ------------- Cash and cash equivalents at end of period $ 750,729 $ 426,855 $ 471,425 ------------------------------------------------------------------------------- ------------ ------------- Cash paid for interest $ 361,645 $ 265,548 $ 182,143 ------------------------------------------------------------------------------- ------------ ------------- Cash paid for taxes 51,669 43,664 29,569 ------------------------------------------------------------------------------- ------------ ------------- Net loans transferred to repossessed real estate 2,226 1,857 2,945 ------------------------------------------------------------------------------- ------------ ------------- Payment of dividends in common stock 1,500 32,192 31,500 ------------------------------------------------------------------------------- ------------ ------------- 1 Restated for pooling of interest in 1999.
See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT 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 year amounts have been reclassified to conform to current year classifications. Nature of Operations BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers, other financial institutions and consumers throughout Oklahoma, Northwest Arkansas, North Texas and New Mexico. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust. Use of Estimates Preparation of BOK Financial's consolidated financial statements requires management to make estimates of future economic activities, including interest rates, loan collectibility and prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates. Acquisitions Assets and liabilities acquired by purchase are recorded at fair values on the acquisition dates. Intangible assets are amortized using straight-line and accelerated methods over the estimated benefit periods. These periods range from 7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The net book values of intangible assets are evaluated for impairment when economic conditions indicate an impairment may exist. These conditions would include an ongoing performance history and a forecast of anticipated performance that is significantly below management's expectations for acquired entities. Impairment would be determined by a comparison of the fair value of assets and liabilities of the acquired entity plus an estimate of current market premiums paid for similar entities. The Consolidated Statements of Earnings include the results of purchases from the dates of acquisition. The financial statements of companies acquired in pooling-of-interests transactions are combined with the Consolidated Financial Statements of BOK Financial at historical cost as if the mergers occurred at the beginning of the earliest period presented. Cash Equivalents Due from banks, funds sold (generally federal funds sold for one-day periods) and resell agreements (which generally mature within one to 30 days) are considered cash equivalents. Securities Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities, which are acquired for profit through resale, are carried at market value with unrealized gains and losses included in current period earnings. Investment securities are carried at amortized cost. Amortization is computed by methods which approximate level yield and is adjusted for changes in prepayment estimates. Investment securities may be sold or transferred to trading or available for sale classification in certain limited circumstances specified in generally accepted accounting principles. Securities identified as available for sale are carried at fair value. Unrealized gains and losses are recorded, net of deferred income taxes, as accumulated other comprehensive income (loss) in shareholders' equity. Realized gains and losses on sales of securities are based upon the amortized cost of the specific security sold. Available for sale securities are separately identified as pledged to creditors if the creditor has the right to sell or repledge the collateral. Loans Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk of loss on loans due to the borrower's difficulties, which may arise from any number of factors including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccrual status when, in the opinion of management, full collection of principal or interest is uncertain, generally when the collection of principal or interest is 90 days or more past due. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loan origination and commitment fees, and direct loan origination costs when significant, are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on related forward sales contracts. Reserve for Loan Losses The adequacy of the reserve for loan losses is assessed by management based upon an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, and includes probable losses on both outstanding loans and unused commitments to provide financing. A consistent methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based upon a statistical migration analysis for each category of loans, and a nonspecific allowance that is based upon an analysis of current economic conditions, loan concentrations, portfolio growth, and other relevant factors. The reserve for loan losses related to loans that are identified for evaluation in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114"), is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreement. This is substantially the same criteria used to determine when a loan should be placed on nonaccrual status. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In accordance with the provisions of FAS 114, management has excluded small balance, homogeneous loans from the impairment evaluation specified in FAS 114. Such loans include 1-4 family mortgage loans, consumer loans, and commercial loans with committed amounts less than $1 million. The adequacy of the reserve for loan losses applicable to these loans is evaluated in accordance with generally accepted accounting principles and standards established by the banking regulatory authorities and adopted as policy by BOK Financial. A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. Loans are charged off when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Loans are evaluated quarterly and charge offs are taken in the quarter in which the loss is identified. Additionally, all unsecured or under-secured loans which are past due by 180 days or more are charged off within 30 days. Recoveries of loans previously charged off are added to the reserve. Asset Securitization BOK Financial periodically securitizes and sells pools of assets. These transactions are designed to comply with the requirements of Statement of Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," ("FAS 125") for treatment as a sale. As part of these sales, BOK Financial may retain the right to service the assets and a residual interest in excess cash flows generated by the assets. The fair value of these retained assets is determined by a discounting of expected future net cash to be received using assumed market interest rates for these instruments. Residual interests are carried at fair value. Changes in fair values are recorded in income. Servicing rights are carried at the lower of amortized cost or fair value. A valuation allowance is provided when amortized cost of servicing rights exceeds fair value. Real Estate and Other Repossessed Assets Real estate and other repossessed assets are assets acquired in partial or total forgiveness of debt. These assets are carried at the lower of cost, which is determined by fair value at date of foreclosure, or current fair value less estimated selling costs. Income generated by these assets is recognized as received, and operating expenses are recognized as incurred. Premises and Equipment Premises and equipment are carried at cost including capitalized interest, when appropriate, less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. Repair and maintenance costs are charged to expense as incurred. Mortgage Servicing Rights Capitalized mortgage servicing rights are carried at the lower of amortized cost, adjusted for the effect of hedging activities, or fair value. Amortization is determined in proportion to the projected cash flows over the estimated lives of the servicing portfolios. The actual cash flows are dependent upon the prepayment of the mortgage loans and may differ significantly from the estimates. Fair value is determined by discounting the estimated cash flows of servicing revenue, less projected servicing costs, using risk-adjusted rates, which is the assumed market rate for these instruments. Prepayment assumptions are based on industry consensus provided by independent reporting sources. Changes in current interest rates may significantly affect these assumptions by changing loan refinancing activity. Amortized cost and fair value are stratified by interest rate and loan type. A valuation allowance is provided when the net amortized cost of each strata exceeds the calculated fair value. Originated mortgage servicing rights are recognized when either mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. Substantially all fixed rate mortgage loans originated by BOK Financial are sold under existing commitments. The fair value of the originated servicing rights is determined at closing based upon current market rates. Hedging of Mortgage Servicing Rights During 1998 through the first quarter of 2000, BOK Financial entered into futures contracts and call and put options on futures contracts to hedge against the risk of loss on mortgage servicing rights due to accelerated loan prepayments during periods of falling interest rates. Contracts on underlying securities which were expected to have a similar duration to the mortgage servicing portfolio, such as ten-year U.S. Treasury notes, were used for these hedges. The combination of contracts selected was expected to achieve a high degree of correlation between changes in the fair value of the mortgage servicing rights and changes in the market value of the contracts. These contracts were designated as hedges on the trade date. Both unrealized and realized gains and losses on futures contracts and option contracts were deferred as part of the capitalized mortgage servicing rights. These deferred gains and losses are amortized over the estimated life of the loan servicing portfolio. This derivatives-based hedging program was replaced in 2000. BOK Financial currently hedges its portfolio of mortgage servicing rights by acquiring mortgage-backed and principal only securities whenever the prepayment risk exceeds certain levels. The fair value of these securities is expected to vary inversely to the value of the mortgage servicing rights. Management may sell these securities and recognize gains when necessary to offset losses on the mortgage servicing rights. Interest Rate Swaps and Forward Commitments Interest rate swaps and forward sales contracts are used as part of an interest rate risk management strategy. Interest rate swaps are used primarily to modify the interest expense of certain long-term, fixed rate assets and liabilities. Amounts payable to or receivable from the counterparties are reported in interest expense using the accrual method. Gains or losses realized from the early termination of interest rate swaps are deferred and amortized over the remaining life of the hedged asset or liability. In the event of the early redemption of hedged obligations, any realized or unrealized gain or loss from the swaps is recognized in income coincident with the redemption. The fair value of the swap agreements and changes in the fair value due to changes in market interest rates are not recognized in the financial statements. Forward sales contracts are used to hedge existing and anticipated loans in conjunction with mortgage banking activities. The fair value of these instruments is included in determining the adjustment of the loan held for sale portfolio to the lower of cost or market. Gains or losses on closed contracts are recognized when the underlying assets are disposed. The cost of terminating these contracts prior to their expiration dates is expensed when incurred. Federal and State Income Taxes BOK Financial utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. BOK Financial and its subsidiaries file consolidated tax returns. The subsidiaries provide for income taxes on a separate return basis, and remit to BOK Financial amounts determined to be currently payable. Employee Benefit Plans BOK Financial sponsors various plans, including a defined benefit pension plan ("Pension Plan"), qualified profit sharing plans ("Thrift Plans"), and employee healthcare plans. Employer contributions to the Thrift Plans, which match employee contributions subject to percentage and years of service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the estimated remaining lives of the participants. BOK Financial recognizes the expense of health care benefits on the accrual method. Employer contributions to the Pension Plan and various health care plans are in accordance with Federal income tax regulations. 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"), included in Note 11. Fiduciary Services Fees and commissions on approximately $18 billion of assets managed by BOK Financial under various fiduciary arrangements are recognized on the accrual method. Effect of Pending Statements of Financial Accounting Standards During 1998, the Financial Accounting Standards Board adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), subsequently amended by Statements No. 137 and 138. The effective date for FAS 133 was deferred until fiscal years beginning after June 15, 2000. BOK Financial adopted FAS 133 effective January 1, 2001. FAS 133 requires the recognition of all derivatives on the balance sheet at fair value. Derivatives that do not qualify for special hedge accounting treatment must be adjusted to fair value through income. If the derivative qualifies for hedge accounting, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against changes in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. BOK Financial recorded a one-time after-tax transition adjustment that will increase income in the first quarter of 2001 by less than $500 thousand for the adoption of FAS 133. The ongoing effect of FAS 133 may significantly increase earnings volatility in future periods. (2) ACQUISITIONS On May 14, 1999, BOK Financial paid $27 million to acquire all outstanding common shares of Chaparral Bancshares, Inc. and its subsidiaries, including Canyon Creek National Bank, (collectively "Canyon Creek"). On June 2, 1999, BOK Financial paid $17 million to acquire all outstanding stock of Mid-Cities Bancshares, Inc. and its subsidiaries (collectively "Mid-Cities"). On June 15, 1999, BOK Financial paid $32 million to acquire all outstanding stock of Swiss Avenue State Bank ("Swiss"). On December 4, 1998, BOK Financial, through Bank of Albuquerque, paid a premium of $34 million to Bank of America to assume the deposits and to acquire the premises and equipment and certain loans at 17 branches, primarily in Albuquerque, New Mexico. The above transactions were accounted for by the purchase method of accounting. Aggregate allocation of the purchase price to the net assets acquired in 1999 and 1998 were as follows (in thousands): Aggregate Acquisitions ------------------------ 1999 1998 ------------ ----------- Cash and cash equivalents $103,215 $ 9,029 Securities 146,402 - Loans 147,697 144,209 Less reserve for loan losses 1,525 - ------------ ----------- Loans, net 146,172 144,209 Premises and equipment 16,066 11,205 Core deposit premium 12,521 13,495 Other assets 5,574 233 ------------ ----------- Total assets acquired 429,950 178,171 Deposits: Noninterest bearing 51,835 47,361 Interest bearing 302,457 418,490 ------------ ----------- Total deposits 354,292 465,851 Borrowed funds 28,426 - Other liabilities 2,234 9 ------------ ----------- Net assets acquired 44,998 (287,689) Less purchase price 75,756 (267,189) ------------ ----------- Goodwill $ 30,758 $ 20,500 ------------ ----------- On June 30, 1999, BOK Financial issued 2,371,809 common shares to acquire First Muskogee Bancshares, Inc. and its subsidiary, First National Bank and Trust Company of Muskogee (collectively "First Muskogee") in a pooling of interests. Financial statements of BOK Financial for 1998 have been restated to reflect this merger. The following unaudited condensed consolidated pro forma statements of earnings for BOK Financial presents the effects on income had all of the purchase acquisitions described above occurred at the beginning of 1998: Condensed Consolidated Pro Forma Statements of Earnings For the Years ended December 31, 1999 and 1998 (In Thousands) (Unaudited) 1999 1998 ------------ ----------- Net interest revenue $240,796 $217,278 Provision for loan losses 10,397 17,551 ------------------------------------ ------------ ----------- Net interest revenue after provision for loan losses 230,399 199,727 Other operating revenue 189,111 182,901 Other operating expense 284,332 260,058 ------------------------------------ ------------ ----------- Income before taxes 135,178 122,570 Federal and state income tax 44,969 39,102 ------------------------------------ ------------ ----------- Net income $ 90,209 $ 83,468 ------------------------------------ ------------ ----------- Earnings per share: Basic net income $ 1.81 $ 1.67 Diluted net income 1.62 1.49 ------------------------------------ ------------ ----------- Average shares: Basic 49,055 48,977 Diluted 55,852 55,883 ------------------------------------ ------------ ----------- In 1999, BOK Financial acquired a mortgage bank office in the Kansas City area for $1.3 million. In 1998, BOK Financial completed the acquisitions of Leo Oppenheim & Co., a public finance firm, and a branch office in Bartlesville, Oklahoma which provided net cash of $36 million and deposits of $30 million. These acquisitions were not material to BOK Financial's financial position or results of operations. On January 11, 2001, BOK Financial paid $91 million to acquire CNBT Bancshares, Inc. and its subsidiary Citizen National Bank of Texas in Houston, Texas. Total consolidated assets and net assets of CNBT Bancshares, Inc. were $443 million and $36 million, respectively, at December 31, 2000. The acquisition will be accounted for as a purchase. (3) SECURITIES Investment Securities The amortized cost and fair values of investment securities are as follows (in thousands): December 31, --------------------------------------- --------------------------------------- 2000 1999 --------------------------------------- --------------------------------------- Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized Cost Value Gain Loss Cost Value Gain Loss --------------------------------------- --------------------------------------- U.S. Treasury $ - $ - $ - $ - $ 196 $ 198 $ 2 $ - Municipal and other tax exempt 207,177 207,641 1,847 (1,383) 186,177 184,748 696 (2,125) Mortgage-backed U.S. agency securities 11,541 11,567 64 (38) 18,051 17,926 70 (195) Other debt securities 14,653 14,659 6 - 8,756 8,752 1 (5) --------------------------------------- --------------------------------------- Total $233,371 $233,867 $1,917 $(1,421) $213,180 $211,624 $769 $(2,325) --------------------------------------- --------------------------------------
The amortized cost and fair values of investment securities at December 31, 2000, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity(4) ------------ -------------- ------------- ------------------------- ------------- Municipal and other tax exempt: Amortized cost $41,070 $123,546 $40,310 $2,251 $207,177 3.10 Fair value 40,888 123,873 40,662 2,218 207,641 Nominal yield (1) 6.75% 7.37% 7.87% 9.18% 7.36% Other debt securities: Amortized cost $ 9,531 $ 4,922 $ 125 $ 75 $ 14,653 1.53 Fair value 9,532 4,923 128 76 14,659 Nominal yield 6.32% 6.85% 7.00% 7.00% 6.50% ------------ -------------- ------------- ------------------------- ------------- Total fixed maturity securities: Amortized cost $50,601 $128,468 $40,435 $2,326 $221,830 3.00 Fair value 50,420 128,796 40,790 2,294 222,300 Nominal yield 6.67% 7.35% 7.87% 9.11% 7.31% ------------ -------------- ------------- ------------- Mortgage-backed securities: Amortized cost $ 11,541 -2 Fair value 11,567 Nominal yield (3) 6.89% ------------ Total investment securities: Amortized cost $233,371 Fair value 233,867 Nominal yield 7.29% ------------ 1 Calculated on a taxable equivalent basis using a 39% effective tax rate. 2 The average expected lives of mortgage-backed securities were 0.6 years based upon current prepayment assumptions. 3 The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. 4 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
During 2000, BOK Financial sold a mortgage-backed security with an amortized cost of $175 thousand. The acquisition cost of this security was $4.9 million. Therefore, this sale was permitted under the sales deemed to be at maturity provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Available for Sale Securities The amortized cost and fair value of available for sale securities are as follows (in thousands): December 31, ------------------------------------------------------------------------------------------ 2000 1999 --------------------------------------------- -------------------------------------------- Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized Cost Value Gain Loss Cost Value Gain Loss ------------------------------------------------------------------------------------------ U.S. Treasury $ 85,656 $ 85,564 $ 71 $ (163) $ 112,902 $ 111,860 $ 10 $ (1,052) Municipal and other tax exempt 14,492 14,552 90 (30) 13,086 13,094 75 (67) Mortgage-backed securities: U. S. agencies 2,050,100 2,046,318 9,340 (13,122) 2,174,916 2,106,094 290 (69,112) Other 478,065 486,170 8,183 (78) 202,229 200,558 1 (1,672) -------------------------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 2,528,165 2,532,488 17,523 (13,200) 2,377,145 2,306,652 291 (70,784) ----------------------------------------------------------------------------- -------------------------------------------- Other debt securities 242 245 3 - 353 353 2 (2) Equity securities and mutual funds 129,823 130,971 2,884 (1,736) 156,476 156,745 1,104 (835) -------------------------------------------------------------------------------------------------------------------------- Total $2,758,378 $2,763,820 $20,571 $(15,129) $2,659,962 $2,588,704 $1,482 $(72,740) --------------------------------------------------------------------------------------------------------------------------
The amortized cost and fair values of available for sale securities at December 31, 2000, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity(5) ------------------------- ---------------------------------------------- U.S. Treasuries: Amortized cost $66,297 $19,359 $ - $ - $ 85,656 0.56 Fair value 66,308 19,256 - - 85,564 Nominal yield 5.93% 5.12% - - 5.74% Municipal and other tax exempt: Amortized cost $ 8,511 $ 3,953 $2,028 $ - $ 14,492 2.02 Fair value 8,501 3,969 2,082 - 14,552 Nominal yield(1) 7.00% 7.21% 8.52% - 7.27% Other debt securities: Amortized cost $ 1 $ - $ 129 $112 $ 242 9.43 Fair value 1 - 130 114 245 Nominal yield(1) - - 8.42% 7.76% 8.01% ------------------------- ---------------------------------------------- Total fixed maturity securities: Amortized cost $74,809 $23,312 $2,157 $112 $ 100,390 0.82 Fair value 74,810 23,225 2,212 114 100,361 Nominal yield 6.05% 5.47% 8.51% 7.76% 5.97% ------------------------- ----------------------- Mortgage-backed securities: Amortized cost $2,528,165 -(2) Fair value 2,532,488 Nominal yield(4) 6.45% ------------ Equity securities and mutual funds: Amortized cost $ 129,823 -(3) Fair value 130,971 Nominal yield 5.32% ------------ Total available-for-sale securities: Amortized cost $2,758,378 Fair value 2,763,820 Nominal yield 6.38% ------------ 1 Calculated on a taxable equivalent basis using a 39% effective tax rate. 2 The average expected lives of mortgage-backed securities were 2.9 years based upon current prepayment assumptions. 3 Primarily common stock and preferred stock of U.S. Government agencies with no stated maturity. 4 The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. 5 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
Sales of available for sale securities resulted in gains and losses as follows (in thousands): 2000 1999 1998 ----------- ----------- ---------- Proceeds 1,677,078 $1,397,956 $1,816,796 Gross realized gains 6,969 4,069 15,508 Gross realized losses 4,910 4,488 6,171 Related federal and state income tax expense 664 (138) 3,180 (benefit) In addition to securities that have been reclassified as pledged to creditors, securities with an amortized cost of $1.7 billion at December 31, 2000 and 1999 have been pledged as collateral for repurchase agreements, public and trust funds on deposit and for other purposes as required by law. The secured parties do not have the right to sell or repledge these securities. (4) LOANS Significant components of the loan portfolio are as follows (in thousands): December 31, --------------------------------------------------------------------------------------------- 2000 1999 ------------------------------------------------ -------------------------------------------- Fixed Variable Non- Fixed Variable Non- Rate Rate accrual Total Rate Rate accrual Total ------------------------------------------------ -------------------------------------------- Commercial $ 510,427 $2,700,460 $37,146 $3,248,033 $ 489,545 $2,162,470 $12,686 $2,664,701 Commercial real estate 331,585 938,748 161 1,270,494 305,208 787,288 2,046 1,094,542 Residential mortgage 458,562 177,627 1,855 638,044 369,860 157,815 3,383 531,058 Residential mortgage - held 48,901 - - 48,901 57,057 - - 57,057 for sale Consumer 192,428 119,463 499 312,390 221,399 73,382 1,350 296,131 ---------------------------------------------------------------------------------------------------------------------------- Total $1,541,903 $3,936,298 $39,661 $5,517,862 $1,443,069 $3,180,955 $19,465 $4,643,489 ---------------------------------------------------------------------------------------------------------------------------- Foregone interest on nonaccrual loans $ 3,803 $ 2,321 ----------------------------------------------------------------------------------------------------------------------------
The majority of the commercial and consumer loan portfolios and approximately 58% of the residential mortgage loan portfolio (excluding loans held for sale) are loans to businesses and individuals in Oklahoma. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the commercial loan classification, loans to energy-related businesses total $837 million, or 15% of total loans. Other notable segments include wholesale/ retail, $499 million; manufacturing, $421 million; agriculture, $185 million, which includes $147 million loans to the cattle industry; and services, $963 million, which include nursing homes of $124 million, hotels of $65 million and healthcare of $132 million. Approximately 41% of commercial real estate loans are secured by properties located in Oklahoma, primarily in the Tulsa or Oklahoma City metropolitan areas. An additional 30% of commercial real estate loans are secured by property located in Texas. The major components of these properties are multifamily residences, $271 million; construction and land development, $312 million; retail facilities, $205 million; and office buildings, $240 million. Included in loans at December 31 are loans to executive officers, directors or principal shareholders of BOK Financial, as defined in Regulation S-X of the Securities and Exchange Commission. Such loans have been made on substantially the same terms as those prevailing at the time for loans to other customers in comparable transactions. Information relating to loans to executive officers, directors or principal shareholders is summarized as follows (in thousands): 2000 1999 ------------ ------------ Beginning balance $94,861 $63,098 Advances 4,040 46,820 Payments (1,395) (11,205) Adjustments (885) (3,852) ------------------------------- ------------ ------------ Ending balance $96,621 $94,861 ------------------------------- ------------ ------------ Adjustments are primarily due to certain individuals being included for the first time or no longer being included as an executive officer or director of BOK Financial. The activity in the reserve for loan losses is summarized as follows (in thousands): 2000 1999 1998 -------------------------------- Beginning balance $76,234 $65,922 $54,044 Provision for loan losses 17,204 10,365 14,591 Loans charged off (14,801) (7,348) (7,596) Recoveries 4,018 5,770 4,883 Addition due to acquisitions - 1,525 - ----------------------------------------------------------- Ending balance $82,655 $76,234 $65,922 ----------------------------------------------------------- Investments in loans considered to be impaired under FAS 114 were as follows (in thousands): December 31, -------------------------------- 2000 1999 1998 -------------------------------- Investment in loans impaired under FAS 114 (all of which were on a nonaccrual basis) $37,822 $15,600 $11,320 Loans with specific reserves for loss 19,789 9,084 2,689 Specific reserve balance 7,991 2,468 1,437 No specific related reserve for loss 18,033 6,516 8,631 Average recorded investment in impaired loans 27,750 15,300 13,810 Interest income recognized on impaired loans during 2000, 1999 and 1998 was not significant. During 1999, BOK Financial sold approximately $100 million of automobile loans and retained the right to service the loans and a residual interest in certain excess cash flows generated by the loans. The proceeds of the sale were provided by the issuance of debt certificates that totaled $96 million by an independent special purpose entity. A spread account is maintained by a trustee to hold excess cash received. Funds are released from the spread account to BOK Financial as certain criteria are met. At December 31, 2000, the carrying values of the servicing rights asset and residual interest were $143 thousand and $5.2 million, respectively. The carrying value of the residual interest would be reduced to $5.0 million assuming a 250 basis point increase in the discount rate and a 25% increase in the assumed default rate on the underlying loans. Significant information and assumptions used to determine the value of these assets were: December 31, 2000 1999 --------------- ------------ Current outstanding loan principal $27,796 $56,661 Average interest rate on loans sold 11.26% 11.44% Current outstanding debt certificates $23,907 $52,605 Interest rate on debt certificates 6.07% 6.07% Current spread account balance $1,112 $4,587 Estimated remaining life including prepayments 18 Months 30 Months Discount rates: Servicing rights 10.00% 10.00% Residual interest 12.15% 12.00% Delinquency rate 1.81% 4.41% Net charge-offs $ 854 $ 656 Cash distributed to BOK Financial: Servicing fees $ 419 $ 723 Return on residual interest $5,741 $ - (5) PREMISES AND EQUIPMENT Premises and equipment at December 31 are summarized as follows (in thousands): December 31, ------------------------ 2000 1999 ----------- ------------ Land $ 22,838 $ 22,474 Buildings and improvements 82,646 65,646 Software 13,422 10,674 Furniture and equipment 92,566 82,714 ---------------------------------- ----------- ------------ Subtotal 211,472 181,508 ---------------------------------- ----------- ------------ Less accumulated depreciation 79,406 62,269 ---------------------------------- ----------- ------------ Total $132,066 $119,239 ---------------------------------- ----------- ------------ Depreciation expense of premises was $17.3 million, $13.3 million and $8.6 million for the years ended December 31, 2000, 1999 and 1998, respectively. (6) MORTGAGE BANKING ACTIVITIES BOK Financial engages in mortgage-banking activities through the BOk Mortgage Division of BOk. Residential mortgage loans held for sale totaled $49 million and $57 million and outstanding mortgage loan commitments totaled $123 million at December 31, 2000 and 1999. Mortgage loan commitments are generally outstanding for 60 to 90 days and are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially hedged through the use of mortgage-backed securities forward sales contracts. These contracts set the price for loans which will be delivered in the next 60 to 90 days. At December 31, 2000, forward sales contracts totaled $57 million. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on forward sales contracts. At December 31, 2000, BOk owned the rights to service 93,299 mortgage loans with outstanding principal balances of $6.9 billion, including $167 million serviced for BOk, and held related funds for investors and borrowers of $79 million. The weighted average interest rate and remaining term was 7.47% and 271 months, respectively. Mortgage loans sold with recourse totaled $3.4 million at December 31, 2000. At December 31, 1999, BOk owned the rights to service mortgage loans with outstanding principal balances of $7.0 billion and held related funds for investors and borrowers of $94 million. The portfolio of mortgage servicing rights exposes BOk to interest rate risk. During periods of falling interest rates, mortgage loan prepayments increase. This reduces the value of the mortgage servicing rights. During 1998 through the first quarter of 2000, BOk used a combination of futures contracts and options related to 10-year U.S. Treasury securities to hedge this risk. The value of these derivative instruments moves inversely to the value of the mortgage servicing rights. See Note 1 for specific accounting policies for mortgage servicing rights and the related hedges. Activity in capitalized mortgage servicing rights and related valuation allowance during 2000, 1999 and 1998 are as follows (in thousands): Capitalized Mortgage Servicing Rights ----------------------------------Valuation Hedging Purchased Originated Total Allowance (Gain)/Loss Net ------------------------------------------------------------------- Balance at December 31, 1997 $78,961 $ 9,929 $ 88,890 $(5,000) $ - $ 83,890 Additions 9,443 14,355 23,798 - - 23,798 Amortization expense (15,185) (3,085) (18,270) - 739 (17,531) Provision for impairment - - - 2,290 - 2,290 Impairment charge-off (2,710) - (2,710) 2,710 - - Realized hedge gains - - - - (22,705) (22,705) Unrealized hedge gains - - - - (518) (518) ------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 70,509 21,199 91,708 - (22,484) 69,224 Additions 16,509 11,073 27,582 - - 27,582 Amortization expense (12,106) (3,457) (15,563) - 734 (14,829) Realized hedge losses - - - 28,293 28,293 Unrealized hedge losses - - - 3,864 3,864 ------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 74,912 28,815 103,727 - 10,407 114,134 Additions 4,518 9,198 13,716 - - 13,716 Amortization expense (10,192) (3,565) (13,757) - (1,445) (15,202) Provision for impairment - - - (2,900) - (2,900) Realized hedge losses - - - - 4,389 4,389 Unrealized hedge gains - - - - (3,346) (3,346) ------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 $69,238 $34,448 $103,686 $(2,900) $10,005 $110,791 ------------------------------------------------------------------------------------------------------------- Estimated fair value of mortgage servicing rights at: December 31, 19981 $66,663 $23,527 $ 90,190 $ 90,190 December 31, 19991 $83,279 $37,547 $120,826 $120,826 December 31, 20001 $74,400 $42,125 $116,525 $116,525 ------------------------------------------------------------------------------------------------------------- 1 Excludes approximately, $9 million, $8 million and $7 million at December 31, 1998, 1999 and 2000, respectively, of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122.
Fair value is determined by discounting the projected net cash flows. Significant assumptions are: Discount rate - Risk adjusted rates by loan product, ranging from 9.00% to 20.00%. Prepayment rate - Industry consensus annual prepayment estimates ranging from 6.78% to 122.34% from an independent reporting source based upon loan interest rate, original term and loan type. Loan servicing costs - $40 to $50 per loan based upon loan type. Stratification of the mortgage loan servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at December 31, 2000 follows (in thousands): Less than 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total -------------------------------------------------------------------- Cost less accumulated amortization $ 9,622 $ 58,027 $ 33,299 $ 2,738 $ 103,686 Deferred hedge losses - 8,193 1,812 - 10,005 ------------------------------------------------------------------------------------------------------------- Adjusted cost $ 9,622 $ 66,220 $ 35,111 $ 2,738 $ 113,691 ------------------------------------------------------------------------------------------------------------- Fair value $ 11,002 $ 67,701 $ 33,702 $ 4,120 $ 116,525 ------------------------------------------------------------------------------------------------------------- Impairment(2) $ 300 $ - $ 2,600 $ - $ 2,900 ------------------------------------------------------------------------------------------------------------- Outstanding principal of loans serviced(1) $606,400 $3,574,100 $2,007,000 $262,500 $6,450,000 ------------------------------------------------------------------------------------------------------------- 1 Excludes outstanding principal of $425 million for loans serviced by BOk for which there are no capitalized mortgage servicing rights. 2 Impairment is determined by both an interest rate and loan type stratification.
(7) DEPOSITS Interest expense on deposits is summarized as follows (in thousands): 2000 1999 1998 ----------------------------------- Transaction deposits $ 55,019 $ 46,510 $ 37,148 Savings 2,703 2,971 3,837 Time: Certificates of deposits under 56,570 41,418 43,789 $100,000 Certificates of deposits $100,000 81,721 49,166 42,110 and over Other time deposits 12,236 10,556 11,120 ------------------------------------------------------------- Total time 150,527 101,140 97,019 ------------------------------------------------------------- Total $208,249 $150,621 $138,004 ------------------------------------------------------------- The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2000 and 1999 were $1.4 billion and $1.2 billion, respectively. Time deposit maturities are as follows: 2001 - $2 billion, 2002 - $446 million, 2003 - $95 million, 2004 - $84 million, 2005 - $2 million, and $449 thousand thereafter. Interest expense on time deposits during 2000 and 1999 was reduced by net income from interest rate swaps of $876 thousand and $79 thousand, respectively. (8) OTHER BORROWINGS Information relating to other borrowings is summarized as follows (dollars in thousands): Daily average Rate at Maximum out- Period-End ---------------- end of standing at Balance Balance Rate year any month-end ----------------------------------------------------- 2000: Funds purchased and repurchase agreements $1,853,073 $1,444,830 6.33% 7.03% $1,853,073 Other 1,031,020 1,038,647 6.75 5.61 1,153,444 ------------------------------------------------------ Total $2,884,093 $2,483,477 6.51 6.53 2,884,093 -------------------------------------------------------------------------------- 1999: Funds purchased and repurchase agreements $1,345,683 $1,146,918 5.12% 6.58% $1,384,596 Other 1,086,662 960,606 5.71 5.91 1,086,662 ------------------------------------------------------ Total $2,432,345 $2,107,524 5.39 6.28 2,432,345 -------------------------------------------------------------------------------- 1998: Funds purchased and repurchase agreements $1,040,683 $ 733,031 5.38% 4.98% $1,040,683 Other 807,268 563,188 6.20 5.98 807,268 ------------------------------------------------------ Total $1,847,951 $1,296,219 5.74 5.41 1,847,951 -------------------------------------------------------------------------------- Other borrowings at December 31, 2000 included $759 million in advances from the Federal Home Loan Bank. These advances, which are used for funding purposes, include term funds of $419 million bearing interest from 5.81% - 7.80%. Of these term funds, $312 million mature in 2001, $24 million mature in 2002, $14 million mature in 2003, $840 thousand mature in 2004, and $70 million mature in 2005. In accordance with policies of the Federal Home Loan Bank, BOK Financial has granted a blanket pledge of eligible assets (generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family loans and multifamily loans) as collateral for these advances. The unused credit available to BOK Financial at December 31, 2000 pursuant to the Federal Home Loan Bank's collateral policies is $309 million. BOK Financial has a revolving, unsecured credit agreement from certain banks at December 31, 2000 with available credit of $125 million that expires in November 2002; $95 million was outstanding at year-end. Interest is based on either LIBOR or a base rate, plus a defined margin which is determined by the amount of principal outstanding and BOK Financial's debt rating. The base rate is defined as the greater of either the daily federal funds rate or the prime rate. Interest is paid quarterly. Facility fees are paid quarterly on the average daily undrawn commitment at a rate of 0.20% - 0.30% as determined by BOK Financial's current debt rating. This credit agreement also includes, among other things, certain restrictive covenants relative to additional borrowings, capital levels, maintenance of certain net worth ratios and dividends on capital stock. BOK Financial filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $250 million of senior debt securities during the fourth quarter of 1998. These securities are direct, unsecured obligations, and are not insured by the Federal Deposit Insurance Corporation or guaranteed by any governmental agency. None of this debt has been issued at December 31, 2000. BOk issued $150 million of subordinated debentures in 1997 at a discounted cost of 7.2%, which had a balance at December 31, 2000 of $149 million and will mature in 2007. Interest expense on the subordinated debenture was reduced by net income from interest rate swaps of $428 thousand during 2000. Funds purchased generally mature within one to 90 days from the transaction date. At December 31, 2000, securities sold under agreements to repurchase totaled $984 million with related accrued interest payable of $4.1 million. Additional information relating to repurchase agreements at December 31, 2000 is as follows (dollars in thousands): Carrying Market Repurchase Average Security Sold/Maturity Value Value Liability1 Rate -------------------------------------------------------------------------------- U.S. Agency Securities: Overnight $ 487,775 $ 488,193 $ 357,434 6.44% Term of up to 30 days 20,264 20,009 611 5.85 Term of 30 to 90 days 658,079 658,201 629,576 6.62 -------------------------------------------------------------------- Total Agency Securities $1,166,118 $1,166,403 $987,621 6.56 -------------------------------------------------------------------- 1 BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities underlying longer-term dealer repurchase agreements to the respective counterparty. (9) FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands): December 31, ---------------------- 2000 1999 ---------------------- Deferred tax liabilities: Available for sale securities mark-to-market $ 4,000 $ 400 Pension contributions in excess of book expense 4,500 3,800 Securities valuation adjustments 9,300 4,200 Mortgage servicing 20,400 14,800 Other 5,300 3,400 ------------------------------------------------------------- Total deferred tax liabilities 43,500 26,600 ------------------------------------------------------------- Deferred tax assets: Available for sale securities mark-to-market 1,800 28,000 Loan loss reserve 31,600 28,800 Valuation adjustments 9,700 15,400 Book expense in excess of tax 3,600 4,200 Deferred book income 6,500 3,000 Other 8,400 4,300 ------------------------------------------------------------- Total deferred tax assets 61,600 83,700 ------------------------------------------------------------- Deferred tax assets in excess of deferred tax liabilities $18,100 $57,100 ------------------------------------------------------------- The reconciliations of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense are as follows (in thousands): Years ended December 31, ------------------------------- 2000 1999 1998 ------------------------------- Amount: Federal statutory tax $51,720 $46,793 $40,901 Tax exempt revenue (3,250) (3,715) (4,110) Effect of state income taxes, net of federal benefit 2,540 3,050 3,533 Goodwill amortization 3,144 2,987 2,296 Utilization of tax credits (600) (786) (750) Reduction of tax accrual (3,000) - - Income taxed at shareholder level - (1,026) (1,713) Other, net (2,923) (2,834) (2,908) ------------------------------------------------------------- Total $47,631 $44,469 $37,249 ------------------------------------------------------------- The Internal Revenue Service closed its examination for 1994 and 1995 during 1998 and 1999, respectively, with no material impact on the financial statements. In addition, the Internal Revenue Service closed its examination of 1996 during the first quarter of 2000. As a result of the outcome of this examination, BOK Financial reduced its federal income tax expense by $3.0 million. At December 31, 2000, BOK Financial has a capital loss carryforward of $3.9 million for income tax purposes that expires in years 2004 and 2005. The carryforward results from the hedging losses incurred related to the mortgage servicing portfolio. A valuation allowance has not been established since it is more likely than not that this benefit will be realized. The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): Years ended December 31, ----------------------------------- 2000 1999 1998 ----------------------------------- Current: Federal $37,258 $40,860 $41,415 State 1,112 2,948 4,937 ------------------------------------------------------------ Total current 38,370 43,808 46,352 ------------------------------------------------------------ Deferred: Federal 7,833 559 (7,699) State 1,428 102 (1,404) ------------------------------------------------------------ Total deferred 9,261 661 (9,103) ------------------------------------------------------------ Total income tax $47,631 $44,469 $37,249 ------------------------------------------------------------ Years ended December 31, ------------------------------- 2000 1999 1998 ------------------------------- Percent of pretax income: Federal statutory rate 35% 35% 35% Tax-exempt revenue (2) (3) (4) Effect of state income taxes, net of federal benefit 2 3 3 Goodwill amortization 2 2 2 Utilization of tax credits (1) (1) (1) Reduction of tax accrual (2) - - Income taxed at shareholder level - (1) (1) Other, net (2) (2) (2) -------------------------------------------------------------- Total 32% 33% 32% -------------------------------------------------------------- (10) EMPLOYEE BENEFIT BOK Financial sponsors a defined benefit Pension Plan for all employees who satisfy certain age and service requirements. The following table presents information regarding this plan (dollars in thousands): December 31, -------------------------- 2000 1999 -------------------------- Change in projected benefit obligation: Projected benefit obligation, at beginning of year$ 16,892 $ 15,622 Service cost 3,245 2,908 Interest cost 1,291 1,041 Actuarial (gain) loss 326 (612) Benefits paid (1,917) (2,067) ------------------------------------------------------------------------------ Projected benefit obligation at end of year $ 19,837 $ 16,892 ------------------------------------------------------------------------------ Change in plan assets: Plan assets at fair value, at beginning of year $ 25,403 $ 20,419 Actual return on plan assets (1,063) 1,848 Company contributions 3,661 5,203 Benefits paid (1,917) (2,067) ------------------------------------------------------------------------------ Plan assets at fair value at end of year $ 26,084 $ 25,403 ------------------------------------------------------------------------------ Reconciliation of prepaid (accrued) and total amount recognized: Benefit obligation $(19,837) $(16,892) Fair value of assets 26,084 25,403 ------------------------------------------------------------------------------ Funded status of the plan 6,247 8,511 Unrecognized net loss 4,412 464 Unrecognized prior service cost 681 741 ------------------------------------------------------------------------------ Prepaid pension costs $ 11,340 $ 9,716 ------------------------------------------------------------------------------ Components of net periodic benefit costs: Service cost $ 3,245 $ 2,908 Interest cost 1,291 1,041 Expected return on plan assets (2,559) (1,850) Amortization of unrecognized amounts: Net loss - 81 Prior service cost 60 60 ------------------------------------------------------------------------------ Net periodic pension cost $ 2,037 $ 2,240 ------------------------------------------------------------------------------ Weighted-average assumptions as of December 31: Discount rate 8.00% 8.00% Expected return on plan assets 10.00% 10.00% Rate of compensation increase 5.25% 5.25% Assets of the Pension Plan consist primarily of shares in cash management funds, common stock and bond funds, and guaranteed investment contract funds. Benefits are based on the employee's age and length of service. Employee contributions to the Thrift Plans, defined contribution plans, are matched by BOK Financial up to 5% of base compensation, based upon years of service. Participants may direct the investment of their accounts in a variety of options, including BOK Financial Common Stock. Employer contributions vest over five years. Expenses incurred by BOK Financial for the Thrift Plans totaled $2.3 million, $2.4 million and $1.9 million for 2000, 1999 and 1998, respectively. BOK Financial also sponsors a defined benefit post-retirement employee medical plan which pays 50 percent of annual medical insurance premiums for retirees who meet certain age and service requirements. Assets of the retiree medical plan consist primarily of shares in a cash management fund. Eligibility for the post-retirement plan is limited to current retirees and certain employees currently age 60 or older. Under various performance incentive plans, participating employees may be granted awards based on defined formulas or other criteria. Earnings were charged $22.2 million in 2000, $19.3 million in 1999 and $14.9 million in 1998, for such awards. (11) EXECUTIVE BENEFIT PLANS The Board of Directors of BOK Financial has approved various stock option plans. The number of options awarded and the employees to receive the options are determined by the Chairman of the Board and the President, subject to approval of the Board of Directors or a committee thereof. Options awarded under these plans are subject to vesting requirements. Generally, one-seventh of the options awarded vest annually and expire three years after vesting. The following table presents options outstanding during 1999 and 2000 under these plans: Weighted- Average Exercise Number Price ---------------------- Options outstanding at December 31, 1997 2,706,701 11.45 Options awarded 684,067 18.19 Options exercised (245,717) 8.94 Options forfeited (170,650) 12.02 Options expired (980) 8.98 --------------------------------------------------------- Options outstanding at December 31, 1998 2,973,421 13.87 Options awarded 536,475 21.41 Options exercised (434,865) 9.37 Options forfeited (115,249) 15.20 Options expired (585) 9.27 --------------------------------------------------------- Options outstanding at December 31, 1999 2,959,197 15.68 Options awarded 584,325 20.64 Options exercised (222,713) 9.16 Options forfeited (163,732) 16.72 Options expired (822) 8.06 --------------------------------------------------------- Options outstanding at December 31, 2000 3,156,255 16.81 --------------------------------------------------------- Options vested at December 31, 2000 1,082,680 13.77 --------------------------------------------------------- The following table summarizes information concerning currently outstanding and vested options: Options Outstanding Options Vested ------------------------------------------ ------------------------ Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life(years) Price Vested Price ------------------------------------------------------------------- $ 6.10 75,510 1.42 $ 6.10 75,510 $ 6.10 9.06 - 10.91 872,012 2.81 9.87 543,245 9.75 18.19 545,578 3.85 18.19 223,245 18.19 19.55 - 21.41 1,663,155 5.32 20.49 240,680 21.14 Under APB 25 no compensation expense is recognized at the date of grant since the exercise price of BOK Financial's employee stock option equals the market price of the underlying stock on the date of grant. FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires disclosure of pro forma information regarding net income and earnings per share as if BOK Financial accounted for employee stock options granted subsequent to December 31, 1994 under the fair value method of the Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 2000 1999 1998 --------- --------- --------- Average risk-free interest rate 5.99% 6.12% 4.71% Dividend yield None None None Volatility factors .194 .192 .198 Weighted-average expected life 7 years 7 years 7 years The weighted-average fair value of options granted during 2000, 1999 and 1998 was $6.09, $6.16 and $6.36, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because BOK Financial's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1994 (in thousands, except per share data: 20001 19991 19981 ------------------------------- Pro forma net income $98,665 $87,736 $78,504 Pro forma earnings per share: Basic $ 1.98 $ 1.76 $ 1.58 Diluted 1.77 1.57 1.41 1 Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 2003. (12) COMMITMENTS AND 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. BOk is obligated under a long-term lease for its bank premises located in downtown Tulsa. The lease term, which began November 1, 1976, is for fifty-seven years with options to terminate at the end of the thirty-seventh and forty-seventh years. Annual base rent is $3.3 million. BOk subleases portions of its space for annual rents of $193 thousand in years 2001 through 2003, $175 thousand for 2004 and $171 thousand in 2005. Net rent expense on this lease was $3.1 million in 2000, $2.8 million in 1999, and $2.7 million in 1998. Total rent expense for BOK Financial was $10.5 million in 2000, $10.2 million in 1999 and $9.0 million in 1998. At December 31, 2000, the future minimum lease payments for equipment and premises under operating leases were as follows: $10 million in 2001, $9 million in 2002, $7 million in 2003, $6 million in 2004, $5 million in 2005 and a total of $98 million thereafter. BOk and Williams Companies, Inc. guaranteed 30 percent and 70 percent, respectively, of the $14 million debt, which matures May 15, 2007, and operating deficit of two parking facilities operated by the Tulsa Parking Authority. Total expenditures related to this guarantee were $319 thousand in 2000, $273 thousand in 1999 and $281 thousand in 1998. The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were approximately $231 million for 2000 and $165 million for 1999. (13) 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. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 2000, outstanding commitments totaled $2.2 billion. Since some of the commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Since the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. At December 31, 2000, outstanding standby letters of credit totaled $167 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At December 31, 2000, outstanding commercial letters of credit totaled $6 million. BOK Financial uses interest rate swaps in managing its interest rate risk. At December 31, 2000, the notional amount of BOK Financial's interest rate swaps totaled $497 million with related credit exposure, represented by the fair value of the contracts, of $8 million. During 2000 and 1999, income from the swaps exceeded costs by $2.2 million and $1.4 million, respectively, which increased net interest revenue. Scheduled repricing periods for the swaps are as follows (notional value in thousands): 31-90 91-365 Over days days 1 year Total -------------------------------------------- Pay floating $(438,400) $(28,000) $ - $(466,400) Receive fixed - - 466,400 466,400 Pay fixed - (4,114) (26,500) (30,614) Receive floating 30,614 - - 30,614 ------------------------------------------------------------ Total $(407,786) $(32,114) $439,900 $ - ------------------------------------------------------------ The expiration dates of the swap contracts are designed to match the estimated maturity dates of the underlying assets and liabilities and matures as follows: $4 million in 2001, $204 million in 2002, $52 million in 2003, $60 million in 2004, $17 million in 2006, and $160 million in 2007. BOK Financial utilizes securities forward sales contracts associated with its mortgage banking activities as described in Note 6. BOK Financial has commitments to purchase $85 million of "to be issued" mortgage-backed securities in March 2001. (14) SHAREHOLDERS' EQUITY Preferred Stock One billion shares of preferred stock with a par value of $0.00005 per share are authorized. A single series of 250,000,000 shares designated as Series A Preferred Stock ("Series A Preferred Stock") is currently issued and outstanding. The Series A Preferred Stock has no voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock for each 41 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation preference is $15 million. During 2000, 1999 and 1998, 88,628 shares, 57,340 shares and 68,765 shares, respectively, of BOK Financial common stock were issued in payment of dividends on the Series A Preferred Stock in lieu of cash by mutual agreement of BOK Financial and the holders of the Series A Preferred Stock. Kaiser owns substantially all Series A Preferred Stock. These shares were valued at $1.5 million in 2000, 1999 and 1998, based on average market price, as defined, for a 65 business day period preceding declaration. Various officers own 125 nonvoting units in an entity owned by BOk. These units are eligible for an annual, cumulative distribution of $8 per unit and have a preferred value upon liquidation of $100 per unit. Common Stock Common stock consists of 2.5 billion authorized shares, $0.00006 par value. Holders of common shares are entitled to one vote per share at the election of the Board of Directors and on any question arising at any shareholders' meeting and to receive dividends when and as declared. No common stock dividends can be paid unless all accrued dividends on the Series A Preferred Stock have been paid. The present policy of BOK Financial is to retain earnings for capital and future growth, and management has no current plans to recommend payment of cash dividends on common stock. Additionally, regulations restrict the ability of national banks and bank holding companies to pay dividends and BOK Financial's credit agreement restricts the payment of dividends by the holding company. During 1999 and 1998, 3% dividends payable in shares of BOK Financial common stock were declared and paid. The shares issued were valued at $31 million and $30 million, respectively, based on the average closing bid/ask prices on the day preceding declaration. No dividends were paid in 2000. All share and per share amounts for years previous to 1999 have been retroactively adjusted for a two-for-one stock split effected in the form of a stock dividend declared January 26, 1999 for stockholders of record on February 8, 1999. Subsidiary Banks The amounts of dividends which BOK Financial's subsidiary banks can declare and the amounts of loans the subsidiary banks can extend to affiliates are limited by various federal and state banking regulations. Generally, dividends declared during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The amounts of dividends are further restricted by minimum capital requirements. Pursuant to the most restrictive of the regulations at December 31, 2000, BOK Financial's subsidiary banks could declare dividends up to $92 million without prior regulatory approval. The subsidiary banks declared and paid dividends of $8 million in 2000, $63 million in 1999 and $26 million in 1998. Loans to a single affiliate may not exceed 10.0% and loans to all affiliates may not exceed 20.0% of unimpaired capital and surplus, as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 2000 and 1999, these loans totaled $27 million and $35 million, respectively, including $9 million to consolidated entities in 1999. Total loan commitments to affiliates at December 31, 2000 were $82 million. Regulatory Capital BOK Financial and its banking subsidiaries are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a material effect on BOK Financial's 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 regulators about components, risk weightings and other factors. For a banking institution to qualify as well capitalized, its Tier I, Total and Leverage capital ratios must be at least 6%, 10% and 5%, respectively. Tier I capital consists primarily of common stockholders' equity, excluding unrealized gains or losses on available for sale securities, less goodwill, core deposit premiums, and certain other intangible assets. Total capital consists primarily of Tier I capital plus preferred stock, subordinated debt and reserves for loan losses, subject to certain limitations. All of BOK Financial's banking subsidiaries exceeded the regulatory definition of well capitalized. December 31, --------------------------------------- 2000 1999 --------------------------------------- Amount Ratio Amount Ratio --------------------------------------- (Dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $823,063 11.23% $700,875 10.72% BOk 700,380 11.43 594,182 10.80 Bank of Texas 105,188 11.66 87,299 12.41 Bank of Albuquerque 60,182 13.23 57,451 16.04 Bank of Arkansas 12,442 15.76 11,569 15.73 Tier I Capital (to Risk Weighted Assets): Consolidated $591,185 8.06% $475,687 7.27% BOk 485,492 7.93 383,255 6.96 Bank of Texas 93,899 10.41 78,382 11.15 Bank of Albuquerque 57,560 12.66 56,075 15.65 Bank of Arkansas 11,454 14.51 10,639 14.47 Tier I Capital (to Average Assets): Consolidated $591,185 6.51% $475,687 5.92% BOk 485,492 6.59 383,255 5.88 Bank of Texas 93,899 8.58 78,382 8.19 Bank of Albuquerque 57,560 6.32 56,075 6.78 Bank of Arkansas 11,454 8.05 10,639 9.86 (15) EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands except share data): Years ended December 31, -------------------------------------------- 2000 1999 1998 -------------------------------------------- Numerator: Net income $100,140 $89,226 $79,611 Preferred stock dividends (1,500) (1,500) (1,500) --------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common stockholders 98,640 87,726 78,111 --------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Preferred stock dividends 1,500 1,500 1,500 --------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $100,140 $89,226 $79,611 --------------------------------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share - weighted average shares 49,119,790 49,054,573 48,977,283 Effect of dilutive securities: Employee stock options(1) 319,946 647,633 756,662 Convertible preferred stock 6,149,365 6,149,365 6,149,365 --------------------------------------------------------------------------------------------------------- Dilutive potential common shares 6,469,311 6,796,998 6,906,027 --------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 55,589,101 55,851,571 55,883,310 --------------------------------------------------------------------------------------------------------- Basic earnings per share $2.01 $1.79 $1.59 --------------------------------------------------------------------------------------------------------- Diluted earnings per share $1.80 $1.60 $1.42 --------------------------------------------------------------------------------------------------------- 1 Excludes employee stock options with exercise price 1,660,657 611,974 - greater than current market price
(16) REPORTABLE SEGMENTS BOK Financial operates four principal lines of business under its Bank of Oklahoma 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, Bank of Arkansas and Bank of Texas. These five principal lines of business combined account for approximately 87% of total revenue. Other lines of business include the TransFund ATM network and BOSC, Inc. The Corporate Banking segment consists of eight operating units that provide credit and lease financing, deposit and cash management, and international collection services to commercial and industrial customers and to other financial institutions in Oklahoma and surrounding states. The Consumer Banking segment consists of two operating units which provide direct and indirect consumer loans and deposit services to individuals primarily within Oklahoma. The Mortgage Banking segment consists of two operating units that originate a full range of mortgage products from federally sponsored programs to "jumbo loans" on higher priced homes in BOK Financial's primary market areas. The Mortgage Banking segment also services mortgage loans acquired from throughout the United States. The Trust Services segment consists of one operating unit that provides financial services to both individual and corporate clients. Individual financial services include personal trust management, administration of estates and management of investment and custodial accounts. Individual financial services also include lending and investment services to select individuals. Corporate financial services include administration of employee benefit plans, transfer and paying agent services and investment advisory services. Regional Banks include Bank of Arkansas, Bank of Albuquerque and Bank of Texas. BOK Financial identifies reportable segments by type of service provided for the Mortgage Banking and the Trust Services segments and by type of customer for the Corporate Banking and Consumer Banking segments. Regional Banks are identified by legal entity. Operating results are adjusted for intercompany loan participations and allocated service costs and management fees. BOK Financial evaluates performance and allocates resources based upon a measurement of performance after the allocation of certain indirect expenses, taxes and capital cost. Capital is assigned to the lines of business based on an internal allocation method that reflects management's assessment of risk. An additional amount of capital is assigned to the regional banks based upon BOK Financial's investment in these entities. The accounting policies of the reportable segments generally follow those described in the summary of significant account policies except interest income is reported on a fully tax-equivalent basis, loan losses are based on actual net amounts charged off and the amortization of intangible assets is generally excluded. The cost of funds provided from one segment to another is transfer-priced at rates that approximate market for funds with similar duration. Assessment of performance is based on net interest revenue after internal funds transfer pricing. Nonreportable business segments include TransFund ATM networks and BOSC, Inc. The sources of revenue in these segments include interest, commissions earned on securities transactions, securities trading gains or losses, and fees earned on various banking activities, including merchant discounts and interchange fees. BOK Financial has not made any significant investments in long-term assets other than financial instruments, including core deposit intangible assets and purchased mortgage servicing rights. Substantially all revenue is from domestic customers. No single external customer accounts for more than 10% of total revenue. All Corporate Consumer Mortgage Trust Regional Other/ Banking Banking Banking Services Banks Eliminations Total ----------------------------------------------------------------------------------------------- Year ended December 31, 2000 Net interest revenue/(expense) from external sources $ 235,014 $ (33,260) $ 16,435 $ 3,429 $ 97,261 $(49,992) $ 268,887 Net interest revenue/(expense) from internal sources (121,430) 85,329 (15,006) 8,968 (18,250) 60,389 - ---------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 113,584 52,069 1,429 12,397 79,011 10,397 268,887 Provision for loan losses 3,957 3,432 57 3 3,533 6,222 17,204 Operating revenue 27,843 24,657 39,740 40,263 13,207 51,134 196,844 Securities gains/(losses) - - 5,257 - (356) (2,842) 2,059 Operating expense 52,666 45,606 38,028 36,277 63,894 63,444 299,915 Provision for impairment of mortgage servicing rights - - 2,900 - - - 2,900 Income taxes 32,989 10,771 2,116 6,372 10,567 (15,184) 47,631 ---------------------------------------------------------------------------------------------------------------------------- Net income $ 51,815 $ 16,917 $ 3,325 $ 10,008 $ 13,868 $ 4,207 $ 100,140 ---------------------------------------------------------------------------------------------------------------------------- Average assets $3,801,209 $1,813,303 $412,218 $355,585 $2,381,886 $(72,697) $8,691,504 Average equity 411,214 54,706 32,333 38,756 269,762 (198,529) 608,242 Performance measurements: Return on assets 1.36% 0.93% 0.81% 2.81% 0.58% - 1.15% Return on equity 12.60% 30.92% 10.28% 25.82% 5.14% - 16.46% Efficiency ratio 37.24% 59.44% 92.37% 68.89% 69.29% - 64.40%
Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Average Revenue Revenue Expense Assets -------------------------------------------------- Total reportable segments $258,490 $150,611 $239,371 $8,764,201 Total nonreportable segments 722 49,660 37,408 28,975 Unallocated items: Tax-equivalent adjustment 7,853 - - - Funds management 23,047 (1,929) 10,780 178,860 All others (including eliminations), net (21,225) 561 15,256 (280,532) -------------------------------------------------------------------------------- BOK Financial consolidated $268,887 $198,903 $302,815 $8,691,504 -------------------------------------------------------------------------------- All Corporate Consumer Mortgage Trust Regional Other/ Banking Banking Banking Services Banks Eliminations Total -------------------------------------------------------------------------------------------------- Year ended December 31, 1999 Net interest revenue/(expense) from external sources $ 188,417 $ (29,279) $ 11,627 $ 3,625 $ 67,055 $ (5,321) $ 236,124 Net interest revenue/(expense) from internal sources (86,972) 70,665 (8,296) 7,208 (7,596) 24,991 - -------------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 101,445 41,386 3,331 10,833 59,459 19,670 236,124 Provision for loan losses (1,106) 3,047 82 70 36 8,236 10,365 Operating revenue 30,500 23,408 39,533 36,769 11,462 47,199 188,871 Securities gains/(losses) - - - - (53) (366) (419) Operating expense 48,943 42,562 39,754 34,065 56,249 58,943 280,516 Income taxes 32,718 7,463 1,178 5,239 7,178 (9,307) 44,469 -------------------------------------------------------------------------------------------------------------------------------- Net income $ 51,390 $ 11,722 $ 1,850 $ 8,228 $ 7,405 $ 8,631 $ 89,226 -------------------------------------------------------------------------------------------------------------------------------- Average assets $3,381,502 $1,728,209 $355,888 $332,839 $1,807,963 $ 6,649 $7,613,050 Average equity 352,396 46,098 32,010 34,300 206,336 (128,748) 542,392 Performance measurements: Return on assets 1.52% 0.68% 0.52% 2.47% 0.41% - 1.17% Return on equity 14.58% 25.43% 5.78% 23.99% 3.59% - 16.45% Efficiency ratio 37.09% 65.69% 92.74% 71.56% 79.31% - 66.00%
Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Average Revenue Revenue Expense Assets -------------------------------------------------- Total reportable segments $216,454 $141,619 $221,573 $7,606,401 Total nonreportable segments 1,210 44,537 35,696 59,503 Unallocated items: Tax-equivalent adjustment 8,380 - - - Funds management 28,979 598 8,637 122,407 All others (including eliminations), net (18,899) 1,698 14,610 (175,261) -------------------------------------------------------------------------------- BOK Financial consolidated $236,124 $188,452 $280,516 $7,613,050 -------------------------------------------------------------------------------- All Corporate Consumer Mortgage Trust Regional Other/ Banking Banking Banking Services Banks Eliminations Total -------------------------------------------------------------------------------------------------- Year ended December 31, 1998 Net interest revenue/(expense) from external sources $ 154,757 $ (35,355) $ 16,133 $ 1,831 $ 29,457 $ 23,603 $ 190,426 Net interest revenue/(expense) from internal sources (68,539) 75,445 (10,456) 6,468 (1,673) (1,245) - ------------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 86,218 40,090 5,677 8,299 27,784 22,358 190,426 Provision for loan losses 62 2,103 129 124 188 11,985 14,591 Operating revenue 27,838 22,371 44,379 31,567 4,213 35,315 165,683 Securities gains/(losses) - - - - 613 8,724 9,337 Operating expense 51,190 47,368 41,926 30,985 21,562 43,254 236,285 Provision for impairment of mortgage servicing rights - - (2,290) - - - (2,290) Income taxes 24,431 5,053 4,003 3,406 5,118 (4,762) 37,249 ------------------------------------------------------------------------------------------------------------------------------- Net income $ 38,373 $ 7,937 $ 6,288 $ 5,351 $ 5,742 $ 15,920 $ 79,611 ------------------------------------------------------------------------------------------------------------------------------- Average assets $2,718,472 $1,785,025 $367,934 $292,175 $644,235 $138,173 $5,946,014 Average equity 271,420 43,640 30,229 27,243 85,205 28,142 485,879 Performance measurements: Return on assets 1.41% 0.44% 1.71% 1.83% 0.89% - 1.34% Return on equity 14.14% 18.19% 20.80% 19.64% 6.74% - 16.38% Efficiency ratio 44.88% 75.84% 83.76% 77.72% 67.39% - 66.35%
Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Average Revenue Revenue Expense Assets --------------------------------------------------- Total reportable segments $168,068 $130,981 $190,741 $5,807,841 Total nonreportable segments 886 33,566 26,695 37,826 Unallocated items: Tax-equivalent adjustment 9,427 - - - Funds management 31,097 12,095 10,692 138,191 All others (including eliminations), net (19,052) (1,622) 5,867 (37,844) -------------------------------------------------------------------------------- BOK Financial consolidated $190,426 $175,020 $233,995 $5,946,014 -------------------------------------------------------------------------------- (17) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 2000 and 1999 (dollars in thousands): Range of Average Estimated Carrying Contractual Repricing Discount Fair Value Yields (in years) Rate Value ------------------------------------------------------------------- 2000: Cash and cash equivalents $ 750,729 $ 750,729 Securities 3,037,056 3,037,552 Loans: Commercial 3,248,033 4.50 - 17.63% 0.43 6.20 - 9.15% 3,321,380 Commercial real estate 1,270,494 7.00 - 14.00 1.26 8.89 - 9.08 1,262,690 Residential mortgage 638,044 3.81 - 13.40 1.61 7.41 - 7.58 612,616 Residential mortgage - held for sale 48,901 - - - 48,901 Consumer 312,390 4.00 - 21.00 2.35 8.10 - 14.00 302,230 ------------------------------------------------------------------------------------------------------------- Total loans 5,517,862 5,547,817 Reserve for loan losses (82,655) - ------------------------------------------------------------------------------------------------------------- Net loans 5,435,207 5,547,817 Deposits with no stated maturity 3,372,817 - - - 3,372,817 Time deposits 2,673,188 2.00 - 7.40 0.54 3.55 - 6.49 2,685,773 Other borrowings 2,735,277 5.94 - 9.89 0.14 5.62 - 7.35 2,722,214 Subordinated debt 148,816 7.03 6.27 5.94 165,946 ------------------------------------------------------------------------------------------------------------- 1999: Cash and cash equivalents $ 426,855 - - - $ 426,855 Securities 2,816,336 - - - 2,814,780 Loans: Commercial 2,664,701 4.50 - 17.00% .56 5.70 - 8.65% 2,662,515 Commercial real estate 1,094,542 5.34 - 13.00 1.41 8.39 - 8.58 1,091,407 Residential mortgage 531,058 3.81 - 14.25 2.21 6.02 - 8.47 520,643 Residential mortgage - held for sale 57,057 - - - 57,057 Consumer 296,131 6.51 - 18.25 2.27 7.96 - 13.50 288,402 ------------------------------------------------------------------------------------------------------------- Total loans 4,643,489 4,620,024 Reserve for loan losses (76,234) - ------------------------------------------------------------------------------------------------------------- Net loans 4,567,255 4,620,024 Deposits with no stated maturity 3,043,334 - - - 3,043,334 Time deposits 2,219,850 2.18 - 6.71 .62 5.45 - 6.40 2,206,447 Other borrowings 2,283,703 4.94 - 8.35 .19 4.74 - 7.44 2,263,433 Subordinated debt 148,642 6.29 7.46 7.24 139,267 -------------------------------------------------------------------------------------------------------------
The preceding table presents the estimated fair values of financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involved significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, BOK Financial does not know whether the fair values shown above represent values at which the respective financial instruments could be sold individually or in the aggregate. The following methods and assumptions were used in estimating the fair value of these financial instruments: Cash and Cash Equivalents The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets' fair values. Securities The fair values of securities are based on quoted market prices or dealer quotes, when available. If quotes are not available, fair values are based on quoted prices of comparable instruments. Loans The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates currently being offered for loans with similar remaining terms to maturity and credit risk, adjusted for the impact of interest rate floors and ceilings. The fair values of classified loans were estimated to approximate their carrying values less loan loss reserves allocated to these loans of $26 million and $12 million at December 31, 2000 and 1999, respectively. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and hedging transactions. Deposits The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions. Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments," ("FAS 107") defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these deposits. Accordingly, the positive effect of such deposits is not included in this table. Other Borrowings and Subordinated Debenture The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments. Off-Balance-Sheet Instruments The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance-sheet instruments were not significant at December 31, 2000 and 1999. Residential mortgage loan commitments are included in determining the fair value of the mortgage loans held for sale. The fair values of interest rate swaps are based on pricing models using current assumptions to arrive at replacement cost. The estimated fair value of interest rate swaps were $8.3 million and $9.2 million at December 31, 2000 and 1999, respectively. (18) PARENT COMPANY ONLY FINANCIAL STATEMENTS Summarized financial information for BOK Financial - Parent Company Only follows: Balance Sheets (In Thousands) December 31, ---------------------------- 2000 1999 ---------------------------- Assets Cash and cash equivalents $ 9,755 $ 12,489 Securities - available for sale 12,016 9,459 Investment in subsidiaries 777,231 638,850 Other assets 1,795 3,034 -------------------------------------------------------------------------------- Total assets $800,797 $663,832 -------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Other borrowings $ 95,132 $105,132 Other liabilities 2,089 1,536 -------------------------------------------------------------------------------- Total liabilities 97,221 106,668 -------------------------------------------------------------------------------- Preferred stock 25 25 Common stock 3 3 Capital surplus 278,882 274,980 Retained earnings 431,390 332,751 Treasury stock (10,044) (7,018) Accumulated other comprehensive income (loss) 3,320 (43,577) -------------------------------------------------------------------------------- Total shareholders' equity 703,576 557,164 -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $800,797 $663,832 -------------------------------------------------------------------------------- Statements of Earnings (In Thousands) 2000 1999 1998 ------------------------------ Dividends, interest and fees received from $ 8,082 $63,556 $30,861 subsidiaries Other operating revenue 637 2,327 1,717 -------------------------------------------------------------------------------- Total revenue 8,719 65,883 32,578 -------------------------------------------------------------------------------- Interest expense 7,551 6,225 2,469 Personnel expense - 9 579 Professional fees and services 728 600 670 Contribution of stock to BOk Charitable Foundation - - 2,257 Other operating expense 45 80 116 -------------------------------------------------------------------------------- Total expense 8,324 6,914 6,091 -------------------------------------------------------------------------------- Income before taxes and equity in undistributed income of subsidiaries 395 58,969 26,487 Federal and state income tax credit (3,520) (3,243) (3,093) -------------------------------------------------------------------------------- Income before equity in undistributed income of subsidiaries 3,915 62,212 29,580 Equity in undistributed income of subsidiaries 96,225 27,014 50,031 -------------------------------------------------------------------------------- Net income $100,140 $89,226 $79,611 -------------------------------------------------------------------------------- Statements of Cash Flows (In Thousands) 2000 1999 1998 ---------------------------- Cash flows from operating activities: Net income $100,140 $89,226 $79,611 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed loss of subsidiaries (96,225) (27,014) (50,030) Tax benefit on exercise of stock options 1,010 3,138 1,014 Contribution of stock to BOk Charitable Foundation - - 2,257 (Increase) decrease in other assets 1,239 1,036 (373) Increase (decrease) in other liabilities (44) (1,980) 2,593 -------------------------------------------------------------------------------- Net cash provided by operating activities 6,120 64,406 35,072 -------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from maturities of available for sale - 9,881 - securities Purchases of available for sale securities (1,019) - - Investment in subsidiaries 3,800 (72,293) (85,842) -------------------------------------------------------------------------------- Net cash provided (used) by investing activities 2,781 (62,412) (85,842) -------------------------------------------------------------------------------- Cash flows from financing activities: Increase (decrease) in short-term borrowings (10,000) 13,228 59,245 Issuance of preferred, common and treasury stock, net 999 823 3,138 Purchase treasury stock (2,633) (1,574) (9,138) Cash dividends (1) (2,744) (2,344) Payments on notes receivable - - 4 -------------------------------------------------------------------------------- Net cash provided (used) by financing activities (11,635) 9,733 50,905 -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (2,734) 11,727 135 Cash and cash equivalents at beginning of period 12,489 762 627 -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 9,755 $12,489 762 -------------------------------------------------------------------------------- Payment of dividends in common stock $ 1,500 $32,192 $31,500 -------------------------------------------------------------------------------- Cash paid for interest $ 7,741 $ 5,933 $ 2,364 -------------------------------------------------------------------------------- BOK FINANCIAL CORPORATION Annual Financial Summary - Unaudited Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) 2000 --------------------------------- Average Revenue/ Yield/ Balance Expense(1) Rate --------------------------------- Assets Taxable securities $2,587,183 $167,493 6.47% Tax-exempt securities(1) 269,731 19,577 7.26 --------------------------------------------------------------------------------------- Total securities 2,856,914 187,070 6.55 --------------------------------------------------------------------------------------- Trading securities 15,633 1,450 9.28 Funds sold and resell agreements 46,219 2,962 6.41 Loans(2) 4,934,462 455,101 9.22 Less reserve for loan losses 80,447 --------------------------------------------------------------------------------------- Loans, net of reserve 4,854,015 455,101 9.38 --------------------------------------------------------------------------------------- Total earning assets 7,772,781 646,583 8.32 --------------------------------------------------------------------------------------- Cash and other assets 918,723 --------------------------------------------------------------------------------------- Total assets $8,691,504 --------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Transaction deposits $1,889,806 $ 55,019 2.91% Savings deposits 151,870 2,703 1.78 Time deposits 2,495,038 150,527 6.03 --------------------------------------------------------------------------------------- Total interest-bearing deposits 4,536,714 208,249 4.59 --------------------------------------------------------------------------------------- Other borrowings 2,334,749 151,157 6.47 Subordinated debenture 148,728 10,437 7.02 --------------------------------------------------------------------------------------- Total interest-bearing liabilities 7,020,191 369,843 5.27 --------------------------------------------------------------------------------------- Demand deposits 980,401 Other liabilities 82,670 Shareholders' equity 608,242 --------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $8,691,504 --------------------------------------------------------------------------------------- Tax-equivalent Net Interest Revenue $276,740 3.05% Tax-equivalent Net Interest Revenue to Earning Assets 3.56 Less tax-equivalent adjustment 7,853 --------------------------------------------------------------------------------------- Net Interest Revenue 268,887 Provision for loan losses 17,204 Other operating revenue 198,903 Other operating expense 302,815 --------------------------------------------------------------------------------------- Income before taxes 147,771 Federal and state income tax 47,631 --------------------------------------------------------------------------------------- Net Income $100,140 --------------------------------------------------------------------------------------- 1 Tax equivalent at the statutory federal and state rates of 38.9% for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. 2 The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy. 3 Excludes $3,262 of nonrecurring foregone interest in 1998.
Annual Financial Summary - Unaudited, (continued) Consolidated Daily Average Balances, Average Yields and Rates 1999 1998 -------------------------------------------------------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate ----------------------------------------- -------------------------------------- $2,383,198 $144,901 6.08% $1,877,515 $115,733 6.16% 288,094 21,785 7.56 330,576 25,207 7.63 -------------------------------------------------------------------------------- 2,671,292 166,686 6.24 2,208,091 140,940 6.38 -------------------------------------------------------------------------------- 37,508 2,291 6.11 20,038 1,046 5.22 43,373 2,219 5.12 41,109 2,321 5.65 4,046,920 337,458 8.34 3,070,245 267,952 8.623 72,306 59,480 -------------------------------------------------------------------------------- 3,974,614 337,458 8.49 3,010,765 267,952 8.793 -------------------------------------------------------------------------------- 6,726,787 508,654 7.56 5,280,003 412,259 7.753 -------------------------------------------------------------------------------- 886,263 666,011 -------------------------------------------------------------------------------- $7,613,050 $5,946,014 -------------------------------------------------------------------------------- $1,717,314 $ 46,510 2.71% $1,216,230 $ 37,148 3.05% 161,484 2,971 1.84 152,830 3,837 2.51 1,983,829 101,140 5.10 1,787,668 97,019 5.43 -------------------------------------------------------------------------------- 3,862,627 150,621 3.90 3,156,728 138,004 4.37 -------------------------------------------------------------------------------- 1,959,015 104,195 5.32 1,147,815 64,709 5.64 148,509 9,334 6.29 148,404 9,693 6.53 -------------------------------------------------------------------------------- 5,970,151 264,150 4.42 4,452,947 212,406 4.77 -------------------------------------------------------------------------------- 999,311 933,927 101,196 73,261 542,392 485,879 -------------------------------------------------------------------------------- $7,613,050 $5,946,014 -------------------------------------------------------------------------------- $244,504 3.14% $199,853 2.98%3 3.63 3.723 8,380 9,427 -------------------------------------------------------------------------------- 236,124 190,426 10,365 14,591 188,452 175,020 280,516 233,995 -------------------------------------------------------------------------------- 133,695 116,860 44,469 37,249 -------------------------------------------------------------------------------- $ 89,226 $ 79,611 -------------------------------------------------------------------------------- BOK FINANCIAL CORPORATION Quarterly Financial Summary - Unaudited Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) Three Months Ended --------------------------------------------------------------------- December 31, 2000 September 30, 2000 ---------------------------------- ---------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate ---------------------------------- ---------------------------------- Assets Taxable securities $2,654,996 $ 43,345 6.49% $2,520,917 $ 41,135 6.49% Tax-exempt securities(1) 276,478 5,172 7.44 274,402 4,692 6.80 -------------------------------------------------------------------------------------- ---------------------------------- Total securities 2,931,474 48,517 6.58 2,795,319 45,827 6.52 -------------------------------------------------------------------------------------- ---------------------------------- Trading securities 18,458 405 8.73 16,873 370 8.72 Funds sold 45,310 788 6.92 47,053 791 6.69 Loans(2) 5,265,300 125,854 9.51 5,020,994 118,523 9.39 Less reserve for loan losses 83,246 81,194 -------------------------------------------------------------------------------------- ---------------------------------- Loans, net of reserve 5,182,054 125,854 9.66 4,939,800 118,523 9.55 -------------------------------------------------------------------------------------- ---------------------------------- Total earning assets 8,177,296 175,564 8.54 7,799,045 165,511 8.44 -------------------------------------------------------------------------------------- ---------------------------------- Cash and other assets 955,024 910,737 -------------------------------------------------------------------------------------- ---------------------------------- Total assets $9,132,320 $8,709,782 -------------------------------------------------------------------------------------- ---------------------------------- Liabilities and Shareholders' Equity Transaction deposits $1,910,167 $ 15,646 3.26% $1,916,712 $ 13,684 2.84% Savings deposits 143,969 673 1.86 151,385 700 1.84 Other time deposits 2,671,285 43,237 6.44 2,510,655 39,475 6.26 -------------------------------------------------------------------------------------- ---------------------------------- Total interest-bearing deposits 4,725,421 59,556 5.01 4,578,752 53,859 4.68 -------------------------------------------------------------------------------------- ---------------------------------- Other borrowings 2,503,706 42,080 6.69 2,299,155 38,867 6.73 Subordinated debenture 148,794 2,667 7.13 148,750 2,704 7.23 -------------------------------------------------------------------------------------- ---------------------------------- Total interest-bearing liabilities 7,377,921 104,303 5.62 7,026,657 95,430 5.40 -------------------------------------------------------------------------------------- ---------------------------------- Demand deposits 1,002,969 974,478 Other liabilities 86,403 87,439 Shareholders' equity 665,027 621,208 -------------------------------------------------------------------------------------- ---------------------------------- Total liabilities and shareholders' equity $9,132,320 $8,709,782 -------------------------------------------------------------------------------------- ---------------------------------- Tax-equivalent Net Interest Revenue1 $ 71,261 2.92% $ 70,081 3.04% Tax-equivalent Net Interest Revenue1 to Earning Assets 3.47 3.57 Less tax-equivalent adjustment1 2,069 1,934 -------------------------------------------------------------------------------------- ---------------------------------- Net Interest Revenue 69,192 68,147 Provision for loan losses 6,000 5,031 Other operating revenue 54,924 49,840 Other operating expense 79,318 73,964 -------------------------------------------------------------------------------------- ---------------------------------- Income before taxes 38,798 38,992 Federal and state income tax 13,302 13,355 -------------------------------------------------------------------------------------- ---------------------------------- Net Income $ 25,496 $ 25,637 -------------------------------------------------------------------------------------- ---------------------------------- Earnings Per Average Common Share Equivalent: Net income: Basic $0.51 $0.51 -------------------------------------------------------------------------------------- --------------------------------- Diluted $0.46 $0.46 -------------------------------------------------------------------------------------- --------------------------------- 1 Tax equivalent at the statutory federal and state rates of 38.9% for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. 2 The loan averages included loans on which the accrual of interest has been discounted and are stated net of unearned income. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy.
Quarterly Financial Summary - Unaudited, (continued) Consolidated Daily Average Balances, Average Yields and Rates Three Months Ended ------------------------------------------------------------------------------------------------------ June 30, 2000 March 31, 2000 December 31, 1999 --------------------------------- ----------------------------------- -------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate --------------------------------- ----------------------------------- -------------------------------- $2,625,306 $42,738 6.55% $2,547,499 $40,275 6.36% $2,453,800 $38,381 6.21% 267,320 5,111 7.69 260,593 4,602 7.10 259,760 4,656 7.11 --------------------------------- ----------------------------------- -------------------------------- 2,892,626 47,849 6.65 2,808,092 44,877 6.43 2,713,560 43,037 6.29 --------------------------------- ----------------------------------- -------------------------------- 12,562 315 10.09 14,593 360 9.92 17,845 390 8.67 44,731 680 6.11 47,782 703 5.92 37,650 552 5.82 4,796,948 109,453 9.18 4,650,020 101,271 8.76 4,480,283 97,563 8.64 79,503 77,808 76,166 --------------------------------- ----------------------------------- -------------------------------- 4,717,445 109,453 9.33 4,572,212 101,271 8.91 4,404,117 97,563 8.79 --------------------------------- ----------------------------------- -------------------------------- 7,667,364 158,297 8.30 7,442,679 147,211 7.96 7,173,172 141,542 7.83 --------------------------------- ----------------------------------- -------------------------------- 920,169 909,666 922,100 --------------------------------- ----------------------------------- -------------------------------- $8,587,533 $8,352,345 $8,095,272 --------------------------------- ----------------------------------- -------------------------------- $1,875,180 $12,888 2.76% $1,856,644 $12,801 2.77% $1,885,730 $ 12,639 2.66% 156,369 658 1.69 155,848 672 1.73 159,442 721 1.79 2,431,978 35,252 5.83 2,364,126 32,563 5.54 2,206,956 29,109 5.23 --------------------------------- ----------------------------------- -------------------------------- 4,463,527 48,798 4.40 4,376,618 46,036 4.23 4,252,128 42,469 3.96 --------------------------------- ----------------------------------- -------------------------------- 2,318,426 37,094 6.44 2,216,244 33,116 6.01 2,071,787 29,715 5.69 148,705 2,552 6.90 148,663 2,514 6.80 148,620 2,387 6.37 --------------------------------- ----------------------------------- -------------------------------- 6,930,658 88,444 5.13 6,741,525 81,666 4.87 6,472,535 74,571 4.57 --------------------------------- ----------------------------------- -------------------------------- 989,716 954,307 977,825 82,438 95,268 91,489 584,721 561,245 553,423 --------------------------------- ----------------------------------- -------------------------------- $8,587,533 $8,352,345 $8,095,272 --------------------------------- ----------------------------------- -------------------------------- $69,853 3.17% $65,545 3.08% $66,971 3.26% 3.66 3.54 3.70 1,983 1,867 1,828 --------------------------------- ----------------------------------- -------------------------------- 67,870 63,678 65,143 3,534 2,639 2,255 47,348 46,791 46,721 74,917 74,616 74,257 --------------------------------- ----------------------------------- -------------------------------- 36,767 33,214 35,352 12,573 8,401 12,155 --------------------------------- ----------------------------------- -------------------------------- $24,194 $24,813 $23,197 --------------------------------- ----------------------------------- -------------------------------- $0.48 $0.50 $0.46 --------------------------------- ----------------------------------- -------------------------------- $0.43 $0.45 $0.42 --------------------------------- ----------------------------------- --------------------------------
BOK Financial Corporation Board of Directors W. Wayne Allen 1 Retired Chairman of the Board Phillips Petroleum Company C. Fred Ball, Jr. 3 President & CEO Bank of Texas, N.A. James E. Barnes Retired Chairman, President & CEO MAPCO, Inc. Sharon J. Bell 1 Managing Partner Rogers & Bell Peter C. Boylan, III 1 President & COO TV Guide, Inc. Luke R. Corbett Chairman & CEO Kerr-McGee Corporation Dr. Robert H. Donaldson 1 Trustees Professor of Political Science University of Tulsa William E. Durrett Senior Chairman American Fidelity Corp. James O. Goodwin 1 Chief Executive Officer The Oklahoma Eagle Publishing Company, Inc. LLC V. Burns Hargis 1 Vice Chairman BOK Financial Corporation and Bank of Oklahoma, N.A. Eugene A. Harris 2 Executive Vice President BOK Financial Corporation and Bank of Oklahoma, N.A. Howard E. Janzen 1 President & CEO Williams Communications E. Carey Joullian, IV 1 President Mustang Fuel Corporation George B. Kaiser 1 Chairman BOK Financial Corporation and Bank of Oklahoma, N.A. Robert J. LaFortune Personal Investments Philip C. Lauinger, Jr. Chairman & CEO Lauinger Publishing Co. John C. Lopez 1 Chief Executive Officer Lopez Foods, Inc. Stanley A. Lybarger 1,3 President & CEO BOK Financial Corporation and Bank of Oklahoma, N.A. Frank A. McPherson 1 Retired Chairman & CEO Kerr-McGee Corporation Steven E. Moore Chairman, President & CEO OGE Energy Corp. J. Larry Nichols 1 President & CEO Devon Energy Corporation Ronald J. Norick 1 Controlling Manager Norick Investment Company, LLC Robert L. Parker, Sr. Chairman of the Board Parker Drilling Company James W. Pielsticker 1 President Arrow Trucking Company James A. Robinson Personal Investments L. Francis Rooney, III 1 Chairman and CEO Manhattan Construction Company Scott F. Zarrow 1,4 President Foreman Investment Capital LLC 1 Director of BOK Financial Corp. and Bank of Oklahoma, N.A. 2 Director of Bank of Oklahoma, N.A. 3 Director of BOK Financial Corp. and Bank of Texas, N.A. 4 Advisory pending election at shareholders meeting April 24 Executive Officers George B. Kaiser Chaiman of the Board Stanley A. Lybarger President, Chief Executive Officer V. Burns Hargis Vice Chairman Steven E. Nell Executive Vice President Chief Financial Officer Eugene A. Harris Executive Vice President Chief Credit Officer Frederic Dorwart Secretary James A. Dietz Senior Vice President Director, Risk Management John C. Morrow Senior Vice President Director of Financial Accounting & Reporting Valerie Toalson Senior Vice President Corporate Controller Bank of Albuquerque, N.A. Gregory K. Symons Chairman & CEO Paul A. Sowards President Bank of Arkansas, N.A. Jeffrey R. Dunn Chairman, President & CEO Bank of Oklahoma, N.A. Steven G. Bradshaw Executive Vice President Consumer Banking Chairman, BOSC, Inc. Paul M. Elvir Executive Vice President Operations & Technology Mark W. Funke President, Oklahoma City H. James Holloman Executive Vice President Trust Division David L. Laughlin President BOK Mortgage W. Jeffrey Pickryl Executive Vice President Commercial Banking Charles D. Williamson Executive Vice President Capital Markets Bank of Texas, N.A. C. Fred Ball, Jr. Chairman, President & CEO Steven D. Poole President Bank of Texas Trust Company Director Private Financial Services Bank of Albuquerque, N.A. Board of Directors Susan Barker-Kalangis, Esq. Partner, Modrall, Sperling, Roehl, Harris and Sisk P.A. Steven G. Bradshaw Executive Vice President Bank of Oklahoma, N.A. Douglas M. Brown President & CEO Tuition Plan, Inc. Rudy A. Davolos Athletic Director University of New Mexico William E. Garcia Manager, Public Affairs Intel Corporation Thomas D. Growney President Tom Growney Equipment, Inc. Eugene A. Harris Executive Vice President BOK Financial Corporation and Bank of Oklahoma, N.A. W. Jeffrey Pickryl Executive Vice President Bank of Oklahoma, N.A. Doreen Rast Senior Vice President Bank of Albuquerque, N.A. Michael D. Sivage Chief Executive Officer Sivage-Thomas Homes, Inc. Paul A. Sowards President Bank of Albuquerque, N.A. David L. Sutter Senior Vice President Bank of Oklahoma, N. A. Gregory K. Symons Chairman & CEO Bank of Albuquerque, N.A. Bank of Arkansas, N.A. Board of Directors John W. Anderson Senior Vice President Bank of Oklahoma, N.A. Steven G. Bradshaw Executive Vice President Bank of Oklahoma, N.A. Jeffrey R. Dunn Chairman, President & CEO Bank of Arkansas, N.A. George C. Faucette, Jr. President Coldwell Banker Faucette Real Estate Mark W. Funke President Bank of Oklahoma- Oklahoma City Gerald Jones President Jones Motorcars, Inc. Jerry D. Sweetser Sweetser Properties, Inc. Bank of Texas, N.A. Board of Directors C. Thomas Abbott Vice Chairman Bank of Texas, N. A. Charles A. Angel, Jr. Vice Chairman Bank of Texas, N. A. C. Fred Ball, Jr. 2 President & CEO Bank of Texas, N. A. C. Huston Bell President The Vantage Companies Edward O. Boshell, Jr. Columbia General Investments, L. P. Ben R. Briggs Owner, Ben R. Briggs Investments R. Neal Bright Managing Partner Bright & Bright, L.L.P. Dudley Chambers Partner, Jackson & Walker, L.L.P. H. Lynn Craft President & CEO Baptist Foundation of Texas Edward F. Doran, Sr. Charles W. Eisemann Investments James J. Ellis Managing Partner Ellis/Roiser Associates R. William Gribble, Jr. President Gribble Oil Company J. T. Hairston, Jr. Investments Douglas D. Hawthorne President & CEO Texas Health Resources Noble Hurley Investments Jerry Lastelick Attorney Lastelick, Anderson and Arneson Stanley A. Lybarger 2 President and CEO BOK Financial Corp. Michael A. McBee Owner McBee Operating Co. Jon L. Mosle, Jr. 1 Investments Steven Nell1 Chief Financial Officer BOK Financial Corp. Robert F. Sanford, Jr. Investments Mrs. Jere W. Thompson Community Leader Tom E. Turner 2 Chairman Bank of Texas, N. A. John C. Vogt Investments 1 Park Cities Bancshares, Inc. only 2 Park Cities Bancshares, Inc./ Bank of Texas, N. A. Major Customer Service Offices Business Banking Centers Albuquerque 201 Third St., NW, Suite 1400 (505) 222-8432 Dallas 2650 Royal Lane (972) 443-2809 Fayetteville 3500 N. College (501) 973-2660 Oklahoma City Commerce Center 9520 N. May (405) 936-3700 South Office 7701 S. Western (405) 616-7500 Richardson 333 W. Campbell Rd. (214) 575-1972 Sherman 307 W. Washington (903) 891-8100 Tulsa Brookside Business Center 3237 S. Peoria (918) 746-7400 Consumer Banking Albuquerque 3900 Vassar, NE (505) 855-0834 Oklahoma City Windsor Hills 2601 N. Meridian (405) 272-2000 Richardson 333 W. Campbell Rd. (214) 575-1987 Tulsa Bank of Oklahoma Tower One Williams Center, 16th Fl. (918) 588-6000 Corporate Banking Albuquerque 201 Third St., NW, Suite 1400 (505) 222-8438 Dallas 5956 Sherry Lane, Suite 1100 (214) 987-8880 Fayetteville 3500 N. College (501) 973-2660 Oklahoma City Bank of Oklahoma Plaza 201 Robert S. Kerr (405) 272-2000 Tulsa Bank of Oklahoma Tower One Williams Center, 8th Fl. (918) 588-6127 BOSC, Inc. (800) 364-1818 Dallas 8255 Walnut Hill (214) 378-0148 Little Rock 2200 N. Rodney Parham Rd., Suite 215 (800) 817-2580 Oklahoma City 201 Robert S. Kerr, 4th Fl. (405) 272-2000 9520 N. May (405) 936-3900 Tulsa One Williams Center, 9th Fl. (918) 588-6555 3045 S. Harvard, Suite 101 (918) 746-5614 BOSC Oppenheim Division Bank of Oklahoma Plaza 201 Robert S. Kerr Oklahoma City (800) 725-2663 BancAlbuquerque Investment Center 2500 Louisiana Blvd., NE, Suite 100 Albuquerque (505) 837-4122 BancArkansas Investment Center 3500 N. College, Fayetteville (800) 817-2580 BancOklahoma Investment Center 3045 S. Harvard, Tulsa (918) 746-5614 BancTexas Investment Center 5956 Sherry Lane, Suite 1100 (214) 987-8838 Private Financial Services Albuquerque 2500 Louisiana Blvd., NE, Suite 208 (505) 837-4272 Dallas 7600 West Northwest Highway (214) 706-0309 6701 Preston Road (214) 525-7600 Oklahoma City Commerce Center 9520 N. May, 2nd Floor (405) 936-3900 Downtown - OKC 201 Robert S. Kerr (405) 272-2232 Tulsa Brookside 3237 S. Peoria (918) 746-7487 Downtown 320 S. Boston (918) 588-6214 Midtown 2021 S. Lewis, Suite 200 (918) 748-7257 61st & Yale 6036 S. Yale (918) 493-5210 Oklahoma Community Banking Bartlesville 3815 S.E. Frank Phillips Blvd. (918) 335-5300 Enid 2308 N. Van Buren (580) 548-8500 Eufaula 219 S. Main (918) 689-2567 Grove 201 S. Main (918) 787-2700 McAlester One E. Choctaw (918) 426-1100 Muskogee 215 S. State (918) 686-5900 Sand Springs 401 E. Broadway (918) 241-8000 Trust Services Bank of Oklahoma Trust Division Oklahoma City Commerce Center 9520 N. May, 2nd Floor (405) 936-3900 Tulsa Bank of Oklahoma Tower One Williams Center, 10th Floor (918) 588-6437 Southwest Trust Company Oklahoma City Commerce Center 9520 N. May, 2nd Floor (405) 936-3970 Bank of Texas Trust Division Dallas 7600 West Northwest Hwy. (214) 706-0309 Dallas 5956 Sherry Lane, Suite 1100 (214) 987-8852 Sherman 2009 Independence Dr. (903) 813-5100 Bank of Albuquerque Trust Division Albuquerque 2500 Louisiana Blvd., NE, Suite 208 (505) 837-4133 Bank of Arkansas Trust Division Fayetteville 3500 N. College (501) 973-2660 Mortgage Services BOk Mortgage Edmond 1515 S. Broadway (405) 272-2307 Enid 2308 N. Van Buren (580) 548-8528 Lawton 2602 W. Gore Blvd. (580) 250-0070 Muskogee 215 S. State (918) 686-5959 Norman 3550 W. Main (405) 366-3618 Oklahoma City 5015 N. Pennsylvania (405) 879-8700 Oklahoma City 7701 S. Western (405) 879-8700 Owasso 413 E. 2nd Ave. (918) 588-8650 Tulsa Copper Oaks 7060 S. Yale, Suite 100 (918) 488-7140 Pine & Lewis 1604 N. Lewis (918) 588-8608 Bank of Albuquerque Mortgage Group Albuquerque 2500 Louisiana Blvd., NE, Suite 220 (505) 837-4111 Bank of Arkansas Mortgage Group Bentonville 1706 S.E. Walton Blvd., Suite C (501) 271-6800 Fayetteville 3500 N. College (501) 973-2600 Bank of Texas Mortgage Group Dallas 6209 Hillcrest Ave. (214) 525-5052 First Mortgage Investment Company Lee's Summit, Missouri 987 N.E. Rice Rd. (816) 246-7000 Lenexa, Kansas 15220 W. 87th St. Parkway (913) 307-1600 Operating Subsidiaries Bank of Albuquerque, N.A. Albuquerque 201 Third St., NW, Suite 1400 (505) 222-8469 Bank of Arkansas, N.A. Fayetteville 3500 N. College (501) 973-2660 Bank of Oklahoma, N.A. Oklahoma City Bank of Oklahoma Plaza Robinson at Robert S. Kerr (405) 272-2000 Tulsa Bank of Oklahoma Tower One Williams Center (918) 588-6000 Bank of Texas, N.A. Dallas 5956 Sherry Lane, Suite 1100 (214) 987-8880 Houston 5320 Bellaire Blvd. Bellaire, Texas (713) 661-4444 Leasing Services BOKF Equipment Finance, Inc. Dallas 5956 Sherry Lane, Suite 1100 (214) 987-8864 Shareholder Information Corporate Headquarters Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 (918) 588-6000 Independent Auditors Ernst & Young LLP 3900 One Williams Center Tulsa, Oklahoma 74172 (918) 560-3600 Legal Counsel Frederic Dorwart Lawyers Old City Hall 124 E. Fourth St. Tulsa, Oklahoma 74103-5010 (918) 583-9922 Common Shares: Traded NASDAQ National Market NASDAQ Symbol: BOKF Number of common shareholders of record at December 31, 2000: 1,152 Market Makers: CIBC World Markets Corp. Herzog, Heine, Geduld, Inc. Howe Barnes Investments Keefe Bruyette & Woods Knight Securities LP Salomon Smith Barney Schwab Capital Markets Sherwood Securities Southwest Securities, Inc. Spear, Leeds & Kellogg Stephens, Inc. Transfer Agent and Registrar The Bank of New York (800) 524-4458 Address Shareholders Inquiries to: Shareholder Relations Department-11E P.O. Box 11258 Church Street Station New York, NY 10286 E-Mail Address: Shareowner-svcs@email.bony.com Send Certificates for Transfer and Address Changes to: Receive and Deliver Department - 11W P.O. Box 11002 Church Street Station New York, NY 10286 Copies of BOK Financial Corporation's Annual Report to Shareholders, Quarterly Reports and Form 10-K to the Securities and Exchange Commission are available without charge upon written request. Analysts, shareholders and other investors seeking financial information about BOK Financial Corporation are invited to contact James F. Ulrich, Senior Vice President, Investor Relations, (918) 588-6752. Information about BOK Financial is also readily available at our website: www.bokf.com BOK Financial Corporation Appendix A Graph I Description Percentage Composition ------------------------------------------------ ------------- Service charges and fees on deposit accounts 22% ------------------------------------------------ ------------- Mortgage banking 19% ------------------------------------------------ ------------- Trust fees and commissions 20% ------------------------------------------------ ------------- Transaction card 20% ------------------------------------------------ ------------- Other 11% ------------------------------------------------ ------------- Brokerage and trading 8% ------------------------------------------------ ------------