-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JGeUG5f/ho2PqKffryg6+beZJBQU5JYBxKGZffHkDHPujXfeSYfTs2FDCfoxGi21 YTHGJsEqy9fXjDk2TBIICA== 0000875357-03-000013.txt : 20030515 0000875357-03-000013.hdr.sgml : 20030515 20030515162751 ACCESSION NUMBER: 0000875357-03-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOK FINANCIAL CORP ET AL CENTRAL INDEX KEY: 0000875357 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 731373454 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19341 FILM NUMBER: 03705017 BUSINESS ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: PO BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 BUSINESS PHONE: 9185953025 MAIL ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: P O BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 10-Q 1 quarterly.txt MARCH 31, 2003 QUARTERLY REPORT ON FORM 10-Q As filed with the Securities and Exchange Commission on May 15, 2003 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2003 Commission File No. 0-19341 BOK FINANCIAL CORPORATION Incorporated in the State of Oklahoma I.R.S. Employer Identification No. 73-1373454 Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Registrant's Telephone Number, Including Area Code (918) 588-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (NONE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK ($.00006 Par Value) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 55,262,679 shares of common stock ($.00006 par value) as of April 30, 2003. - -------------------------------------------------------------------------------- BOK Financial Corporation Form 10-Q Quarter Ended March 31, 2003 Index Part I. Financial Information Management's Discussion and Analysis 2 Report of Management on Consolidated Financial Statements 19 Consolidated Statements of Earnings (Unaudited) 20 Consolidated Balance Sheets (Unaudited) 21 Consolidated Statements of Changes in Shareholders' Equity (Unaudited) 22 Consolidated Statements of Cash Flows (Unaudited) 23 Notes to Consolidated Financial Statements (Unaudited) 24 Quarterly Financial Summary (Unaudited) 29 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 31 Signatures 31 CFO Certification 32 CEO Certification 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial Corporation ("BOK Financial") recorded net income of $44.2 million or $0.71 per diluted common share for the first quarter of 2003 compared to $32.9 million and $0.55 per diluted common share for the first quarter of 2002. The annualized returns on average assets and equity were 1.45% and 16.06% for the quarter ended March 31, 2003 compared to returns on average assets and equity of 1.24% and 15.66% for the same period of 2002. On April 29, 2003, BOK Financial announced a 3% stock dividend payable on or about May 30, 2003 to shareholders of record on May 12, 2003. Earnings per share have not been restated for this dividend, see Note 4. Fees and commissions increased $13.5 million or 23% over the same period of 2002 due to increases in service charges and fees on deposit accounts, mortgage banking revenue, transaction card revenue and brokerage and trading revenue. Net gains on sales of securities, including gains on sales of securities used as an economic hedge of the mortgage-servicing portfolio, were $9.7 million at March 31, 2003 compared to net losses of $7.6 million during the same period of 2002. Operating expenses increased $15.8 million or 19% primarily due to a $9.3 million increase in personnel expense and a $6.1 million increase in mortgage banking costs. NET INTEREST REVENUE Tax-equivalent net interest revenue totaled $96.9 million for the first quarter of 2003 compared to $92.8 million for the same period of 2002. The increase in net interest revenue was due to a $1.5 billion increase in average earning assets and a $871 million increase in interest-bearing liabilities offset by a decline in net interest margin of 29 basis points to 3.57% at March 31, 2003. The growth in average earning assets included a $670 million increase in securities and a $770 million increase in net loans. The increase in average interest-bearing liabilities was due to growth in average interest-bearing deposits of $1.1 billion, in transaction and time deposits, and was offset by a reduction in other borrowings of $241 million. Table 1 reflects the effect on net interest revenue of changes in average balances and interest rates for the various types of earning assets and interest-bearing liabilities. Yields on average earning assets and rates paid on average interest-bearing liabilities both continued to decline during the first quarter of 2003 as compared to the same period of 2002. The net interest margin, the ratio of tax-equivalent net interest revenue to average earning assets, declined to 3.57% from 3.86% at March 31, 2002. Net interest revenue has stabilized from the fourth quarter of 2002's rate of 3.55%. As compared to the fourth quarter 2002, yields on interest-earning assets declined 10 basis points but were offset by declines in yields on interest-bearing liabilities of 16 basis points. The effects of the declining interest rates on yields and rates paid during the first quarter of 2003 are reflected in the Quarterly Financial Summary. - ------------------------------------------------------------------------------ Table 1 - Volume / Rate Analysis (In thousands) Three months ended March 31, 2003/2002 ----------------------------------- Change Due To (1) ------------------------ Yield Change Volume /Rate ----------------------------------- Tax-equivalent interest revenue: Securities $ $ 5,825 $ (9,558) (3,733) Trading securities (88) (57) (31) Loans 1,694 11,261 (9,567) Funds sold 56 78 (22) - ------------------------------------------------------------------------------ Total (2,071) 17,107 (19,178) - ------------------------------------------------------------------------------ Interest expense: Interest bearing transaction deposits (1,125) 1,987 (3,112) Savings deposits (175) 21 (196) Time deposits 276 3,961 (3,685) Federal funds purchased and repurchase agreements (2,892) (543) (2,349) Other borrowings (2,004) (326) (1,678) Subordinated debentures (302) (466) 164 - ------------------------------------------------------------------------------ Total (6,222) 4,634 (10,856) - ------------------------------------------------------------------------------ Tax-equivalent net interest revenue 4,151 12,473 (8,322) Decrease in tax-equivalent adjustment 293 - ------------------------------------------------------------------------------ Net interest revenue $ 4,444 - ------------------------------------------------------------------------------ (1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis. Since inception, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth in order to fund increased investments in securities. The primary objective of this strategy is to reduce total interest rate risk. The interest rate on these borrowed funds, which generally reacts quickly to changes in market interest rates, tends to match the effect of changes in interest rates on the loan portfolio. Interest rates earned on the securities purchased with the proceeds of these borrowed funds are affected less quickly by changes in market interest rates. The timing of changes in interest rates earned on securities more closely matches the timing of changes in interest rates paid on deposit accounts. Although this strategy may result in a net interest margin that falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. Management estimates that for the first quarter of 2003, this strategy enhanced net interest revenue $13.6 million, compared to $17.8 million for the first quarter of 2002. Excluding this strategy, net interest margin for the first quarter of 2003 was 3.62% compared to 3.84% for the first quarter of 2002. Average securities purchased and funds borrowed under this strategy were $1.9 billion during the first quarter of 2003 and $2.0 billion during the same period 2002. As more fully discussed in the subsequent Market Risk Section, management employs various techniques to manage, within established parameters, the interest rate and liquidity risk inherent in this strategy. The effectiveness of these strategies is reflected in the overall changes in net interest revenue due to changes in interest rates, as shown in Table 1. OTHER OPERATING REVENUE Other operating revenue increased $30.2 million or 58% for the first quarter 2003 compared to the same period of 2002. Fees and commissions increased $13.5 million or 23%. Fees and commissions continue to represent a significant portion of BOK Financial's total revenue at 43%, excluding gains and losses on securities and derivatives, for the quarter ended March 31, 2003. Service charges and fees on deposit accounts increased $5.1 million or 37% due mostly to an overdraft privilege product initiated in the second quarter of 2002. Mortgage banking revenues increased $4.9 million or 46%. See discussion of mortgage banking in the lines of business section of this report for further discussion. Brokerage and trading revenue increased $2.6 million due to increased sales of fixed income securities to institutional customers. Transaction card revenue increased $1.1 million or 9% due to increases in merchant fees and check card revenue. Trust fees remained relatively flat despite growth in customers due to declines in the asset values on which many fees are based. BOK Financial realized net gains on sales of securities of $9.7 million during the quarter ended March 31, 2003 compared to a net loss of $7.6 million during the same period of 2002. These amounts included net gains from sales of securities designated as economic hedges of the mortgage-servicing portfolio of $3.2 million during the first quarter 2003 compared to net losses of $19.9 million during the same period 2002. Net gains in general securities portfolio were $6.5 million for the quarter ended March 31, 2003 compared to $12.3 million for the same period of 2002. Management's strategy during 2002 and the first quarter of 2003 was to sell securities that had limited potential for further appreciation and to replace them with securities with less prepayment risk. Net gain (loss) on derivatives primarily represented the mark to market of the derivative portfolio used for interest rate risk management. Additional discussion regarding the mortgage servicing rights and related hedge portfolio and BOK Financial's use of derivative instruments is located in the Market Risk section of this report. - -------------------------------------------------------------------------------------------------------------------------- TABLE 2 - OTHER OPERATING REVENUE (In thousands) Three Months Ended ------------------------------------------------------------------------------- March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 ------------------------------------------------------------------------------- Brokerage and trading revenue $ 8,679 $ 6,725 $ 5,359 $ 6,299 $ 6,067 Transaction card revenue 13,599 13,973 13,654 13,439 12,486 Trust fees and commissions 10,180 9,813 9,605 10,300 10,374 Service charges and fees on deposit accounts 18,984 18,991 18,395 16,391 13,855 Mortgage banking revenue, net 15,535 14,943 12,556 10,759 10,652 Leasing revenue 859 826 790 822 892 Other revenue 5,001 4,431 5,105 5,698 5,042 - -------------------------------------------------------------------------------------------------------------------------- Total fees and commissions 72,837 69,702 65,464 63,708 59,368 - -------------------------------------------------------------------------------------------------------------------------- Gain on sale of assets 730 30 444 7 676 Gain (loss) on sales of securities, net 9,689 10,342 34,341 21,602 (7,581) Gain (loss) on derivatives, net (1,102) 665 7,218 (1,453) (536) - -------------------------------------------------------------------------------------------------------------------------- Total other operating revenue $ 82,154 $ 80,739 $ 107,467 $ 83,864 $ 51,927 - --------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSE Other operating expense for the quarter ending March 31, 2003 increased $15.8 million or 19% compared to the same period of 2002. Mortgage banking costs increased $6.1 million or 73% over the same period of 2002 due to increased amortization of mortgage servicing rights. A recovery of impairment on mortgage servicing rights was also recognized due to current market conditions. These market conditions and impact of prepayment speeds on the mortgage banking business are more thoroughly discussed in the Lines of Business - Mortgage Banking section of this report. Excluding the increases in amortization of mortgage servicing rights and the recovery of impairment on mortgage servicing rights, other operating expense increased $11.8 million or 14%. Personnel expense increased $9.3 million or 21% for the first quarter of 2003 compared to the same quarter of 2002. Salaries and benefits rose $5.8 million during this period due to a $3.3 million increase in salaries and a $2.5 million increase in benefits. Average compensation per full-time equivalent employee ("FTE") rose 8%. Benefits per FTE rose 33% due to increases in the cost of insurance benefits and pension costs. Bonuses and incentive compensation, which can be directly tied to growth in revenue, accounted for $3.5 million of the increase in personnel expense. Data processing and communication expense increased $2.2 million or 21%. Data processing costs increased $827 thousand due to transaction card processing and $924 thousand due to expenses related to the current project to upgrade BOK Financial's core processing system. Total expenses related to the upgrade of the core processing system in the first quarter of 2003 were $1.0 million at March 31, 2003. - ---------------------------------------------------------------------------------------------------------------------- TABLE 3 - OTHER OPERATING EXPENSE (In thousands) Three Months Ended ---------------------------------------------------------------------------------- March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 ---------------------------------------------------------------------------------- Personnel expense $ 52,632 $ 50,134 $ 44,963 $ 44,885 $ 43,332 Business promotion 3,471 2,798 2,483 3,208 2,878 Professional fees and services 3,765 3,531 2,816 3,732 2,908 Net occupancy and equipment 11,061 11,130 10,578 10,299 10,340 Data processing & communications 12,643 13,459 12,138 11,216 10,438 FDIC and other insurance 516 513 468 483 439 Printing, postage and supplies 3,359 3,418 3,172 3,018 3,057 Net gains and operating expenses on repossessed assets 8 203 108 656 47 Amortization of intangible assets 1,777 2,002 1,867 1,882 1,887 Mortgage banking costs 14,442 14,488 11,635 7,791 8,357 Provision (recovery) for impairment of mortgage servicing rights (7,830) (1,615) 29,042 23,774 (5,278) Other expense 3,082 4,932 4,425 2,854 4,746 - --------------------------------------------------------------------------------------------------------------------- Total $ 98,926 $ 104,993 $ 123,695 $ 113,798 $ 83,151 - ---------------------------------------------------------------------------------------------------------------------
LINES OF BUSINESS BOK Financial operates four principal lines of business under its Bank of Oklahoma ("BOk") franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth principal line of business, regional banks, which includes all banking functions for Bank of Albuquerque, N.A., Bank of Arkansas, N.A., and Bank of Texas, N.A. Other non-reportable lines of business include the TransFund ATM network and BOSC, Inc., a securities broker/dealer. In addition to its lines of business, BOK Financial has a funds management unit. The primary purpose of this unit is to manage the overall liquidity needs and interest rate risk of the company. Each line of business borrows funds from and provides funds to the funds management unit as needed to support their operations. BOK Financial allocates resources and evaluates performance of its lines of business after allocation of funds, certain indirect expenses, taxes and capital costs. The cost of funds borrowed from the funds management unit by the operating lines of business is transfer priced at rates that approximate market for funds with similar duration. Market is generally based on the applicable LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of transfer-pricing funds that support assets of the operating lines of business tends to insulate them from interest rate risk. The value of funds provided by the operating lines of business to the funds management unit is based on applicable Federal Home Loan Bank advance rates. Deposit accounts with indeterminate maturities, such as demand deposit accounts and interest-bearing transaction accounts, are transfer-priced at a rolling average based on expected duration of the accounts. The expected duration ranges from 90 days for certain rate-sensitive deposits to five years. Over the past year, the average transfer-pricing rate for these deposit accounts decreased by approximately 60 basis points. Since many of these deposit accounts are either noninterest bearing accounts or interest-bearing accounts whose rates cannot be readily reset lower due to market constraints, the decline in the transfer-pricing rates shifted net interest revenue from providers of funds, primarily consumer banking and trust services, to the funds management unit. CORPORATE BANKING The Corporate Banking Division provides loan and lease financing and treasury and cash management services to businesses throughout Oklahoma and surrounding states. BOk's Corporate Banking Division includes the Denver loan production office. In addition to serving the banking needs of small businesses, middle market and larger customers, the Corporate Banking Division has specialized groups that serve customers in the energy, agriculture, healthcare and banking/finance industries. The Corporate Banking Division contributed $12.1 million or 27% to consolidated net income for the first quarter of 2003. This compares to $11.6 million or 35% of consolidated net income for the first quarter of 2002. The decrease in net interest revenue from external sources was due to the diminishing market rates on loans which was offset by a decline in net interest expense from internal sources. Net interest revenue from internal sources decreased due to lower transfer-pricing rates, as discussed above. Operating expenses increased to $15.2 million for the first quarter of 2003 from $14.0 million for the same period of the prior year mostly due to an increase in transaction processing costs. The provision for loan loss represents net loans charged off or recovered for the Corporate Banking Division. Average assets increased $500 million or 13% for the first quarter of 2003 from the same period of the prior year due primarily to loan growth of $290 million. TABLE 4 - CORPORATE BANKING (In thousands) Three months ended March 31, -------------------------------- 2003 2002 ------------- -- -------------- NIR (expense) from external sources $ 37,981 $ 38,636 NIR (expense) from internal sources (8,638) (12,206) ------------- -------------- Total net interest revenue 29,343 26,430 Other operating revenue 8,566 8,231 Operating expense 15,222 13,967 Provision for loan loss 3,034 2,214 Net income 12,128 11,574 Average assets $ 4,430,692 $ 3,930,867 Average equity 481,632 444,483 Return on assets 1.11% 1.19% Return on equity 10.21% 10.56% Efficiency ratio 40.15% 40.30% CONSUMER BANKING The Consumer Banking Division provides a full line of deposit, loan and fee-based services to customers throughout Oklahoma through four major distribution channels: traditional branches, supermarket branches, the 24-hour ExpressBank call center and the Internet. Additionally, the division is a significant referral source for the Bank of Oklahoma Mortgage Division ("BOk Mortgage") and BOSC's retail brokerage division. The Consumer Banking Division contributed $1.9 million or 4% to consolidated net income for the first quarter of 2003. This compares to $1.5 million or 5% of consolidated net income for the first quarter of 2002. Revenue from internal sources, primarily funds provided to other business lines, decreased $1.1 million due to lower transfer-pricing rates. Other operating revenue increased $3.2 million, or 41%, over the first quarter of 2002 due primarily to increases in service charges from an overdraft privilege product initiated during the second quarter of 2002. The provision for loan losses, which represents actual net loans charged off, increased $321 thousand in the first quarter of 2003 as compared to the same period of 2002 due primarily to the overdraft privilege product. TABLE 5 - CONSUMER BANKING (In thousands) Three months ended March 31, -------------------------------- 2003 2002 ------------- -- -------------- NIR (expense) from external sources $ (4,457) $ (4,084) NIR (expense) from internal sources 14,518 15,609 ------------- -------------- Total net interest revenue 10,061 11,525 Other operating revenue 11,115 7,874 Operating expense 16,007 15,449 Provision for loan loss 2,045 1,440 Net income 1,910 1,534 Average assets $ 2,447,169 $ 2,264,618 Average equity 75,069 72,130 Return on assets 0.32% 0.27% Return on equity 10.32% 8.63% Efficiency ratio 75.59% 79.64% MORTGAGE BANKING BOK Financial engages in mortgage banking activities through the BOk Mortgage Division of Bank of Oklahoma. These activities include the origination, marketing and servicing of conventional and government-sponsored mortgage loans. BOK Mortgage contributed $9.3 million or 21% to consolidated net income in the first quarter of 2003 compared to a loss of $6.3 million in the first quarter of 2002. BOK Mortgage is comprised of two sectors, loan production and loan servicing. The loan production sector generally performs best when mortgage interest rates are low and loan origination volumes are high. Conversely, the loan servicing sector generally performs best when mortgage interest rates are relatively high and prepayments are low. The historically low mortgage interest rate environment that continued throughout the first quarter of 2003 produced net profits for the loan production sector. The loan servicing sector also produced a profit for the first quarter of 2003 due primarily to hedging activities. LOAN PRODUCTION SECTOR Revenue from loan production was $12.3 million in the first quarter of 2003, including $5.5 million of capitalized mortgage servicing rights, compared to revenue from loan production of $4.7 million in the first quarter of 2002, including $4.0 million of capitalized mortgage servicing rights. The increase in revenue was due to increased volume of loans originated and an improved market for loan sales. Mortgage loans funded totaled $378 million in the first quarter of 2003, including $97 million for home purchases and $281 million of refinanced loans. Mortgage loans funded in the first quarter of 2002 totaled $245 million. Approximately 66% of the loans funded in the first quarter of 2003 were in Oklahoma. The combination of increased volume and improved market conditions increased pre-tax income from loan production to $10.8 million in 2003 compared to $3.1 million in 2002. The pipeline of mortgage loan applications totaled $451 million at March 31, 2003, an increase of 39% since year end. LOAN SERVICING SECTOR The loan servicing sector had pre-tax income of $4.6 million for the first quarter of 2003 compared to a pre-tax loss of $13.3 million for the same period of 2002. The increase in pre-tax income was due primarily to improved hedging performance. BOK Financial realized net gains on sales of securities held as an economic hedge of its mortgage servicing rights of $3.2 million in the first quarter of 2003. This is compared to net losses of $19.9 million realized in the first quarter of 2002. Excluding hedge performance, the loan servicing sector incurred a $1.1 million pre-tax loss in the first quarter of 2003 compared to pre-tax income of $4.0 million in 2002. Amortization expense, which is based on both actual and anticipated loan prepayments, increased to $14.2 million in 2003 compared to $6.6 million in 2002. This increase in amortization expense was partially offset by reductions in the valuation allowance for impairment of mortgage servicing rights of $7.8 million in 2003 and $5.3 million in 2002. Servicing revenue totaled $6.1 million in 2003 compared to $7.0 million in 2002. The decrease in servicing revenue was due primarily to a lower outstanding principal balance of loans serviced. The average outstanding balance of loans serviced was $5.6 billion for the first quarter of 2003 compared to $6.5 billion for the first quarter of 2002. The decrease in loans serviced reflected both the rapid refinancing of mortgage loans and BOK Mortgage's decision to curtail purchases of mortgage loan servicing. The valuation allowance for impairment of mortgage servicing rights totaled $47 million at March 31, 2003 compared to $13 million at March 31, 2002. BOK Financial provides a valuation allowance to reduce the carrying value of its servicing rights to the lower of fair value or amortized cost segregated by impairment strata. Impairment strata are determined by interest rate bands and by loan types, either conventional or government-backed. The fair value of servicing rights is based on estimated revenues that will be generated over the servicing period, less estimated costs to service the loans. The valuation allowance may be reversed, in part or in whole, if the fair value of servicing rights in a particular impairment strata increase or if the amortized cost of servicing rights in a particular strata decrease. Fair value may increase if anticipated loan prepayment speeds decrease. Amortized cost of a particular impairment stratum will decrease through amortization. BOK Financial designates a portion of its securities portfolio as an economic hedge against the risk of loss on its mortgage servicing rights. Mortgage-backed securities and U.S. government agency debentures are acquired and held as available for sale when prepayment risks exceed certain levels. The fair value of these securities is expected to vary inversely to the fair value of the servicing rights. See the Market Risk section of this report for additional discussion of the prepayment risk of the mortgage servicing portfolio and related hedging strategies. TABLE 6 - MORTGAGE BANKING (In thousands) Three months ended March 31, -------------------------------- 2003 2002 ------------- -- -------------- NIR (expense) from external sources $ 7,689 $ 8,945 NIR (expense) from internal sources (2,798) (4,239) ------------- -------------- Total net interest revenue 4,891 4,706 Capitalized mortgage servicing rights 5,521 4,033 Other operating revenue 12,798 7,675 Operating expense 18,833 12,004 Provision (recovery) for impairment of mortgage servicing rights (7,830) (5,278) Gains (losses) on sales of financial 3,193 (19,922) instruments Net income (loss) 9,306 (6,292) Average assets $ 656,632 $ 711,053 Average equity 69,972 48,191 Return on assets 5.75% (3.59)% Return on equity 53.94% (52.95)% Efficiency ratio 81.14% 73.13% TRUST SERVICES BOK Financial provides a wide range of trust and private financial services, including institutional, investment and retirement products, loans and other services to affluent individuals, businesses, not-for-profit organizations, and governmental agencies. Trust services are primarily provided to clients in Oklahoma, Texas, Arkansas and New Mexico. Additionally, Trust Services include a nationally competitive, self-directed 401-(k) program with clients in Dallas, Chicago, New York and Los Angeles. At March 31, 2003 and 2002, trust assets with an aggregate market value of $17.1 billion and $18.2 billion, respectively, were subject to various fiduciary arrangements. The $1.1 billion decline in trust assets has been due to the significant declines in the equities markets. These declines in the market value of trust assets have been offset somewhat by new business. BOK Financial has sole or joint discretionary authority over $7.7 billion of trust assets at March 31, 2003 compared to $9.6 billion of trust assets at March 31, 2002. Trust Services contributed $1.4 million or 3% to consolidated net income for the first quarter 2003. This compared to $1.7 million or 5% of consolidated net income for the first quarter of 2002. Average assets increased $111 million or 22% for the first quarter of 2003 from the same period of the prior year. The growth in assets is largely attributable to an increase in funds provided by the personal financial services units of Trust Services. Interest-bearing transaction deposits have increased as customers respond to the equities market downturn. TABLE 7 - TRUST SERVICES (In thousands) Three months ended March 31, -------------------------------- 2003 2002 ------------- -- -------------- NIR (expense) from external sources $ 192 $ 473 NIR (expense) from internal sources 2,314 1,874 ------------- -------------- Total net interest revenue 2,506 2,347 Other operating revenue 10,081 10,360 Operating expense 10,266 9,813 Net income 1,398 1,737 Average assets $ 610,163 $ 499,222 Average equity 45,527 43,955 Return on assets 0.93% 1.41% Return on equity 12.45% 16.03% Efficiency ratio 81.56% 77.23% REGIONAL BANKING Regional banks include Bank of Texas, Bank of Albuquerque, and Bank of Arkansas. Each of these banks provides a full range of corporate and consumer banking services in their respective markets. Small businesses and middle-market corporations are the regional banks' primary customer focus. Regional banks contributed $9.2 million or 21% to consolidated net income for the first quarter of 2003. This compares to $7.8 million or 24% of consolidated net income for the first quarter of 2002. Net interest revenue from external customers increased $3.6 million or 10% in the first quarter of 2003 from the same period of the prior year due to growth in average earning assets, offset by declines in yields. Net interest expense from internal sources decreased $1.9 million or 30% due to lower transfer-pricing rates, as described above. Other operating revenue increased $2.4 million or 45% in the first quarter of 2003 from the same period of the prior year due primarily to service charges on deposit accounts, including an overdraft privilege product initiated in the second quarter of 2002. Operating expenses increased $5.0 million or 23% in the first quarter of 2003 from the first quarter of 2002. Personnel costs accounted for approximately $3.0 million of this increase due to increases in the number of employees, overall increases in salary and benefits expense per employee, and incentive bonuses directly related to revenue growth. BOK Financial's operations in Texas, New Mexico and Arkansas contributed $6.2 million, $2.7 million, and $341 thousand, respectively, to consolidated net income for the first quarter of 2003. This compared to $5.8 million, $1.6 million, and $455 thousand, respectively, for the first quarter 2002. Average assets increased $793 million or 21% for the first quarter of 2003 from the same period of the prior year due to the acquisition of $252 million of Bank of Tanglewood assets in the fourth quarter of 2002 and due to growth at Bank of Texas and Bank of Albuquerque of approximately $300 million and $215 million, respectively. Average equity assigned to regional banks included both an amount based on management's assessment of risk and an additional amount based on BOK Financial's investment in these entities. Management measures performance for regional banks based on tangible net income, return on assets and return on equity. Tangible net income is defined as net income excluding the after-tax effect of core deposit intangible asset amortization. Table 8 - Regional Banking (In thousands) Three months ended March 31, -------------------------------- 2003 2002 ------------- -- -------------- NIR (expense) from external sources $ 39,010 $ 35,437 NIR (expense) from internal sources (4,438) (6,317) ------------- -------------- Total net interest revenue 34,572 29,120 Other operating revenue 7,845 5,407 Operating expense 26,889 21,852 Provision for loan loss 1,403 1,116 Gains (losses) on sales of financial 339 827 instruments Net income 9,159 7,833 Tangible net income 10,677 9,606 Average assets $ 4,487,196 $ 3,693,984 Average equity 536,818 432,662 Tangible return on assets 0.97% 1.05% Tangible return on equity 8.07% 9.00% Efficiency ratio 63.39% 63.29% DISCUSSION AND ANALYSIS OF OPERATIONS LOANS The aggregate loan portfolio at March 31, 2003 totaled $7.0 billion compared to $6.9 billion at December 31, 2002. Commercial loans increased $23 million and commercial real estate loans increased $26 million during the quarter. - --------------------------------------------------------------------------------------------------------------------- Table 9 - Loans (In thousands) March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 --------------------------------------------------------------------------------- Commercial: Energy $ 1,147,875 $ 1,132,178 $ 1,006,151 $ 936,381 $ 970,234 Manufacturing 523,055 501,506 507,798 513,019 499,870 Wholesale/retail 626,362 627,422 671,127 655,081 613,612 Agriculture 163,823 186,976 154,221 134,612 156,334 Services 1,254,894 1,249,622 1,166,193 1,118,239 1,075,852 Other commercial and industrial 297,226 292,094 286,972 300,239 339,355 - --------------------------------------------------------------------------------------------------------------------- Total commercial 4,013,235 3,989,798 3,792,462 3,657,571 3,655,257 - --------------------------------------------------------------------------------------------------------------------- Commercial real estate: Construction and land development 371,680 356,227 331,073 320,730 329,335 Multifamily 306,409 307,119 309,173 297,576 301,402 Other real estate loans 783,674 772,492 767,083 744,391 739,646 - --------------------------------------------------------------------------------------------------------------------- Total commercial real estate 1,461,763 1,435,838 1,407,329 1,362,697 1,370,383 - --------------------------------------------------------------------------------------------------------------------- Residential mortgage: Secured by 1-4 family residential properties 951,415 929,759 849,254 795,834 726,228 Residential mortgages held for 146,092 133,421 136,330 82,714 89,439 sale - --------------------------------------------------------------------------------------------------------------------- Total residential mortgage 1,097,507 1,063,180 985,584 878,548 815,667 - --------------------------------------------------------------------------------------------------------------------- Consumer 403,984 412,167 409,779 414,571 407,909 - --------------------------------------------------------------------------------------------------------------------- Total $ 6,976,489 $ 6,900,983 $ 6,595,154 $ 6,313,387 $ 6,249,216 - ---------------------------------------------------------------------------------------------------------------------
Outstanding loans to energy customers totaled $1.1 billion or 16% of total loans at March 31, 2003. Approximately $939 million of the energy loan portfolio was to oil and gas producers. The amount of credit available to these customers generally depends on the value of their proven energy reserves based on current prices. The energy loan category also included loans to borrowers involved in the transportation of oil and gas and loans to borrowers that manufacture equipment and provide other services to the energy industry. Outstanding loans to the services industry totaled $1.3 billion at March 31, 2003. Services included loans that totaled $233 million to nursing homes, $109 million to the healthcare industry and $65 million to the hotel industry. Agriculture included $148 million of loans to the cattle industry. Other notable loan concentrations by primary industry of the borrowers are presented in Table 9. Commercial real estate loans totaled $1.5 billion at March 31, 2003 or 21% of the total loan portfolio. This represented a $26 million or 2% increase during the quarter. Construction and land development loans increased $15 million. Construction and land development loans included $297 million for single-family residential lots and premises, an increase of $10 million during the quarter. The major components of other commercial real estate loans were office buildings - - $288 million and retail facilities - $221 million. Residential mortgage loans, excluding loans held for sale, included $320 million of home equity loans, $256 million of loans held for business relationship, $240 million of adjustable rate mortgage loans and $117 million of loans held for community development. Consumer loans included $178 million of indirect automobile loans. Substantially all of these loans were purchased from dealers in Oklahoma. Approximately 21% of the indirect automobile loan portfolio was considered sub-prime. While BOK Financial continued to increase geographic diversification through expansion into Texas and New Mexico, geographic concentration subjects the loan portfolio to the general economic conditions in Oklahoma. Table 10 presents the distribution of the major loan categories among BOK Financial's principal market areas. - --------------------------------------------------------------------------------------------------------------------- Table 10 - Loans by Principal Market Area (In thousands) March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 --------------------------------------------------------------------------------- Oklahoma (1): Commercial $ 2,764,252 $ 2,773,158 $ 2,663,752 $ 2,547,218 $ 2,594,237 Commercial real estate 782,842 763,469 790,638 752,757 743,728 Residential mortgage 679,727 656,391 613,963 559,366 498,890 Residential mortgage held for 146,092 133,421 136,330 82,714 89,439 sale Consumer 299,404 294,404 311,877 314,061 312,505 --------------------------------------------------------------------------------- Total Oklahoma $ 4,672,317 $ 4,620,843 $ 4,516,560 $ 4,256,116 $ 4,238,799 --------------------------------------------------------------------------------- Texas: Commercial $ 889,127 $ 866,905 $ 789,846 $ 773,649 $ 771,167 Commercial real estate 459,605 455,364 391,207 381,068 400,350 Residential mortgage 195,179 192,575 149,983 148,463 138,987 Consumer 91,182 104,353 85,651 88,783 83,985 --------------------------------------------------------------------------------- Total Texas $ 1,635,093 $ 1,619,197 $ 1,416,687 $ 1,391,963 $ 1,394,489 --------------------------------------------------------------------------------- Albuquerque: Commercial $ 298,051 $ 286,622 $ 276,222 $ 270,278 $ 222,960 Commercial real estate 155,240 150,293 141,298 142,829 139,044 Residential mortgage 71,598 76,020 80,298 82,926 83,310 Consumer 11,040 11,399 10,191 9,711 9,245 --------------------------------------------------------------------------------- Total Albuquerque $ 535,929 $ 524,334 $ 508,009 $ 505,744 $ 454,559 --------------------------------------------------------------------------------- Northwest Arkansas: Commercial $ 61,805 $ 63,113 $ 62,642 $ 66,426 $ 66,893 Commercial real estate 64,076 66,712 84,186 86,043 87,260 Residential mortgage 4,911 4,773 5,010 5,079 5,042 Consumer 2,358 2,011 2,060 2,016 2,174 --------------------------------------------------------------------------------- Total Northwest Arkansas $ 133,150 $ 136,609 $ 153,898 $ 159,564 $ 161,369 --------------------------------------------------------------------------------- Total BOK Financial loans $ 6,976,489 $ 6,900,983 $ 6,595,154 $ 6,313,387 $ 6,249,216 --------------------------------------------------------------------------------- (1) Includes Denver loan production office.
OTHER DERIVATIVES WITH CREDIT RISK BOK Financial offers a program that permits its energy-producing customers to hedge against price fluctuations and to take positions through energy option and swap contracts. These contracts are executed between BOk and its customers. Offsetting contracts are executed between BOk and selected energy dealers to minimize the risk of changes in energy prices. The dealer contracts are identical to the customer contracts, except for a fixed pricing spread paid to BOk as compensation for administrative costs, credit risk and profit. The fair value of energy derivative contracts carried as assets totaled $112 million and the fair value of energy contracts carried as liabilities totaled $113 million at March 31, 2003. Approximately 68% of the fair value of asset contracts was with customers of BOK Financial. The remaining 32% was with energy dealers, primarily Bank of Montreal and J.P. Morgan-Chase. Conversely, approximately 69% of the fair value of liability contracts was with energy dealers, primarily Morgan Stanley, Coral Energy and Bank of Montreal. The remaining 31% was due to various customers. Deterioration in the credit standing of one or more counterparties may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contracts. This could occur if the credit standing of a counterparty deteriorated such that either the fair value of the energy production no longer supported the contract or the counterparty's ability to provide margin collateral was impaired. SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $120 million at March 31, 2003 compared to $116 million at December 31, 2002. These amounts represent 1.75% and 1.72%, respectively, of total loans, excluding loans held for sale. Losses on loans held for sale, principally mortgage loans accumulated for placement in security pools, are charged to earnings through adjustments in the carrying value. The reserve for loan losses also represented 236% of nonperforming loans at March 31, 2003 compared to 233% at December 31, 2002. Net loans charged-off during the first quarter totaled $6.3 million, compared to $6.5 million in the fourth quarter of 2002 and $4.9 million in the first quarter of 2002. Table 11 presents statistical information regarding the reserve for loan losses. - ------------------------------------------------------------------------------------------------------------------- Table 11 - Summary of Loan Loss Experience (In thousands) Three Months Ended -------------------------------------------------------------------------------- March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 -------------------------------------------------------------------------------- Beginning balance $ 116,070 $ 111,226 $ 108,084 $ 105,900 $ 101,905 Loans charged-off: Commercial 4,144 3,550 2,873 3,378 3,525 Commercial real estate 5 163 - - 123 Residential mortgage 400 219 88 11 94 Consumer 3,502 3,945 3,164 2,258 2,514 - ------------------------------------------------------------------------------------------------------------------- Total 8,051 7,877 6,125 5,647 6,256 - ------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial 95 441 332 169 334 Commercial real estate 8 15 9 45 49 Residential mortgage 38 2 118 6 20 Consumer 1,627 898 779 777 982 - ------------------------------------------------------------------------------------------------------------------- Total 1,768 1,356 1,238 997 1,385 - ------------------------------------------------------------------------------------------------------------------- Net loans charged off 6,283 6,521 4,887 4,650 4,871 Provision for loan losses 9,912 10,001 8,029 6,834 8,866 Additions due to acquisitions - 1,364 - - - - ------------------------------------------------------------------------------------------------------------------- Ending balance $ 119,699 $ 116,070 $ 111,226 $ 108,084 $ 105,900 - ------------------------------------------------------------------------------------------------------------------- Reserve to loans outstanding at period-end (1) 1.75% 1.72% 1.72% 1.73% 1.72% Net loan losses (annualized) to average loans (1) 0.37 0.39 0.31 0.30 0.32 - ------------------------------------------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale.
Specific reserves for impairment are determined through evaluation of estimated future cash flows and collateral value. At March 31, 2003 specific impairment reserves totaled $2.9 million on total impaired loans of $42 million. Nonspecific reserves are maintained for risks beyond factors specific to an individual loan or those identified through migration analysis. A range of potential losses is determined for each factor identified. At March 31, 2003 the range of potential losses for the more significant factors were: General economic conditions $ 6.5 million - $8.7 million Concentration of large loans $ 1.2 million - $2.4 million Loan portfolio growth $724 thousand - $1.4 million Evaluation of the loan loss reserve requires a significant level of assumptions by management including estimation of future cash flows, collateral values, relevance of historical loss trends to the loan portfolio and assessment of current economic conditions on the borrowers' ability to repay. The required loan loss reserve could be materially affected by changes in these assumptions. The loan loss reserve is adequate to absorb losses inherent in the loan portfolio based upon current conditions and information available to management. However, actual losses may differ significantly due to changing conditions or information that is not currently available. NONPERFORMING ASSETS Information regarding nonperforming assets, which totaled $56 million at March 31, 2003, $57 million at December 31, 2002 and $50 million at March 31, 2002, is presented in Table 12. Nonperforming assets included nonaccrual and renegotiated loans and excluded loans 90 days or more past due but still accruing interest. Nonaccrual loans increased $858 thousand during the first quarter of 2003, including newly identified nonaccruing loans of $6.9 million. This increase was partially offset by nonaccruing loans decreasing $3.7 million from charge-offs and foreclosure and $2.6 million from cash payments received. - --------------------------------------------------------------------------------------------------------------------- Table 12 - Nonperforming Assets (In thousands) March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 ---------------------------------------------------------------------- Nonperforming loans: Nonaccrual loans: Commercial $ 39,576 $ 39,114 $ 41,093 $ 28,803 $ 33,784 Commercial real estate 3,585 3,395 5,788 4,388 3,360 Residential mortgage 6,202 5,950 6,025 4,486 4,182 Consumer 1,350 1,396 556 605 555 - --------------------------------------------------------------------------------------------------------------------- Total nonaccrual loans 50,713 49,855 53,462 38,282 41,881 Renegotiated loans - - - - - - --------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 50,713 49,855 53,462 38,282 41,881 Other nonperforming assets 5,350 6,719 6,427 6,630 7,655 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 56,063 $ 56,574 $ 59,889 $ 44,912 $ 49,536 - --------------------------------------------------------------------------------------------------------------------- Ratios: Reserve for loan losses to nonperforming loans 236.03% 232.82% 208.05% 282.34% 252.86% Nonperforming loans to period-end loans (2) 0.74 0.74 0.83 0.72 0.68 - --------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) (1) $ 7,921 $ 8,117 $ 10,274 $ 12,215 $ 13,023 - --------------------------------------------------------------------------------------------------------------------- (1) Includes residential mortgages guaranteed by agencies of the U.S. Government. $ 5,185 $ 4,956 $ 6,640 $ 6,764 $ 6,314 Excludes residential mortgages guaranteed by agencies of the U.S. Government in foreclosure. 3,853 3,630 4,931 4,853 4,044 (2) Excludes residential mortgage loans held for sale - ---------------------------------------------------------------------------------------------------------------------
The loan review process also identifies loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or value of the collateral. Because the borrowers are still performing in accordance with the original terms of the loan agreements and no loss of principal or interest is anticipated, these loans are not included in nonperforming assets. Known information does, however, cause management to have concerns as to the borrowers' ability to comply with current repayment terms. Potential problem loans totaled $62 million at March 31, 2003 compared to $75 million at December 31, 2002 and $60 million at March 31, 2002. At March 31, 2003 the composition of potential problem loans by primary industry categories included management of recreational properties - $14 million, manufacturing - $11 million, healthcare - $11 million and energy - $9 million. DEPOSITS Total deposits increased 6% to $8.6 billion during the first quarter of 2003. Time deposits increased $279 million or 9% and interest-bearing transaction accounts increased $288 million or 9%. These were partially offset by a $71 million decrease in demand deposit accounts. Average core deposits were 54% of total deposits for the first quarter of 2003 compared to 56% at December 31, 2002 and 58% at March 31, 2002. Core deposits represent all deposits, excluding public funds, broker deposits, sweep accounts and time deposits greater than $100 thousand. Average uninsured deposits represented 38% of total deposits at March 31, 2003, compared to 37% at December 31, 2002 and 29% at March 31, 2002. Uninsured deposits as used in this presentation are based on a simple analysis of account balances and do not reflect combined ownership and other account styling that would determine insurance based on FDIC regulations. The distribution of deposit accounts among BOK Financial's principal markets is shown in Table 13. - --------------------------------------------------------------------------------------------------------------------- TABLE 13 - DEPOSITS BY PRINCIPAL MARKET AREA (In thousands) March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 --------------------------------------------------------------------------------- Oklahoma: Demand $ 1,014,983 $ 1,044,628 $ 951,301 $ 834,240 $ 764,276 Interest-bearing: Transaction 2,099,096 1,897,353 1,762,593 1,689,404 1,696,436 Savings 109,954 103,749 104,864 105,226 107,564 Time 2,572,531 2,334,949 2,263,729 2,212,642 2,193,447 --------------------------------------------------------------------------------- Total interest-bearing 4,781,581 4,336,051 4,131,186 4,007,272 3,997,447 --------------------------------------------------------------------------------- Total Oklahoma $ 5,796,564 $ 5,380,679 $ 5,082,487 $ 4,841,512 $ 4,761,723 --------------------------------------------------------------------------------- Texas: Demand $ 344,228 $ 394,164 $ 320,108 $ 318,334 $ 289,850 Interest-bearing: Transaction 1,023,917 953,550 776,991 749,516 747,917 Savings 36,965 33,071 31,058 30,253 30,456 Time 542,101 510,512 450,387 464,948 429,971 --------------------------------------------------------------------------------- Total interest-bearing 1,602,983 1,497,133 1,258,436 1,244,717 1,208,344 --------------------------------------------------------------------------------- Total Texas $ 1,947,211 $ 1,891,297 $ 1,578,544 $ 1,563,051 $ 1,498,194 --------------------------------------------------------------------------------- Albuquerque: Demand $ 89,464 $ 79,953 $ 77,286 $ 70,892 $ 60,638 Interest-bearing: Transaction 307,411 295,174 264,188 249,771 264,789 Savings 27,036 26,704 27,048 27,215 27,346 Time 296,492 287,607 285,968 280,073 257,611 --------------------------------------------------------------------------------- Total interest-bearing 630,939 609,485 577,204 557,059 549,746 --------------------------------------------------------------------------------- Total Albuquerque $ 720,403 $ 689,438 $ 654,490 $ 627,951 $ 610,384 --------------------------------------------------------------------------------- Northwest Arkansas: Demand $ 11,761 $ 12,949 $ 11,198 $ 12,548 $ 11,560 Interest-bearing: Transaction 21,756 18,025 17,807 15,791 16,598 Savings 1,269 1,214 1,218 1,425 1,410 Time 135,756 134,923 128,233 119,968 117,090 --------------------------------------------------------------------------------- Total interest-bearing 158,781 154,162 147,258 137,184 135,098 --------------------------------------------------------------------------------- Total Northwest Arkansas $ 170,542 $ 167,111 $ 158,456 $ 149,732 $ 146,658 --------------------------------------------------------------------------------- Total BOK Financial deposits $ 8,634,720 $ 8,128,525 $ 7,473,977 $ 7,182,246 $ 7,016,959 ---------------------------------------------------------------------------------
CAPITAL Shareholders' equity increased $43 million during the first quarter of 2003 and totaled $1.1 billion at March 31, 2003. The increase was primarily due to net income for the quarter. BOK Financial and its subsidiary banks are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and additional discretionary actions by regulators that could have a material effect on operations. These capital requirements include quantitative measures of assets, liabilities and certain off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulatory agencies about components, risk weightings and other factors. For a banking institution to qualify as well capitalized, as defined by the banking agencies, its Tier I, Total and Leverage capital ratios must be at least 6%, 10% and 5%, respectively. BOK Financial's capital ratios are presented in Table 14. Additionally, each subsidiary bank exceeds the regulatory definition of well capitalized. - -------------------------------------------------------------------------------------------------------- TABLE 14 - CAPITAL RATIOS March 31, Dec. 31, Sept. 30, June 30, March 31, 2003 2002 2002 2002 2002 ------------------------------------------------------------------------ Average shareholders' equity to average assets 9.02% 8.81% 8.38% 8.01% 7.93% Risk-based capital: Tier 1 capital 9.20 8.98 9.03 8.69 8.49 Total capital 12.11 11.95 12.43 12.11 11.99 Leverage 7.03 6.88 6.99 6.78 6.63
During 2002, BOK Financial issued shares of common stock for its purchase of Bank of Tanglewood. In addition, BOK Financial agreed to a limited price guarantee on a portion of the shares issued in this purchase. Pursuant to this guarantee, any holder of BOK Financial common shares issued in this acquisition may annually make a claim for the excess of the guaranteed price and the actual sales price of any shares sold during a 60-day period after each of the first five anniversary dates after October 25, 2002. The maximum annual number of shares subject to this guarantee is 198,010. BOK Financial may elect, in its sole discretion, to issue additional shares of common stock to satisfy any obligation under the price guarantee or to pay cash. The following table presents the estimated number of common shares that would be required to be issued and the cash value equivalent if the market value of BOK Financial's common stock remained at $32.67, its closing price on March 31, 2003 and if all holders exercised their rights under the price guarantee agreement. Cash Equivalent of Additional Additional Number Shares Shares Benchmark Benchmark Of To (In Period Price Shares Issue Thousands) - ------------------------------------------------------------------------------------------------------------ October 25, 2003 - December 24, 2003 $34.81 198,010 12,948 $ 423 October 25, 2004 - December 24, 2004 37.38 198,010 28,574 933 October 25, 2005 - December 24, 2005 39.96 198,010 44,201 1,444 October 25, 2006 - December 24, 2006 42.54 198,010 59,827 1,955 October 25, 2007 - December 24, 2007 45.12 198,010 75,454 2,465
MARKET RISK Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange prices, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading. BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its assets held for purposes other than trading and trading assets. The effects of other changes, such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. BOK Financial has no material investments in assets that are affected by changes in foreign exchange rates or equity prices. Energy derivative contracts, which are affected by changes in commodity prices, are matched against offsetting contracts as previously discussed. Responsibility for managing market risk rests with the Asset / Liability Committee that operates under policy guidelines established by the Board of Directors. The acceptable negative variation in net interest revenue, net income or economic value of equity due to a specified basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also set maximum levels for short-term borrowings, short-term assets, public funds, and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. INTEREST RATE RISK - OTHER THAN TRADING BOK Financial has a large portion of its earning assets in variable rate loans and a large portion of its liabilities in demand deposit accounts and interest bearing transaction accounts. Changes in interest rates affect earning assets more rapidly than interest bearing liabilities in the short term. Management has adopted several strategies to reduce this interest rate sensitivity. As previously noted in the Net Interest Revenue section of this report, management acquires securities that are funded by borrowings in the capital markets. These securities have an expected average duration of 2.05 years while the related funds borrowed have an average duration of 90 days. Average securities purchased and funds borrowed under this strategy were $1.9 billion during the first quarter of 2003. Additionally, BOK Financial uses interest rate swaps in managing its interest rate sensitivity. These products are generally used to more closely match interest on certain fixed-rate loans with funding sources and long-term certificates of deposit with earning assets. During the first quarters of 2003 and 2002, net interest revenue increased $3.3 million and $3.2 million, respectively, from periodic settlements of these swaps. Additionally, net losses of $1.3 million were recognized in the first quarter of 2003 compared to net losses of $1.0 million in the first quarter of 2002 from adjustments of interest rate swaps to fair value. Credit risk from these swaps is closely monitored Derivative contracts are not used for speculative purposes. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue, net income and economic value of equity. A simulation model is used to estimate the effect of changes in interest rates over the next twelve months based on eight interest rate scenarios. Three specified interest rate scenarios are used to evaluate interest rate risk against policy guidelines. These are a "most likely" rate scenario and two "shock test" scenarios, first assuming a sustained parallel 200 basis point increase and second assuming a sustained parallel 100 basis point decrease in interest rates. Management historically evaluated interest rate sensitivity for a sustained 200 basis point decrease in rates. However, these results are not meaningful in the current low-rate environment. An independent source is used to determine the most likely interest rate scenario. BOK Financial's primary interest rate exposures included the Federal Funds rate, which affects short-term borrowings, and the prime lending rate and the London Interbank Offering Rate, which are the basis for much of the variable-rate loan pricing. Additionally, mortgage rates directly affect the prepayment speeds for mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. The model incorporates assumptions regarding the effects of changes in interest rates and account balances on indeterminable maturity deposits based on a combination of historical analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation model. The effects of changes in interest rates on the value of mortgage servicing rights are excluded from Table 15 due to the extreme volatility over such a large rate range. The effects of interest rate changes on the value of mortgage servicing rights and securities identified as economic hedges are shown in Table 16. TABLE 15 - INTEREST RATE SENSITIVITY (Dollars in Thousands) Increase Decrease -------------------------- --------------------------- ------------------------ 200 bp 100 bp Most Likely -------------------------- --------------------------- ------------------------ 2003 2002 2003 2002 2003 2002 ------------- ------------ ------------ -------------- ------------ ----------- Anticipated impact over the next twelve months: Net interest revenue $ 12,724 $ 10,235 $(8,050) $ (5,921) $ 5,178 $ 6,292 3.1% 2.9% (1.9)% (1.7)% 1.3% 1.8% - ----------------------------------------------------------------------------------------------------------------- Net income $ 7,953 $ 6,397 $ (5,031) $ (3,700) $ 3,237 $ 3,933 4.9% 4.9% (3.1)% (2.9)% 2.0% 3.0% - ----------------------------------------------------------------------------------------------------------------- Economic value of equity $ 20,145 $ 53,607 $(49,972) $(73,385) $46,077 $55,282 1.4% 4.3% (3.5)% (6.3)% 3.2% 4.4% - -----------------------------------------------------------------------------------------------------------------
BOK Financial has market risk associated with its portfolio of mortgage servicing rights, primarily due to loan prepayments. BOK Financial designates a portion of its securities portfolio as an economic hedge against the risk of loss on its mortgage servicing rights. Mortgage-backed and U.S. government agency debentures are acquired and held as available for sale when prepayment risk exceeds certain levels. The fair value of these securities is expected to vary inversely to the fair value of the mortgage servicing rights. This strategy presents certain risks. A well-developed market determines the fair value for securities, however there is no comparable market for mortgage servicing rights. Therefore, the computed change in value of the servicing rights for a specified change in interest rates may not correlate to the change in value of the securities. At March 31, 2003, securities with a fair value of $207 million and an unrealized gain of $1.8 million were held for the economic hedge program. This unrealized gain, net of income taxes, is included in shareholders' equity as part of other comprehensive income. The interest rate sensitivity of the mortgage servicing rights and securities held as a hedge is modeled over a range of +/- 50 basis points. At March 31, 2003, the pre-tax results of this modeling on reported earnings were: TABLE 16 - INTEREST RATE SENSITIVITY - MORTGAGE SERVICING (Dollars in Thousands) 50 bp increase 50 bp decrease Anticipated change in: Mortgage servicing rights $ 16,218 $ (9,789) Hedging securities (2,583) 5,223 -------------------- --------------------- Net $ 13,635 $ (4,566) -------------------- --------------------- The simulations used to manage market risk are based on numerous assumptions regarding the effects of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors. - ----------------------------------------------------------------------------------------------- TABLE 17 - INTEREST RATE SWAPS (In Thousands) Notional Pay Receive Positive Negative Amount Rate Rate Fair Value Fair Value ------------------------------------------------------------------------------------ Expiration: 2004 $ 71,869 1.28%(1) - 4.22% 1.30%(1) - 7.36% $ 3,243 $ (372) 2006 222,585 1.28%(1) - 8.80% 1.30%(1) - 8.80% 3,922 (1,634) 2007 275,000 1.28%(1) 4.09% - 4.51% 7,114 - 2008 30,000 1.28%(1) - 2.74% 1.28%(1) - 2.74% 206 (206) 2009 5,466 1.30%(1) - 4.75% 1.30%(1) - 4.75% 339 (347) 2011 43,723 5.21% - 5.51% 1.30%(1) - (3,537) - ----------------------------------------------------------------------------------------------- $ 14,824 $ (6,096) --------------------------- (1) Rates are variable based on LIBOR and reset monthly, quarterly or semiannually.
TRADING ACTIVITIES BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. BOK Financial will also take trading positions in U.S. Treasury securities, mortgage-backed securities, municipal bonds and financial futures for its own account. These positions are taken with the objective of generating trading profits. Both of these activities involve interest rate risk. A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs. The Risk Management Department monitors trading activity daily and reports to senior management and the Risk Oversight and Audit Committee of the BOK Financial Board of Directors any exceptions to trading position limits and risk management policy exceptions. BOK Financial uses a Value at Risk ("VAR") methodology to measure the market risk inherent in its trading activities. VAR is calculated based upon historical simulations over the past five years using a variance / covariance matrix of interest rate changes. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the nominal aggregate trading positions to $100 million, the VAR to $1.6 million. At March 31, 2003, the nominal aggregate trading positions was $12 million, the VAR was $307 thousand. The greatest value at risk during the first quarter of 2003 was $1.2 million. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about BOK Financial, the financial services industry and the economy in general. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans," "projects," variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and reserve for loan losses involve judgments as to expected events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others that BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to: (1) the ability to fully realize expected cost savings from mergers within the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies, and assessments, (7) the impact of technological advances and (8) trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise. REPORT OF MANAGEMENT ON CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial conditions, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods presented. As of March 31, 2003, an evaluation was performed under the supervision and with the participation of BOK Financial's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of BOK Financial's disclosure controls and procedures. Based on that evaluation, BOK Financial's management, including the CEO and CFO, concluded that BOK Financial's disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in BOK Financial's internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2003. BOK Financial and its subsidiaries maintain a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization, and are recorded as necessary to maintain accountability for assets and to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States. This system includes written policies and procedures, a corporate code of conduct, an internal audit program and standards for the hiring and training of qualified personnel. The Board of Directors of BOK Financial maintains a Risk Oversight and Audit Committee consisting of outside directors that meet periodically with management and BOK Financial's internal and independent auditors. The Committee considers the audit and nonaudit services to be performed by the independent auditors, makes arrangements for the internal and independent audits and recommends BOK Financial's selection of independent auditors. The Committee also reviews the results of the internal and independent audits, critical accounting policies and practices, and various shareholder reports and other reports and filings. The financial information included in this interim report has been prepared by management without audit by independent public accountants and should be read in conjunction with BOK Financial's 2002 Form 10-K filed with the Securities and Exchange Commission which contains audited financial statements. - -------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollars In Thousands, Except Per Share Data) Three Months Ended March 31, ----------------------------- 2003 2002 ----------------------------- Interest Revenue Loans $ 94,476 $ 92,755 Taxable securities 45,134 48,153 Tax-exempt securities 2,136 2,601 - -------------------------------------------------------------------------------------- Total securities 47,270 50,754 - -------------------------------------------------------------------------------------- Trading securities 100 171 Funds sold and resell agreements 106 50 - -------------------------------------------------------------------------------------- Total interest revenue 141,952 143,730 - -------------------------------------------------------------------------------------- Interest Expense Deposits 35,077 36,101 Borrowed funds 8,944 13,840 Subordinated debentures 2,420 2,722 - -------------------------------------------------------------------------------------- Total interest expense 46,441 52,663 - -------------------------------------------------------------------------------------- Net Interest Revenue 95,511 91,067 Provision for Loan Losses 9,912 8,866 - -------------------------------------------------------------------------------------- Net Interest Revenue After Provision for Loan Losses 85,599 82,201 - -------------------------------------------------------------------------------------- Other Operating Revenue Brokerage and trading revenue 8,679 6,067 Transaction card revenue 13,599 12,486 Trust fees and commissions 10,180 10,374 Service charges and fees on deposit accounts 18,984 13,855 Mortgage banking revenue, net 15,535 10,652 Leasing revenue 859 892 Other revenue 5,001 5,042 - -------------------------------------------------------------------------------------- Total fees and commissions 72,837 59,368 - -------------------------------------------------------------------------------------- Gain on sale of assets 730 676 Gain (loss) on sales of securities, net 9,689 (7,581) Loss on derivatives, net (1,102) (536) - -------------------------------------------------------------------------------------- Total other operating revenue 82,154 51,927 - -------------------------------------------------------------------------------------- Other Operating Expense Personnel expense 52,632 43,332 Business promotion 3,471 2,878 Professional fees and services 3,765 2,908 Net occupancy and equipment 11,061 10,340 Data processing and communications 12,643 10,438 FDIC and other insurance 516 439 Printing, postage and supplies 3,359 3,057 Net gains and operating expenses on repossessed assets 8 47 Amortization of intangible assets 1,777 1,887 Mortgage banking costs 14,442 8,357 Recovery for impairment of mortgage servicing rights (7,830) (5,278) Other expense 3,082 4,746 - -------------------------------------------------------------------------------------- Total other operating expense 98,926 83,151 - -------------------------------------------------------------------------------------- Income Before Taxes 68,827 50,977 Federal and state income tax 24,640 18,045 - -------------------------------------------------------------------------------------- Net Income $ 44,187 $ 32,932 - -------------------------------------------------------------------------------------- Earnings Per Share: Net Income Basic $ 0.79 $ 0.62 Diluted $ 0.71 $ 0.55 ....................................................................................... Average Shares Used in Computation: Basic 55,154,698 52,868,907 Diluted 62,567,374 60,122,929 - --------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars In Thousands, Except Per Share Data) March 31, December 31, March 31, 2003 2002 2002 ---------------------------------------------- Assets Cash and due from banks $ 563,674 $ 604,680 $ 394,407 Funds sold and resell agreements 26,642 19,535 6,300 Trading securities 10,658 5,110 22,433 Securities: Available for sale 3,931,517 3,204,973 2,787,635 Available for sale securities pledged to creditors 670,852 728,370 687,356 Investment (fair value: March 31, 2003 - $201,892; December 31, 2002 -$202,153; March 31, 2002 - $228,315) 199,463 197,950 227,058 - ---------------------------------------------------------------------------------------------------------------- Total securities 4,801,832 4,131,293 3,702,049 - ---------------------------------------------------------------------------------------------------------------- Loans 6,976,489 6,900,983 6,249,216 Less reserve for loan losses (119,699) (116,070) (105,900) - ---------------------------------------------------------------------------------------------------------------- Net loans 6,856,790 6,784,913 6,143,316 - ---------------------------------------------------------------------------------------------------------------- Premises and equipment, net 154,943 151,715 139,644 Accrued revenue receivable 61,935 72,018 69,375 Intangible assets, net 196,256 197,868 149,689 Mortgage servicing rights, net 37,526 37,288 102,319 Real estate and other repossessed assets 5,350 6,719 7,655 Bankers' acceptances 33,210 3,728 11,673 Receivable on unsettled security transactions - 65,395 - Derivative contracts 130,158 90,776 42,638 Other assets 83,993 74,007 75,011 - ---------------------------------------------------------------------------------------------------------------- Total assets $12,962,967 $12,245,045 $10,866,509 - ---------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Noninterest-bearing demand deposits $ 1,460,436 $ 1,531,694 $ 1,126,324 Interest-bearing deposits: Transaction 3,452,180 3,164,102 2,725,740 Savings 175,224 164,738 166,776 Time 3,546,880 3,267,991 2,998,119 - ---------------------------------------------------------------------------------------------------------------- Total deposits 8,634,720 8,128,525 7,016,959 - ---------------------------------------------------------------------------------------------------------------- Funds purchased and repurchase agreements 1,465,907 1,567,686 1,280,399 Other borrowings 1,057,550 1,088,022 1,120,769 Subordinated debentures 155,198 155,419 186,081 Accrued interest, taxes and expense 73,200 74,043 62,833 Bankers' acceptances 33,210 3,728 11,673 Due on unsettled security transactions 233,491 - 241,500 Derivative contracts 122,253 80,079 46,823 Other liabilities 50,598 53,986 44,292 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 11,826,127 11,151,488 10,011,329 - ---------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock 25 25 25 Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: March 31, 2003 - 55,886,144; December 31, 2002 - 55,749,596; March 31, 2002 - 51,918,270) 3 3 3 Capital surplus 462,151 459,347 327,008 Retained earnings 652,327 608,515 543,858 Treasury stock (shares at cost: March 31, 2003 - 700,327; December 31, 2002 - 682,967; March 31, 2002 - 576,681) (17,979) (17,421) (13,664) Accumulated other comprehensive income (loss) 40,313 43,088 (2,050) - ---------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,136,840 1,093,557 855,180 - ---------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $12,962,967 $12,245,045 $10,866,509 - ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. - --------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (In Thousands) Accumulated Preferred Stock Common Stock Other Treasury Stock ------------------------------------ Comprehensive Capital Retained -------------------- Shares Amount Shares Amount Income(Loss) Surplus Earnings Shares Amount Total ---------------------------------------------------------------------------------------------------- Balances at December 31, 2001 250,000 $ 25 51,737 $ 3 $ 5,792 $323,860 $511,301 541 $(12,498) $828,483 Net income - - - - - - 32,932 - - 32,932 Other Comprehensive income, net of tax: Unrealized loss on securities available for sale (1) - - - - (7,842) - - - - (7,842) ---------- Comprehensive income 25,090 ---------- Exercise of stock options - - 171 - - 2,706 - 35 (1,166) 1,540 Director retainer shares - - (2) - - 67 - - - 67 Dividends paid in shares of common stock: Preferred stock - - 12 - - 375 (375) - - - - --------------------------------------------------------------------------------------------------------------------------- Balances at March 31, 2002 250,000 $ 25 51,918 $ 3 $ (2,050) $327,008 $543,858 576 $(13,664) $855,180 - --------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 2002 250,000 $ 25 55,750 $ 3 $ 43,088 $459,347 $608,515 683 $(17,421)$1,093,557 Comprehensive income: Net income - - - - - - 44,187 - - 44,187 Other Comprehensive income, net of tax: Unrealized loss on securities available for sale (1) - - - - (2,775) - - - - (2,775) ---------- Comprehensive income 41,412 ---------- Exercise of stock options - - 122 - - 2,361 - 17 (558) 1,803 Director retainer shares - - 2 - - 68 - - - 68 Dividends paid in shares of common stock: Preferred stock - - 12 - - 375 (375) - - - - --------------------------------------------------------------------------------------------------------------------------- Balances at March 31, 2003 250,000 $ 25 55,886 $ 3 $ 40,313 $462,151 $652,327 700 $(17,979)$1,136,840 - --------------------------------------------------------------------------------------------------------------------------- (1) March 31, 2003 March 31, 2002 Change in other comprehensive income: Unrealized gains (losses) on available for sale securities $ 5,367 $ (21,056) Tax (expense) benefit on unrealized gains (losses) on available for sale securities (1,921) 8,317 Reclassification adjustment for (gains) losses realized included in net income (9,689) 7,581 Reclassification adjustment for tax expense (benefit) on realized (gains) losses 3,468 (2,684) -------------------------------------- Net change in unrealized gains (losses) on securities $ (2,775) $ (7,842) --------------------------------------
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Three Months Ended March 31, ---------------------------- 2003 2002 ---------------------------- Cash Flows From Operating Activities: Net income $ 44,187 $ 32,932 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 9,912 8,866 Recovery for mortgage servicing rights (7,830) (5,278) Unrealized losses from derivatives 1,005 536 Depreciation and amortization 9,338 13,829 Net amortization of financial instrument discounts and premiums 2,611 1,755 Net gain on sale of assets (20,785) 2,546 Mortgage loans originated for resale (331,162) (207,756) Proceeds from sale of mortgage loans held for resale 330,300 293,502 Change in trading securities (5,548) (12,106) Change in accrued revenue receivable 10,083 (647) Change in other operating assets (15,999) 13,480 Change in accrued interest, taxes and expense (843) (4,463) Change in other liabilities 26,311 (2,532) - ---------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 51,580 134,664 - ---------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Proceeds from maturities of investment securities 6,646 13,994 Proceeds from maturities of available for sale securities 392,756 526,946 Purchases of investment securities (8,215) - Purchases of available for sale securities (2,198,059) (3,025,150) Proceeds from sales of available for sale securities 1,138,490 2,450,262 Loans originated or acquired net of principal collected (128,254) (94,198) Purchases of derivative asset contracts (14,385) (338) Net change in other investment assets 953 (313) Proceeds from disposition of assets 70,612 54,251 Purchases of assets (13,820) (7,867) - ---------------------------------------------------------------------------------------------------------- Net cash used by investing activities (753,276) (82,413) - ---------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net change in demand deposits, transaction deposits, money market deposits, and savings accounts 227,306 (65,798) Net change in certificates of deposit 279,079 177,238 Net change in other borrowings (132,251) (421,769) Proceeds from derivative liability contracts 15,337 - Net change in derivative margin accounts (22,431) - Change in amount due on unsettled security transactions 298,886 9,840 Issuance of preferred, common and treasury stock, net 1,871 1,607 - ---------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 667,797 (298,882) - ---------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (33,899) (246,631) Cash and cash equivalents at beginning of period 624,215 647,338 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 590,316 $ 400,707 - ---------------------------------------------------------------------------------------------------------- Cash paid for interest $ 47,933 $ 57,575 - ---------------------------------------------------------------------------------------------------------- Cash paid for taxes $ 8,798 $ 3,858 - ---------------------------------------------------------------------------------------------------------- Net loans transferred to repossessed real estate and other assets $ 356 $ 1,248 - ---------------------------------------------------------------------------------------------------------- Payment of dividends in common stock $ 375 $ 375 - ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ACCOUNTING POLICIES BASIS OF PRESENTATION The Consolidated Financial Statements of BOK Financial Corporation ("BOK Financial") have been prepared in conformity with accounting principles generally accepted in the United States, including general practices of the banking industry. The consolidated financial statements include the accounts of BOK Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its subsidiaries ("BOk"), Bank of Texas, N.A., Bank of Arkansas N.A., Bank of Albuquerque, N.A. and BOSC, Inc. Certain prior period amounts have been reclassified to conform to current period classifications. EXECUTIVE BENEFIT PLANS BOK Financial has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock options on the date of grant, no compensation expense is recorded. BOK Financial has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123"), as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("FAS 148"). The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1994 (in thousands, except per share data): Three months ended March 31, ---------------------------- 2003 2002 ---------------------------- Net income as reported $ 44,187 $ 32,932 Stock-based employee compensation, net of tax, reported in current net income - - Stock-based employee compensation, net of tax, as if fair value method were applied (720) (638) ---------------------------- Pro forma net income $ 43,467 $ 32,294 ---------------------------- Earnings per share as reported: Basic $ 0.79 $ 0.62 Diluted 0.71 0.55 Pro forma earnings per share: Basic $ 0.78 $ 0.60 Diluted 0.69 0.54 (2) MORTGAGE BANKING ACTIVITIES At March 31, 2003, BOk owned the rights to service 72,226 mortgage loans with outstanding principal balances of $5.4 billion, including $368 million serviced for BOk. The weighted average interest rate and remaining term was 6.94% and 264 months, respectively. Activity in capitalized mortgage servicing rights and related valuation allowance during the three months ending March 31, 2003 is as follows (in thousands): Capitalized Mortgage Servicing Rights Valuation Hedging Purchased Originated Total Allowance (Gain)/Loss Net ------------------------------------------------------------------------------------ Balance at December 31, 2002 $ 37,223 $ 49,849 $ 87,072 $ (54,918) $ 5,134 $ 37,288 Additions, net (2) 5,521 5,519 - - 5,519 Amortization expense (5,914) (6,841) (12,755) - (356) (13,111) Recovery for impairment provision - - - 7,830 - 7,830 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- -------- Balance at March 31, 2003 $ 31,307 $ 48,529 $ 79,836 $ (47,088) $ 4,778 $ 37,526 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- -------- Estimated fair value of mortgage servicing rights (1)$ 15,656 $ 22,432 $ 38,088 - - $ 38,088 - ------------------------------- --- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- -------- (1) Excludes approximately $1.7 million of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122.
Stratification of the mortgage loan servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at March 31, 2003 follows (in thousands): < 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total ---------------- --------------- ---------------- ----------- ------------- Cost less accumulated amortization $ 23,528 $ 41,335 $ 13,828 $ 1,145 $ 79,836 Deferred hedge losses - 3,830 948 - 4,778 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Adjusted cost $ 23,528 $ 45,165 $ 14,776 $ 1,145 $ 84,614 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Fair value $ 13,204 $ 17,778 $ 5,848 $ 1,258 $ 38,088 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Impairment (2) $ 10,514 $ 27,388 $ 8,930 $ 256 $ 47,088 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- Outstanding principal of loans serviced(1)$ 1,455,900 $ 2,552,300 $ 749,800 $ 121,400 $ 4,879,400 - ------------------------------------------ ---------------- --------------- ---------------- ----------- ------------- (1) Excludes outstanding principal of $368 million for loans serviced for BOk and $192 million of mortgage loans originated prior to FAS 122, for which there are no capitalized mortgage servicing rights. (2) Impairment is determined by both an interest rate and loan type stratification.
(3) DISPOSAL OF AVAILABLE FOR SALE SECURITIES Sales of available for sale securities resulted in gains and losses as follows (in thousands): Three Months Ended March 31, ---------------------------------- 2003 2002 -------------- --------------- Proceeds $ 1,138,490 $ 2,450,262 Gross realized gains 9,897 14,457 Gross realized losses 208 22,038 Related federal and state income tax expense (benefit) 3,469 (2,684) (4) SHAREHOLDERS' EQUITY On April 29, 2003, the Board of Directors of BOK Financial declared a 3% stock dividend payable in shares of BOK Financial common stock. The dividend is payable on May 30, 2003 to shareholders of record on May 12, 2003. Generally accepted accounting principles require earnings per share information to be retroactively restated to reflect the new capital structure upon consummation of a stock dividend. Accordingly, for all financial statements issued after May 30, 2003, earnings per share will be restated as follows: Fully Diluted Earnings Per Share: As Reported Restated ----------- -------- 2002: 1st Quarter $ 0.55 $ 0.53 2nd Quarter 0.57 0.56 3rd Quarter 0.73 0.71 4th Quarter 0.63 0.61 Year Ended December 31 2.48 2.41 2003: 1st Quarter $ 0.71 $ 0.69 (5) EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands, except per share data): Three Months Ended ------------------------ March 31, March 31, 2003 2002 ------------------------ Numerator: Net income $ 44,187 $ 32,932 Preferred stock dividends (375) (375) - ------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common shareholders 43,812 32,557 Effect of dilutive securities: Preferred stock dividends 375 375 - ------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common shareholders after assumed conversion $ 44,187 $ 32,932 - ------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share -weighted average shares 55,154,698 52,868,907 Effect of dilutive securities: Employee stock options (1) 655,076 730,161 Convertible preferred stock 6,523,861 6,523,861 Tanglewood market value guarantee 233,739 - - ------------------------------------------------------------------------------- Dilutive potential common shares 7,412,676 7,254,022 Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 62,567,374 60,122,929 - ------------------------------------------------------------------------------- Basic earnings per share $ 0.79 $ 0.62 Diluted earnings per share $ 0.71 $ 0.55 (1) Excludes employee stock options with exercise prices greater than current market price. 720,267 - (6) REPORTABLE SEGMENTS Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended March 31, 2003 is as follows (in thousands): Net Other Other Interest Operating Operating Net Average Revenue Revenue(1) Expense Income Assets ---------- ---------- ----------- ---------- ------------- Total reportable segments $ 81,373 $ 55,926 $ 79,387 $ 33,901 $12,631,852 Total nonreportable segments 174 20,276 15,509 7,678 62,103 Unallocated items: Tax-equivalent adjustment 1,403 - - 1,403 - Funds management 16,840 (2,662) 1,445 6,519 1,062,551 All others (including eliminations),net (4,279) 27 2,585 (5,314) (1,389,841) ---------- ---------- ----------- ---------- ---------- BOK Financial consolidated $ 95,511 $ 73,567 $ 98,926 $ 44,187 $12,366,665 ========== ========== =========== ========== ============= (1) Excluding financial instruments gains/(losses).
Reportable segments reconciliation to the Consolidated Financial Statements for the three months ended March 31, 2002 is as follows (in thousands): Net Other Other Interest Operating Operating Net Average Revenue Revenue(1) Expense Income Assets -------- ---------- ------------ ---------- ------------ Total reportable segments $ 74,128 $ 43,580 $ 67,807 $ 16,386 $ 11,099,744 Total nonreportable segments 221 17,078 13,440 6,102 34,560 Unallocated items: Tax-equivalent adjustment 1,696 - - 1,696 - Funds management 18,686 329 2,150 13,502 498,703 All others (including eliminations),net (3,664) (943) (246) (4,754) (875,489) -------- ---------- ------------ ---------- ------------ BOK Financial consolidated $ 91,067 $ 60,044 $ 83,151 $ 32,932 $ 10,757,518 ======== ========== ============ ========== ============= (1) Excluding financial instruments gains/(losses).
(7) CONTINGENT LIABILITIES In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not be material in the aggregate. (8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK BOK Financial is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to manage interest rate risk. Those financial instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in BOK Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the notional amount of those instruments. As of March 31, 2003, outstanding commitments and letters of credit were as follows (in thousands): March 31, 2003 -------------- Commitments to extend credit $ 3,056,445 Standby letters of credit 391,125 Commercial letters of credit 3,502 Commitments to purchase securities 24,897 - ----------------------------------------------------------------------------------------------------------------------------- Quarterly Financial Summary (Unaudited) Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) Three Months Ended ------------------------------------------------------------------------------------- March 31, 2003 December 31, 2002 ------------------------------------------ ------------------------------------- Average Revenue/ Yield Average Revenue/ Yield Balance Expense(1) /Rate Balance Expense(1) /Rate ------------------------------------------------------------------------------------- Assets Taxable securities (3) $ 4,145,472 $ 45,134 4.64% $ 4,024,291 $ 45,710 4.73% Tax-exempt securities (3) 197,902 3,387 6.94 194,586 3,407 6.95 - ------------------------------------------------------------------------------------------------------------------------------ Total securities(3) 4,343,374 48,521 4.75 4,218,877 49,117 4.84 - ------------------------------------------------------------------------------------------------------------------------------ Trading securities 10,342 116 4.55 8,639 87 4.00 Funds sold 29,392 106 1.46 24,856 92 1.47 Loans(2) 6,949,113 94,612 5.52 6,761,498 95,864 5.62 Less reserve for loan losses 119,959 - - 114,711 - - - ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 6,829,154 94,612 5.62 6,646,787 95,864 5.72 - ------------------------------------------------------------------------------------------------------------------------------ Total earning assets 11,212,262 143,355 5.28 10,899,159 145,160 5.38 - ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 1,154,403 1,032,760 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 12,366,665 $ 11,931,919 - ------------------------------------------------------------------------------------------------------------------------------ Liabilities And Shareholders' Equity Transaction deposits $ 3,288,874 $ 8,777 1.08% $ 2,988,986 $ 9,648 1.28% Savings deposits 168,730 306 0.74 173,286 491 1.12 Other time deposits 3,399,813 25,994 3.10 3,248,364 25,531 3.12 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 6,857,417 35,077 2.07 6,410,636 35,670 2.21 - ------------------------------------------------------------------------------------------------------------------------------ Federal funds purchased and repurchase agreements 1,420,781 4,023 1.15 1,523,923 5,471 1.42 Other borrowings 1,059,201 4,921 1.88 1,084,616 5,751 2.10 Subordinated debenture 155,304 2,420 6.32 169,874 2,580 6.03 - ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 9,492,703 46,441 1.98 9,189,049 49,472 2.14 - ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,292,077 1,310,932 Other liabilities 465,820 380,204 Shareholders' equity 1,116,065 1,051,734 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' $ 12,366,665 $ 11,931,919 equity - ------------------------------------------------------------------------------------------------------------------------------ Tax-Equivalent Net Interest Revenue (3) 96,914 3.30% 95,688 3.24% Tax-Equivalent Net Interest Revenue (3) To Earning Assets 3.57 3.55 Less tax-equivalent adjustment (1) 1,403 1,404 - ------------------------------------------------------------------------------------------------------------------------------ Net Interest Revenue 95,511 94,284 Provision for loan losses 9,912 10,001 Other operating revenue 82,154 80,739 Other operating expense 98,926 104,993 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Taxes 68,827 60,029 Federal and state income tax 24,640 21,250 - ------------------------------------------------------------------------------------------------------------------------------ Net Income $ 44,187 $ 38,779 - ------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share: Net Income Basic $ 0.79 $ 0.70 - ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 0.71 $ 0.63 - ------------------------------------------------------------------------------------------------------------------------------ (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. (3) Yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income.
- ------------------------------------------------------------------------------------------------------------------------- Three Months Ended - ------------------------------------------------------------------------------------------------------------------------- September 30, 2002 June 30, 2002 March 31, 2002 - ------------------------------------------------------------------------------------------------------------------------- Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield Balance Expense(1) /Rate Balance Expense(1) /Rate Balance Expense(1) /Rate - ------------------------------------------------------------------------------------------------------------------------- $ 3,794,732 $ 46,473 5.06% $ 3,696,603 $ 46,564 5.50% $ 3,442,504 $ 48,153 5.68% 193,645 3,335 6.83 218,747 3,948 7.24 230,755 4,101 7.21 - ------------------------------------------------------------------------------------------------------------------------- 3,988,377 49,808 5.15 3,915,350 50,512 5.60 3,673,259 52,254 5.77 - ------------------------------------------------------------------------------------------------------------------------- 13,341 221 6.57 19,989 238 4.78 14,971 204 5.53 11,331 57 2.00 17,148 92 2.15 10,656 50 1.90 6,444,933 95,731 5.89 6,225,134 93,787 6.04 6,164,060 92,918 6.11 110,590 - - 109,366 - - 105,166 - - - ------------------------------------------------------------------------------------------------------------------------- 6,334,343 95,731 6.00 6,115,768 93,787 6.15 6,058,894 92,918 6.22 - ------------------------------------------------------------------------------------------------------------------------- 10,347,392 145,817 5.67 10,068,255 144,629 5.94 9,757,780 145,426 6.05 - ------------------------------------------------------------------------------------------------------------------------- 981,246 1,005,122 999,738 - ------------------------------------------------------------------------------------------------------------------------- $ 11,328,638 $ 11,073,377 $ 10,757,518 - ------------------------------------------------------------------------------------------------------------------------- $ 2,795,449 $ 9,882 1.40% $ 2,740,454 $ 9,841 1.44% $ 2,666,154 $ 9,902 1.51% 164,952 502 1.21 165,496 503 1.22 160,082 481 1.22 3,090,272 26,154 3.36 2,969,488 26,814 3.62 2,918,473 25,718 3.57 - ------------------------------------------------------------------------------------------------------------------------- 6,050,673 36,538 2.40 5,875,438 37,158 2.54 5,744,709 36,101 2.55 - ------------------------------------------------------------------------------------------------------------------------- 1,615,075 6,635 1.63 1,485,816 6,197 1.67 1,571,063 6,915 1.79 999,140 5,963 2.37 1,032,685 6,637 2.58 1,119,466 6,925 2.51 185,748 2,725 5.82 185,968 2,724 5.88 186,189 2,722 5.93 - ------------------------------------------------------------------------------------------------------------------------- 8,850,636 51,861 2.32 8,579,907 52,716 2.46 8,621,427 52,663 2.48 - ------------------------------------------------------------------------------------------------------------------------- 1,188,441 1,129,412 1,112,571 340,264 476,886 170,643 949,297 887,172 852,877 - ------------------------------------------------------------------------------------------------------------------------- $ 11,328,638 $ 11,073,377 $ 10,757,518 - ------------------------------------------------------------------------------------------------------------------------- 93,956 3.35% 91,913 3.48% 92,763 3.57% 3.65 3.77 3.86 1,387 1,632 1,696 - ------------------------------------------------------------------------------------------------------------------------- 92,569 90,281 91,067 8,029 6,834 8,866 107,467 83,864 51,927 123,695 113,798 83,151 - ------------------------------------------------------------------------------------------------------------------------- 68,312 53,513 50,977 24,183 18,944 18,045 - ------------------------------------------------------------------------------------------------------------------------- $ 44,129 $ 34,569 $ 32,932 - ------------------------------------------------------------------------------------------------------------------------- $ 0.83 $ 0.65 $ 0.62 - ------------------------------------------------------------------------------------------------------------------------- $ 0.73 $ 0.57 $ 0.55 - -------------------------------------------------------------------------------------------------------------------------
Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (A) Exhibits: 99.1 Certification of Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (B) Reports on Form 8-K: On January 23, 2003, a report on Form 8-K was filed reporting under Item 5 the announcement that BOK Financial Corporation issued a press release on January 22, 2003 announcing its financial results for the fourth quarter and full year ended December 31, 2002. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOK FINANCIAL CORPORATION (Registrant) Date: May 14, 2003 /s/ Steven E. Nell Steven E. Nell Executive Vice President and Chief Financial Officer /s/ John C. Morrow John C. Morrow Senior Vice President and Director of Financial Accounting & Reporting CFO Certification I, Steven E. Nell, Executive Vice President and Chief Financial Officer of BOK Financial Corporation ("BOK Financial"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of BOK Financial; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Steven E. Nell Steven E. Nell Executive Vice President Chief Financial Officer BOK Financial Corporation CEO Certification I, Stan A. Lybarger, President and Chief Executive Officer of BOK Financial Corporation ("BOK Financial"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of BOK Financial; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Stanley A. Lybarger Stanley A. Lybarger President Chief Executive Officer BOK Financial Corporation EX-99 3 certifications906.txt SECTION 906 CERTIFICATIONS BOK Financial Corporation Exhibit 99.1 - -------------------------------------------------------------------------------- CERTIFICATION OF PERIODIC REPORT I, Steven E. Nell, Executive Vice President and Chief Financial Officer of BOK Financial Corporation ("BOK Financial), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of BOK Financial for the quarter ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13 (a) or 15 (d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. A signed original of this written statement required by Section 906 has been provided to BOK Financial Corporation and will be retained by BOK Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 14, 2003 /s/ Steven E. Nell Steven E. Nell Executive Vice President Chief Financial Officer BOK Financial Corporation - -------------------------------------------------------------------------------- CERTIFICATION OF PERIODIC REPORT I, Stanley A. Lybarger, President and Chief Executive Officer of BOK Financial Corporation ("BOK Financial"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of BOK Financial for the quarter ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13 (a) or 15 (d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company. A signed original of this written statement required by Section 906 has been provided to BOK Financial Corporation and will be retained by BOK Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 14, 2003 /s/ Stanley A. Lybarger Stanley A. Lybarger President Chief Executive Officer BOK Financial Corporation - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----