-----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, AMQaorx18IPuJeuS2fgYcNl5pHLZ20IxcBa6UQmf+9mMpkie7uXoBufqX0u0fQSs C8K3N8Gqi2FFv3sj95h0Nw== 0000875357-97-000004.txt : 19970328 0000875357-97-000004.hdr.sgml : 19970328 ACCESSION NUMBER: 0000875357-97-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19341 FILM NUMBER: 97565541 BUSINESS ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: PO BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 BUSINESS PHONE: 9185886000 MAIL ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: P O BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 10-K 1 1996 FORM 10-K As filed with the Securities and Exchange Commission on March 27, 1997 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1996 Commission File No. 0-19341 BOK FINANCIAL CORPORATION Incorporated in the State I.R.S. Employer Identification of Oklahoma 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 12 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the Registrant: $117,691,489 as of February 28, 1997. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 21,161,789 shares of common stock ($.00006 par value) as of February 28, 1997. List hereunder the following documents if incorporated by reference and the part of Form 10-K in which the document is incorporated: Part I - Annual Report to Shareholders For Fiscal Year Ended December 31, 1996 (designated portions only) Part II - Annual Report to Shareholders For Fiscal Year Ended December 31, 1996 (designated portions only) Part III - Proxy Statement for Annual Meeting of Shareholders scheduled for April 29, 1997 (designated portions only) Part IV - Annual Report to Shareholders For Fiscal Year Ended December 31, 1996 (designated portions only) ================================================================================ 1 BOK FINANCIAL CORPORATION FORM 10-K ANNUAL REPORT INDEX ITEM PAGE PART I 1. Business 2 2. Properties 7 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 7 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 6. Selected Financial Data 8 7. Management's Discussion and Analysis of Financial Condition and 8 Results of Operations 8. Financial Statements and Supplementary Data 8 9. Changes in and Disagreements with Accountants on Accounting and 8 Financial Disclosure PART III 10. Directors and Executive Officers of the Registrant 8 11. Executive Compensation 8 12. Security Ownership of Certain Beneficial Owners and Management 8 13. Certain Relationships and Related Transactions 8 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 9-13 Signatures 14 2 PART I ITEM 1 - BUSINESS GENERAL DEVELOPMENT OF BUSINESS BOK Financial Corporation ("BOK Financial") was incorporated under the laws of the State of Oklahoma on October 24, 1990. Active operations as a bank holding company commenced on June 7, 1991 with the acquisition of the preferred stock ("BOk Preferred Stock") of Bank of Oklahoma, National Association ("BOk") from the Federal Deposit Insurance Corporation ("FDIC") and the conversion of the BOk Preferred Stock into 99.99% of the common stock of BOk. BOK Financial is regulated by the Board of Governors of the Federal Reserve System pursuant to the Bank Holding Company Act of 1956, as amended ("BHCA"). BOK Financial operates primarily through BOk, BOk's subsidiaries and Citizens Bank of Northwest Arkansas, National Association ("CBNWA"). The existing and future activities of BOK Financial and its subsidiaries are limited by the BHCA, which prohibits a bank holding company from engaging in any business other than banking, managing or controlling banks, and furnishing and performing certain bank-related services and activities. Shares disclosed in the following transactions have not been restated for subsequent stock dividends. On June 7, 1991, BOK Financial paid $60.75 million to the FDIC for the BOk Preferred Stock. To finance this acquisition, BOK Financial issued preferred stock totaling $15.0 million at $6.00 per share and common stock ("Common Stock") totaling $46.0 million at $5.75 per share to George B. Kaiser ("Kaiser"), BOK Financial's principal shareholder. Kaiser purchased an additional $10.0 million of BOK Financial Common Stock at $5.75 per share, and BOK Financial contributed the $10.0 million to BOk as additional capital. Per share amounts reflect a 1-for-100 reverse stock split effective December 17, 1991 ("reverse stock split"). Following a bidding process conducted by the Resolution Trust Corporation ("RTC"), BOK Financial, through the mortgage banking subsidiary of BOk, BancOklahoma Mortgage Corp. ("BOMC"), acquired on June 10, 1991 approximately $1.0 billion of mortgage servicing rights and certain other assets of Maxim Mortgage Corporation ("Maxim"). Maxim was formerly a subsidiary of Sooner Federal Savings and Loan Association, which had failed and had been placed under the control of the RTC. Also following a bidding process by the RTC, BOK Financial acquired on August 9, 1991 certain assets and assumed certain liabilities, primarily deposits, of eight branches of Continental Federal Savings and Loan Association of Oklahoma City, Oklahoma. BOK Financial assumed deposits of approximately $214.5 million and paid the RTC a premium of $4.1 million. Kaiser acquired an additional $20.0 million of BOK Financial's Common Stock at $5.75 per share (after effect of the reverse stock split), and BOK Financial contributed the $20.0 million to BOk to facilitate the purchase. On March 27, 1992, CBNWA acquired certain assets and assumed the deposits and certain obligations of two branches of the failed Home Federal Savings & Loan Association from the RTC for $1.1 million. On July 16, 1992, Bank of Oklahoma, N.A., South, an unconsolidated banking subsidiary, was merged into BOk. On November 13, 1992, BOK Financial purchased Southwest Trustcorp, Inc. and its subsidiary, The Trust Company of Oklahoma, Oklahoma City, in exchange for 400,000 shares of Common Stock valued at $4.6 million. On December 31, 1992, BOK Financial acquired certain assets and assumed $502.9 million of deposits and other liabilities of 19 branches of the Sooner Division of First Gibraltar Bank, FSB of Irving, Texas for a purchase price of $16.5 million. On May 7, 1993, BOK Financial issued 343,295 common shares valued at $6.9 million and paid $3.9 million to acquire Sand Springs Bancshares, Inc. and its subsidiary, Sand Springs State Bank. Also on May 7, 1993, BOK Financial issued 1,183,691 common shares to acquire Brookside Bancshares, Inc. and its subsidiary, Brookside State Bank, in a pooling-of-interests transaction. Financial information of BOK Financial for 1992 and 1991 has been restated to reflect this acquisition. On October 9, 1993, BOK Financial acquired certain assets and assumed the deposits and certain obligations of two branches of the failed Heartland Federal Savings & Loan Association from the FDIC for $5.1 million. On May 2, 1994, BOK Financial acquired Plaza National Bank, Bartlesville, Oklahoma for $11.7 million. On June 13, 1994, BOK Financial acquired Texas Commerce Trust Company - Sherman, National Association, Sherman, Texas, a national association limited to trust powers only, for $6.1 million. 3 On October 7, 1994, BOK Financial acquired Northwest Bank of Enid, Enid, Oklahoma for $8.2 million. On November 14, 1994, BOK Financial issued 1,380,017 common shares to acquire Citizens Holding Company and its subsidiaries, Citizens Bank of Muskogee and Citizens Bank of Northwest Arkansas, in a pooling-of-interests. Financial information of BOK Financial for 1993 and 1992 has been restated to reflect this acquisition. On February 12, 1997, BOK Financial acquired Park Cities Bancshares, Inc. and its subsidiary, First National Bank of Park Cities, in Dallas, Texas for $50.0 million. On March 4, 1997, BOK Financial acquired First TexCorp., Inc. and its subsidiary, First Texas Bank, in Dallas, Texas for $39.3 million. Developments relating to individual aspects of the business of BOK Financial are described under "Narrative Description of Business" and "Services Offered" on pages 3 and 4 of this report. Additional discussion of BOK Financial's activities during the current year is incorporated by reference to "Management's Assessment of Operations and Financial Condition" (pages 6 - 18) in BOK Financial's 1996 Annual Report to Shareholders. Additional information regarding BOK Financial's acquisitions is incorporated by reference to Note 2 of "Notes to Consolidated Financial Statements" (page 28 ) in BOK Financial's 1996 Annual Report to Shareholders. NARRATIVE DESCRIPTION OF BUSINESS BOK Financial is a bank holding company, and as such, its activities are limited by the BHCA to banking, certain bank-related services and activities, and managing or controlling banks. BOK Financial's banking and bank-related activities are primarily performed through BOk and CBNWA; nonbank subsidiary operations are not significant. As of December 31, 1996, BOK Financial and its subsidiaries had 2,102 full-time equivalent employees. Following is a description of the more significant services offered by BOK Financial and the competitive and regulatory environments in which it operates. SERVICES OFFERED COMMERCIAL BANKING SERVICES BOK Financial, through BOk and CBNWA, provides a wide range of financial services to commercial and industrial customers, including depository, lending and other financial services such as cash management, leasing and international collections. The loan portfolio is comprised primarily of real estate and commercial loans. The commercial loan portfolio is diversified and distributed among various commercial and industrial customers, including energy-related, manufacturing, trade and service industries. CORRESPONDENT BANKING SERVICES BOK Financial provides a broad range of financial services to banks, savings and loans, credit unions and other financial institutions in Oklahoma and surrounding states. BOK Financial works closely with community financial institutions, assisting them in satisfying the demands of their customers and trade areas by engaging in loan participations and providing other financial services. CONSUMER BANKING SERVICES At December 31, 1996, BOk had 65 banking locations, with 45 locations in the Tulsa and Oklahoma City areas. CBNWA had 4 locations in northwest Arkansas. Services offered include deposit accounts, installment loans, student loans, bank card accounts, personal lines of credit, debit cards, an automated 24-hour telephone loan application service, a 24-hour telephone branch and telephone and personal computer based bill paying services New services planned for 1997 include interactive video kiosks for consumer lending and other transactions. The BancOklahoma Investment Center makes available, through representatives in most BOk branches, a full range of mutual funds, annuities and securities. TransFund, BOk's network of automated teller machines, consists of 635 locations across Oklahoma, Arkansas, southwest Missouri, northern Texas and southern Kansas. INVESTMENT AND MONEY MARKET ACTIVITIES BOk provides securities brokerage, and trading services for corporations, governmental units, individual customers and correspondent banks. Securities include money market instruments, U.S. Government and municipal bonds, corporate stocks and bonds, and mutual funds. The public finance department provides bank-elegible underwriting financial advisory, private placement and term-financing services for governmental and corporate entities. BOK Financial recently announced its entrance into merchant banking which will provide a broad range of financial services outside those traditionally associated with banking, including financial advisory 4 services to both public and corporate sectors, leasing and mezzanine financing, and underwriting of municipal revenue bonds, mortgage backed debt, consumer receivables, and commercial paper. MORTGAGE BANKING BOMC, through its own locations as well as BOk's branch network, offered a full array of mortgage options from federally sponsored programs to "jumbo loans" on higher priced houses. BOMC is the largest originator of mortgage loans in Oklahoma and has a servicing portfolio of approximately $5.9 billion, including $243 million serviced for BOk. Effective January 1, 1997, these mortgage banking activities were transferred to BOk. TRUST AND ASSET MANAGEMENT SERVICES BOk's trust subsidiaries (BancOklahoma Trust Company ("BOTC") in Oklahoma and Alliance Trust Company N.A. in Texas) offer a variety of services to both corporate and individual customers in Oklahoma and Texas. Individual financial trust services include personal trust management, administration of estates and management of individual investment and custodial accounts. For corporate clients, the services include management, administration and recordkeeping of pension plans, thrift plans, 401(k) plans and master trust plans, including a state-of-the-art system for employee benefit plan recordkeeping. BOk's trust division also serves as transfer agent and registrar for corporate securities, paying agent for municipalities and governmental agencies and indenture trustee of bond issues. BOTC serves as an investment advisor to the American Performance Funds, a family of proprietary mutual funds distributed by the Winsbury Company of Columbus, Ohio. At December 31, 1996, trust subsidiaries were responsible for approximately $7.5 billion in assets. Effective March 22, 1997, BOTC was merged into BOk. FOREIGN OPERATIONS BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments. COMPETITION The banking industry in Oklahoma is highly competitive. BOK Financial competes with other banks in obtaining deposits, making loans and providing additional services related to banking. There are approximately 332 banks located in Oklahoma, of which approximately 38 are located in the Tulsa County and surrounding metropolitan area and approximately 55 are located in the Oklahoma County and surrounding metropolitan area. BOK Financial is also in competition with other businesses engaged in extending credit or accepting deposits, such as major retail establishments, major brokerage firms, savings and loan associations, credit unions, finance companies, small loan companies, insurance companies and loan production offices of major banks located within and outside Oklahoma. Limited branch banking as permitted in Oklahoma is increasing competition. Generally, a bank may establish two new branch offices within the town or city where the bank is located or in nearby areas not already served by a bank or branch, and may acquire an unlimited number of existing banks and convert them and their branches into branch offices. Within its primary markets, BOk has 23 locations in the Tulsa area and 22 locations in the Oklahoma City area, the state's largest financial markets. Subject to regulatory approval, BOk is considering various locations for additional facilities. Like BOk, other banks are taking advantage of the bank branching laws to establish additional facilities. These additional banking offices are further increasing competition. Limited branch banking is, on the other hand, permitting banks to compete more effectively with savings and loan associations, credit unions and other financial institutions that may establish offices more freely than banks, some of which are not subject to comparable regulatory restrictions on their activities. Oklahoma also permits the acquisition of an unlimited number of wholly-owned bank subsidiaries so long as aggregate deposits at the time of acquisition in a multibank holding company do not exceed 12.25% of all deposits in Oklahoma financial institutions insured by the federal government, exclusive of credit union deposits. Based on the latest statistical data available (as of June 30, 1996), BOK Financial could acquire additional bank subsidiaries so long as the aggregate deposits of all Oklahoma subsidiaries do not exceed approximately $4.1 billion. Deposits of BOk were $3.1 billion and $3.2 billion at June 30, and December 31, 1996, respectively. Oklahoma also permits out-of-state bank holding companies to acquire banks and bank holding companies located in the state and, subject to certain limitations, make additional acquisitions within the state. During the last few years the Oklahoma banking industry has been consolidated into fewer but larger banks. In 1996, two "super-regional" holding companies announced significant acquisitions in Oklahoma. The consolidation over the past several years has brought about a highly competitive environment, in which many customers have access to national and regional financial institutions for many products and services. 5 On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal") was signed into law. In summary, commencing one year after passage, qualifying bank holding companies will be permitted to acquire banks in any state. As of June 1, 1997, qualifying banks may be able to engage in interstate branching by merging banks in different states. States " opt-out" of interstate branching by enacting specific legislation prior to June 1, 1997, in which case out-of-state banks would generally not be able to branch into that state, and banks headquartered in that state would not be permitted to branch into other states. States may also opt into interstate branching earlier than 1997 with specific legislation. The law imposes a 10% nationwide deposit cap and a 30% state deposit cap; however, the states' authority is preserved to impose a lower, nondiscriminatory deposit cap. Oklahoma elected to "opt-in" to interstate branching effective May 1997 and established a 12.25% deposit cap. It is anticipated that the total number of Oklahoma banks may decrease and national and regional bank presence in the state may increase. Over the near-term, these changes are expected to increase competition with a greater number of products and services available to Oklahoma customers. Over the long-term, the number of competitors could decrease, depending on the extent of consolidations nationwide, but competition could continue to increase as a result of the remaining institutions needing to be stronger, more innovative and more aggressive to retain a significant presence in a consolidated environment. Additional legislation, judicial and administrative decisions also may affect the ability of banks to compete with each other as well as with other businesses. These statutes and decisions may tend to make the operations of various financial institutions more similar and increase competition among banks and other financial institutions or limit the ability of banks to compete with other businesses. Management currently cannot predict whether and, if so, when any such changes might occur or the impact any such changes would have upon the income or operations of BOK Financial or its subsidiaries, or upon the Oklahoma regional banking environment. SUPERVISION AND REGULATION Bank holding companies and banks are extensively regulated under both federal and state law. The following information, to the extent it describes statutory or regulatory provisions, is qualified in its entirety by reference to the particular statutory and regulatory provisions. It is not possible to predict the changes, if any, that may be made to existing banking laws and regulations or whether such changes, if made, would have a materially adverse effect on the business and prospects of BOK Financial, BOk and CBNWA. BOK FINANCIAL As a bank holding company, BOK Financial is subject to regulation under the BHCA and to supervision by the Board of Governors of the Federal Reserve System (the "Reserve Board"). Under the BHCA, BOK Financial is required to file with the Reserve Board an annual report and such other additional information as the Reserve Board may require. The Reserve Board may also make examinations of BOK Financial and its subsidiaries. The BHCA requires the prior approval of the Reserve Board in any case where a bank holding company proposes to acquire control of more than five percent of the voting shares of any bank, unless it already controls a majority of such voting shares. Additionally, approval must also be obtained before a bank holding company may acquire all or substantially all of the assets of another bank or before it may merge or consolidate with another bank holding company. The BHCA further provides that the Reserve Board shall not approve any such acquisition, merger or consolidation that will substantially lessen competition, tend to create a monopoly or be in restraint of trade, unless it finds the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The BHCA presently prohibits the Reserve Board from approving an application from a bank holding company to acquire shares of a bank located outside the state in which the operations of the holding company's banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank whose shares are to be acquired is located, but Riegle-Neal permits interstate banking as of September 29, 1995, as discussed above in "Competition". The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than five percent of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company whose activities the Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Reserve Board weighs the Community Reinvestment Act activities of the bank holding company and the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company 6 or factoring company; performing certain data processing operations; servicing loans and other extensions of credit; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; owning and operating savings and loan associations; and leasing personal property on a full-payout, nonoperating basis. A bank holding and its subsidiaries are further prohibited under the BHCA from engaging in certain tie-in arrangements in connection with the provision of any credit, property or services. Thus, a subsidiary of a bank holding company may not extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that (1) the customer obtain or provide some additional credit, property or services from or to the bank holding company or any subsidiary thereof or (2) the customer may not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to insure the soundness of credit extended. The Federal Deposit Insurance Corporation Improvement Act of 1991 established five capital rating tiers ranging from "well capitalized" to "critically undercapitalized". A financial institution is considered to be well capitalized if its Leverage, Tier 1 and Total Capital ratios are at 5%, 6% and 10%, respectively. Any institution experiencing significant growth or acquiring other institutions or branches is expected to maintain capital ratios above the well capitalized level. At December 31, 1996, BOK Financial's Leverage, Tier 1 and Total Capital ratios were 7.46%, 10.49% and 11.74%, respectively. BOK AND CBNWA BOk and CBNWA are national banking associations and are subject to the National Banking Act and other federal statutes governing national banks. Under federal law, the Office of the Comptroller of the Currency ("Comptroller") charters, regulates and serves as the primary regulator of national banks. In addition, the Comptroller must approve certain corporate or structural changes, including an increase or decrease in capitalization, payment of dividends, change of place of business, establishment of a branch and establishment of an operating subsidiary. The Comptroller performs its functions through national bank examiners who provide the Comptroller with information concerning the soundness of a national bank, the quality of management and directors, and compliance with applicable laws, rules and regulations. The National Banking Act authorizes the Comptroller to examine every national bank as often as necessary. Although the Comptroller has primary supervisory responsibility for national banks, such banks must also comply with Reserve Board rules and regulations as members of the Federal Reserve System. CBNWA is also subject to certain consumer-protection laws incorporated in the Arkansas Constitution, which, among other restrictions, limit the maximum interest rate on general loans to five percent above the Federal Reserve Discount Rate. The rate on consumer loans is five percent above the discount rate or seventeen percent, whichever is lower. BOk and CBNWA are insured by the FDIC and are required to pay certain fees and premiums to the Bank Insurance Fund ("BIF"). The BIF has implemented a risk-related insurance system for determining premiums to be paid by a bank. Each bank is placed in one of nine risk categories based on its level of capital and supervisory rating with the well-capitalized banks with the highest supervisory rating paying a premium of 0.00% of deposits and the critically undercapitalized banks paying up to 0.27% of deposits. Also, approximately 21% of BOK Financial's total deposits at December 31, 1996 were acquired through Oakar transactions and are insured through the Savings Association Insurance Fund ("SAIF"). The Deposit Insurance Funds Act of 1996 was enacted on September 30, 1996, which recapitalized the SAIF and implemented a risk-related insurance system identical to the BIF system discussed above. In addition, the Deposit Insurance Fund Act of 1996 implemented an additional assessment on BIF and SAIF deposits, the Financing Corporation ("FICO") Quarterly Payment, which is not tied to the BIF risk classification. The FICO BIF annual rate is 1.296 basis points and the FICO SAIF annual rate is 6.48 basis points. Applicable federal statutes and regulations require national banks to meet certain leverage and risk-based capital requirements. At December 31, 1996, BOk's and CBNWA's leverage and risk-based capital ratios were well above the required minimum ratios. 7 GOVERNMENTAL POLICIES AND ECONOMIC FACTORS The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various regulatory authorities and, in particular, the credit policies of the Reserve Board. An important function of the Reserve Board is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Reserve Board to implement its objectives are: open market operations in U.S. Government securities; changes in the discount rate on bank borrowings; and changes in reserve requirements on bank deposits. The effect of such policies in the future on the business and earnings of BOK Financial and its subsidiaries cannot be predicted with certainty. The Oklahoma economy, BOK Financial's primary market, continues to generate job growth. Certain economic indicators show that employment growth within the state has now exceeded U.S. employment growth for fifteen consecutive months, although wage and salary growth in Oklahoma only slightly exceeded the growth rate observed nationally. With Oklahoma's economy tied more closely with the national economy than in the past, a downturn in the national economy could have an adverse impact on BOK Financial's financial position and results of operations. ITEM 2 - PROPERTIES BOK Financial, through BOk, BOk's subsidiaries and CBNWA, owns improved real estate that was carried at $31.0 million, net of depreciation and amortization, as of December 31, 1996. BOK Financial conducts its operations through a total of 65 banking and 4 nonbanking locations in Oklahoma, 4 banking locations in Arkansas and 2 nonbanking locations in Texas as of December 31, 1996. BOk's facilities are suitable for their respective uses and present needs. The information set forth in Notes 6 and 13 of "Notes to Consolidated Financial Statements" (pages 32 and 38, respectively) of BOK Financial's 1996 Annual Report to Shareholders provides further discussion related to properties and is incorporated herein by reference. ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended December 31, 1996. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS BOK Financial's $.00006 par value common stock is traded over-the-counter and is reported on the facilities of the National Association of Securities Dealers Automated Quotation system ("NASDAQ"), with the symbol BOKF. At December 31, 1996, common shareholders of record numbered 1,674 with 21,131,895 shares outstanding. During 1996, BOK Financial declared a 3% stock dividend in respect of its Common Stock payable in shares of Common Stock. The dividend was payable on November 27, 1996 to shareholders of record on November 18, 1996. BOK Financial's quarterly market information follows: First Second Third Fourth --------------- -------------- -------------- --------------- 1996: Low $19.25 $20.00 $21.25 $23.25 High 23.25 22.75 23.75 28.00 1995: Low $19.75 $20.25 $21.50 $19.00 High 22.25 22.75 25.25 24.50 8 The information set forth under the captions "Table 1 - Consolidated Selected Financial Data" (page 5), "Table 5 - Selected Quarterly Financial Data" (page 11) and Note 15 of "Notes to Consolidated Financial Statements" (page 39) of BOK Financial's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information set forth under the caption "Table 1 - Consolidated Selected Financial Data" (page 5) of BOK Financial's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the captions "Management's Assessment of Operations and Financial Condition" (pages 6 - 18), "Annual Financial Summary - Unaudited" (pages 44 - 45) and "Quarterly Financial Summary -Unaudited" (pages 46 - 47) of BOK Financial's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The supplementary data regarding quarterly results of operations set forth under the caption "Table 5 Selected Quarterly Financial Data" (page 11) of BOK Financial's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Election of Directors" and "Executive Compensation" in BOK Financial's 1997 Annual Proxy Statement for its Annual Meeting of Shareholders scheduled for April 29, 1997 ("1997 Annual Proxy Statement") is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in BOK Financial's 1997 Annual Proxy Statement is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in BOK Financial's 1997 Annual Proxy Statement is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions" in BOK Financial's 1997 Annual Proxy Statement is incorporated herein by reference. The information set forth under Notes 3, 5 and 9 of "Notes to Consolidated Financial Statements" (pages 29, 31, and 34, respectively) of BOK Financial's 1996 Annual Report to Shareholders is incorporated herein by reference. 9 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) List of Financial Statements filed. The following financial statements and reports included in BOK Financial's Annual Report to Shareholders for the Fiscal Year Ended December 31, 1996 are incorporated by reference in Parts I and II of this Annual Report on Form 10-K. Exhibit 13 1996 Annual Report Description Page Number - ------------------------------------------ ------------------ Consolidated Selected Financial Data 5 Selected Quarterly Financial Data 11 Report of Management on Financial Statements 19 Report of Independent Auditors 19 Consolidated Statements of Earnings 20 Consolidated Balance Sheets 21 Consolidated Statements of Changes in Shareholders' Equity 22-23 Consolidated Statements of Cash Flows 24 Notes to Consolidated Financial Statements 25-43 Annual Financial Summary - Unaudited 44-45 Quarterly Financial Summary - Unaudited 46-47 Appendix A 48 (A)(2) LIST OF FINANCIAL STATEMENT SCHEDULES FILED. The schedules to the consolidated financial statements required by Regulation S-X are not required under the related instructions or are inapplicable and are therefore omitted. (A)(3) LIST OF EXHIBITS FILED. Exhibit Number Description of Exhibit - -------------- ---------------------- 3.0 The Articles of Incorporation of BOK Financial, incorporated by reference to (i) Amended and Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma Secretary of State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement No. 33-90450, and (ii) Amendment attached as Exhibit A to Information Statement and Prospectus Supplement filed November 20, 1991. 3.1 Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of S-1 Registration Statement No.33-90450. 4.0 The rights of the holders of the Common Stock and Preferred Stock of BOK Financial are set forth in its Certificate of Incorporation. 10.0 Purchase and Sale Agreement dated October 25, 1990, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.0 of S-1 Registration Statement No. 33-90450. 10 10.1 Amendment to Purchase and Sale Agreement effective March 29, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.2 of S-1 Registration Statement No. 33-90450 10.2 Letter agreement dated April 12, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.3 of S-1 Registration Statement No. 33-90450. 10.3 Second Amendment to Purchase and Sale Agreement effective April 15, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.4 of S-1 Registration Statement No. 33-90450. 10.4 Employment agreements. 10.4(a) Employment Agreement between BOk and Stanley A. Lybarger, incorporated by reference to Exhibit 10.4(a) of Form 10-K for the fiscal year ended December 31, 1991. 10.5 Director indemnification agreement dated June 30, 1987, between BOk and Kaiser, incorporated by reference to Exhibit 10.5 of S-1 Registration Statement No. 33-90450. Substantially similar director indemnification agreements were executed between BOk and the following: Date of Agreement James E. Barnes June 30, 1987 William H. Bell June 30, 1987 James S. Boese June 30, 1987 Dennis L. Brand June 30, 1987 Chester E. Cadieux June 30, 1987 William B. Cleary June 30, 1987 Glenn A. Cox June 30, 1987 William E. Durrett June 30, 1987 Leonard J. Eaton, Jr. June 30, 1987 William B. Fader December 5, 1990 Gregory J. Flanagan June 30, 1987 Jerry L. Goodman June 30, 1987 David A. Hentschel July 7, 1987 Philip N. Hughes July 8, 1987 Thomas J. Hughes, III June 30, 1987 William G. Kerr June 30, 1987 Philip C. Lauinger, Jr. June 30, 1987 Stanley A. Lybarger December 5, 1990 Patricia McGee Maino June 30, 1987 Robert L. Parker, Sr. June 30, 1987 James A. Robinson June 30, 1987 William P. Sweich June 30, 1987 10.6 Capitalization and Stock Purchase Agreement dated May 20, 1991, between BOK Financial and Kaiser, incorporated by reference to Exhibit 10.6 of S-1 Registration Statement No. 33-90450. 10.7 BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-44122. 10.7.1 BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-55312. 10.7.2 BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-70102. 10.7.3 BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79834. 11 10.7.4 BOK Financial Corporation 1994 Stock Option Plan (Typographical Error Corrected January 16, 1995), incorporated by reference to Exhibit 10.7.4 of Form 10-K for the fiscal year ended December 31, 1994 10.7.5 BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79836. 10.7.6 Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995), incorporated by reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31, 1994. 10.7.7 Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated by reference to Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994. 10.8 Lease Agreement between One Williams Center Co. and National Bank of Tulsa (predecessor to BOk) dated June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1 Registration Statement No. 33-90450. 10.9 Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1, 1988, incorporated by reference to Exhibit 10.10 of S-1 Registration Statement No. 33-90450. 10.10 Asset Purchase Agreement (OREO and other assets) between BOk and Phi-Lea-Em Corporation dated April 30, 1991, incorporated by reference to Exhibit 10.11 of S-1 Registration Statement No. 33-90450. 10.11 Asset Purchase Agreement (Tanker Assets) between BOk and Green River Exploration Company dated April 30, 1991, incorporated by reference to Exhibit 10.12 of S-1 Registration Statement No. 33-90450. 10.12 Asset Purchase Agreement (Recovery Rights) between BOk and Kaiser dated April 30, 1991, incorporated by reference to Exhibit 10.13 of S-1 Registration Statement No. 33-90450. 10.13 Purchase and Assumption Agreement dated August 7, 1992 among First Gibraltar Bank, FSB, Fourth Financial Corporation and BOk, as amended, incorporated by reference to Exhibit 10.14 of Form 10-K for the fiscal year ended December 31, 1992. 10.13.1 Allocation Agreement dated August 7, 1992 between BOk and Fourth Financial Corporation, incorporated by reference to Exhibit 10.14.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.14 Merger Agreement among BOK Financial, BOKF Merger Corporation Number Two, Brookside Bancshares, Inc., The Shareholders of Brookside Bancshares, Inc. and Brookside State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.15 of Form 10-K for the fiscal year ended December 31, 1992. 10.14.1 Agreement to Merge between BOk and Brookside State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.15.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.15 Merger Agreement among BOK Financial, BOKF Merger Corporation Number Three, Sand Springs Bancshares, Inc., The Shareholders of Sand Springs Bancshares, Inc. and Sand Springs State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1992. 10.15.1 Agreement to Merge between BOk and Sand Springs State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1992. 12 10.16 Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated December 1, 1992, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1993. 10.16.1 Amendment to Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated May 17, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1993. 10.17 Purchase and Assumption Agreement between BOk and FDIC, Receiver of Heartland Federal Savings and Loan Association dated October 9, 1993, incorporated by reference to Exhibit 10.17 of Form 10-K for the fiscal year ended December 31, 1993. 10.18 Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza National Bank dated December 20, 1993, incorporated by reference to Exhibit 10.18 of Form 10-K for the fiscal year ended December 31, 1993. 10.18.1 Amendment to Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza National Bank dated January 14, 1994, incorporated by reference to Exhibit 10.18.1 of Form 10-K for the fiscal year ended December 31, 1993. 10.19 Stock Purchase Agreement between Texas Commerce Bank, National Association and BOk dated March 11, 1994, incorporated by reference to Exhibit 10.19 of Form 10-K for the fiscal year ended December 31, 1993. 10.20 Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation Number Four, Citizens Holding Company and others dated May 11, 1994, incorporated by reference to Exhibit 10.20 of Form 10-K for the fiscal year ended December 31, 1994. 10.21 Stock Purchase and Merger Agreement among Northwest Bank of Enid, BOk and The Shareholders of Northwest Bank of Enid effective as of May 16, 1994, incorporated by reference to Exhibit 10.21 of Form 10-K for the fiscal year ended December 31, 1994. 10.22 Agreement and Plan of Merger among BOK Financial Corporation, BOKF Merger Corporation Number Five and Park Cities Bancshares, Inc. dated October 3, 1996, incorporated by reference to Exhibit C of S-4 Registratioin Statement No. 333-16337. 10.23 Agreement and Plan of Merger among BOK Financial Corporation and First TexCorp., Inc. dated December 18, 1996, incorporated by reference to Exhibit 10.24 of S-4 Registration Statement No. 333-16337. 11.0 Statement regarding the computation of per share earnings. 13.0 Annual Report to Shareholders for the fiscal year ended December 31, 1996. Such report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not deemed to be "filed" as part of this Annual Report on Form 10-K. 21.0 Subsidiaries of BOK Financial. 23.0 Consent of independent auditors - Ernst & Young LLP. 27.0 Financial Data Schedule 99.0 Additional Exhibits. 99.1 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44121 for Bank of Oklahoma Master Thrift Plan and Trust, incorporated by reference to Exhibit 99.1 of Form 10-K for the fiscal year ended December 31, 1993. 99.2 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44122 for BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 99.2 of Form 10-K for the fiscal year ended December 31, 1993. 99.3 Undertakings incorporated by reference into S-8 Registration Statement No. 33-55312 for BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 99.3 of Form 10-K for the fiscal year ended December 31, 1993. 13 99.4 Undertakings incorporated by reference into S-8 Registration Statement No. 33-70102 for BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 99.4 of Form 10-K for the fiscal year ended December 31, 1993. 99.5 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79834 for BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 99.5 of Form 10-K for the fiscal year ended December 31, 1994. 99.6 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79836 for BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 99.6 of Form 10-K for the fiscal year ended December 31, 1994. (B) Reports on Form 8-K None. (C) Exhibits Required by Item 601 of Regulation S-K The exhibits listed in response to Item 14(A)(3) are filed as part of this report. (D) Financial Statement Schedules None. 14 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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 DATE: March 25, 1997 BY: /s/George B. Kaiser --------------------- George B. Kaiser, Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 25, 1997 , by the following persons on behalf of the Registrant and in the capacities indicated. OFFICERS /s/George B. Kaiser /s/Stanley A. Lybarger - -------------------------------- ---------------------------- George B. Kaiser, Stanley A. Lybarger, Chairman of the Board of Directors Director, President and Chief Executive Officer /s/James A. White /s/John C. Morrow - ------------------------------ ---------------------------- James A. White, John C. Morrow Executive Vice President and Senior Vice President and Chief Financial Officer/Treasurer Coontroller, Financial Accounting DIRECTORS /s/ V. Burns Hargis - ------------------------------- -------------------------------- W. Wayne Allen V. Burns Hargis /s/ Keith E. Bailey /s/ E. Carey Joullian, IV - ------------------------------- -------------------------------- Keith E. Bailey E. Carey Joullian, IV /s/ Robert J. LaFortune - ------------------------------- -------------------------------- James E. Barnes Robert J. LaFortune /s/ Sharon J. Bell - ------------------------------- -------------------------------- Sharon J. Bell Philip C. Lauinger, Jr. /s/Glenn A. Cox /s/ David R. Lopez - -------------------------------- -------------------------------- Glenn A. Cox David R. Lopez - ------------------------------- -------------------------------- Ralph S. Cunningham Frank A. McPherson /s/ Nancy J. Davies - ------------------------------- -------------------------------- Nancy J. Davies Robert L. Parker, Sr. /s/ Dr. Robert H. Donaldson /s/ James W. Pielsticker - ------------------------------- -------------------------------- Dr. Robert H. Donaldson James W. Pielsticker - ------------------------------- -------------------------------- William E. Durrett James A. Robinson /s/ James O. Goodwin - ------------------------------- -------------------------------- James O. Goodwin L. Francis Rooney, III /s/ Robert L. Zemanek -------------------------------- Robert L. Zemanek EX-11 2 COMPUTATION OF EPS BOK FINANCIAL CORPORATION EXHIBIT 11 STATEMENT REGARDING THE COMPUTATION OF PER SHARE EARNINGS 1996 1995 1994 ------------------------------------------ COMPUTATION OF PRIMARY EARNINGS PER SHARE: Primary Average Common Share Equivalents: Common shares 21,111,892 21,091,029 21,120,023 Stock options 122,471 90,312 83,473 - ----------------------------------------------------------------------------------------------- Total primary average common share equivalents 21,234,363 21,181,341 21,203,496 - ----------------------------------------------------------------------------------------------- Income before Preferred Stock dividends $54,127,000 $49,205,000 $45,065,000 Less stock dividends on Series A Preferred Stock 1,500,000 1,500,000 1,500,000 Less cash dividends on Citizens Holding Company -- - 113,000 Preferred Stock - ----------------------------------------------------------------------------------------------- Net Income $52,627,000 $47,705,000 $43,452,000 - ----------------------------------------------------------------------------------------------- Primary Earnings per Common Share Equivalent: Net Income $ 2.48 $ 2.25 $ 2.05 - ----------------------------------------------------------------------------------------------- COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE: Fully Diluted Average Common Share Equivalents: Common shares 21,111,892 21,091,029 21,120,023 Stock options 280,092 97,005 83,731 Series A preferred stock 2,813,773 2,813,773 2,813,773 - ----------------------------------------------------------------------------------------------- Total fully diluted average common share equivalents 24,205,757 24,001,807 24,017,527 - ----------------------------------------------------------------------------------------------- Income before Preferred Stock dividends $54,127,000 $49,205,000 $45,065,000 Less cash dividends on Citizens Holding Company -- - 113,000 Preferred Stock - ----------------------------------------------------------------------------------------------- Net Income $54,127,000 $49,205,000 $44,952,000 - ----------------------------------------------------------------------------------------------- Fully Diluted Earnings per Common Share Equivalent: Net Income $ 2.24 $ 2.05 $ 1.88 - -----------------------------------------------------------------------------------------------
COMMON STOCK On November 14, 1994, BOK Financial issued 1,380,017 shares of Common Stock to merge with Citizens Holding Company and its subsidiaries, Citizens Bank of Muskogee and Citizens Bank of Northwest Arkansas in a pooling-of-interests transaction. Common shares have been restated to reflect these shares as being outstanding for all periods presented. During 1996, 1995 and 1994, 3% dividends payable in shares of BOK Financial common stock were declared and paid. Common shares have been restated to reflect these shares as being outstanding for all periods. STOCK OPTIONS BOK Financial has various stock option plans whereby each option awarded grants to the employee the right to purchase shares of Common Stock at the price set forth under the respective plan. Options awarded under these plans are subject to vesting requirements. Generally, one-seventh of the options vest annually and expire three years after vesting. Options were awarded under the 1994 Plan in 1994, 1995, and 1996. Canceled options under the 1994 Plan may be reawarded. The common share equivalents of the Stock Option Plans were determined using the treasury stock method, whereby the proceeds from the exercise of the options would be used to purchase Common Stock at the quarterly average market price for primary average common share equivalents, and at the greater of the quarterly average market price or period-end market price for primary average common share equivalents. SERIES A PREFERRED STOCK The preferred stock is convertible, at the option of the holder, into one share Common Stock for each 89 shares of Series A Preferred Stock. BOK Financial may elect to convert all or part of the Series A Preferred Stock into Common Stock if BOK Financial shall fail to meet the published minimum risk-based capital ratios applicable to BOK Financial for a period of eight consecutive calendar quarters. During 1996, 1995 and 1994, 69,672 shares, 69,959 shares, and 65,279 shares of Common Stock were issued, respectively, by mutual agreement with the holders and in lieu of cash, in payment of dividends on the Series A Preferred Stock. Common shares have been restated to reflect these shares as being outstanding for all periods. For the 1996, 1995 and 1994 calculations of primary earnings per share, net income has been reduced by the value of the Common Stock issued in payment of dividends. Prior to its merger with BOK Financial, Citizens Holding Company had nonvoting preferred stock, on which it paid $113 thousand in cash dividends in 1994. These preferred shares were redeemed in full and canceled in conjunction with Citizens' merger with BOK Financial. For the 1994 calculations of primary and fully diluted earnings per share, net income has been reduced by the payment of cash dividends. EX-13 3 1996 ANNUAL REPORT TO SHAREHOLDERS BOK FINANCIAL CORPORATION EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS Table of Contents Consolidated Selected Financial Data 5 Management's Assessment of Operations and Financial Condition 6 Selected Quarterly Financial Data 11 Report of Management on Financial Statements 19 Report of Independent Auditors 19 Consolidated Financial Statements 20 Notes to Consolidated Financial Statements 25 Annual Financial Summary 44 Quarterly Financial Summary 46 Appendix A 48 BOK FINANCIAL CORPORATION AT A GLANCE BOK Financial Corp. is a multi-bank holding company with $4.6 billion in assets, whose bank subsidiaries are Bank of Oklahoma, N.A. and Bank of Arkansas (Citizens Bank of Northwest Arkansas, N.A.). Acquisitions of two Dallas banks - First National Bank of Park Cities and First Texas Bank - were consumated in early 1997. OTHER OPERATING UNITS Citizens Mortgage Corp. / BOk Mortgage / BancOklahoma Trust Co. / Alliance Trust Co., N.A. / TransFund Electronic Funds Transfer Network PROFILE More than 65 bank locations in a three-state area, including 22 in Oklahoma City and 23 in Tulsa / 15 supermarket locations / Approximately 2,100 employees / Common Stock traded on NASDAQ under the symbol BOKF / Largest financial institution in Oklahoma / Founded in 1910 as Exchange National Bank of Tulsa 1 Management Letter 5 Management's Assessment of Operations and Financial Condition 19 Report of Management on Financial Statements 19 Report of Independent Auditors 20 Consolidated Financial Statements 48 Appendix A 49 Shareholder and Corporate Information FINANCIAL HIGHLIGHTS (Dollars In Thousands Except Share Data) 1996 1995 1994 -------------------------------------------- FOR THE YEARS ENDED DECEMBER 31 Net income $ 54,127 $ 49,205 $ 45,065 Earnings per share: Primary 2.48 2.25 2.05 Fully diluted 2.24 2.05 1.88 ------------------------------------------------------------------------------ Return on average assets 1.26% 1.22% 1.26% Return on average equity 16.80 18.07 19.92 AS OF DECEMBER 31 Loans, net of reserves $ 2,349,432 $ 2,156,081 1,805,782 Assets 4,620,700 4,244,118 3,927,276 Deposits 3,256,755 2,937,709 2,629,574 Shareholders' equity 359,966 301,565 236,902 Nonperforming assets 42,227 42,066 31,881 ------------------------------------------------------------------------------ Book value per common share $ 16.48 $ 13.83 10.85 Common shares outstanding (fully diluted) 24,252,033 23,208,982 22,467,186 ------------------------------------------------------------------------------ Tier 1 capital ratio 10.49% 9.91% 9.14% Total capital ratio 11.74 11.17 11.19 Leverage ratio 7.46 6.55 5.64 Shareholders' equity to total assets 7.79 7.11 6.03 Reserve for loan losses to nonperforming loans 119.91 99.02 137.76 Reserve for loan losses to loans(1) 1.96 1.80 2.12 Net charge offs (recoveries) to average loans (.12) .01 .01 --------------------------------- ------------------------------ ------------- (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. 1 TO OUR SHAREHOLDERS, CUSTOMERS, EMPLOYEES AND FRIENDS Last year continued the pattern of change and consolidation in the financial services industry which has characterized the past several years. Our company recorded a very successful year in this environment, both financially and strategically, and we are pleased to report on this performance and discuss our goals for the future. Net income for the year was $54.1 million, or $2.24 per share, an increase of 10 percent over 1995 earnings, or 9 percent on a per share basis. Recurring core earnings grew at a materially faster pace. The increase was derived from an improved net interest margin and very strong growth in other operating revenue. Loans grew by 11.9 percent, with a total increase of $240 million, and deposits increased in excess of $440 million, the result of our emphasis on improving our funding sources following several years during which loan growth had outstripped core funding growth. Our net interest margin increased 15 basis points, to 3.54 percent, principally due to a reduction in low margin reinvested borrowings. (Net Income graph appears here. See Appendix A, graph I) Growth in other operating revenues was dramatic -- with an overall increase of 20 percent -- and with every line of business making a significant contribution to the increase. Mortgage banking, brokerage operations, and our TransFund electronic funds transfer network each contributed increases in excess of 25 percent. Operating expenses grew 6.5 percent, excluding non-recurring charges totaling $7.6 million resulting from Federal legislative action to recapitalize the Savings Association Insurance Fund and a related decision we made to eliminate core deposit intangible assets associated with acquired thrift deposits. IS THERE A NEW COMPETITIVE LANDSCAPE? Oklahoma's banking industry saw dramatic shifts during 1996. Our last two multi-billion dollar competitors announced sales to large out-of-state banks, leaving BOk as the only locally owned and managed institution of its size in the state. BOK Financial now has an historic 2 opportunity to differentiate itself as Oklahoma's leading bank, and as the only major statewide financial institution with a single minded commitment to building the Oklahoma economy and employment base. We are confident that BOk, with its roots and future tied to Oklahoma's, will thrive in an environment in which our national franchise competitors are hobbled by multi-level decisionmaking and lack of sensitivity to the needs of local customers. ABOUT 1996 Commercial banking activity continued at a strong pace. Average commercial loans increased over 13 percent for the year, ending at a new high of $1.66 billion. Growth in cash management income was particularly strong, increasing 14 percent. During the year, we were successful in winning the business of several major companies against national competition, again attesting to the quality of our entire package of corporate services. (Loans graph appears here. See appendix A, graph II). Our supermarket banking expansion continued, with five new locations opened in 1996, and with plans to add eight more supermarket branches in 1997. This expansion will bring us to 23 supermarket locations and a total network of 75 in Oklahoma, Arkansas and Texas -- the clear leader in convenience in our markets. During 1996, we also introduced personal computer banking and announced plans to introduce interactive video kiosks for consumer lending and other transactions. Customer convenience was further augmented by BOk's 24-hour ExpressBank, our telephone sales and service center which was introduced in 1995. By offering the ultimate in convenience, the ExpressBank grew dramatically last year, handling more than 1 million calls and generating more than 25 percent of our consumer loan applications. (Real Estate Loans graph appears here. See appendix A, graph III). BOk Mortgage, the state's leading mortgage originator, grew 32 percent in total production -- including a 46 percent growth in retail production -- and now has a servicing portfolio of $5.9 billion. Wholesale and retail residential originations have totaled $2.9 billion since 1992. 3 New production offices in Fayetteville, Bentonville, and Siloam Springs, Arkansas, were opened. BOk Mortgage also acquired the leading mortgage company serving Lawton, Oklahoma, and $628 million in servicing rights distributed across the nation. TransFund, the state's largest electronic funds transfer network and ranked among the 25 largest networks nationally, continued its excellent growth pattern, with operating revenue up 31 percent. Total transaction volume grew by 27 percent, led by the tremendous marketing success of its Visa Check Card service, which had an increase in transaction volume of 133 percent. TransFund serves more than 175 financial institutions in Oklahoma with a growing presence in surrounding states. BancOklahoma Trust, the state's leading fiduciary organization, in 1996 began marketing a specially designed 401(k) product directed at certain targeted types of firms with large individual accounts. This product has met with very encouraging success in its initial stages, including sales in national competition to major out- of-state law firms. The Trust Company is now responsible for $7.5 billion in assets, placing it among the top 75 corporate fiduciaries nationwide. For the past several years, one of our fastest growing and most successful businesses has been the sale of investment services. Last year, revenue from this area increased 31 percent. In addition, BOk ranked 38th nationally among all banks in long-term mutual fund sales. We have also filed for approval to open Alliance Securities Corp., which will concentrate on providing investment banking services to municipalities and/or tax-exempt entities. (Operating Revenue graph appears here. See appendix A, graph IV). Operationally, Alliance Securities will be an integral part of our newly announced merchant banking unit, which will be responsible for a broad range of financial services outside those traditionally associated with banking. This will include financial advisory and underwriting services in both the public and corporate sectors, leasing and mezzanine financing. 4 In late 1996, BOK Financial announced the signing of definitive agreements to acquire the $226 million First National Bank of Park Cities and the $142 million First Texas Bank, both located in Dallas. Both agreements were consummated in the first quarter of 1997. Park Cities has distinguished itself as the premier bank in north Dallas, catering to high income business owners and professionals. First Texas' greatest strength is its expertise in small businesses lending. Both organizations are financially sound and extremely well-managed. Through this combination of skills plus Bank of Oklahoma's strength in middle-market commercial lending and our pre-existing Alliance Trust Company, we now are in position to build a strong, competitive banking franchise in the north Texas market. (Funding Graph appears here. See appendix A, graph V). Our board of directors, which includes the current or immediate past chief executive officers of four of the state's five Fortune 500 companies and prominent entrepreneurs and community leaders from across the state, was further strengthened during 1996 by the additions of Mr. David R. Lopez, President for the Oklahoma region of Southwestern Bell Telephone Co., and Mr. James W. Pielsticker, President and owner of Arrow Trucking. Both additions evidence our commitment to having the strongest board of directors of any publicly held company in our state, and are the essential element to the continuation of the leadership role we see for BOK Financial Corporation. We also accepted the resignations of two long-time directors, Thomas J. Hughes III and William B. Cleary, who retired from our board during 1996. We will sincerely miss their seasoned insight which has contributed so significantly to the progress of our company. As always, we appreciate your support and your business. Sincerely, /s/ George B. Kaiser /s/Stanley A. Lybarger /s/Wayne D. Stone Chairman of the Board President and Chief President, Executive Officer Oklahoma City 5 Table 1 Consolidated Selected Financial Data (Dollars In Thousands Except Share Data) BOK FINANCIAL ----------------------------------------------------------------- 1996 1995 1994 1993(1) 1992(1) ----------------------------------------------------------------- SELECTED FINANCIAL DATA For the year: Interest revenue $ 290,532 $ 275,441 $ 223,058 $ 181,354 $ 155,745 Interest expense 163,093 160,177 104,055 74,586 67,003 Net interest revenue 127,439 115,264 119,003 106,768 88,742 Provision for loan losses 4,267 231 195 3,376 5,555 Income before cumulative effect of change in accounting principle 54,127 49,205 45,065 37,902 29,786 Net income 54,127 49,205 45,065 39,472 29,786 Period-end: Loans, net of reserve 2,349,432 2,156,081 1,805,782 1,641,294 1,445,144 Assets 4,620,700 4,244,118 3,927,276 3,147,041 2,980,331 Deposits 3,256,755 2,937,709 2,629,574 2,610,927 2,588,570 Subordinated debenture - - 23,000 23,000 23,000 Shareholders' equity 359,966 301,565 236,902 213,943 163,636 Nonperforming assets 42,227 42,066 31,881 23,452 37,600 PROFITABILITY STATISTICS Per share (based on average equivalent shares): Primary earnings: Income before cumulative effect of change in accounting for income taxes $ 2.48 $ 2.25 $ 2.05 $ 1.74 $ 1.46 Net income 2.48 2.25 2.05 1.82 1.46 Fully diluted earnings: Income before cumulative effect of change in accounting for income taxes 2.24 2.05 1.88 1.58 1.28 Net income 2.24 2.05 1.88 1.65 1.28 Percentages (based on daily averages): Return on average assets3 1.26% 1.22% 1.26% 1.26% 1.28% Return on average shareholders' equity3 16.80 18.07 19.92 20.07 20.76 Average shareholders' equity to average assets 7.49 6.73 6.32 6.27 6.17 COMMON STOCK PERFORMANCE AND EXISTING SHAREHOLDER STATISTICS Per Share: Book value: Common shareholders' equity $ 16.48 $ 13.83 $ 10.85 $ 9.47 $ 7.16 Market price: December 31 Bid 27.00 19.50 20.00 24.75 21.50 Market range - High bid 27.00 23.50 25.00 25.50 21.50 - Low bid 19.25 18.50 19.00 17.50 8.00 Other statistics: Common shareholders at December 31 1,674 1,676 1,748 1,924 2,077 SELECTED BALANCE SHEET STATISTICS Period-end: Tier 1 capital ratio 10.49% 9.91% 9.14% 9.07% 8.14% Total capital ratio 11.74 11.17 11.19 11.49 10.73 Leverage ratio 7.46 6.55 5.64 5.76 5.84 Reserve for loan losses to nonperforming loans 119.91 99.02 137.76 233.92 132.76 Reserve for loan losses to loans2 1.96 1.80 2.12 2.50 2.50 MISCELLANEOUS (AT DECEMBER 31) Number of employees (FTE) 2,102 1,842 1,801 1,741 1,557 Number of banking locations 69 66 63 55 54 Number of TransFund locations 635 549 520 614 495 Mortgage loan servicing portfolio $5,948,187 $5,363,175 $5,080,859 $3,483,993 $2,125,071 - ----------------------------------------------------------------------------------------------------------------------------- (1) Restated for poolings-of-interests which occurred in 1994 and 1993. (2) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. (3) Excludes the cumulative effect of change in accounting for income taxes in 1993.
6 Management's Assessment of Operations and Financial Condition BOK Financial Corporation ("BOK Financial") is a bank holding company which offers full service banking in Oklahoma and Northwest Arkansas and trust services in North Texas. BOK Financial's principal subsidiaries are Bank of Oklahoma, NA ("BOk"), Citizens Bank of Northwest Arkansas, NA ("CBNWA"), and Alliance Trust Company, NA ("Alliance"). CBNWA will change its name to Bank of Arkansas on May 1, 1997. During the fourth quarter of 1996, BOK Financial announced the signing of definitive agreements to acquire the $226 million First National Bank of Park Cities ("Park Cities") and the $142 million First Texas Bank ("First Texas"), both located in Dallas, Texas. These acquisitions will further the development of a niche strategy of serving small-business and middle-market customers in complement to the trust operation of Alliance and BOk's existing portfolio of energy loans in Dallas. ASSESSMENT OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial recorded net income of $54.1 million for 1996 compared to $49.2 million for 1995. Fully diluted earnings per common share were $2.24 for 1996 and $2.05 for 1995. Returns on average assets and average equity were 1.26% and 16.80%, respectively, for 1996 compared to 1.22% and 18.07%, respectively, for 1995. The increase in net income for 1996 was due to increases of $12.2 million or 10.6% in net interest revenue and $14.2 million or 15.5% in other operating revenue. These increases were partially offset by a $16.8 million increase in operating expense, which included $7.6 million of nonrecurring charges related to deposits insured by the Savings and Loan Insurance Fund ("SAIF"), and a $4.0 million increase in provision for loan losses. Net income for the fourth quarter of 1996 was $14.6 million or $.60 per fully diluted common share, an increase of 15.0% compared to $12.7 million or $.53 per fully diluted common share for the same period in 1995. The primary sources of increased quarterly earnings included net interest revenue and other operating revenue, which increased $2.8 million and $3.6 million, respectively, partially offset by a $1.5 million increase in operating expenses and a $2.8 million increase in income taxes. BOK Financial's net income for 1994 was $45.1 million or $1.88 per fully diluted common share. Returns on average assets and average equity were 1.26% and 19.92%, respectively. NET INTEREST REVENUE Net interest revenue, on a tax-equivalent basis, totaled $135.8 million in 1996 compared to $122.3 million in 1995. This increase in net interest revenue was due to increases in both net interest margin and average earning assets. The yield on average earning assets decreased from 7.84% to 7.79% due primarily to an 18 basis point decrease in the yield on the loan portfolio. However, this decrease was partially offset by an improvement in the mix of earning assets. Approximately 57.6% of average earning assets for 1996 were in loans, which generally have a higher yield than other types of earning assets, compared to 54.8% in 1995. Additionally, average earning assets increased by $231 million while average interest bearing liabilities increased $163 million. The $68 million difference, which was funded by increases in both capital and demand deposits, also contributed to the increase in net interest revenue. Additionally, BOK Financial continued efforts to restructure its funding sources during 1996. Average interest-bearing deposits increased $398 million, including increased transaction deposits of $90 million and time deposits of $325 million. Concurrently, average borrowed funds decreased $235 million. This shift in the mix of interest-bearing liabilities, combined with slightly lower interest rates, resulted in a decrease in the cost of interest-bearing liabilities from 5.11% in 1995 to 4.94% in 1996. In addition, interest rate swaps, which hedge against interest rate risk on certain long-term certificates of deposit, reduced interest expense by $1.4 million in 1996 compared to $868 thousand in 1995. The effects of the changes in principal balances and interest rates on net interest revenue by asset and liability type are presented in Table 2. 7 Table 2 Volume/Rate Analysis (In Thousands) 1996/1995 1995/1994 --------------------------- -------------------------- Change Due To(1) Change Due To(1) ----------------- ----------------- Change Volume Yield/Rate Change Volume Yield/Rate -------- -------- -------- ------ --------- --------- Tax-equivalent interest revenue: Securities $ (1,800) $ (408) $(1,392) $ 13,663 $ 9,907 $ 3,756 Trading securities 98 94 4 16 (10) 26 Loans 17,486 21,116 (3,630) 40,637 24,922 15,715 Funds sold 634 734 (100) (1,012) (1,413) 401 - ------------------------------ -------- ------- -------- -------- -------- Total 16,418 21,536 (5,118) 53,304 33,406 19,898 - ------------------------------ -------- ------- -------- -------- -------- Interest expense: Transaction deposits 3,060 2,995 65 3,214 (1,636) 4,850 Savings deposits (493) (428) (65) (565) (383) (182) Time deposits 17,760 18,321 (561) 23,949 7,809 16,140 Borrowed funds (17,059) (13,435) (3,624) 30,552 16,842 13,710 Subordinated debenture (352) (352) -- (1,028) (1,038) 10 - ------------------------------ -------- ------- -------- -------- -------- Total 2,916 7,101 (4,185) 56,122 21,594 34,528 - ------------------------------ -------- ------- -------- -------- -------- Tax-equivalent net interest revenue 13,502 $ 14,435 $ (933) (2,818) $ 11,812 $(14,630) Change in tax- equivalent adjustment (1,327) (921) - ------------------------------- -------- Net interest revenue $ 12,175 $ (3,739) ================================ ======== 4th Qtr 1996/4th Qtr 1995 ------------------------------- Change Due To(1) ------------------- Change Volume Yield/Rate -------- --------- ---------- Tax-equivalent interest revenue: Securities $ 2,010 $ 1,959 $ 51 Trading securities -- 1 (1) Loans 2,576 3,988 (1,412) Funds sold 68 84 (16) - ----------------------------------------------- ------- ------- ------- Total 4,654 6,032 (1,378) - ----------------------------------------------- ------- ------- ------- Interest expense: Transaction deposits 1,073 1,126 (53) Savings deposits (59) (63) 4 Time deposits 2,166 2,766 (600) Borrowed funds (1,750) (1,279) (471) - ----------------------------------------------- ------- ------- ------- Total 1,430 2,550 (1,120) - ----------------------------------------------- ------- ------- ------- Tax-equivalent net interest revenue 3,224 $ 3,482 $ (258) Change in tax-equivalent adjustment (427) - ----------------------------------------------- ------- Net interest revenue $ 2,797 ======= (1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis. - -------------------------------------------------------------------------------- Net interest margin, the ratio of net interest income to average earning assets, increased from 3.39% in 1995 to 3.54% in 1996. This increase was due primarily to the previously discussed improvement in the mix of average earning assets and interest-bearing liabilities along with the increased funding of average earning assets with non-interest-bearing funds. Since inception in 1990, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth and invest in securities. Although this strategy frequently results in a net interest margin which falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. As more fully discussed in the subsequent Interest Rate Sensitivity and Liquidity section, management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy. During 1996, two super regional banks announced significant acquisitions in Oklahoma. The financial services environment in Oklahoma was already highly competitive due to a large number of commercial banks, thrifts, credit unions and brokerage firms in the market. Additionally, many customers already have access to national and regional financial institutions for many products and services. Management does not expect the replacement of existing financial institutions by these banks to significantly alter the competitive environment. Tax equivalent net interest revenue for the fourth quarter of 1996 was $34.5 million compared to $31.2 million for the fourth quarter of 1995. The increase is due primarily to an overall decrease in the cost of interest-bearing liabilities. Rates paid on interest-bearing deposits decreased by 9 basis points to 4.71% for the fourth quarter of 1996. Additionally, the average balance of borrowed funds decreased $86 million as funding needs were met by increases in both interest-bearing deposits and noninterest-bearing funds. Net interest revenue on a tax equivalent basis for 1995 decreased $2.8 million to $122.3 million compared to 1994's total of $125.1 million. This decrease was due to rising market interest rates which affected BOK Financial's interest-bearing liabilities more quickly than its earning assets. While the yield on average earning assets increased by 63 basis points to 7.84% compared to 7.21% in 1994, the cost of interest-bearing liabilities increased 131 basis points to 5.11%. 8 OTHER OPERATING REVENUE Other operating revenue, which consists primarily of fee income on products and services, increased $14.2 million or 15.5% compared to 1995. Excluding gains and losses on securities sales and branch facilities in both years, other operating income increased $19.4 million or 21.9%. Service fees on deposits totaled $24.1 million, an increase of $3.0 million or 14.0% compared to 1995 while revenue generated by the TransFund ATM network and bankcards increased $1.8 million and $1.1 million, respectively. These increases are generally due to a higher volume of activity in 1996. Other revenue increased $3.2 million or 20% compared to 1995, $4.7 million or 31.8% excluding gains and losses on branch sales in both 1996 and 1995. This increase is due primarily to increased revenue from equipment leasing which totaled $2.2 million in 1996. The financing of specialty oil field and other energy-related equipment through operating leasing was developed during 1996 as a complement to BOK Financial's expertise in energy lending. Many of BOK Financial's fee generating activities, such as brokerage and trading activities, trust fees and mortgage servicing revenue, are affected by changes in interest rates. Significant increases in interest rates may tend to decrease the volume of trading activities, and may lower the value of trust assets managed, which is the basis of certain fees, but would tend to decrease the incidence of mortgage loan prepayments. Similarly, a decrease in economic activity would decrease ATM, bankcard and other related revenue. While management expects continued growth in other operating revenue, the rate of increase achieved for 1996 may not be sustainable due to increased competition from national and regional financial institutions which have entered the Oklahoma market and from market saturation. Continued growth may require BOK Financial to introduce new products or to enter new markets which introduces additional demands on capital and managerial resources. Table 3 Other Operating Revenue (In Thousands) BOK FINANCIAL ----------------------------------------------- 1996 1995 1994 1993 1992 ----------------------------------------------- Brokerage and trading revenue $ 7,896 $ 6,046 $ 5,517 $ 7,107 $ 3,827 TransFund network revenue 8,795 7,025 6,039 5,811 5,163 Securities gains (losses), net (2,607) 1,174 (1,868) 1,896 136 Trust fees and commissions 21,638 19,363 17,117 16,824 15,007 Service charges and fees on deposit accounts 24,104 21,152 20,698 20,825 17,704 Mortgage banking revenue 26,234 20,336 15,868 12,564 11,895 Other revenue 19,252 16,050 10,993 11,583 9,511 ------ ------ ------ ------ ------ Total $105,312 $91,146 $74,364 $76,610 $63,243 ======== ======= ======= ======= ======= Other operating revenue for the fourth quarter of 1996 totaled $27.5 million compared to $24.0 million for the fourth quarter of 1995. All significant revenue producing activities contributed to this increase, including $1.3 million from mortgage banking, $809 thousand from deposit fees, and $735 thousand from equipment leasing. Other operating revenue increased $12.5 million or 16.4%, excluding securities gains and losses and a $1.2 million gain on the sale of one branch, in 1995 compared to 1994. This increase was primarily due to growth in mortgage banking revenue which increased $4.5 million, trust fees and commissions which increased $2.2 million, and TransFund revenue and bankcard fees which increased $986 thousand and $708 thousand, respectively. Other operating revenue includes fees, commissions and certain net marketing gains and losses from trust and mortgage banking activities. While trust and mortgage banking activities are integral parts of a commercial bank's operation, their revenue and expenses are attributable primarily to off-balance sheet assets. The effects of trust and mortgage banking activities on BOK Financial's operations are discussed in the following sections. TRUST BOK Financial provides a wide range of trust services through BancOklahoma Trust Company in Oklahoma and Alliance Trust Company, NA in Texas. At December 31, 1996, trust assets with an aggregate market value of approximately $7.5 billion were subject to various fiduciary arrangements, compared to $7.6 billion at December 31, 1995. A summary of both direct and internally allocated revenue and expenses from trust operations are (in thousands): 1996 1995 1994 ----------- ----------- ------------- Total revenue $25,682 $22,428 $18,609 Personnel expense 9,603 8,930 7,936 Other expense 8,420 8,563 7,099 ----- ----- ----- Total expense 18,023 17,493 15,035 ------ ------ ------ Operating profit $ 7,659 $ 4,935 $ 3,574 ======== ======== ======== 9 MORTGAGE BANKING BOK Financial has engaged in mortgage banking activities through BancOklahoma Mortgage Corp. ("BOMC"). Effective January 1, 1997, these activities will be transferred to BOk. These activities include the origination, marketing and servicing of mortgage loans. Notes 1 and 7 to the Consolidated Financial Statements provide additional information regarding mortgage banking activities. Origination and marketing activities resulted in a net gain of $48 thousand in 1996 compared to a net loss of $1.5 million in 1995. The improvement is due primarily to a full year's effect of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122") which was adopted April 1, 1995 and an increase in the volume of mortgage loans originated by BOMC. FAS 122 required that the fair value of servicing rights related to loans originated for sale in the secondary market be capitalized as a separate asset. Previously, only purchased mortgage servicing rights could be capitalized. Total mortgage loan production for 1996 increased $173 million to $706 million compared to $533 million in 1995. This included a $125 million increase in retail loan production. Commitments to originate mortgage loans subject BOK Financial to both credit risk and interest rate risk. Credit risk is managed through underwriting policies and procedures, and interest rate risk is partially hedged through forward sales contracts. BOMC generally sells all fixed rate mortgage loans in the secondary market pursuant to forward sales contracts and all adjustable rate loans to an affiliate. BOMC currently does not securitize pools of mortgage loans either for sale or retention. Consolidated mortgage loan servicing revenue for 1996 was $26.2 million, a $4.3 million or 19.7% increase over 1995. The increase reflects continued growth in the mortgage servicing portfolio which increased to $5.9 billion at the end of 1996 from $5.4 billion at the end of 1995. These amounts include loans serviced for BOk of $243 million and $253 million for 1996 and 1995, respectively. Capitalized mortgage servicing rights, which totaled $61.5 million at December 31, 1996 and $50.6 million at December 31, 1995, represent the value of mortgage loans serviced for others carried at the lower of amortized cost or fair value. Fair value is based on the present value of projected net servicing revenue over the estimated life of the mortgage loans serviced. This estimated life and the value of the servicing rights is very sensitive to changes in interest rates and loan prepayment assumptions. Rising interest rates tend to decrease loan prepayments and increase the value of mortgage loan servicing rights while falling interest rates have the opposite effect. Management has estimated that a 200 basis point decrease in interest rates would cause a $17.8 million decrease in the carrying value of the capitalized mortgage servicing rights that would be recognized through a charge to pre-tax income under current accounting principles. Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities ("FAS 125") was issued during 1996 and becomes effective on January 1, 1997. Among other things, FAS 125 extends the requirement that a valuation allowance be provided for the difference between the amortized historical cost and fair value of all capitalized servicing rights stratified by predominant risk characteristics to all capitalized servicing rights. Previously, such stratification was required only for servicing rights capitalized after the adoption of FAS 122. The result of this change will be to further increase the volatility of reported earnings as the fair value of servicing rights react to changes in interest rates and prepayment assumptions. A summary of both direct and internally allocated revenue and expenses from mortgage banking activities are (in thousands): 1996 1995 1994 --------- ---------- --------- Servicing revenue $25,478 $21,452 $17,473 Origination and secondary marketing revenue, net 2,725 1,251 863 Other revenue 3,387 2,813 2,369 ----- ----- ----- Total revenue 31,590 25,516 20,705 ------ ------ ------ Personnel expense 4,416 4,148 3,498 Amortization of mortgage servicing rights 10,348 8,667 7,468 Other expense 13,357 11,184 8,929(1) ------ ------ ----- Total expense 28,121 23,999 19,895 ------ ------ ------ Operating profit $ 3,469 $ 1,517 $ 810 ======== ======== ======= (1)Excludes charges of $5.2 million for losses on certain purchased mortgage loans. See Note 7 for further discussion. OTHER OPERATING EXPENSE Other operating expense totaled $159.0 million for 1996 compared to $142.2 million in 1995. Excluding non-recurring charges of $7.6 million to record the write off of intangible assets related to deposits insured by the Savings and Loan Insurance Fund ("SAIF") and a special deposit insurance assessment to recapitalize SAIF, operating expenses for 1996 increased 6.5% compared to 1995. The transition toward performance based compensation and variable staffing continued during 1996. Personnel costs increased $4.6 million or 6.9% compared to 1995. This included an increase in incentive compensation expense of $1.7 million or 37.3% compared to 1995 due to growth in revenue over pre-determined targets. Additionally, part-time and temporary compensation expense increased $435 thousand or 11.3%. Employee benefits remained constant as increases in payroll taxes and cost of the pension and thrift plans were offset by decreases in the cost of health insurance. Net occupancy, equipment and data processing expense for 1996 increased $3.5 million or 12.8% compared to 1995. Data processing expense increased $2.2 million due to a higher volume of transactions processed. A significant portion of BOK Financial's data processing is performed by service bureaus under agreements which provide for charges per transaction. Therefore, these costs will vary in direct relation to the number of transactions. Additionally, equipment expense increased $750 thousand, primarily due to depreciation expense. During 1994 through 1996, BOK Financial invested approximately $12.0 million to upgrade its computer and telecommuni- 10 cations networks, item processing equipment, lockbox equipment, and other improvements in technology. An additional $5 million is planned to be invested in 1997. These investments, which allow BOK Financial to compete effectively by providing products and services which are valued by our customers, will increase depreciation expense over the next three to five years. Mortgage banking costs increased $3.3 million or 26.4% due primarily to a $1.9 million increase in the amortization of capitalized mortgage servicing rights. This increase is consistent with the growth in the balance of capitalized servicing rights. Additionally, expenses related to the origination and servicing of government guaranteed loans increased $1.6 million due to a larger volume of transactions. Table 4 Other Operating Expense (In Thousands) BOK FINANCIAL ---------------------------------------------- 1996 1995 1994 1993 1992 ---------------------------------------------- Personnel expense $71,945 $ 67,298 $ 63,111 $ 60,891 $ 51,053 Business promotion 6,372 6,039 6,213 5,535 3,584 Professional fees and services 5,406 5,898 4,664 5,385 3,657 Net occupancy, equipment and data processing expense 30,831 27,324 23,619 25,161 19,248 FDIC and other insurance 1,740 4,406 6,386 6,171 5,313 Special deposit insurance assessment 3,820 - - -` - Printing, postage and supplies 6,792 6,340 5,415 4,876 4,678 Net gains and operating expenses on repossessed assets (4,552) (3,098) (4,575) (2,792) (125) Amortization of intangible assets 5,411 5,992 5,597 4,133 2,840 Write-off of core deposit intangible assets related to SAIF-insured deposits 3,821 - - - - Mortgage banking costs 15,834 12,529 10,764 7,590 6,142 Other expense 11,608 9,478 12,281 8,911 8,892 ------ ----- ------ ----- ----- Total $159,028 $142,206 $133,475 $125,861 $105,282 ======== ======== ======== ======== ======== Since 1991, BOK Financial acquired deposits insured by the SAIF totaling approximately $843 million. In conjunction with these acquisitions, core deposit intangible assets which represent the future earnings potential of these funds, were recorded. In determining the value of these core deposit intangible assets, assumptions were made regarding the returns which were expected to be earned over the costs which would be incurred, including interest expense, processing costs and deposit insurance premiums. During 1995, the FDIC made a change in deposit insurance premiums which significantly decreased the value of deposits insured by SAIF. The premium assessed on deposits insured by the Bank Insurance Fund ("BIF") was reduced to 3 basis points (.03%) while the premium assessed on SAIF insured deposits remained at 23 basis points (.23%). Legislation to resolve this difference had been expected from Congress at December 31, 1995. However, at the end of the first quarter of 1996, the expected legislation had been removed from the agenda and the resolution of the differential between rates assessed on SAIF insured deposits compared to BIF insured deposits was uncertain. This uncertainty, in addition to heightened competitive pressures caused the spreads between the actual returns and costs to decrease. These conditions caused the value of these core deposit intangible assets to be impaired and a write down of $3.8 million was recognized. During the third quarter of 1996, legislation to resolve the differential between rates paid on SAIF insured deposits and BIF insured deposits was again placed on the Congressional agenda. On September 30, 1996, legislation was enacted which was designed to recapitalize SAIF and to equalize SAIF and BIF premium rates. This legislation included a one-time assessment against all SAIF insured deposits, including approximately $740 million held by BOK Financial. The amount of this special deposit insurance assessment was $3.8 million. Following this assessment, management expects future deposit insurance premiums to decrease by approximately $1.2 million each year. During the third quarter of 1996, BOK Financial sold two nonaccruing loans for cash, notes and other consideration. This sale resulted in a recovery of amounts previously charged off of approximately $2.7 million which was recorded as an addition to the allowance for loan losses, a gain of approximately $2.0 million which was included in net gains and losses on the sale of repossessed assets, and a reduction in nonaccruing commercial real estate loans of $3.7 million. Other operating expenses for the fourth quarter of 1996 totaled $38.3 million compared to $36.9 million for the fourth quarter of 1995. Increases in mortgage banking and data processing costs were partially offset by a decrease in deposit insurance premiums and an increase in net gains on the sale of repossessed assets. Additionally, amortization of intangible assets decreased as a result of the previously discussed write off of certain core deposit intangible assets. The efficiency ratio, the ratio of other operating expenses, excluding net gains on real estate sales and SAIF-related charges, to tax-equivalent net interest revenue and other operating revenue, excluding securities gains and losses, decreased to 64.0% during 1996 compared to 68.5% in 1995. This improvement is due to growth in both net interest revenue and operating revenue along with limitations on the growth of operating expenses. Operating expenses for 1995 increased $12.5 million or 9.4% compared to 1994, excluding gains on the sale of repossessed assets and a $5.2 million loss on certain purchased mortgage loans in 1994. The increases are primarily due to higher personnel costs caused by additional staffing in support of expanded products and services, higher data processing costs due to increased volume of transactions, and higher mortgage banking costs, also due to increased volume of loans originated and serviced. 11 INCOME TAXES Income tax expense was $15.3 million, $14.8 million, and $14.6 million for 1996, 1995, and 1994, respectively, representing 22%, 23%, and 25%, respectively of book taxable income. Tax expense currently payable totaled $19.0 million in 1996 compared to $17.0 million in 1995 and $13.7 million in 1994. The acquisition of BOk by BOK Financial in 1991 resulted in a change in ownership which, under tax regulations, significantly limited the utilization of certain tax benefits during a five year period from the acquisition date. Because of these limitations and uncertainties regarding the timing of when these tax benefits would be available and BOK Financial's ability to generate future taxable income, a valuation allowance had been recorded. This valuation allowance was periodically evaluated and adjusted based upon assessments of these limitations and uncertainties. In the second quarter of 1996, the five year limitation period expired. Accordingly, the remaining valuation allowance has been eliminated. Income tax expense for 1997 is expected to be approximately 31% of pre-tax book income, consistent with amounts recorded during 1996, excluding the valuation allowance reversal. See Note 10 to the Consolidated Financial Statements for a detailed discussion. BOk and BOK Financial are currently under audit by the Internal Revenue Service for 1992 and 1993, respectively. The ultimate outcome of this audit cannot be determined with any certainty at this time. However, management expects no material adverse impact on the financial statements. Table 5 Selected Quarterly Financial Data (In Thousands Except Per Share Data) FOURTH THIRD SECOND FIRST --------- ---------- ---------- ---------- 1996 ------------------------------------------ Interest revenue $74,806 $72,890 $72,220 $70,616 Interest expense 42,562 40,944 39,773 39,814 ------ ------ ------ ------ Net interest revenue 32,244 31,946 32,447 30,802 Provision for loan losses 357 62 2,937 911 ----- ------ ----- ------ Net interest revenue after provision for loan losses 31,887 31,884 29,510 29,891 Other operating revenue 28,156 27,228 25,933 26,602 Securities gains (losses), net (622) - (1,967) (18) Other operating expense 38,315 40,297 42,774 37,642 ------ ------ ------ ------ Income before taxes 21,106 18,815 10,702 18,833 Income tax expense (benefit) 6,540 5,840 (2,889) 5,838 ----- ----- ------ ----- Net income $14,566 $12,975 $13,591 $12,995 ======= ======= ======= ======= Earnings Per Share: Primary $ .66 $ .59 $ .62 $ .60 ======= ======= ======= ======= Fully Diluted .60 .54 .57 .54 === === === === Average Shares: Primary 21,370 21,217 21,188 21,170 ====== ====== ====== ====== Fully Diluted 24,219 24,087 24,023 24,001 ====== ====== ====== ====== 1995 ---------------------------------------- Interest revenue $70,579 $69,686 $69,228 $65,948 Interest expense 41,132 40,631 40,869 37,545 ------ ------ ------ ------ Net interest revenue 29,447 29,055 28,359 28,403 Provision for loan losses 176 15 40 - ------ ------ ------ ------- Net interest revenue after provision for loan losses 29,271 29,040 28,319 28,403 Other operating revenue 23,951 22,237 21,631 22,153 Securities gains, net - 948 226 - Other operating expense 36,852 35,682 34,567 35,105 ------ ------ ------ ------ Income before taxes 16,370 16,543 15,609 15,451 Income taxes 3,707 4,050 3,527 3,484 ------ ------ ------ ------ Net income $12,663 $12,493 $12,082 $11,967 ======= ======= ======= ======= Earnings Per Share: Primary $ .58 $ .57 $ .55 $ .55 ======== ======== ======== ======== Fully Diluted .53 .52 .50 .50 === === === === Average Shares: Primary 21,192 21,210 21,175 21,157 ====== ====== ====== ====== Fully Diluted 24,006 24,024 23,996 23,972 ====== ====== ====== ====== 12 ASSESSMENT OF FINANCIAL CONDITION SECURITIES PORTFOLIO Securities are identified as either investment or available for sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Investment securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Amortization or accretion of mortgage-backed securities is periodically adjusted for estimated prepayments. Available for sale securities are those which may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available for sale are carried at fair value. Unrealized gains or losses, less applicable deferred taxes, are recorded in Shareholders' Equity. During 1996, BOK Financial increased its holdings of marketable equity securities by $72.5 million based on historical cost. Approximately $41.5 million of this increase was from purchases of government agency preferred stock which offers attractive yields with little market value risk. Additionally, BOK Financial increased the cost basis of its holdings in the common stock of another bank by $12.8 million. The fair value of this stock has appreciated by $6.8 million due to a pending acquisition of the bank. Table 6 presents the book values and fair values of BOK Financial's securities portfolio at December 31, 1996, 1995 and 1994. Additional information regarding the securities portfolio is presented in Note 4 to the Consolidated Financial Statements. Table 6 Securities (In Thousands) DECEMBER 31, 1996 1995 1994 ---------------------- ---------------------- ------------------ BOOK FAIR Book Fair Book Fair VALUE VALUE Value Value Value Value ---------------------------------------------------------------- Investment: U.S. Treasury $ 1,000 $ 992 $ 716 $ 721 $ 1,224 $ 1,211 Municipal and other tax-exempt 134,150 134,705 95,907 97,628 244,411 231,338 Mortgage-backed securities: U.S. agencies 62,282 62,876 78,832 79,777 694,086 637,586 Other - - - - 9,825 9,625 ------ ------ ------ ------ ------ ------ Total mortgage-backed securities 62,282 62,876 78,832 79,777 703,911 647,211 ------ ------ ------ ------ ------- ------- Other debt securities 976 976 3,666 3,660 7,781 7,451 Equity securities and mutual funds - - - - - - -------- -------- -------- -------- -------- -------- Total $198,408 $199,549 $179,121 $181,786 $957,327 $887,211 ======== ======== ======== ======== ======== ========
AMORTIZED FAIR Amortized Fair Amortized Fair COST VALUE Cost Value Cost Value -------------------------------------------------------------- Available for sale: U.S. Treasury $200,505 $ 201,091 $ 221,201 $ 222,478 $261,544 $255,347 Municipal and other tax-exempt 160,813 161,358 165,709 166,855 - - Mortgage-backed securities: U.S. agencies 985,219 979,117 941,020 934,433 374,078 352,169 Other 3,288 3,961 8,154 8,011 - - ------- ------- ------- ------- -------- ------- Total mortgage-backed securities 988,507 983,078 949,174 942,444 374,078 352,169 ------- ------- ------- ------- ------- ------- Other debt securities 178 178 250 98 - - Equity securities and mutual funds 106,655 113,417 34,145 34,786 22,726 22,726 ------- ------- ------ ------ ------ ------ Total $1,456,658 $1,459,122 $1,370,479 $1,366,661 $658,348 $630,242 ========== ========== ========== ========== ======== ========
LOANS During 1996, loans increased $200 million or 9.1%, continuing an upward trend in loan volumes which began in 1991. This increase was the result of continued strength in the Oklahoma economy and taking advantage of disruptions in banking relationships caused by high-profile bank mergers. Commercial loans increased $123 million or 14.3% and commercial real estate loans increased $77 million or 12.9%. The composition of the loan portfolio shifted toward commercial and commercial real estate loans during 1996. Commercial loans totaled $984 million or 41% of the portfolio, compared to 39% in 1995. This included energy loans of $217 million or 9.1% of the total loan portfolio. Commercial real estate loans totaled $676 million or 28% at December 31, 1996. Substantially all of the commercial and consumer loans, and approximately 77% of the residential mortgage loans (excluding loans held for sale) are to businesses and individuals in Oklahoma or Northwest Arkansas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Notable segments within the commercial loan portfolio are presented in Table 7. Commercial real estate loans are secured primarily by properties located in the Tulsa or Oklahoma City, Oklahoma metropolitan areas. The major components of these properties are multifamily residences, $146.2 million; office buildings, $82.3 million; hotels, $70.6 million; retail facilities, $60.8 million; and medical/nursing facilities, $70.3 million. 13 Table 7 Loans (In Thousands) ------------------------------------------------------ DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Commercial: Energy $ 217,056 $ 159,887 $ 162,767 $ 161,273 $ 137,619 Manufacturing 137,529 136,701 106,104 99,464 89,015 Wholesale/retail 166,075 143,941 95,021 81,207 88,537 Agriculture 109,324 86,733 82,527 69,315 61,186 Loans for purchasing or carrying securities 13,604 7,963 9,718 13,249 27,975 Other commercial and industrial 340,602 325,839 289,929 268,028 276,672 Commercial real estate: Construction and land development 165,784 148,217 106,692 93,310 81,022 Other real estate loans 509,874 450,385 363,600 293,122 292,768 Residential mortgage: Secured by 1-4 family residential properties 429,405 436,816 373,389 254,505 213,201 Residential mortgages held for sale 95,332 72,412 40,909 189,786 78,970 Consumer 209,995 225,474 213,397 155,296 133,279 ------- ------- ------- ------- ------- Total $2,394,580 $2,194,368 $1,844,053 $1,678,555 $1,480,244 ========== ========== ========== ========== ========== BOK Financial monitors loan performance on a portfolio and individual loan basis. Nonperforming loans are reviewed at least quarterly and are discussed subsequently under the caption "Nonperforming Assets." The loan review process involves evaluating the credit worthiness of customers and their ability, based upon current and anticipated economic conditions, to meet future principal and interest payments. Loans may be identified which possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are performing in accordance with the original terms of the loan agreements and no loss of principal or interest is anticipated, such loans are not included in the Nonperforming Assets totals. These loans are assigned to various risk categories in order to focus management's attention on the loans with higher risk of loss. At December 31, 1996, loans totaling $40 million were assigned to the substandard risk category and loans totaling $62 million were assigned to the special mention category, compared to $42 million and $40 million, respectively, at December 31, 1995. Table 8 Loan Maturity and Interest Rate Sensitivity on December 31, 1996 (In Thousands) --------------------------------------- Remaining Maturities of Selected Loans --------------------------------------- Total Within 1-5 After 1 Year Years 5 Years ----------------------------------------- Loan maturity: Commercial $ 984,190 $517,648 $405,180 $ 61,362 Commercial real estate 675,658 127,768 427,538 120,352 ------- ------- ------- ------- Total $1,659,848 $645,416 $832,718 $181,714 ========== ======== ======== ======== Interest rate sensitivity for selected loans with: Predetermined interest rates $ 331,204 $ 67,525 $191,137 $ 72,542 Floating or adjustable interest rates 1,328,644 577,891 641,581 109,172 --------- ------- ------- ------- Total $1,659,848 $645,416 $832,718 $181,714 ========== ======== ======== ======== 14 SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $45 million at December 31, 1996, compared to $38 million at December 31, 1995. This represents 1.96% and 1.80% of total loans, excluding loans held for sale, at December 31, 1996 and 1995, respectively. Losses on loans held for sale, principally residential mortgage loans accumulated for placement in securitized pools, are charged to earnings through adjustments in carrying value to the lower of cost or market value in accordance with accounting standards applicable to mortgage banking. Table 9 presents statistical information regarding the reserve for loan losses for the past five years. Table 9 Summary of Loan Loss Experience (Dollars In Thousands) BOK Financial ------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------- Beginning balance $38,287 $38,271 $37,261 $35,100 $38,351 Loans charged-off: Commercial 2,318 753 1,112 4,089 6,174 Commercial real estate 523 171 227 1,195 4,223 Residential mortgage 237 190 553 548 495 Consumer 3,432 2,874 1,345 690 639 ----- ----- ----- --- --- Total 6,510 3,988 3,237 6,522 11,531 ----- ----- ----- ----- ------ Recoveries of loans previously charged-off: Commercial 3,747 1,579 1,366 2,204 616 Commercial real estate 4,113 987 972 828 823 Residential mortgage 262 373 157 151 175 Consumer 982 834 602 482 447 --- --- --- --- --- Total 9,104 3,773 3,097 3,665 2,061 ----- ----- ----- ----- ----- Net loans charged-off (2,594) 215 140 2,857 9,470 Provision for loan losses 4,267 231 195 3,376 5,555 Additions due to acquisitions - - 955 1,642 664 ------ ------ ------ ------ ------ Ending balance $45,148 $38,287 $38,271 $37,261 $35,100 ======= ======= ======= ======= ======= Reserve to loans outstanding at year-end(1) 1.96% 1.80% 2.12% 2.50% 2.50% Net loan losses to average loan (.12) .01 .01 .18 .71 Provision for loan losses to average loans .19 .01 .01 .22 .41 Recoveries to gross charge-offs 139.85% 94.61% 95.68% 56.19% 17.87% Reserve as a multiple of net charge-offs (17.40)x 178.08x 273.36x 13.04x 3.71x - -------------------------------------------------------------------------------- PROBLEM LOANS - -------------------------------------------------------------------------------- Loans past due (90 days) $18,816 $ 9,379 $ 7,667 $ 5,482 $ 1,379 Nonaccrual 18,835 29,288 20,114 9,124 23,611 Renegotiated - - - 1,323 1,448 - -------------------------------------------------------------------------------- Total $37,651 $38,667 $27,781 $15,929 $26,438 - -------------------------------------------------------------------------------- Foregone interest on nonaccrual loans $ 2,975 $ 2,928 $ 1,392 $ 1,238 $ 2,163 - -------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. The adequacy of the reserve for loan losses is assessed by management based upon an evaluation of the current risk characteristics of the loan portfolio including current economic conditions, historical experience, collateral valuation, changes in the composition of the portfolio and other relevant factors. A provision for loan losses is charged against earnings in amounts necessary to maintain the adequacy of the reserve for loan losses. These provisions totaled $4.3 million for 1996 and $0.2 million for 1995 and 1994. The increased provision for 1996 reflected management's assessment of increased risk of loss due primarily to continued growth in the loan portfolio, moderation of economic activity in BOK Financial's primary market areas, and drought conditions which prevailed over much of Oklahoma during the first half of 1996. Additionally, the allowance increased by $2.6 million due to recoveries of amounts previously charged off in excess of current year loan charge offs. It is expected that continued growth in the loan portfolio will require 1997's provision for loan losses to be comparable to 1996. Table 10 presents management's allocation of the year-end reserve for loan losses for the past five years. The changes in the various allocations reflect the changing composition of the loan portfolio and the changing economic environment in BOK Financial's market area. In addition to reserves allocated to specific loans or categories of loans, reserves are maintained for other relevant factors such as national and local economic conditions and the nature and volume of the loan portfolio. 15 Table 10 Loan Loss Reserve Allocation (Dollars in Thousands) December 31, 1996 1995 1994 1993 1992 ------------------- ------------------- -------------------- ------------------- ------------------- % of % of % of % of % of Reserve Loans(1) Reserve Loans(1) Reserve Loans(1) Reserve Loans(1) Reserve Loans(1) ---------- -------- ---------- -------- ---------- --------- ---------- -------- --------- --------- Loan Category: Commercial $25,191 42.80 $25,646 40.58 $23,633 41.38 $20,344 46.52 $19,784 48.60 Commercial real estate 3,907 29.39 3,774 28.21 2,524 26.08 2,755 25.96 5,876 26.68 Residential mortgage 1,651 18.68 638 20.59 556 20.71 620 17.09 352 15.21 Consumer 5,174 9.13 2,556 10.62 3,436 11.83 1,795 10.43 892 9.51 Nonspecific allocation 9,225 - 5,673 - 8,122 - 11,747 - 8,196 - ------ ----- ----- ----- ------ ------ ------ ------ ------ ------ Total $45,148 100.00 $38,287 100.00 $38,271 100.00 $37,261 100.00 $35,100 100.00 ======= ===== ======= ===== ======= ====== ======= ====== ======= ====== (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value.
NONPERFORMING ASSETS Nonperforming assets totaled $42 million at December 31, 1996 and 1995. Although total nonperforming assets remained unchanged, nonaccruing loans decreased $10.5 million while loans past due 90 days or more increased $9.4 million. The decrease in nonaccruing commercial real estate loans was due primarily to the previously discussed sale of two nonaccruing loans and the decrease in nonaccruing commercial loans was due primarily to payments received. Information regarding nonperforming assets is presented in Table 11. Nonperforming loans include nonaccrual loans, loans 90 days or more past due and renegotiated loans. Loans 90 days or more past due at December 31, 1996 included $13.9 million of residential mortgage loans guaranteed by agencies of the U.S. Government. These loans were purchased from various investors to minimize operating costs. The allowance for loan losses as a percent of nonperforming assets increased to 120% at December 31, 1996 compared to 99% at December 31, 1995 due to the increase in allowance for loan losses previously discussed. See Note 5 to the Consolidated Financial Statements for additional information. Table 11 Nonperforming Assets (Dollars in Thousands) DECEMBER 31, ------------------------------------------ 1996 1995 1994 1993 1992 ------------------------------------------ Nonperforming loans Nonaccrual loans: Commercial $ 9,589 $14,646 $11,238 $ 2,383 $10,677 Commercial real estate 5,306 10,621 5,273 4,854 10,209 Residential mortgage 2,580 2,794 2,916 1,788 2,391 Consumer 1,360 1,227 687 99 334 ----- ----- ----- ----- ------ Total nonaccrual loans 18,835 29,288 20,114 9,124 23,611 Loans past due (90 days)(1) 18,816 9,379 7,667 5,482 1,379 Renegotiated loans - - - 1,323 1,448 ------ ------ ------ ----- ----- Total nonperforming loans 37,651 38,667 27,781 15,929 26,438 ------ ------ ------ ------ ------ Other nonperforming assets: Commercial real estate 2,586 3,023 3,245 5,915 8,086 Other 1,990 376 855 1,608 3,076 ----- ----- ----- ----- ----- Total other nonperforming assets 4,576 3,399 4,100 7,523 11,162 ----- ----- ----- ----- ------ Total nonperforming assets $42,227 $42,066 $31,881 $23,452 $37,600 ======= ======= ======= ======= ======= Ratios: Reserve for loan losses to nonperforming loans 119.91% 99.02% 137.76% 233.92% 132.76% Nonperforming loans to period-end loans(2) 1.64 1.82 1.54 1.07 1.89 - -------------------------------------------------------------------------------- (1) Includes residential mortgages guaranteed by agencies of the U.S. Government. $13,932 $ 6,754 $ 6,549 $ 3,546 $ - (2) Excludes residential mortgage loans held for sale. - -------------------------------------------------------------------------------- 16 DEPOSITS Average deposits for 1996 increased $444 million or 16.6% compared to 1995. This includes increases of $46 million in average demand deposit accounts and $398 million in average interest-bearing deposit accounts. As shown in Table 12, average core deposits increased $182 million and were $2.3 billion or 73.2% of average deposits. Average estimated uninsured deposits increased $172 million and were $565 million or 18.1% of average deposits. Average estimated uninsured deposits included approximately $147 million of brokered deposits. Uninsured deposits as used in this presentation is based on a simple analysis of account balances and does not reflect combined ownership and other account stylings that would determine insurance based on FDIC regulations. These changes, along with the increase in public funds reflect steps taken by management to reduce BOK Financial's reliance on borrowed funds and to increase deposits as a source of funding. Table 12 Deposit Analysis (In Thousands) Average Balances -------------------------- 1996 1995 ------------- ------------ Core deposits $2,287,298 $2,105,266 Public funds 273,312 184,000 Uninsured deposits 565,170 392,627 --------- ---------- Total $3,125,780 $2,681,893 ========== ========== BOK Financial competes for deposits by offering a broad range of products and services to its customers. While this includes offering interest rates and fees which are competitive with other financial institutions, the primary means of competing for deposits is convenience and service to the customers. BOk extended its ability to exceed its competition by offering 24-hour telephone banking through ExpressBank and by adding 5 branches with extended hours in local supermarkets. BOK Financial plans to open 8 new supermarket branches in 1997 to further enhance customer convenience. Table 13 Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More (In Thousands) December 31, ------------------------- 1996 1995 ------------ ------------ Months to maturity: 3 or less $ 66,872 $171,763 Over 3 through 6 195,339 210,495 Over 6 through 12 140,777 56,397 Over 12 157,000 47,531 ------- ------ Total $559,988 $486,186 ======== ======== BORROWINGS Average borrowings for 1996 decreased $229 million compared to 1995 and represented 18.5% of total funding sources, down from 25.3% for 1995. The decrease in borrowings was offset by growth in average deposits and capital. See Note 9 to the Consolidated Financial Statements for additional information. CAPITAL Equity capital of BOK Financial averaged $322 million and $272 million for 1996 and 1995, respectively. The $50 million increase resulted from 1996 earnings and a decrease in unrealized losses on available for sale securities. Management has identified capital and funding needs which total $84 million for current commitments, including the acquisitions of Park Cities and First Texas, and an additional $40 million in capital and funding needs for anticipated growth through 1997. Resources available to meet the current commitments include existing lines of credit with commercial banks which total $50 million and an agreement with its principal shareholder to issue $20 million Tier 2 qualifying debt. The remainder of the commitment will be funded by dividends from BOK Financial's bank subsidiaries. Management is negotiating additional lines of credit up to a total of $80 million and a $30 million increase in Tier 2 qualifying debt. If all capital and funding resources are successfully obtained and fully drawn, BOK Financial will incur approximately $8 million to $10 million of additional interest expense per year. Dividends from BOK Financial's subsidiary banks will be the primary source of repayment. The timing and extent of future growth plans will be reevaluated based upon the availability of these resources. See Note 15 to the Consolidated Financial Statements for additional information. 17 INTEREST RATE SENSITIVITY AND LIQUIDITY BOK Financial's asset/liability management policy addresses several complementary goals: assuring adequate liquidity, maintaining an appropriate balance between interest sensitive assets and liabilities, and maximizing net interest revenue. The responsibility for attaining these goals rests with the Asset/Liability Committee which operates under policy guidelines which have been established by the Board of Directors. These guidelines limit the negative acceptable variation in net interest revenue and economic value of equity due to a 200 basis point rate increase or decrease to + / - 10%, establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. At December 31, 1996, BOK Financial is within all guidelines established under these policies. Interest rate sensitivity, the risk associated with changes in interest rates, is of primary importance within the banking industry. Management has established strategies and procedures to protect net interest revenue against significant changes in interest rates. Generally, these strategies are designed to achieve an acceptable level of net interest revenue based upon management's projections of future changes in interest rates. Table 14 presents the interest rate sensitivity of earning assets and interest bearing liabilities at December 31, 1996. This table indicates that changes in interest rates would affect interest-bearing liabilities much more quickly than earning assets based upon their contractual repricing. However, assets and liabilities with similar contractual repricing characteristics may not reprice at the same time or to the same degree. Most notably, interest-bearing transaction and savings deposits, which are shown as repricing in 1 - 30 days, do not reprice according to their contractual terms. Historical trends indicate that the repricing of these deposits extend across all repricing periods through five years. As a result, the interest rate sensitivity gap analysis is not the best indicator of the impact of changes in interest rates on net interest revenue. Additionally, the maturity of certain securities and loans is based on prepayment assumptions which change based on changes in interest rates. Table 14 Interest Rate Sensitivity Analysis at December 31, 1996 (In Thousands) 1-30 31-90 91-365 1-5 OVER DAYS DAYS DAYS YEARS 5 YEARS TOTAL ----------------------------------------------------------------------------- Earning assets: Securities $ 80,170 $ 13,835 $ 162,302 $1,120,151 $281,072 $1,657,530 Trading securities 6,454 - - - - 6,454 Loans, net 1,532,674 65,897 278,932 348,039 123,890 2,349,432 Funds sold and resell agreements 44,760 - - - - 44,760 --------- ------ ------- --------- ------- --------- Total earning assets 1,664,058 79,732 441,234 1,468,190 404,962 4,058,176 --------- ------ ------- --------- ------- --------- Interest-bearing liabilities: Transaction deposits 954,546 - - - - 954,546 Savings deposits 97,019 - - - - 97,019 Time deposits 292,716 258,184 496,139 460,831 467 1,508,337 Funds purchased and resale agreements 400,198 268,978 - - - 669,176 Other borrowings 171,780 2,670 - 53,808 48,870 277,128 ------- ----- ------- ------- ------ ------- Total interest-bearing liabilities 1,916,259 529,832 496,139 514,639 49,337 3,506,206 --------- ------- ------- ------- ------ --------- Asset-liability gap (252,201) (450,100) (54,905) 953,551 355,625 551,970 Interest rate swaps (receive fixed) - (13,500) (55,000) 85,000 (16,500) - -------- ------- ------- ------ ------- ------- Interest rate sensitivity gap (252,201) (463,600) (109,905) 1,038,551 339,125 551,970 -------- -------- -------- --------- ------- ------- Cumulative interest rate sensitivity gap $ (252,201) $(715,801) $(825,706) $ 212,845 $551,970 $ - =========== ========= ========= =========== ======== ========
18 Management simulates the potential effect of changes in interest rates through computer modeling which incorporates both the current gap position and the expected magnitude of the repricing of specific types of assets and liabilities. This modeling is performed assuming expected interest rates over the next twelve months based on both a "most likely" rate scenario and on two "shock test" rate scenarios, the first assuming a 200 basis point increase and the second assuming a 200 basis point decrease over the next twelve months. An independent source is used to determine the most likely interest rates for the next year. At December 31, 1996, this modeling indicated interest rate sensitivity as follows: 200 bp 200 bp Most increase decrease Likely ---------- ----------- --------- Anticipated impact in next twelve months compared to 1996 actual results: Net interest revenue 1.0% (1.2)% 0.6% Net income 1.4 (11.9) 0.9 Economic value of equity (7.7) 2.5 (1.7) The estimated impact of changes in interest rates on net interest revenue is not projected to be significant within the + / - 200 basis point range of assumptions. However, this modeling indicates that under the 200 basis point decrease scenario the after-tax value of BOK Financial's capitalized mortgage servicing rights, net of mortgage loan refinancing income, would decrease by approximately $6.6 million. While this decrease in value would largely offset an increase in the value of the securities portfolio, current accounting principles require that the net decreased value of mortgage loan servicing rights be charged to earnings while the increased value of available for sale securities be credited to shareholders' equity. The result is an estimated decrease in net income of 11.9%. Additionally, a 200 basis point increase in interest rates would decrease the economic value of equity by 7.7% due primarily to the decrease in value of the securities portfolio. This decrease is compared against the applicable policy which limits the negative impact of a 200 basis point change in interest rates on the economic value of equity to 10%. These simulations are based on numerous assumptions regarding the timing and extent of repricing characteristics. Actual results may differ significantly. BOK Financial uses interest rate swaps, a form of off-balance sheet derivative product, in managing its interest rate sensitivity. These swaps are primarily used to more closely match the interest paid on certain long-term, fixed rate certificates of deposit with earning assets. Swaps allow BOK Financial to offer these deposits to its customers without altering the desired repricing characteristics. BOK Financial accrues and periodically receives a fixed amount from the counter parties to these swaps and accrues and periodically makes a variable payment to the counterparties. During 1996, income from these swaps exceeded costs of the swaps by $1.4 million. Credit risk from these swaps is closely monitored and counterparties to these contracts are selected on the basis of their credit worthiness among other factors. Derivative products are not used for speculative purposes. See Note 14 to the Consolidated Financial Statements for additional information. The best measure of liquidity is the ability to obtain funds to meet cash requirements. Liquidity is achieved through maturities of earning assets, securities available for sale and loans held for sale. On the liability side, liquidity depends on the availability of deposits and short-term borrowings in both the local and national markets for the subsidiary banks. Cash provided by operations in 1996 totaled $56 million, or $77 million excluding the effect of changes in mortgage loans held for sale. This compares to cash provided by operations of $23 million, or $56 million excluding the increase in mortgage loans held for sale, in 1995. Investing activities used $318 million, primarily for net loan funding of $201 million and a net increase in securities of $111 million. Financing activities provided $318 million due to growth in transactional deposit accounts of $211 million and certificates of deposit of $108 million. 19 REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS Management is responsible for the consolidated financial statements which have been prepared in accordance with generally accepted accounting principles. In management's opinion, the consolidated financial statements present fairly the financial conditions, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods indicated. BOK Financial and its subsidiaries maintain a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization, and are recorded as necessary to maintain accountability for assets and to permit preparation of financial statements in accordance with generally accepted accounting principles. 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 an Audit Committee consisting of outside directors that meet periodically with management and BOK Financial's internal and independent auditors. The Committee considers the audit and nonaudit services to be performed by the independent auditors, makes arrangements for the internal and independent audits and recommends BOK Financial's selection of independent auditors. The Committee also reviews the results of the internal and independent audits, considers and approves certain of BOK Financial's accounting principles and practices, and reviews various shareholder reports and other reports and filings. Ernst & Young LLP, certified public accountants, have been engaged to audit the consolidated financial statements of BOK Financial and its subsidiaries. Their audit is conducted in accordance with generally accepted auditing standards and their report on BOK Financial's consolidated financial statements is set forth below. REPORT OF INDEPENDENT AUDITORS We have audited the accompanying consolidated balance sheets of BOK Financial Corporation and subsidiaries at December 31, 1996 and 1995, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements of BOK Financial Corporation and subsidiaries referred to above present fairly, in all material respects, the consolidated financial position of BOK Financial Corporation at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As described in Note 1 in 1995, BOK Financial Corporation changed its method of accounting for mortgage servicing rights. /s/ Ernst & Young LLP Tulsa, Oklahoma January 27, 1997 20 BOK FINANCIAL CORPORATION Consolidated Statements of Earnings (In Thousands Except Share Data) 1996 1995 1994 ------------------------------------ INTEREST REVENUE Loans $196,309 $179,052 $138,415 Taxable securities 77,588 83,076 73,157 Tax-exempt securities 14,665 12,075 9,252 ------ ------ ----- Total securities 92,253 95,151 82,409 ------ ------ ------ Trading securities 340 242 226 Funds sold and resell agreements 1,630 996 2,008 ------- ------- ------- Total interest revenue 290,532 275,441 223,058 ------- ------- ------- INTEREST EXPENSE Deposits 118,066 97,739 71,141 Borrowed funds 45,027 62,086 31,534 Subordinated debenture - 352 1,380 ------- ------- ------- Total interest expense 163,093 160,177 104,055 ------- ------- ------- NET INTEREST REVENUE 127,439 115,264 119,003 PROVISION FOR LOAN LOSSES 4,267 231 195 ------- ------ ------- NET INTEREST REVENUE AFTER PROVISION FOR LOAN LOSSES 123,172 115,033 118,808 ------- ------- ------- OTHER OPERATING REVENUE Brokerage and trading revenue 7,896 6,046 5,517 TransFund network revenue 8,795 7,025 6,039 Securities gains (losses), net (2,607) 1,174 (1,868) Trust fees and commissions 21,638 19,363 17,117 Service charges and fees on deposit accounts 24,104 21,152 20,698 Mortgage banking revenue 26,234 20,336 15,868 Other revenue 19,252 16,050 10,993 ------ ------ ------ Total other operating revenue 105,312 91,146 74,364 ------- ------ ------ OTHER OPERATING EXPENSE Personnel expense 71,945 67,298 63,111 Business promotion 6,372 6,039 6,213 Professional fees and services 5,406 5,898 4,664 Net occupancy, equipment and data processing expense 30,831 27,324 23,619 FDIC and other insurance 1,740 4,406 6,386 Special deposit insurance assessment 3,820 - - Printing, postage and supplies 6,792 6,340 5,415 Net gains and operating expenses on repossessed assets (4,552) (3,098) (4,575) Amortization on intangible assets 5,411 5,992 5,597 Write-off of core deposit intangible assets related to SAIF-insured 3,821 - - deposits Mortgage banking costs 15,834 12,529 10,764 Other expense 11,608 9,478 12,281 ------ ----- ------ Total other operating expense 159,028 142,206 133,475 ------- ------- ------- INCOME BEFORE TAXES 69,456 63,973 59,697 Federal and state income tax 15,329 14,768 14,632 ------ ------ ------ NET INCOME $ 54,127 $ 49,205 $ 45,065 ========= ========= ========= EARNINGS PER SHARE: Primary: Net Income $ 2.48 $ 2.25 $ 2.05 - ------------------------------------------------------------------------------- Fully Diluted: Net Income $ 2.24 $ 2.05 $ 1.88 - ------------------------------------------------------------------------------- AVERAGE SHARES USED IN COMPUTATION: Primary 21,234,363 21,181,341 21,203,496 Fully Diluted 24,205,757 24,001,807 24,017,527 - ------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 21 Consolidated Balance Sheets (In Thousands Except Share Data) December 31, -------------------------- 1996 1995 ------------- ------------ ASSETS Cash and due from banks $ 322,791 $ 303,499 Funds sold and resell agreements 44,760 8,440 Trading securities 6,454 7,777 Securities: Available for sale 1,459,122 1,366,661 Investment (fair value: 1996-$199,549; 1995-$181,786) 198,408 179,121 -------- -------- Total securities 1,657,530 1,545,782 --------- --------- Loans 2,394,580 2,194,368 Less reserve for loan losses 45,148 38,287 --------- --------- Net loans 2,349,432 2,156,081 --------- --------- Premises and equipment, net 47,479 47,673 Accrued revenue receivable 46,020 41,121 Excess cost over fair value of net assets acquired and core deposit premium (net of accumulated amortization: 1996-$30,758; 1995-$21,526) 28,276 37,134 Mortgage servicing rights 61,544 50,634 Real estate and other repossessed assets 4,576 3,399 Other assets 51,838 42,578 --------- --------- Total assets $4,620,700 $4,244,118 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing demand deposits $ 696,853 $ 651,134 Interest-bearing deposits: Transaction 954,546 781,205 Savings 97,019 104,726 Time 1,508,337 1,400,644 --------- --------- Total deposits 3,256,755 2,937,709 --------- --------- Funds purchased and repurchase agreements 669,176 697,497 Other borrowings 277,128 250,309 Accrued interest, taxes and expense 46,047 47,307 Other liabilities 11,628 9,731 --------- --------- Total liabilities 4,260,734 3,942,553 --------- --------- Shareholders' equity: Preferred stock 23 23 Common stock ($.00006 par value; 2,500,000,000 shares authorized; issued: 1996-21,148,729; 1995-20,415,504) 1 1 Capital surplus 176,093 157,395 Retained earnings 182,892 146,727 Treasury stock (shares at cost: December 31, 1996-16,834) (428) - Unrealized net gain (loss) on securities available for sale 1,472 (2,427) Notes receivable from exercise of stock options (87) (154) ------- ------- Total shareholders' equity 359,966 301,565 ------- ------- Total liabilities and shareholders' equity $4,620,700 $4,244,118 ========== ========== See accompanying notes to consolidated financial statements. 22 BOK FINANCIAL CORPORATION Consolidated Statements of Changes in Shareholders' Equity (In Thousands) ------------------------------------ Preferred Stock Common Stock ------------------------------------ Shares Amount Shares Amount ------------------------------------ December 31, 1993 250,065 $1,305 19,471 $ 1 Net income - - - - Issuance of common stock - - 7 - Issuance of common stock to Thrift Plan - - 17 - Exercise of stock options - - 10 - Payments on stock options notes receivable - - - - Cash dividends paid on preferred stock - - - - Dividends paid in shares of common stock: Preferred stock - - 65 - Common stock - - 535 - Payment to dissenting shareholders - - (71) - Cancellation of treasury stock - - (299) - Repurchase of preferred stock (65) (1,292) - - Sale of treasury stock - - - - Unrealized net loss on securities available for sale - - - - ------------------------------- December 31, 1994 250,000 13 19,735 1 Net income - - - - Director retainer shares - - 8 - Issuance of common stock to Thrift Plan - - 3 - Exercise of stock options - - 6 - Payments on stock options notes receivable - - - - Issuance of preferred stock 102 10 - - Dividends paid in shares of common stock: Preferred stock - - 70 - Common stock - - 594 - Unrealized net gain on securities available for sale - - - - ------------------------------- December 31, 1995 250,102 23 20,416 1 Net income - - - - Director retainer shares - - 8 - Exercise of stock options - - 41 - Payments on stock options notes receivable - - - - Cash dividends paid on preferred stock - - - - Dividends paid in shares of common stock: Preferred stock - - 69 - Common stock - - 615 - Unrealized net gain on securities available for sale - - - - ------------------------------- December 31, 1996 250,102 $ 23 21,149 $ 1 =============================== (1) Notes receivable from exercise of stock options. See accompanying notes to consolidated financial statements. 23 Consolidated Statements of Changes in Shareholders' Equity, (Continued) (In Thousands) - -------------------------------------------------------------------------- Treasury Stock Capital Retained ---------------- Unrealized Notes Surplus Earnings Shares Amount Gain (Loss) Receivable(1) Total - ---------- --------------------------------------------------------------- $131,528 $ 80,704 309 $(1,730) $ 2,471 $(336) $213,943 - 45,065 - - - - 45,065 95 - - - - - 95 381 - - - - (42) 339 167 - - - - - 167 - - - - - 93 93 - (113) - - - - (113) 1,500 (1,500) - - - - - 12,264 (12,278) - - - - (14) (1,707) - - - - - (1,707) (1,510) - (299) 1,510 - - - - - - - - - (1,292) - - (10) 220 - - 220 - - - - (19,894) - (19,894) - ---------- --------------------------------------------------------------- 142,718 111,878 - - (17,423) (285) 236,902 - 49,205 - - - - 49,205 157 - - - - - 157 70 - - - - - 70 104 - - - - - 104 - - - - - 131 131 - - - - - - 10 1,500 (1,500) - - - - - 12,846 (12,856) - - - - (10) - - - - 14,996 - 14,996 - -------------------------------------------------------------------------- 157,395 146,727 - - (2,427) (154) 301,565 - 54,127 - - - - 54,127 173 - - - - - 173 569 - 17 (419) - - 150 - - - - - 67 67 - (3) - - - - (3) 1,500 (1,500) - - - - - 16,456 (16,459) - (9) - - (12) - - - - 3,899 - 3,899 - -------------------------------------------------------------------------- $176,093 $182,892 17 $ (428) $ 1,472 $ (87) $359,966 ========================================================================== 24 BOK FINANCIAL CORPORATION Consolidated Statements of Cash Flows (In Thousands) 1996 1995 1994 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 54,127 $ 49,205 $ 45,065 Adjustments to reconcile net income to net cash provided by operating activities: Noncash Thrift Plan contribution - - 257 Provisions for loan and repossessed real estate losses 4,281 231 195 Depreciation and amortization 23,693 19,612 16,931 Write-off of core deposit intangible assets 3,821 - - Net amortization of securities discounts and premiums 2,935 1,929 6,848 Net gain on sale of assets (2,803) (4,742) (626) Mortgage loans originated for resale (714,447) (519,392) (514,635) Proceeds from sale of mortgage loans held for resale 693,012 486,347 661,146 (Increase) decrease in trading securities 1,323 (5,242) 235 (Increase) decrease in accrued revenue receivable (4,899) 277 (8,895) (Increase) decrease in other assets (2,499) 701 (13,875) Increase (decrease) in accrued interest, taxes and expense (3,644) (8,176) 20,534 Increase (decrease) in other liabilities 1,033 2,275 (7,249) ------ ------ ------- Net cash provided by operating activities 55,933 23,025 205,931 ------ ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of available for sale securities 484,436 134,109 82,088 Proceeds from maturities of investment securities 25,284 17,242 167,082 Proceeds from maturities of available for sale securities 226,162 193,855 155,351 Purchases of investment securities (44,890) (29,566) (606,682) Purchases of available for sale securities (801,999) (250,320) (436,644) Loans originated or acquired net of principal collected (201,139) (357,736) (275,366) Proceeds from sales of assets 30,547 43,426 49,052 Purchases of assets (36,441) (32,900) (29,158) Cash and cash equivalents of subsidiaries & branches acquired and sold, net (200) (19,371) (12,014) ------- ------- ------- Net cash used by investing activities (318,240) (301,261) (906,291) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand deposits, transaction deposits, and savings accounts 211,353 12,042 (86,295) Net increase (decrease)in certificates of deposit 107,693 318,100 (22,540) Net increase (decrease) in other borrowings (1,502) (26,528) 733,450 Repayment of subordinated debenture - (23,000) - Issuance of preferred, common and treasury stock, net 311 331 520 Repurchase of preferred stock - - (1,292) Payments to dissenting shareholders - - (1,707) Dividends on preferred stock (3) - (113) Payments on notes receivable 67 131 93 ------- ------- ------- Net cash provided by financing activities 317,919 281,076 622,116 ------- ------- ------- Net increase (decrease) in cash and cash equivalents 55,612 2,840 (78,244) Cash and cash equivalents at beginning of period 311,939 309,099 387,343 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $367,551 $311,939 $309,099 ======== ======== ======== CASH PAID FOR INTEREST $163,777 $157,398 $ 98,677 ============================= CASH PAID FOR TAXES 21,375 10,954 9,609 ============================= NET LOANS TRANSFERRED TO REPOSSESSED REAL ESTATE 2,043 2,159 942 ============================= PAYMENT OF DIVIDENDS IN COMMON STOCK 17,956 14,346 13,764 ============================= See accompanying notes to consolidated financial statements. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Consolidated Financial Statements of BOK Financial Corporation ("BOK Financial") have been prepared in conformity with generally accepted accounting principles, 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") and Citizens Bank of Northwest Arkansas, N.A. Certain prior year amounts have been reclassified to conform to current year classifications. NATURE OF OPERATIONS BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers, other financial institutions and consumers throughout Oklahoma, Northwest Arkansas and North Texas. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust. USE OF ESTIMATES Preparation of BOK Financial's financial statements requires management to make estimates of future economic activities, including interest rates, loan collectibility and prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates. ACQUISITIONS Assets and liabilities acquired by purchase are recorded at fair values on the acquisition dates. Intangible assets are amortized using straight-line and accelerated methods over the estimated benefit periods. These periods range from 7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The net book values of intangible assets are evaluated for impairment when economic conditions indicate an impairment may exist. The Consolidated Statements of Earnings include the results of purchases from the dates of acquisition. The financial statements of companies acquired in pooling-of-interests transactions are combined with the Consolidated Financial Statements of BOK Financial at historical cost as if the mergers occurred at the beginning of the earliest period presented. CASH EQUIVALENTS Due from banks, funds sold (generally federal funds sold for one-day periods) and resell agreements (which generally mature within one to 30 days) are considered cash equivalents. SECURITIES Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities, which are acquired for profit through resale, are carried at market value with unrealized gains and losses included in current period earnings. Investment securities are carried at amortized cost. Amortization is computed by methods which approximate level yield and is adjusted for changes in prepayment estimates. Securities identified as available for sale are carried at fair value with unrealized gains and losses included in shareholders' equity, net of deferred income taxes. Realized gains and losses on sales of securities are based upon the adjusted cost of the specific security sold. LOANS Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower; however, BOK Financial is exposed to risk of loss on loans due to the borrower's difficulties, which may arise from any number of factors including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccrual status when, in the opinion of management, full collection of principal or interest is uncertain, generally when the collection of principal or interest is 90 days or more past due. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. BOK Financial adopted Financial Accounting Standards Board Statement No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," in 1995. Payments on nonaccrual loans are applied to principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loan origination and commitment fees, and direct loan origination costs when significant, are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on related forward sales contracts. 26 RESERVE FOR LOAN LOSSES The reserve for loan losses is maintained at a level that, in the opinion of management, is adequate to absorb losses inherent in the loan portfolio. The adequacy of the reserve for loan losses is determined by management based upon evaluation of the individual credits in the loan portfolio, historical credit losses, anticipated economic conditions in BOK Financial's primary market areas and other relevant factors. Beginning in 1994, BOK Financial adopted Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114"). The allowance for credit losses related to loans that are identified for evaluation in accordance with FAS 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreement. This is substantially the same criteria used to determine when a loan should be placed on nonaccrual status. The amount of impairment determined in accordance with FAS 114 did not differ materially from amounts previously provided. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In accordance with the provisions of FAS 114, management has excluded small balance, homogeneous loans from the impairment evaluation specified in FAS 114. Such loans include 1-4 family mortgage loans, consumer loans, and commercial loans with committed amounts less than $1 million. The adequacy of the allowance for loan losses applicable to these loans is evaluated in accordance with standards established by the banking regulatory authorities and adopted as policy by BOK Financial. A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. Loans are charged off when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Loans are evaluated quarterly and charge offs are taken in the quarter in which the loss is identified. Additionally, all unsecured or under-secured loans which are past due by 180 days or more are charged off within 30 days. Recoveries of loans previously charged off are added to the reserve. REAL ESTATE AND OTHER REPOSSESSED ASSETS Real estate and other repossessed assets are assets acquired in partial or total forgiveness of debt. These assets are carried at the lower of cost, fair value at date of foreclosure or current fair value less estimated selling costs. Income generated by these assets is recognized as received, and operating expenses are recognized as incurred. PREMISES AND EQUIPMENT Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. MORTGAGE SERVICING RIGHTS BOK Financial adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"), during 1995. FAS 122 requires, among other things, that capitalized mortgage servicing rights be carried at the lower of cost less accumulated amortization or fair value. Amortization is determined in proportion to the projected cash flows over the estimated lives of the servicing portfolios. The actual cash flows are dependent upon the prepayment of the mortgage loans and may differ significantly from the estimates. Fair value is determined by discounting the estimated cash flows of servicing revenue, less projected servicing costs, using a risk-adjusted spread over U.S. Treasury rates, which is the assumed market rate for these instruments. Prepayment assumptions are based on industry consensus provided by independent reporting sources. Changes in current interest rates may significantly affect these assumptions by changing loan refinancing activity. Fair value for each servicing portfolio acquired prior to the adoption of FAS 122 is based upon a single weighted average interest rate and remaining life for that portfolio. Fair value for each servicing portfolio acquired and for servicing rights originated since the adoption of FAS 122 is based upon an interest rate stratification for each portfolio. Separate prepayment assumptions are then used to project net cash flows by interest rate strata within each portfolio. A valuation allowance is provided when the amortized cost of each portfolio or each interest rate strata exceeds the calculated fair value. Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," ("FAS 125") was issued during 1996 and becomes effective on January 1, 1997. Among other things, FAS 125 extends the requirement that a valuation allowance be provided for the difference between the amortized historical cost and fair value of all capitalized servicing rights stratified by predominant risk characteristics to all capitalized servicing rights. Previously, such stratification was required only for servicing rights capitalized after the adoption of FAS 122. The result of this change will be to further increase the volatility of earnings as the fair value of servicing rights react to changes in interest rates and prepayment assumptions. 27 FAS 122 also requires that originated mortgage servicing rights be recognized when either mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. Substantially all fixed rate mortgage loans originated by BOK Financial are sold under existing commitments. The fair value of the originated servicing rights is determined at closing based upon current market rates. INTEREST RATE SWAPS AND FORWARD COMMITMENTS BOk uses interest rate swaps and forward sales contracts as part of its interest rate risk management strategy. Interest rate swaps are used to modify the interest expense of certain long-term, fixed rate certificates of deposit. Amounts payable to or receivable from the counterparties are reported in interest expense using the accrual method. In the event of the early redemption of hedged certificates of deposit, any realized or unrealized gain or loss from the swaps would be recognized in income coincident with the redemption. Forward sales contracts are used to hedge existing and anticipated loans in conjunction with mortgage banking activities. The fair value of these instruments is included in determining the adjustment of the loan held for sale portfolio to the lower of cost or market. Gains or losses on closed contracts are recognized when the underlying assets are disposed. The cost of terminating these contracts prior to their expiration dates is expensed when incurred. FEDERAL AND STATE INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance based upon management's assessment of limitations on the use of certain deferred tax assets pursuant to income tax regulations, estimates of future taxable income, and the amount of previously paid taxes. EMPLOYEE BENEFIT PLANS BOK Financial sponsors various plans, including a defined benefit pension plan ("Pension Plan"), a qualified profit sharing plan ("Thrift Plan"), employee health care plans and a post-retirement health care plan. Employer contributions to the Thrift Plan, which match employee contributions subject to percentage and years of service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the estimated remaining lives of the participants. BOK Financial recognizes the expense of health care benefits on the accrual method. Employer contributions to the Pension Plan and various health care plans are in accordance with Federal income tax regulations. EXECUTIVE BENEFIT PLANS BOK Financial accounts for its stock option plans under the provisions of APB 25, "Accounting for Stock Issued to Employees," and is also subject to certain disclosures as required under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," in Note 12. FIDUCIARY SERVICES Fees and commissions on approximately $7.5 billion of assets managed by BOK Financial under various fiduciary arrangements are recognized on the accrual method. EARNINGS PER SHARE Primary earnings per share are computed by dividing net income less the value of preferred stock dividends (including dividends paid in common shares) by the weighted average number of common shares and common share equivalents outstanding. The effect of stock options issued by BOK Financial, which are considered common share equivalents, on the average number of common shares outstanding is determined by the treasury stock method. Fully diluted earnings per share includes the maximum dilutive effect of the conversion of preferred stock at a ratio of one common share per 89 preferred shares. The average number of shares outstanding has been restated for the effects of the poolings-of-interests and stock dividends. 28 (2) ACQUISITIONS Since 1991, BOK Financial acquired deposits insured by the Savings and Loan Insurance Fund ("SAIF") totaling approximately $843 million. In conjunction with these acquisitions, core deposit intangible assets which represent the future earnings potential of these funds, were recorded. In determining the value of these core deposit intangible assets, assumptions were made regarding the returns which were expected to be earned over the costs which would be incurred, including interest expense, processing costs and deposit insurance premiums. During 1995, the FDIC made a change in deposit insurance premiums which significantly decreased the value of deposits insured by SAIF. The premium assessed on deposits insured by the Bank Insurance Fund ("BIF") was reduced to three basis points (.03%) while the premium assessed on SAIF insured deposits remained at 23 basis points (.23%). Legislation to resolve this difference had been expected from Congress at December 31, 1995. However, at the end of the first quarter of 1996, the expected legislation had been removed from the agenda and the resolution of the differential between rates assessed on SAIF insured deposits compared to BIF insured deposits was uncertain. This uncertainty, in addition to heightened competitive pressures caused the spreads between the actual returns and costs to decrease. These conditions caused the value of these core deposit intangible assets to be impaired and a write down of $3.8 million was recognized. In March 1997, BOK Financial paid $39.3 million to acquire First TexCorp, Inc. and its subsidiary, First Texas Bank, in Dallas, Texas. Total consolidated assets and net assets of First TexCorp, Inc. were $141.9 million and $19.7 million, respectively, at December 31, 1996. The acquisition will be accounted for as a purchase. In February 1997, BOK Financial paid $39.0 million and issued notes totaling $11.0 million to acquire Park Cities Bancshares, Inc. and its subsidiary, First National Bank of Park Cities, in Dallas, Texas. Total consolidated assets and net assets of Park Cities Bancshares, Inc. were $225.9 million and $19.1 million, respectively, at December 31, 1996. The acquisition will be accounted for as a purchase. On November 14, 1994, BOK Financial issued 1,380,017 common shares to merge with Citizens Holding Company and its subsidiaries, Citizens Bank of Muskogee and Citizens Bank of Northwest Arkansas, in a pooling-of-interests. BOk paid $11.7 million, on May 2, 1994, to acquire Plaza National Bank, Bartlesville, Oklahoma; paid $6.1 million, on June 13, 1994, for Texas Commerce Trust Company-Sherman National Association, a national association limited to trust powers only; and paid $8.2 million, on October 7, 1994, to acquire Northwest Bank of Enid, Enid, Oklahoma. The allocation of the purchase prices to the assets acquired and liabilities assumed in the preceding acquisitions are as follows (in thousands): Aggregate Acquisitions ------------- 1994 ------------- Cash and cash equivalents $ 14,019 Securities 40,508 Loans: Commercial 27,674 Commercial real estate 16,300 Residential mortgage 17,160 Consumer 18,484 Allowance for loan losses (955) ------ Total loans 78,663 ------ Premises and equipment 2,027 Core deposit premiums 839 Other assets 2,780 ------- Total assets acquired 138,836 ------- Deposits: Noninterest bearing 18,098 Interest bearing 109,384 ------- Total deposits 127,482 ------- Borrowed funds 327 Other liabilities 545 ------- Total liabilities assumed 128,354 ------- Net assets acquired (10,482) Purchase price 26,033 ------ Goodwill $ 15,551 ====== 29 (3) SALE OF ASSETS TO RELATED PARTY During April 1991, BOk sold to BOK Financial's principal shareholder, George B. Kaiser ("Kaiser"), and related business entities certain loans, repossessed real estate and the rights to future recoveries on certain charge-offs. Recoveries collected by BOk and paid to Kaiser were $3.3 million, $1.4 million and $2.4 million for 1996, 1995 and 1994, respectively. (4) SECURITIES INVESTMENT SECURITIES The book and fair values of investment securities are as follows (in thousands): December 31, ---------------------------------------------------------------------------------------------- 1996 1995 ---------------------------------------------- ----------------------------------------------- Book Fair Gross Unrealized Book Fair Gross Unrealized ----------------------- ------------------------ Value Value Gain Loss Value Value Gain Loss ---------------------------------------------------------------------------------------------- U.S. Treasury $ 1,000 $ 992 $ 2 $ (10) $ 716 $ 721 $ 5 $ - Municipal and other tax exempt 134,150 134,705 1,571 (1,016) 95,907 97,628 2,099 (378) Mortgage-backed U.S. Agency Securities 62,282 62,876 832 (238) 78,832 79,777 1,089 (144) Other debt securities 976 976 - - 3,666 3,660 3 (9) ------- ------- ----- ------ ------- ------- ----- ---- Total $198,408 $199,549 $2,405 $(1,264) $179,121 $181,786 $3,196 $(531) ======== ======== ====== ======= ======== ======== ====== =====
The book and fair values of investment securities at December 31, 1996, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity ------------------------------------------------------------ U.S. Treasuries: Book value $ 250 $ 750 $ - $ - $ 1,000 1.59 Fair value 251 741 - - 992 Nominal yield 6.63% 5.12% 5.49% Municipal and other tax exempt: Book value 8,698 75,560 44,292 5,600 134,150 4.93 Fair value 8,670 75,528 44,613 5,894 134,705 Nominal yield(1) 7.38% 7.07% 7.63% 9.54% 7.38% Other debt securities: Book value 376 - 600 - 976 4.17 Fair value 376 - 600 - 976 Nominal yield(1) 4.13% 6.31% 5.47% ----------------------------------------------------------- Total fixed maturity securities: Book value $9,324 $76,310 $44,892 $5,600 $136,126 Fair value 9,297 76,269 45,213 5,894 136,673 Nominal yield 7.23% 7.05% 7.61% 9.54% 7.35% --------------------------------------- Mortgage-backed securities: Book value 62,282 -2 Fair value 62,876 Nominal yield(3) 7.24% --------- Total investment securities: Book value $198,408 Fair value 199,549 Nominal yield 7.31% --------- (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 3.3 years based upon current prepayment assumptions. (3) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. 30 AVAILABLE FOR SALE SECURITIES The amortized cost and fair value of available for sale securities are as follows (in thousands): December 31, ----------------------------------------------------------------------------------------------- 1996 1995 ---------------------------------------------- ------------------------------------------------ Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized ---------------------- ----------------------- Cost Value Gain Loss Cost Value Gain Loss ---------------------------------------------- ------------------------------------------------ U.S. Treasury $ 200,505 $ 201,091 $ 1,218 $ (632) $ 221,201 $ 222,478 $ 1,552 $ (275) Municipal and other tax exempt 160,813 161,358 2,047 (1,502) 165,709 166,855 2,532 (1,386) Mortgage-backed securities: U. S. agencies 985,219 979,117 3,552 (9,654) 941,020 934,433 3,842 (10,429) Other 3,288 3,961 687 (14) 8,154 8,011 1 (144) ------- ------- ----- ------ -------- ------- ----- ------- Total mortgage-backed securities 988,507 983,078 4,239 (9,668) 949,174 942,444 3,843 (10,573) ------- ------- ----- ------ ------- ------- ----- -------- Other debt securities 178 178 - - 250 98 2 (154) Equity securities and mutual funds 106,655 113,417 6,762 - 34,145 34,786 641 - --------- ---------- ------- -------- ---------- ---------- ------ --------- Total $1,456,658 $1,459,122 $14,266 $(11,802) $1,370,479 $1,366,661 $8,570 $(12,388) ========== ========== ======= ======== ========== ========== ====== =========
The amortized cost and fair values of available for sale securities at December 31, 1996, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity ----------------------------------------------------- U.S. Treasuries: Amortized cost $17,624 $182,881 $ - $ - $ 200,505 1.81 Fair value 17,704 183,387 - - 201,091 Nominal yield 6.32% 5.91% - - 5.95% Municipal and other tax exempt: Amortized cost 5,631 82,838 60,662 11,682 160,813 5.17 Fair value 5,520 82,423 61,083 12,332 161,358 Nominal yield(1) 5.69% 6.98% 7.80% 9.41% 7.45% Other debt securities: Amortized cost 178 - - - 178 .92 Fair value 178 - - - 178 Nominal yield - - - - - ---------------------------------------------------- Total fixed maturity securities: Amortized cost $23,433 $265,719 $60,662 $11,682 $ 361,496 Fair value 23,402 265,810 61,083 12,332 362,627 Nominal yield 6.12% 6.25% 7.80% 9.41% 6.61% ------------------------------------ Mortgage-backed securities: Amortized cost 988,507 -2 Fair value 983,078 Nominal yield4 6.14% ----------- Equity securities and mutual funds: Amortized cost 106,655 -3 Fair value 113,417 Nominal yield 4.29% ----------- Total available for sale securities: Amortized cost $1,456,658 Fair value 1,459,122 Nominal yield 6.12% ----------- (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 3.2 years based upon current prepayment assumptions. (3) Primarily common and preferred stock of U.S. Government agencies with no stated maturity. (4) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. 31 Sales of available for sale securities resulted in gains and losses as follows (in thousands): 1996 1995 1994 --------- --------- -------- Proceeds $484,436 $134,109 $82,088 Gross realized gains 328 1,246 159 Gross realized losses 2,935 72 2,027 Related federal and state income tax expense (574) 270 (467) (benefit) Effective December 20, 1995, BOK Financial adopted the provisions of a Financial Accounting Standards Board special report on Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities", which affects the securities portfolio. This report permitted a one-time opportunity to sell or transfer securities from the investment category to the available for sale or trading categories without tainting the remaining portfolio. BOK Financial transferred-mortgage-backed and municipal securities with a total amortized cost of $788.5 million and a net unrealized loss of $4.0 million from the investment category to available for sale in response to the more restrictive interpretation of FAS 115 included in this special report. Effective November 14, 1994, certain securities obtained through the acquisition of Citizens Holding Company were transferred from the held to maturity portfolio to available for sale. The transfer served to structure the acquired portfolio in accordance with BOK Financial's existing investment strategy. The securities transferred had a total amortized cost of $6.7 million and a net unrealized loss of $184 thousand as of the date of transfer. Securities with amortized costs of $1.0 billion and $986.5 million at December 31, 1996 and 1995, respectively, were pledged to secure securities repurchase agreements, public and trust funds on deposit and for other purposes as required by law. (5) LOANS Significant components of the loan portfolio are as follows (in thousands): December 31, ----------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------------ ---------------------------------------------- Fixed Variable Non- Fixed Variable Non- Rate Rate accrual Total Rate Rate accrual Total ------------------------------------------------ ---------------------------------------------- Commercial $ 75,806 $ 898,795 $ 9,589 $ 984,190 $ 81,250 $ 765,168 $14,646 $ 861,064 Commercial real estate 250,270 420,082 5,306 675,658 215,750 372,231 10,621 598,602 Residential mortgage 153,058 273,767 2,580 429,405 149,783 284,239 2,794 436,816 Residential mortgage - held for 95,332 - - 95,332 72,412 - - 72,412 sale Consumer 173,925 34,710 1,360 209,995 180,489 43,758 1,227 225,474 ------- ------ ----- ------- ------- ------ ----- ------- Total $748,391 $1,627,354 $18,835 $ 2,394,580 $699,684 $1,465,396 $29,288 $ 2,194,368 ======== ========== ======= ========== ======== ========== ======= =========== Foregone interest on nonaccrual loans $ 2,975 $ 2,928 =========== ===========
Substantially all of the commercial and consumer loan portfolios and approximately 77% of the residential mortgage loan portfolio (excluding loans held for sale) are loans to businesses and individuals in Oklahoma or Northwest Arkansas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the commercial loan classification, loans to energy-related businesses total $217.1 million, or 9% of total loans. Other notable segments include wholesale/retail, $166.1 million; manufacturing, $137.5 million; and agriculture, $109.3 million. Commercial real estate loans are primarily secured by properties located in the Tulsa or Oklahoma City, Oklahoma metropolitan areas. The major components of these properties are multifamily residences, $146.2 million; retail facilities, $60.8 million; office buildings, $82.3 million; hotels, $70.6 million; and medical/nursing facilities, $70.3 million. 32 Included in loans at December 31 are loans to executive officers, directors or principal shareholders of BOK Financial, as defined in Regulation S-X of the Securities and Exchange Commission. Such loans have been made on substantially the same terms as those prevailing at the time for loans to other customers in comparable transactions. Information relating to loans to executive officers, directors or principal shareholders is summarized as follows (in thousands): 1996 1995 ------------ ------------ Beginning balance $45,404 $28,385 Advances 10,968 21,185 Payments (1,925) (3,458) Adjustments (971) (708) -------- -------- Ending balance $53,476 $45,404 ======= ======= Adjustments are primarily due to certain individuals being included for the first time or no longer being included as an executive officer or director of BOK Financial. The activity in the reserve for loan losses is summarized as follows (in thousands): 1996 1995 1994 --------- --------- -------- Beginning balance $38,287 $38,271 $37,261 Provision for loan losses 4,267 231 195 Loans charged off (6,510) (3,988) (3,237) Recoveries 9,104 3,773 3,097 Addition due to acquisitions - - 955 ------- ------- ------- Ending balance $45,148 $38,287 $38,271 ======= ======= ======= At December 31, 1996 and 1995, respectively, the recorded investment in loans that are considered to be impaired under FAS 114 was $17.4 million and $28.1 million (all of which were on a nonaccrual basis). Included in this amount at December 31, 1996, is $2.3 million of impaired loans for which the related allowance for credit losses is $1.2 million and $15.1 million that did not have a related allowance for credit losses. At December 31, 1995, this amount included $12.5 million of impaired loans for which the related allowance for credit loss was $4.8 million and $15.6 million that did not have a related allowance for credit losses. The average recorded investments in impaired loans during the years ended December 31, 1996 and 1995 were approximately $22.3 million and $22.2 million, respectively. Interest income recognized on impaired loans during 1996 and 1995 was not significant. (6) PREMISES AND EQUIPMENT Premises and equipment at December 31 are summarized as follows (in thousands): DECEMBER 31, ------------------------- 1996 1995 ------------ ------------ Land $ 7,812 $ 8,543 Buildings and improvements 30,792 28,083 Furniture and equipment 32,080 27,352 ------ ------ Subtotal 70,684 63,978 ------ ------ Less accumulated depreciation and amortization 23,205 16,305 ------ ------ Total $47,479 $47,673 ======= ======= Depreciation and amortization of premises and equipment were $6.9 million, $5.6 million and $4.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. (7) MORTGAGE BANKING ACTIVITIES BOK Financial has engaged in mortgage-banking activities through its subsidiary, BancOklahoma Mortgage Corp. ("BOMC"). Effective January 1, 1997, these mortgage banking activities were transferred to BOk. Residential mortgage loans held for sale totaled $95.3 million and $72.4 million and outstanding mortgage loan commitments totaled $148.2 million and $125.4 million, respectively, at December 31, 1996 and 1995. Mortgage loan commitments are generally outstanding for 60 to 90 days and are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially hedged through the use of mortgage-backed securities forward sales contracts. These contracts set the price for loans which will be delivered in the next 60 to 90 days. At December 31, 1996, forward sales contracts totaled $168.1 million. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on forward sales contracts. At December 31, 1996, BOMC owned the rights to service 83,418 mortgage loans with outstanding principal balances of $5.9 billion, including $243 million serviced for BOk, and held related funds for investors and borrowers of $77.2 million. The weighted average interest rate and remaining term was 7.70% and 281 months, respectively. Mortgage loans sold with recourse totaled $9.4 million at December 31, 1996. At December 31, 1995, BOMC owned the rights to service mortgage loans with outstanding principal balances of $5.4 billion and held related funds for investors and borrowers of $76.6 million. 33 Activity in capitalized mortgage servicing rights and related valuation allowance during 1996 and 1995 are as follows: Capitalized Mortgage Servicing Rights ------------------------------------- Valuation Purchased Originated Total Allowance Net ----------------------------------------------- Balance at January 1, 1995 $46,681 $ - $46,681 $ - $46,681 Additions 10,387 1,783 12,170 - 12,170 Amortization expense (7,536) (142) (7,678) - (7,678) Provision for impairment - - - (539) (539) ------- ------ ------ ----- ------- Balance at December 31, 1995 49,532 1,641 51,173 (539) 50,634 ADDITIONS 16,874 3,984 20,858 - 20,858 AMORTIZATION EXPENSE (9,150) (437) (9,587) - (9,587) PROVISION FOR IMPAIRMENT - - - (361) (361) ------ ------ ------ ----- ------- BALANCE AT DECEMBER 31, 1996 $57,256 $5,188 $62,444 $(900) $61,544 ======= ====== ======= ===== ======= ESTIMATED FAIR VALUE OF MORTGAGE SERVICING RIGHTS AT: DECEMBER 31, 1995(1) $66,528 $1,954 $68,482 $ - $68,482 DECEMBER 31, 1996(1) $75,660 $8,576 $84,236 $ - $84,236 ======= ====== ======= ====== ======= (1) Excludes approximately $18 million and $18.9 million, respectively, of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122. - -------------------------------------------------------------------------------- Fair value is determined by discounting the projected net cash flows. Significant assumptions are: Discount rate - Risk adjusted spread over U.S. Treasury rates for similar remaining terms, ranging from 10.71% to 10.95%. Prepayment rate - Industry consensus prepayment estimates ranging from 6.8% to 16.4% from an independent reporting source based upon interest rate, original term and loan type. Loan servicing costs - $50 per conventional loan and $60 per government insured loan. During the first quarter of 1994, management discovered that Lenders Mortgage Services, Inc. ("Lenders"), an originator of loans from which BOMC purchased mortgage loans, had not paid off existing mortgages on certain refinancing loans purchased by BOMC, primarily in 1994. Involuntary proceedings were commenced against Lenders under Chapter 7 of the U.S. Bankruptcy Code and a Trustee was appointed. Lenders will not be able to perform under the repurchase provision of the loan purchase agreement. Management is pursuing recoveries from various parties; however, any such recoveries are uncertain at this time. Pretax charges of $5.2 million were recognized in 1994 based upon management's evaluation of information currently available. (8) DEPOSITS Interest expense on deposits is summarized as follows (in thousands): 1996 1995 1994 ---------------------------------- Transaction deposits $ 28,336 $25,276 $22,062 Savings 2,464 2,957 3,522 Time: Certificates of deposits under 44,531 38,552 27,603 $100,000 Certificates of deposits $100,000 31,728 20,265 10,471 and over Other time deposits 11,007 10,689 7,483 ------ ------ ----- Total time 87,266 69,506 45,557 ------ ------ ------ Total $118,066 $97,739 $71,141 ======== ======= ======= The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 1996 and 1995 were $560.0 million and $486.2 million, respectively. Time deposits expected to mature in less than one year are $1,047.0 million, in one to five years are $460.8 million, and in over five years are $.5 million. Interest expense on time deposits during 1996 and 1995 was reduced by net income from interest rate swaps of $1.4 million and $.9 million, respectively. 34 (9) OTHER BORROWINGS Information relating to other borrowings is summarized as follows (dollars in thousands): Daily average Rate at Maximum out- Period-End ---------------- end of standing at Balance Balance Rate year any month-end ------------------------------------------------ 1996: FUNDS PURCHASED AND REPURCHASE AGREEMENTS $669,176 $ 558,940 5.49% 5.91% $ 669,176 OTHER 277,128 235,775 6.08 6.00 354,712 - ---------------------------------------------------- TOTAL $946,304 $ 794,715 5.67 5.94 946,304 - ------------------------------------------------------------------------------- 1995: Funds purchased and repurchase agreements $697,497 $ 894,322 6.03% 5.75% $1,052,369 Other 250,309 129,458 6.27 6.03 250,309 - ---------------------------------------------------- Total $947,806 $1,023,780 6.06 5.82 1,135,168 - ------------------------------------------------------------------------------- 1994: Funds purchased and repurchase agreements $743,248 $ 605,640 4.46% 5.87% $ 779,789 Other 231,086 98,555 4.61 6.39 237,665 - ---------------------------------------------------- Total $974,334 $ 704,195 4.48 5.99 974,334 ================================================================================ Other borrowings at December 31, 1996 included $252.7 million in uncollateralized advances from the Federal Home Loan Bank. These advances are used for funding and consist of term funds bearing interest from 5.42% - 7.80%. Of these term funds, $150 million mature within 90 days, $23.2 million mature in 1998, $8.2 million mature in 2000, $22.5 million mature in 2001 and $14.6 million mature in 2002, $1.8 million mature in 2005, $32.1 million mature in 2006 and $.4 million mature in 2011. BOK Financial had lines of credit available from commercial banks at December 31, 1996 of $50 million, with zero outstanding, which bear interest based on LIBOR and are unsecured. Interest is paid monthly with principal due no later than May 1997. Funds purchased generally mature within one to 90 days from the transaction date. At December 31, 1996, securities sold under agreement to repurchase totaled $446.7 million with related accrued interest payable of $1.4 million. Additional information relating to repurchase agreements at December 31, 1996 is as follows (dollars in thousands): Carrying Market Repurchase Average Security Sold/Maturity Value Value Liability(1) Rate - -------------------------------------------------------------------------------- U.S. Treasury Securities: Overnight $ 15,816 $ 16,041 $ 8,073 5.24% U.S. Agency Securities: Overnight 116,288 115,221 108,385 5.14 Term of up to 30 days 1,226 1,211 1,177 4.75 Term of 30 to 90 days 352,798 349,507 330,456 5.44 ------- ------- ------- Total Agency Securities 470,312 465,939 440,018 5.36 ------- ------- ------- Total $486,128 $481,980 $448,091 5.36 ======== ======== ======== (1) BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities underlying longer term dealer repurchase agreements to the respective counterparty. On April 3, 1995, BOK Financial repaid the $23 million subordinated debenture issued on December 31, 1992 to Kaiser. The subordinated debenture was scheduled to mature on April 1, 1999 and to bear an interest rate of nine percent after March 31, 1995. 35 (10) FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands): DECEMBER 31, 1996 1995 ---------------------------- Deferred tax liabilities: Pension contributions in excess of book expense $ 3,000 $ 2,400 Securities valuation adjustments 3,700 - Mortgage servicing 4,900 2,400 Tax installment sale 1,100 - Other 1,800 1,500 ----- ----- Total deferred tax liabilities 14,500 6,300 ------ ----- Deferred tax assets: Loan loss reserve 17,500 15,000 Valuation adjustments 13,900 13,800 Book expense in excess of tax 4,000 3,900 Other 4,400 3,500 ----- ----- Total deferred tax assets 39,800 36,200 Valuation allowance for deferred tax assets - 7,700 ------ ------ Net deferred tax assets 39,800 28,500 ------ ------ Deferred tax assets in excess of deferred tax liabilities $25,300 $22,200 ======= ======= The acquisition of BOk by BOK Financial on June 7, 1991 resulted in a change of ownership, which significantly limited the utilization of built-in and net operating loss carryforwards. Consequently, and due to the expiration periods and the timing of the anticipated reversal of built-in losses, a valuation allowance had been recorded. The factors used by management to determine the amount of valuation allowance included limitations on the use of certain deferred tax assets pursuant to income tax regulations, estimates of future taxable income, the amount of previously paid income taxes, and to a lesser extent, tax strategies. Due to the expiration in 1996 of the five-year period during which the utilization of currently recognized built-in losses was limited and the full utilization of all recognized built-in loss carryforwards for income tax purposes as of December 31, 1996, the valuation allowance has been eliminated. BOk and BOK Financial are currently under an audit by the Internal Revenue Service for 1992 and 1993, respectively. The ultimate outcome of this audit cannot be determined with any certainty at this time. However, management expects no material adverse impact on the financial statements. The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): 1996 1995 1994 ------------------------------- Current: Federal $16,623 $14,707 $11,367 State 2,399 2,273 2,332 ----- ----- ----- Total current 19,022 16,980 13,699 ------ ------ ------ Deferred: Federal (3,380) (1,871) 789 State (313) (341) 144 ---- ---- --- Total deferred (3,693) (2,212) 933 ------ ------ --- Total income tax $15,329 $14,768 $14,632 ======= ======= ======= The significant components of the deferred provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): 1996 1995 1994 --------------------------- Deferred tax expense (benefit) excluding components listed below $ 2,507 $ 2,753 $ 4,640 Change in valuation allowance (6,200) (6,065) (5,345) Built in loss carryforward utilized - 1,100 1,638 ----- ----- ----- Total deferred provision $(3,693) $(2,212) $ 933 ======= ======= ======= The reconciliations of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense are as follows (dollars in thousands): 1996 1995 1994 ---------------------------------- Amount: Federal statutory tax $24,310 $22,391 $20,894 Tax exempt revenue (3,958) (3,747) (2,948) Effect of state income taxes, net of federal 2,086 1,932 2,145 benefit Loss carryforward, benefit recognized - (1,100) (1,638) Utilization of tax (1,488) (1,000) (1,422) credits Portion of reduction in valuation allowance impacting (6,200) (4,965) (3,707) tax expense Other, net 579 1,257 1,308 --- ----- ----- Total $15,329 $14,768 $14,632 ======= ======= ======= Percent of pretax income: Federal statutory rate 35% 35% 35% Tax-exempt revenue (6) (6) (5) Effect of state income taxes, net of federal 3 3 4 benefit Loss carryforward, benefit recognized - (2) (3) Utilization of tax (2) (2) (2) credits Portion of reduction in valuation allowance impacting (9) (8) (6) tax expense Other, net 1 3 2 --- --- --- Total 22% 23% 25% === === === 36 (11) EMPLOYEE BENEFITS BOK Financial sponsors a defined benefit Pension Plan for all employees who satisfy certain age and service requirements. The following tables present the Pension Plan's funded status and amounts recognized for the period indicated (dollars in thousands): DECEMBER 31, 1996 1995 -------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of 1996-$8,653; 1995-$7,970 $ (11,331) $(10,142) -------- -------- Projected benefit obligation for service rendered to date (11,331) (10,142) Plan assets at fair value 13,261 11,554 ------ ------ Plan assets in excess of projected benefit obligation 1,930 1,412 Unrecognized prior service cost 920 979 Unrecognized net loss 2,698 3,669 ----- ----- Accrued pension asset $ 5,548 $ 6,060 ========= ========= Discount rate 7.50% 7.00% ==== ==== Compensation increase rate 5.25% 5.25% ==== ==== 1996 1995 1994 ---------------------------------------- Net pension cost included the following expense (income): Service cost $ 1,803 $1,333 $1,144 Interest cost 678 582 402 Deferred gain (loss) on assets 585 584 (678) Actual (return) loss on plan assets (1,757) (1,506) 86 Other, net 203 135 10 ------- ------ ------ Net periodic pension cost $ 1,512 $1,128 $ 964 ======= ====== ====== Expected return on assets 10.00% 9.50% 9.00% ===== ==== ==== Assets of the Pension Plan consist primarily of shares in cash management funds, common stock and bond funds, and guaranteed investment contract funds. Benefits are based on the employee's age and length of service. Employee contributions to the Thrift Plan, a defined contribution plan, are matched by BOK Financial up to four percent of base compensation, based upon years of service. Participants may direct the investment of their accounts in a variety of options, including BOK Financial Common Stock. Employer contributions vest over five years. Expenses incurred by BOK Financial for the Thrift Plan totaled $1.2 million, $1.5 million and $1.2 million for 1996, 1995 and 1994, respectively. BOK Financial sponsors a defined benefit post-retirement employee medical plan which pays 50 percent of annual medical insurance premiums for retirees who meet certain age and service requirements. Assets consist primarily of shares in a cash management fund. Liability for the post-retirement plan is limited to current retirees and certain employees currently age 60 or older. The following tables present the plan's funded status and amounts recognized for the periods indicated (dollars in thousands): 1996 1995 -------------------------------- Accumulated post-retirement benefit obligation $(2,840) $(2,696) Fair value of plan assets 665 693 ------ ------- Fund status (2,175) (2,003) Unrecognized transition (232) (264) asset Unrecognized net loss 418 173 ----- ------ Accrued post-retirement benefit $(1,989) $(2,094) ======= ======= Discount rate 7.50% 7.00% ========================= Medical inflation rate 9.00% 10.00% to 5.00% to 5.00% ========================= 1996 1995 ----------------- Net post-retirement benefits cost includes: Service cost $ 13 $ 14 Interest cost 177 166 Actual return on plan assets (15) (26) Deferred gain (loss) on assets (48) 6 Amortization of unrecognized transition obligation (32) (32) --- --- Net post-retirement benefits cost $ 95 $128 ===== ==== Expected return on assets 10.00% 9.50% A 1% increase in the assumed medical inflation rate would increase the accumulated post-retirement benefit obligation by approximately $182 thousand and would increase post-retirement benefit cost by $15 thousand. Under various performance incentive plans, participating employees may be granted awards based on defined formulas or other criteria. Earnings were charged $7.5 million in 1996, $5.3 million in 1995, and $5.0 million in 1994, for such awards. 37 (12) EXECUTIVE BENEFIT PLANS The Board of Directors of BOK Financial has approved various stock option plans. The number of options awarded and the employees to receive the options are determined by the Chairman of the Board and the President, subject to approval of the Board of Directors or a committee thereof. Options awarded under these plans are subject to vesting requirements. Generally, one-seventh of the options awarded vest annually and expire three years after vesting. Under the 1994 Plan, 277,000 options were awarded in 1994, 241,202 options were awarded in 1995 and 247,317 options were awarded in 1996. Cancelled options under the 1994 Plan may be reawarded. The following table presents options outstanding at December 31, 1996 under these plans: 1994 Plan 1993 Plan 1992 Plan ------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Number Price(1) Number Price Number Price ------------------------------------------------------- Options outstanding at December 31, 1995 502,109 $19.96 226,634 $21.37 206,752 $13.33 Options awarded 247,317 23.83 - - - - Options exercised (626) 19.80 (1,735) 21.37 (39,031) 13.33 Options forfeited (30,537) 20.05 (12,979) 21.37 (7,463) 13.33 Options expired - - - - (193) 13.33 ------- ----- ------- ----- ------- ----- Options outstanding at December 31, 1996 718,263 $21.29 211,920 $21.37 160,065 $13.33 ======= ====== ======= ====== ======= ====== Options vested at December 31, 1996 101,760 19.91 89,460 21.37 71,885 13.33 ======= ===== ====== ===== ====== ===== (1) Exercise price for options outstanding under the 1994 plan as of December 31, 1996 was $19.80 - $23.83. The weighted-average remaining contractual life of those options is 5.9 years. - -------------------------------------------------------------------------------- Under APB 25 no compensation expense is recognized at the date of grant since the exercise price of BOK Financial's employee stock option equals the market price of the underlying stock on the date of grant. FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires disclosure of pro forma information regarding net income and earnings per share as if BOK Financial accounted for employee stock options granted subsequent to December 31, 1994 under the fair value method of the Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: average risk-free interest rates of 6.04% and 6.10%; a dividend yield of zero; volatility factors of the expected market price of BOK Financial's common stock of .190; and a weighted-average expected life of the options of eight years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because BOK Financial's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1994: 1996(1) 1995(1) ----------- ----------- Pro forma net income $53,748 $49,196 Pro forma earnings per share: Primary $2.46 $2.25 Fully diluted 2.22 2.05 (1) Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 2003. 38 (13) COMMITMENTS AND CONTINGENT LIABILITIES In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not be material in the aggregate. BOk is obligated under a long-term lease for its bank premises located in downtown Tulsa. The lease term, which began November 1, 1976, is for fifty-seven years with options to terminate at the end of the thirty-seventh and forty-seventh years. Annual base rent is $3.1 million. BOk subleases portions of its space for annual rents of $392 thousand each year through 2000. Net rent expense on this lease was $2.7 million in 1996, $2.6 million in 1995 and $2.1 million in 1994. Total rent expense for BOK Financial was $6.9 million in 1996, $6.7 million in 1995 and $6.0 million in 1994. At December 31, 1996, the future minimum lease payments for equipment and premises under operating leases were as follows: $6.8 million in 1997, $6.7 million in 1998, $6.6 million in 1999, $6.5 million in 2000, $6.2 million in 2001 and a total of $106.9 million thereafter. BOk and The Williams Companies, Inc. guaranteed 30 percent and 70 percent, respectively, of the $18.7 million debt, which matures May 15, 2007, and operating deficit of two parking facilities operated by the Tulsa Parking Authority. Total expense related to this guarantee was zero in 1996, $100 thousand in 1995 and zero in 1994. The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were approximately $70.8 million for 1996 and $86.0 million for 1995. (14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK BOK Financial is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to manage interest rate risk. Those financial instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in BOK Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 1996, outstanding commitments totaled $899.8 million. Since some of the commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Since the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. At December 31, 1996, outstanding standby letters of credit totaled $91.7 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At December 31, 1996, outstanding commercial letters of credit totaled $4.5 million. BOK Financial uses interest rate swaps, a form of off-balance-sheet derivative product, in managing its interest rate risk. These swaps are used primarily to more closely match the interest paid on certain long-term, fixed rate certificates of deposit with earning assets. BOK Financial agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed-upon notional amount. At December 31, 1996, the notional amount of BOK Financial's interest rate swaps totaled $101.5 million with related credit exposure, represented by the fair value of the contracts, of $1.6 million. During 1996 and 1995, income from the swaps exceeded costs by $1.4 million and $.9 million, respectively, which reduced interest expense on deposits. Scheduled repricing periods for the swaps are as follows (in thousands): 31-90 91-365 Over days days 1 year Total -------------------------------------------- Pay floating $(30,000) $(55,000) $ - $(85,000) Receive fixed - - 85,000 85,000 Pay fixed - - (16,500) (16,500) Receive floating 16,500 - - 16,500 ------ ------- ------- -------- Total $(13,500) $(55,000) $ 68,500 $ - ======== ======== ======= ======== Swap contracts with notional amounts of $63 million, $22 million and $16.5 million expire in 1998, 1999 and 2006, respectively. The expiration dates of the swap contracts are designed to match the estimated maturity dates of the hedged certificates of deposit. BOK Financial utilized securities forward sales contracts associated with its mortgage banking activities as described in Note 7. 39 (15) SHAREHOLDERS' EQUITY PREFERRED STOCK One billion shares of preferred stock with a par value of $0.00005 per share are authorized. A single series of 250,000,000 shares designated as Series A Preferred Stock ("Series A Preferred Stock") is currently issued and outstanding. The Series A Preferred Stock has no voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock for each 89 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation preference is $15.0 million. During 1996, 1995 and 1994, 69,672 shares, 69,959 shares and 65,279 shares, respectively, of BOK Financial common stock were issued in payment of dividends on the Series A Preferred Stock in lieu of cash by mutual agreement of BOK Financial and the holders of the Series A Preferred Stock. Kaiser owns substantially all Series A Preferred Stock. These shares were valued at $1.5 million in 1996, 1995 and 1994, based on average market price, as defined, for a 65 business day period preceding declaration. During 1995, 102 nonvoting units in an entity owned by BOk were issued to various officers of BOk. These units are eligible for an annual, cumulative distribution of $8 per unit and have a preferred value upon liquidation of $100 per unit. COMMON STOCK Common stock consists of 2.5 billion authorized shares, $0.00006 par value Holders of common shares are entitled to one vote per share at the election of the Board of Directors and on any question arising at any shareholders' meeting and to receive dividends when and as declared. No common stock dividends can be paid unless all accrued dividends on the Series A Preferred Stock have been paid. The present policy of BOK Financial is to retain earnings for capital and future growth, and management has no current plans to recommend payment of cash dividends on common stock. Additionally, regulations restrict the ability of national banks and bank holding companies to pay dividends. During 1996, 1995 and 1994, 3% dividends payable in shares of BOK Financial common stock were declared and paid. The shares issued were valued at $16.5 million, $12.8 million and $12.3 million, respectively, based on the average closing bid/ask prices on the day preceding declaration. SUBSIDIARY BANKS The amounts of dividends which BOK Financial's subsidiary banks can declare and the amounts of loans the subsidiary banks can extend to affiliates are limited by various federal and state banking regulations. Generally, dividends declared during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The amounts of dividends are further restricted by minimum capital requirements. Pursuant to the most restrictive of the regulations at December 31, 1996, BOK Financial's subsidiary banks could declare dividends up to $21 million without prior regulatory approval. The subsidiary banks declared and paid dividends of $31 million in 1996, and none in 1995 or 1994. Loans to a single affiliate may not exceed 10.0 percent and loans to all affiliates may not exceed 20.0 percent of unimpaired capital and surplus, as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 1996 and 1995, these loans totaled $12.4 million and $4.6 million, respectively. Total loan commitments to affiliates at December 31, 1996 were $22.7 million. REGULATORY CAPITAL Financial institutions are considered to be "well capitalized" pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 if their Leverage, Tier 1 and Total Capital ratios are at least 5%, 6% and 10%, respectively. As shown in Table 13, BOK Financial's capital ratios exceed the regulatory definition of well capitalized. The capital ratios for BOk and CBNWA are substantially the same as BOK Financial's ratios. As defined by regulations, Tier 1 capital consists primarily of common stockholders' equity less certain intangible assets. Total capital consists primarily of Tier 1 capital plus preferred stock, subordinated debt and reserves for loan losses, subject to certain limitations. December 31, ------------------------------------- 1996 1995 1994 1993 1992 ------- ------ ------- ------- ------ Average shareholders' equity to average 7.49% 6.73% 6.32% 6.27% 6.17% assets Risk-based capital: Tier 1 capital 10.49 9.91 9.14 9.07 8.14 Total capital 11.74 11.17 11.19 11.49 10.73 Leverage 7.46 6.55 5.64 5.76 5.84 ----------------------------------------------------------- 40 (16) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 1996 and 1995 (dollars in thousands): Range of Average Estimated Carrying Contractual Repricing Discount Fair Value Yields (in years) Rate Value --------------------------------------------------- 1996: Cash and cash equivalents $ 367,551 - - - $ 367,551 Securities 1,663,984 - - - 1,665,125 Loans: Commercial 984,190 4.28-15.21% 0.5 7.28-9.15% 975,940 Commercial real estate 675,658 6.34-13.43 1.0 8.90-9.75 669,268 Residential mortgage 429,405 3.81-14.87 1.8 7.78-7.86 428,372 Residential mortgage - held for sale 95,332 - - - 95,332 Consumer 209,995 5.00-18.15 1.7 7.64-13.25 211,121 - -------------------------------------------------------------------------------- Total loans 2,394,580 2,380,033 Reserve for loan losses (45,148) - - -------------------------------------------------------------------------------- Net loans 2,349,432 2,380,033 Deposits with no stated maturity 1,748,418 - - - 1,748,418 Time deposits 1,508,337 2.03-9.85 0.7 5.25-6.14 1,509,380 Other borrowings 946,304 3.77 9.28 0.5 5.00-8.25 946,279 - -------------------------------------------------------------------------------- 1995: Cash and cash equivalents $ 311,939 - - - $ 311,939 Securities 1,553,559 - - - 1,556,224 Loans: Commercial 861,064 4.50-16.22% 0.5 7.29-9.40% 849,460 Commercial real estate 598,602 6.08-14.70 1.3 9.35-10.07 588,175 Residential mortgage 436,816 3.75-14.87 1.6 7.24-7.40 439,304 Residential mortgage - held for sale 72,412 - - - 72,412 Consumer 225,474 5.00-18.90 1.7 7.8-13.50 224,861 - -------------------------------------------------------------------------------- Total loans 2,194,368 2,174,212 Reserve for loan losses (38,287) - - -------------------------------------------------------------------------------- Net loans 2,156,081 2,174,212 Deposits with no stated maturity 1,537,065 - - - 1,537,065 Time deposits 1,400,644 2.62-10.00 0.7 4.93-5.73 1,405,765 Other borrowings 947,806 2.41-10.65 0.2 5.25-8.50 949,184 - -------------------------------------------------------------------------------- 41 The following methods and assumptions were used in estimating the fair value of these financial instruments: CASH AND CASH EQUIVALENTS The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets' fair values. SECURITIES The fair values of securities are based on quoted market prices or dealer quotes, when available. If quotes are not available, fair values are based on quoted prices of comparable instruments LOANS The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates currently being offered for loans with similar remaining terms to maturity and credit risk, adjusted for the impact of interest rate floors and ceilings. The fair values of classified loans were estimated to approximate their carrying values less loan loss reserves allocated to these loans of $9.9 million and $12.7 million at December 31, 1996 and 1995, respectively. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and hedging transactions. DEPOSITS The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions. FAS 107 defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these deposits. Accordingly, the positive effect of such deposits is not included in this table. OTHER BORROWINGS AND SUBORDINATED DEBENTURE The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments. OFF-BALANCE-SHEET INSTRUMENTS The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of interest rate swaps are based on pricing models using current assumptions to arrive at replacement cost. The fair values of these off-balance-sheet instruments were not significant at December 31, 1996 and 1995. Residential mortgage loan commitments are included in determining the fair value of the mortgage loans held for sale. 42 (17) PARENT COMPANY ONLY FINANCIAL STATEMENTS Summarized financial information for BOK Financial-Parent Company Only follows: BALANCE SHEETS (IN THOUSANDS) DECEMBER 31, ------------------------------- 1996 1995 ------------------------------- ASSETS Cash and cash equivalents $ 461 $ 212 Securities - available for sale 33,155 4,208 Investment in subsidiaries 328,511 302,199 Other assets 1,591 1,761 -------- ------- Total assets $ 363,718 $ 308,380 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings $ - $ 2,500 Other liabilities 3,752 4,315 ----- ----- Total liabilities 3,752 6,815 ----- ----- Preferred stock 23 23 Common stock 1 1 Capital surplus 176,093 157,395 Retained earnings 182,892 146,727 Treasury stock (428) - Unrealized net gain (loss) on securities available for sale 1,472 (2,427) Notes receivable (87) (154) ------- ------- Total shareholders' equity 359,966 301,565 ------- ------- Total liabilities and shareholders' equity $ 363,718 $ 308,380 ========== ========== STATEMENTS OF EARNINGS (IN THOUSANDS) 1996 1995 1994 -------------------------------- Dividends, interest and fees received from subsidiaries $31,202 $ 1,460 $ 458 Other operating revenue 532 1,241 73 ------- ----- --- Total revenue 31,734 2,701 531 ------ ----- --- Interest expense 819 273 4 Personal expense 7 407 350 Professional fees and services 177 212 373 Other operating expense 236 250 477 --- --- --- Total expense 1,239 1,142 1,204 ----- ----- ----- Income (loss) before taxes and equity in undistributed income of subsidiaries 30,495 1,559 (673) Federal and state income tax expense (credit) (4,116) 1,043 (103) ------ ----- ---- Income (loss) before equity in undistributed income of subsidiaries 34,611 516 (570) Equity in undistributed income of subsidiaries 19,516 48,689 45,635 ------ ------ ------ Net income $54,127 $49,205 $45,065 ======= ======= ======= 43 STATEMENTS OF CASH FLOWS (IN THOUSANDS) 1996 1995 1994 --------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $54,127 $49,205 $45,065 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (19,516) (48,689) (45,635) Noncash compensation expense - - 257 Gain on sale of available for sale securities - (1,213) - Change in other assets 170 (144) 1,537 Change in other liabilities (3,552) 1,403 2,460 ------ ----- ----- Net cash provided by operating activities 31,229 562 3,684 ------ --- ----- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of available for sale - 13,287 - securities Purchases of available for sale securities (22,826) (15,641) - Investment in subsidiaries (6,029) (3,155) (3,000) ------ ------ ------ Net cash used in investing activities (28,855) (5,509) (3,000) ------- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings (2,500) 2,000 500 Issuance of preferred, common and treasury stock, net 311 331 520 Payments to dissenting shareholders - - (1,707) Repurchase of preferred stock - - (1,292) Dividends on preferred stock (3) - (113) Payments on notes receivable 67 131 93 -- --- -- Net cash provided (used) by financing activities (2,125) 2,462 (1,999) ------ ----- ------ Net increase (decrease) in cash and cash equivalents 249 (2,485) (1,315) Cash and cash equivalents at beginning of period 212 2,697 4,012 --- ----- ----- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 461 $ 212 $ 2,697 ======= ======= ======= PAYMENT OF DIVIDENDS IN COMMON STOCK $17,956 $14,346 $13,764 ======= ======= ======= - -------------------------------------------------------------------------------- 44 BOK FINANCIAL CORPORATION ANNUAL FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) 1996 ----------------------------------- AVERAGE REVENUE/ YIELD/ BALANCE EXPENSE(1) RATE ----------------------------------- ASSETS Taxable securities $1,285,333 $ 77,588 6.04% Tax-exempt securities 305,000 22,801 7.48 - -------------------------------------------------------------------------------- Total securities 1,590,333 100,389 6.31 - -------------------------------------------------------------------------------- Trading securities 5,096 340 6.67 Funds sold and resell agreements 29,134 1,630 5.59 Loans(2) 2,252,216 196,538 8.73 Less reserve for loan losses 42,074 - - - -------------------------------------------------------------------------------- Loans, net of reserve 2,210,142 196,538 8.89 - -------------------------------------------------------------------------------- Total earning assets 3,834,705 298,897 7.79 - -------------------------------------------------------------------------------- Cash and other assets 467,722 - -------------------------------------------------------------------------------- Total assets $4,302,427 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 848,365 28,336 3.34 Savings deposits 101,273 2,464 2.43 Time deposits 1,555,073 87,266 5.61 - -------------------------------------------------------------------------------- Total interest-bearing deposits 2,504,711 118,066 4.71 - -------------------------------------------------------------------------------- Other borrowings 794,715 45,027 5.67 Subordinated debenture - - - - -------------------------------------------------------------------------------- Total interest-bearing liabilities 3,299,426 163,093 4.94 - -------------------------------------------------------------------------------- Demand deposits 621,069 Other liabilities 59,678 Shareholders' equity 322,254 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $4,302,427 - -------------------------------------------------------------------------------- TAX-EQUIVALENT NET INTEREST REVENUE 135,804 2.85 TAX-EQUIVALENT NET INTEREST REVENUE TO EARNING ASSETS 3.54 Tax-equivalent adjustment(1) 8,365 - -------------------------------------------------------------------------------- NET INTEREST REVENUE 127,439 Provision for loan losses 4,267 Other operating revenue 105,312 Other operating expense 159,028 - -------------------------------------------------------------------------------- INCOME BEFORE TAXES 69,456 Federal and state income tax 15,329 - -------------------------------------------------------------------------------- NET INCOME $ 54,127 - -------------------------------------------------------------------------------- EARNINGS PER AVERAGE COMMON SHARE EQUIVALENT: Net Income Primary $ 2.48 - -------------------------------------------------------------------------------- Fully diluted 2.24 - -------------------------------------------------------------------------------- (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. 45 1995 1994 - -------------------------------------------------------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense1 Rate Balance Expense1 Rate - ---------------------------------------- -------------------------------------- $1,354,949 $ 83,076 6.13% $1,249,791 $ 73,157 5.85% 253,969 19,113 7.53 200,099 15,369 7.68 - -------------------------------------------------------------------------------- 1,608,918 102,189 6.35 1,449,890 88,526 6.11 - -------------------------------------------------------------------------------- 3,672 242 6.59 3,836 226 5.89 16,509 996 6.03 42,897 2,008 4.68 2,012,574 179,052 8.90 1,718,508 138,415 8.05 38,318 37,997 - -------------------------------------------------------------------------------- 1,974,256 179,052 9.07 1,680,511 138,415 8.24 - -------------------------------------------------------------------------------- 3,603,355 282,479 7.84 3,177,134 229,175 7.21 - -------------------------------------------------------------------------------- 442,834 403,239 - -------------------------------------------------------------------------------- $4,046,189 $3,580,373 - -------------------------------------------------------------------------------- $ 758,594 25,276 3.33 $ 807,421 22,062 2.73 118,664 2,957 2.49 133,609 3,522 2.64 1,229,769 69,506 5.65 1,072,011 45,557 4.25 - -------------------------------------------------------------------------------- 2,107,027 97,739 4.64 2,013,041 71,141 3.53 - -------------------------------------------------------------------------------- 1,023,780 62,086 6.06 704,195 31,534 4.48 5,797 352 6.07 23,000 1,380 6.00 - -------------------------------------------------------------------------------- 3,136,604 160,177 5.11 2,740,236 104,055 3.80 - -------------------------------------------------------------------------------- 574,865 541,144 62,361 72,792 272,359 226,201 - -------------------------------------------------------------------------------- $4,046,189 $3,580,373 - -------------------------------------------------------------------------------- 122,302 2.73 125,120 3.41 3.39 3.94 7,038 6,117 - -------------------------------------------------------------------------------- 115,264 119,003 231 195 91,146 74,364 142,206 133,475 - -------------------------------------------------------------------------------- 63,973 59,697 14,768 14,632 - -------------------------------------------------------------------------------- $ 49,205 $ 45,065 - -------------------------------------------------------------------------------- $ 2.25 $ 2.05 - -------------------------------------------------------------------------------- 2.05 1.88 - -------------------------------------------------------------------------------- 46 BOK FINANCIAL CORPORATION QUARTERLY FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) Three Months Ended ------------------------------------------------------ December 31, 1996 September 30, 1996 ------------------------------------------------------ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense1 Rate Balance Expense(1) Rate ASSETS Taxable securities $1,326,104 $20,042 6.01% $1,281,588 $19,610 6.09 Tax-exempt securities 330,195 6,129 7.38 315,844 5,920 7.46 - -------------------------------------------------------------------------------- Total securities 1,656,299 26,171 6.29 1,597,432 25,530 6.36 - -------------------------------------------------------------------------------- Trading securities 3,870 72 7.40 4,116 73 7.06 Funds sold and resell agreements 24,949 356 5.68 21,040 298 5.63 Loans2 2,329,981 50,414 8.61 2,254,863 49,173 8.68 Less reserve for loan losses 45,455 - - 43,510 - - - -------------------------------------------------------------------------------- Loans, net of reserve 2,284,526 50,414 8.78 2,211,353 49,173 8.85 - -------------------------------------------------------------------------------- Total earning assets 3,969,644 77,013 7.72 3,833,941 75,074 7.79 - -------------------------------------------------------------------------------- Cash and other assets 475,824 469,575 - -------------------------------------------------------------------------------- Total assets $4,445,468 $4,303,516 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 891,053 7,678 3.43 $ 864,904 7,411 3.41 Savings deposits 96,609 595 2.45 101,328 616 2.42 Time deposits 1,533,447 21,582 5.60 1,548,832 21,757 5.59 - -------------------------------------------------------------------------------- Total interest-bearing deposits 2,521,109 29,855 4.71 2,515,064 29,784 4.71 - -------------------------------------------------------------------------------- Other borrowings 887,502 12,707 5.70 780,037 11,160 5.69 Subordinated debenture - - - - - - - -------------------------------------------------------------------------------- Total interest-bearing liabilities 3,408,611 42,562 4.97 3,295,101 40,944 4.94 - -------------------------------------------------------------------------------- Demand deposits 633,441 631,981 Other liabilities 60,023 53,609 Shareholders' equity 343,393 322,825 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $4,445,468 $4,303,516 - -------------------------------------------------------------------------------- TAX-EQUIVALENT NET INTEREST REVENUE 34,451 2.75 34,130 2.85 TAX-EQUIVALENT NET INTEREST REVENUE TO EARNING ASSETS 3.45 3.54 Tax-equivalent adjustment(1) 2,207 2,184 - -------------------------------------------------------------------------------- NET INTEREST REVENUE 32,244 31,946 Provision for loan losses 357 62 Other operating revenue 27,534 27,228 Other operating expense 38,315 40,297 - -------------------------------------------------------------------------------- INCOME BEFORE TAXES 21,106 18,815 Federal and state income tax (benefit) 6,540 5,840 - -------------------------------------------------------------------------------- NET INCOME $14,566 $12,975 - -------------------------------------------------------------------------------- EARNINGS PER AVERAGE COMMON SHARE EQUIVALENT: NET INCOME Primary $ .66 $ .59 - -------------------------------------------------------------------------------- Fully diluted .60 .54 - -------------------------------------------------------------------------------- (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. 47 Three Months Ended - -------------------------------------------------------------------------------- June 30, 1996 March 31, 1996 December 31, 1995 - -------------------------------------------------------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense1 Rate - -------------------------------------------------------------------------------- $1,258,382 $18,841 6.02% $1,274,853 $19,095 6.02% $1,285,158 $19,337 5.97% 304,450 5,720 7.56 269,115 5,032 7.52 256,599 4,824 7.46 - -------------------------------------------------------------------------------- 1,562,832 24,561 6.32 1,543,968 24,127 6.28 1,541,757 24,161 6.22 - -------------------------------------------------------------------------------- 6,416 100 6.27 6,005 95 6.36 3,787 72 7.54 43,274 574 5.33 27,409 402 5.90 19,197 288 5.95 2,233,711 49,085 8.84 2,189,423 47,866 8.79 2,145,558 47,838 8.85 40,311 - - 38,966 - - 38,378 - - - -------------------------------------------------------------------------------- 2,193,400 49,085 9.00 2,150,457 47,866 8.95 2,107,180 47,838 9.01 - -------------------------------------------------------------------------------- 3,805,922 74,320 7.85 3,727,839 72,490 7.82 3,671,921 72,359 7.82 - -------------------------------------------------------------------------------- 468,001 457,381 454,182 - -------------------------------------------------------------------------------- $4,273,923 $4,185,220 $4,126,103 - -------------------------------------------------------------------------------- $ 832,127 6,860 3.32 $ 804,723 6,387 3.19 $ 759,920 6,605 3.45 103,274 624 2.43 103,931 629 2.43 106,633 654 2.43 1,605,179 22,122 5.54 1,533,143 21,805 5.72 1,338,106 19,416 5.76 - -------------------------------------------------------------------------------- 2,540,580 29,606 4.69 2,441,797 28,821 4.75 2,204,659 26,675 4.80 - -------------------------------------------------------------------------------- 732,122 10,167 5.59 778,343 10,993 5.68 973,914 14,457 5.89 - - - - - - - - - - -------------------------------------------------------------------------------- 3,272,702 39,773 4.89 3,220,140 39,814 4.97 3,178,573 41,132 5.13 - -------------------------------------------------------------------------------- 629,973 588,624 584,748 58,979 66,165 65,665 312,269 310,291 297,117 - -------------------------------------------------------------------------------- $4,273,923 $4,185,220 $4,126,103 - -------------------------------------------------------------------------------- 34,547 2.96 32,676 2.85 31,227 2.69 3.65 3.53 3.37 2,100 1,874 1,780 - -------------------------------------------------------------------------------- 32,447 30,802 29,447 2,937 911 176 23,966 26,584 23,951 42,774 37,642 36,852 - -------------------------------------------------------------------------------- 10,702 18,833 16,370 (2,889) 5,838 3,707 - -------------------------------------------------------------------------------- $13,591 $12,995 $12,663 - -------------------------------------------------------------------------------- $ .62 $ .60 $ .58 - -------------------------------------------------------------------------------- .57 .54 .53 - -------------------------------------------------------------------------------- 48 BOK FINANCIAL CORPORATION 1996 ANNUAL REPORT APPENDIX A ================================================================================ Net Income Graph I For Year Ended December 31, 1996 (Dollars in Thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Net Income $54,127 $49,205 $45,065 $39,472 $29,786 ================================================================================ Loans Graph II December 31, 1996 (Dollars in Thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Commercial $ 984,190 $ $ 746,066 $ 692,536 $681,004 861,064 Real Estate 1,200,395 1,107,830 884,590 830,723 665,961 Consumer 209,995 225,474 213,397 155,296 133,279 ================================================================================ Real Estate Loans Graph III December 31, 1996 (Dollars in Thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Commercial Real Estate $ 509,874 $ 450,385 $ 363,600 $ 293,122 $ 292,768 Single Family Residential 429,405 436,816 373,389 254,505 213,201 Construction & Land Development 165,784 148,217 106,692 93,310 81,022 Loans Held for Sale 95,332 72,412 40,909 189,786 78,970 ================================================================================ Operating Revenue Graph IV For Year Ended December 31, 1996 (Dollars in Thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Deposit Fees and Service Charges $ 24,104 $21,152 $20,698 $20,825 $17,704 Trust Fees and Service Charges 21,638 19,363 17,117 16,824 15,007 Mortgage Banking Revenue 26,236 20,336 15,868 12,564 11,895 Other 33,334 30,295 20,681 26,397 18,637 ================================================================================ Funding Graph V December 31, 1996 (Dollars in Thousands) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Deposits $3,256,755 $2,937,709 $2,629,574 $2,610,627 $2,054,172 Borrowed Funds 946,304 947,806 974,334 240,557 157,992 Capital & Subordinated Debt 359,966 301,565 259,902 236,943 185,331 ================================================================================ 49 SHAREHOLDER INFORMATION BOK Financial is a bank holding company providing financial and related services to individuals and businesses. It is primarily engaged in commercial and consumer banking through its two banking subsidiaries. In conducting their businesses, the banks receive deposits, make loans, provide trust, investment and corporate services, operate the TransFund interchange of automated teller machines and generally engage in all aspects of commercial and consumer banking. Corporate Headquarters Transfer Agent and Registrar Bank of Oklahoma Tower The Bank of New York P.O. Box 2300 (800) 524-4458 Tulsa, Oklahoma 74192 (918)588-6000 Address Shareholders Inquiries to: Shareholder Relations Department-11E Independent Auditors P.O. Box 11258 Ernst & Young LLP Church Street Station Bank of Oklahoma Tower New York, NY 10286 Tulsa, Oklahoma 74172 (918) 560-3600 E-Mail Address: Shareowner-svcs@Email.bony.com Legal Counsel Frederick Dorwart Lawyers Old City Hall Send Certificates for Transfer and 124 E. Fourth St. Address Changes to: Tulsa, Oklahoma 74103-5010 Receive and Deliver Department - 11W (918) 583-9922 P.O. Box 11002 Church Street Station Common Shares: New York, NY 10286 Traded Over the Counter, NASDAQ Symbol: BOKF Market Makers: Herzog, Heine, Geduld, Inc. Smith Barney Southwest Securities, Inc. Copies of BOK Financial Corporation's Annual Report to Shareholders, Quarterly Reports and Form 10-K to the Securities and Exchange Commission are available without charge upon written request. Analysts, shareholders and other investors seeking financial information about BOK Financial Corporation are invited to contact James A. White, Executive Vice President & Chief Financial Officer, (918) 588-6752. News media and others seeking general information should contact Becky J. Frank, Vice President, Public Relations manager, (918) 588-6831. 50 DIRECTORS
BOK Financial Corporation - ----------------------------------------------------------------------------------------------------------------------- W. Wayne Allen Dr. Robert H. Donaldson David R. Lopez Chairman and CEO Trustees Professor of Political President - Oklahoma Phillips Petroleum Co. University of Tulsa Southwestern Bell Telephone Co. Keith E. Bailey William E. Durrett Stanley A. Lybarger Chairman, President and CEO Chairman, President and CEO President and CEO The Williams Companies American Fidelity Corp. Bank of Oklahoma, N.A. James E. Barnes James O. Goodwin Frank A. McPherson Chairman and CEO, MAPCO Inc. CEO Retired Chairman and CEO The Oklahoma Eagle Publishing Co. Kerr-McGee Oil Corporation Sharon J. Bell V. Burns Hargis Robert L. Parker, Sr. Managing Partner, Rogers and Bell Attorney, McAfee & Taft Chairman, Parker Drilling Company Larry W. Brummett E. Carey Joullian, IV James W. Pielsticker Chairman, President and CEO, President, Mustang Fuel President ONEOK Inc. Corporation Arrow Trucking Co. Glenn A. Cox George B. Kaiser James A. Robinson Retired President and COO Chairman of the Board Personal Investments Phillips Petroleum Company Bank of Oklahoma, N.A. Ralph S. Cunningham Robert J. LaFortune L. Francis Rooney, III President and CEO, Citgo Petroleum Personal Investments Chairman Manhattan Construction Company Nancy J. Davies Philip C. Lauinger, Jr. Robert L. Zemanek Community Leader Chairman President, CSW Transmission and Lauinger Publishing Company Distribution Support Central and South West Co.
- -------------------------------------------------------------------------------------------------------------- Bank of Oklahoma, N.A. - -------------------------------------------------------------------------------------------------------------- W. Wayne Allen James O. Goodwin Stanley A. Lybarger Chairman and CEO CEO President and CEO Phillips Petroleum Co. The Oklahoma Eagle Publishing Co. Bank of Oklahoma, N.A. Keith E. Bailey D. Joseph Graham Frank A. McPherson Chairman, President and CEO Vice President and CFO Retired Chairman and CEO The Williams Companies Kaiser-Francis Oil Co. Kerr-McGee Oil Corporation Larry W. Brummett V. Burns Hargis James W. Pielsticker Chairman, President and CEO Attorney, McAfee & Taft President ONEOK Inc. Arrow Trucking Co. Glenn A. Cox Eugene A. Harris L. Francis Rooney, III Retired President and COO Executive Vice President Chairman and CEO Phillips Petroleum Company Bank of Oklahoma, N.A. Manhattan Construction Company Ralph S. Cunningham E. Carey Joullian, IV James A. White President and CEO, Citgo Petroleum President, Mustang Fuel Corporation Executive Vice President and CFO Bank of Oklahoma, N.A. Nancy J. Davies George B. Kaiser Robert L. Zemanek Community Leader Chairman of the Board President, CSW Transmission and Bank of Oklahoma, N.A. Distribution Support Central and South West Co. Dr. Robert H. Donaldson David R. Lopez Trustees Professor of President - Oklahoma Political Science Southwestern Bell Telephone Co. University of Tulsa
51 OPERATING SUBSIDIARIES Bank of Oklahoma, N.A. Bank of Arkansas - ------------------------------------------------ -------------------- Tulsa Oklahoma City Main Bank - ---------------------- ---------------------- ----------------- Bank of Oklahoma Tower Bank of Oklahoma Plaza 3500 N. College, One Williams Center Robinson at Robert. S. Kerr Fayetteville (918) 588-6000 (405) 272-2000 (501) 521-8000
Subsidiaries of Bank of Oklahoma, N.A. - ---------------------------------------------------------------------------------------------------------------------- BANK OF OKLAHOMA ,TRUST DIVISION BOK MORTGAGE - -------------------------------- ------------ Tulsa Oklahoma City Tulsa Oklahoma City - ----- ------------- ----- ------------- Bank of Oklahoma Tower 6307 Waterford Blvd. Copper Oaks 5015 N. One Williams Center, 10th Floor (405) 879-8100 7060 S. Yale, Suite 100 Pennsylvania (918) 588-6437 (918) 488-7140 (405) 879-8700 ALLIANCE TRUST COMPANY Bank of Oklahoma Plaza Pine and Lewis Lawton 2009 Independence Dr. 201 Robert S. Kerr, 4th 1604 N. Lewis 2602 W. Gore Blvd. Sherman, Texas Floor (918) 588-8608 (405)250-0070 (903) 813-5100 (405) 272-2459 5956 Sherry Lane, Suite 1800 SOUTHWEST TRUST COMPANY Owasso Dallas, Texas 6307 Waterford Blvd. ------ (214) 987-8800 Oklahoma City 413 E. 2nd Ave. (405) 879-8100 (918) 588-8650 BOSC, INC 3045 S. Harvard Tulsa (918) 746-5720
Major Customer Service Offices - -------------------------------------------------------------------------------- BUSINESS BANKING CENTERS - ----------------------------------------------------------- Tulsa Oklahoma City - ------ ------------- Brookside Banking Center Northwest Banking Center 3237 S. Peoria 3535 N. W. 58th, 2nd Floor (918) 746-7400 (405) 951-5400 COMMERCIAL Metropolitan, National, Energy & Real Estate offices - -------------------------------------------------------------- Tulsa Oklahoma City - ----- ------------- Bank of Oklahoma Tower Bank of Oklahoma Plaza One Williams Center Robinson at Robert. S. Kerr (918) 588-6000 (405) 272-2000 CONSUMER BANKING - -------------------------------------------------------------- Tulsa Oklahoma City - ----- ------------- Bank of Oklahoma Tower Bank of Oklahoma Plaza One Williams Center Robinson at Robert. S. Kerr (918) 588-6010 (405) 272-2548 BANCOKLAHOMA INVESTMENT CENTER - --------------------------------------------------------------- Tulsa - ----- Investment Center Financial Ranch Acres Consultants are located in all 3045 S. Harvard, Suite 101 Consumer, Community and (918) 746-5770 Private Financial Services locations statewide. PRIVATE FINANCIAL SERVICES - -------------------------------------------------------------- Tulsa Oklahoma City - ----- ------------- Midtown at Lewis Center Northwest Banking Center 2021 S. Lewis, Suite 200 3535 N. W. 58th (918) 748-7283 (405) 951-5434 Downtown at Waterford 320 Boston Center 6307 Waterford Blvd., St. 100 320 S. Boston (405) 879-8100 (918) 588-6214 Enid ---- Brookside Business Center 2308 N. Van Buren 3237 S. Peoria (405) 548-8523 (918) 746-7400 61st & Yale (918) 493-5203 Bartlesville - ------------ 3815 S.E. Frank Phillips Blvd. (918) 335-5349 52
BANK OF OKLAHOMA, N.A. LOCATIONS Oklahoma City Area Locations Tulsa Area Locations - --------------------------------------------------------------- ----------------------------------------------------------------- Oklahoma City Plaza Village Tulsa Downtown Brookside 201 Robert S. Kerr 9300 N. Pennsylvania Banking Center 3237 S. Peoria One Williams Center Downtown Express Bank Windsor Hills Downtown Autobank City Plaza 4th & Robinson 2601 N. Meridian 2nd & Denver 5330 E. 31st BOk in Albertson's, Del City 320 Boston Center Lewis Center 104th & Western 4324 S. E. 44th 320 S. Boston 2021 S. Lewis BOk in Albertson's, Edmond, Broadway 31st & Garnett Pine & Lewis 122nd & Rockwell 1515 S. Broadway BOk in Albertson's, BOk in Albertson's, 61st & Yale Ranch Acres Britton & May 15th & Post, Midwest City 3045 S. Harvard 71st & Sheridan BOk in Albertson's, Midwest City 101st & Sheridan Southroads MacArthur and NW Expressway 1500 S. Midwest Blvd. 4901 E. 41st Candlewood Midwest City, Air Depot BOk in Albertson's, Southwest Tulsa 6517 N.W. Expressway 1201 S. Air Depot Blvd. 51st & Harvard 4544 S. 33rd W. Ave. Northwest Banking Center BOk in Albertson's, I-35 & BOk in Albertson's, Bixby 3535 N. W. 58th Robinson, Norman 51st & Memorial 11709 S. Memorial Penn Tower Norman-Midtown BOk in Albertson's, Broken Arrow, Albertson's, 50 Penn Place 707 W. Main 71st & Garnett 101st & Elm Quail Creek Norman-West BOk in Albertson's, Broken Arrow, 11300 N. May Ave 3550 W. Main 81st & Yale 81st & Aspen South OKC Yukon BOk in Albertson's, Sand Springs 7701 S. Western 1100 S. Garth Brooks Blvd. 101st & Memorial 401 E. Broadway
Community Locations - ------------------------------------------------------------------------------------------------------------------------------------ Bartlesville Enid Grove ------------ ---- ----- Muskogee, Eastside Main Bank Northwest 201 S. Main 2520 Chandler Rd. 3815 S. E. Frank Phillips Blvd. 2308 N. Van Buren Downtown BOk in Homeland BOk in Wal-Mart Muskogee, Westside 5th & Keeler 3828 W. Owen K. Garriott 2115 S. Main 300 N. 32nd St. Washington Park Mall Eufaula McAlester Newkirk 132 Washington Park Mall ------- --------- ------- 219 S. Main One E. Choctaw 110 S. Main BOk in Wal-Mart 4000 Green Country Road Muskogee Ponca City -------- ---------- Downtown 2005 N. 14th St. 325 W. Broadway
BANK OF ARKANSAS LOCATIONS - -------------------------------------------------------------------------------- Fayetteville - Main Bank Fayetteville - Downtown - ------------------------ ----------------------- 3500 N. College 11 N. College Rogers Springdale - ------ ---------- 2000 W. Walnut Opening May 1997 53
EXECUTIVE OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ George B. Kaiser* Mark W. Funke Community Banking BOk Mortgage Chairman of the Board Executive Vice President ----------------- ----------------- Chief Operating Officer John W. Anderson David L. Laughlin Stanley A. Lybarger* Oklahoma City President, Bartlesville President President, Chief Executive Officer Eugene A. Harris Mary H. Williams BancOklahoma Trust Company Executive Vice President President, Grove -------------------------- Commercial Banking H. James Holloman Wayne D. Stone* David P. Jones President President, Bank of Oklahoma President, Muskogee Oklahoma City Regional Office John J. Maintz* Senior Vice President James E. White* Credit Administration J. Blake Moffatt Executive Vice President President, Sand Springs Chief Financial Officer H. James Holloman Alliance Trust Company, N.A. Executive Vice President ---------------------------- Frederic Dorwart* Trust Division J. Michael Stuart James R. Dickson Secretary President, Enid President Norman W. Smith Dallas, Texas Executive Vice President ------------------- Lowell E. Faulkenberry* Consumer Banking John J. Rownak, Jr. Philip S. McKinzie Senior Vice President President and Chief Executive Vice President Risk Management Gregory K. Symons Executive Officer Sherman, Texas Executive Vice President Bank of Arkansas ** John C. Morrow* Services Senior Vice President Controller, Financial Charles D. Williamson Accounting Executive Vice President Capital Markets
Senior Vice Presidents - ------------------------------------------------------------------------------------------------------------------------------------ Lee C. Allen, Jr. James A. Dietz Ronald E. Leffler Joe L. Rodanski Asset/Liability Credit Administration Consumer Banking Trust Division Barry L. Bell Jeffery R. Dunn Vane T. Lucas John J. Rownak, Jr. BOk Mortgage Bank of Arkansas Consumer Support Bank of Arkansas Steven G. Bradshaw Wade Edmundson James S. Marshall Joann G. Schaub Private Financial Services Commercial Marketing BOk Mortgage Trust Division Michael L. Bristle Barbara L. Eikner Marc C. Maun* David A. Sharpe Bank Operations Bank Operations Acquisitions Electronic Banking Ben R. Byers Ellen D. Fleming Charles E. Murray II Carl L. Shortt, Jr. Private Financial Services Trust Division Private Financial Services Trust Division Robert W. Carroll Douglas S. Fuller Paul D. Mesmer James F. Ulrich Legal Commercial Banking Center Special Assets Human Resources William J. Clune Marshall K. Grant Steven E. Nell Nancy E. Utter Agriculture BOk Mortgage Management Accounting Credit Administration Charles E. Cotter Scott B. Grauer Stephen R. Pattison William J. Weigel, Jr. Merchant Banking Investment Center Corporate Banking Trust Division Terry L. Croll Lawrence B. Halka Patrick E. Piper H. Matt Wilson Treasury Services Trust Division Consumer Banking Commercial Banking Brett A. Dean Richard C. Haugland David A. Ralston Institutional INvestments Muskogee Commercial Real Estate James R. Dickson James L. Huntzinger John M. Robinson Trust Division Trust Division Commercial Banking Center *BOK Financial and Bank of Oklahoma, N.A. officers **wholly-owned subsidiary of BOK Financial
BANK OF OKLAHOMA N.A. --------------------- Bank of Oklahoma Tower P.O. Box 2300, Tulsa, OK 74192 (918) 588-6000 Bank of Oklahoma Plaza P.O. Box 24128, Oklahoma City, OK 73124 (405) 272-2000 BANK OF ARKANSAS ---------------- (Citizens Bank of Northwest Arkansas, N.A., name change effective May 1, 1997) P.O. Box 1407, Fayetteville, AR 72703 (501) 973-2660 FIRST NATIONAL BANK OF PARK CITIES ---------------------------------- 6215 Hillcrest Avenue, Dallas, TX 75205 (214)522-5858 6701 Preston Road, Dallas, TX 75205 (214) 522-3700 FIRST TEXAS BANK ---------------- Dallas, 2650 Royal Lane at Denton, Dallas, TX 75229 (972) 243-2400 Valley Bank, 9400 MacArthur Blvd., Irving, TX 75063 (972) 556-0666 (C)1997 BOK Financial Corporation EX-21 4 SUBSIDIARIES OF THE REGISTRANT BOK FINANCIAL CORPORATION EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Banking Subsidiaries Bank of Oklahoma, National Association Citizens Bank of Northwest Arkansas, National Association Other subsidiaries of BOK Financial Corporation BOKF Merger Corporation Number Three BOKF Merger Corporation Number Four BOKF Merger Corporation Number Five Brookside Bancshares, Inc. BOK Capital Services Corp. KCI Leasing Partners I, an Oklahoma Limited Partnership KCI Leasing Partners II, an Oklahoma Limited Partnership Sabre 1996 Partnership, an Oklahoma Limited Partnership Subsidiaries of Bank of Oklahoma, N.A. and Citizens Bank of Northwest Arkansas, N.A. Affiliated BancServices, Inc. Affiliated Financial Holding Company Affiliated Financial Insurance Agency, Inc. Affiliated Financial Life Insurance Company Alliance Trust Company, National Association Banco Leasing Company BancOklahoma Agri-Service Corp. BancOklahoma Mortgage Corp. BOSC, Inc. BancOklahoma Trust Company. BOK Delaware, Inc. BOK DPC Asset Holding Company BOK Real Estate Trust BOK Second DPC Asset Holding Company FGBSA Securities Brokerage (Oklahoma), Inc. Investment Concepts, Inc. Pacesetter Leasing Company Southwest Trust Company Steven L. Smith Corp. 115 E. Fifth Corp. All subsidiaries are incorporated in Oklahoma, with the exception of Bank of Oklahoma, National Association, which is chartered by the United States of America; Affiliated Financial Life Insurance Company, which is incorporated in Arizona; Alliance Trust Company and FGBSA Securities Brokerage (Oklahoma), Inc., which are incorporated in Texas; Brookside Bancshares, BOK Delaware, Inc. and BOK Real Estate Trust, which are incorporated in Delaware; and Citizens Bank of Northwest Arkansas, N.A., which is incorporated in Arkansas. EX-23 5 CONSENT OF INDEPENDENT AUDITORS BOK FINANCIAL CORPORATION EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated January 27, 1997, with respect to the consolidated financial statements of BOK Financial Corporation and subsidiaries incorporated by reference in the annual report (Form 10-K) for the year ended December 31, 1996, in the following registration statements: Registration Statement (Form S-8, No. 33-44121) pertaining to the Reoffer Prospectus of the Bank of Oklahoma Master Thrift Plan and Trust Agreement. Registration Statement (Form S-8, No. 33-44122) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1991 Special Stock Option Plan. Registration Statement (Form S-8, No. 33-55312) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1992 Stock Option Plan. Registration Statement (Form S-8, No. 33-70102) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1993 Stock Option Plan. Registration Statement (Form S-8, No. 33-79834) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1994 Stock Option Plan. Registration Statement (Form S-8, No. 33-79836) pertaining to the Reoffer Prospectus of the BOK Financial Corporation Directors' Stock Compensation Plan. /s/ Ernst & Young LLP Tulsa, Oklahoma March 27, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the BOK Financial Corporation's 10-K for the period ended December 31, 1996 and is qualified in its entirety by reference to such financial statments. 1,000 YEAR Dec-31-1996 Jan-01-1996 Dec-31-1996 322,791 0 44,760 6,454 1,459,122 198,408 199,549 2,394,580 45,148 4,620,700 3,256,755 843,604 57,675 102,700 0 23 1 359,942 4,620,700 196,309 92,253 1,630 290,532 118,066 163,093 127,439 4,267 (2,607) 159,028 69,456 54,127 0 0 54,127 2.48 2.24 3.54 18,835 18,816 0 40,000 38,287 6,510 9,104 45,148 45,148 0 9,225
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