-----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, LdrLcS5bl33ra1IN73wMeg3sfTr8EOc13/+zhnVn6cI2hnEyJPHopzhCP3Fo21mR UB43avUQ/VoHg7FERFfUjA== 0000875357-00-000005.txt : 20000411 0000875357-00-000005.hdr.sgml : 20000411 ACCESSION NUMBER: 0000875357-00-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 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: SEC FILE NUMBER: 000-19341 FILM NUMBER: 582296 BUSINESS ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: PO BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 BUSINESS PHONE: 9185886416 MAIL ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: P O BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1999 As filed with the Securities and Exchange Commission on March 29, 2000 ================================================================================ 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, 1999 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: $563,197,491 as of February 29, 2000. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 49,108,569 shares of common stock ($.00006 par value) as of the start of business on March 1, 2000. 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, 1999 (designated portions only) Part II - Annual Report to Shareholders For Fiscal Year Ended December 31, 1999 (designated portions only) Part III - Proxy Statement for Annual Meeting of Shareholders scheduled for April 25, 2000 (designated portions only) Part IV - Annual Report to Shareholders For Fiscal Year Ended December 31, 1999 (designated portions only) ================================================================================ BOK FINANCIAL CORPORATION FORM 10-K ANNUAL REPORT INDEX ITEM PAGE PART I 1. Business 3 2. Properties 5 3. Legal Proceedings 5 4. Submission of Matters to a Vote of Security Holders 5 PART II 5. Market for Registrant's Common Equity and Related 5 Stockholder Matters 6. Selected Financial Data 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 7A. Quantitative and Qualitative Disclosures About Market Risk 6 8. Financial Statements and Supplementary Data 6 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6 PART III 10. Directors and Executive Officers of the Registrant 6 11. Executive Compensation 6 12. Security Ownership of Certain Beneficial Owners and Management 7 13. Certain Relationships and Related Transactions 7 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 7 - 12 Signatures 13 PART I ITEM 1 - Business General Development of Business Developments relating to individual aspects of the business of BOK Financial Corporation ("BOK Financial") are described below. 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 10-24) in BOK Financial's 1999 Annual Report to Shareholders. Information regarding BOK Financial's acquisitions is incorporated by reference to Note 2 of "Notes to Consolidated Financial Statements" (page 34 - 35) in BOK Financial's 1999 Annual Report to Shareholders. Narrative Description of Business BOK Financial is a bank holding company whose activities are limited by the Bank Holding Company Act of 1956, as amended ("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 Bank of Oklahoma, N.A. ("BOk"), Bank of Texas, N.A., Bank of Albuquerque N.A., and Bank of Arkansas, N.A. Other significant operating subsidiaries include BOSC, Inc., which is a full-service securities firm with specialized expertise in public and municipal finance and private placements, and BOK Capital Services Corporation, which provides leasing and mezzanine financing. Other nonbank subsidiary operations are not significant. As of December 31, 1999, BOK Financial and its subsidiaries had 3,101 full-time equivalent employees. Industry Segments BOK Financial operates four principal lines of business under its BOk franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth principal line of business, regional banks, which includes banking functions for Bank of Albuquerque, Bank of Arkansas and Bank of Texas. These five principal lines of business combined account for approximately 86% of total revenue. Discussion of these principal lines of business is incorporated by reference to Lines of Business in "Management's Assessment of Operations and Financial Condition " (pages 13 - 15) and Note 17 of "Notes to Consolidated Financial Statements" (pages 48 - 51) in BOK Financial's 1999 Annual Report to Shareholders. Competition The banking industry in each of our markets is highly competitive. BOK Financial, through four subsidiary banks, competes with other banks in obtaining deposits, making loans and providing additional services related to banking. BOk is the largest banking subsidiary of BOK Financial. It has the largest market share in Oklahoma and a leading market position in eight of the eleven Oklahoma counties in which it operates. BOk competes with two super-regional banks and numerous locally owned banks in both Tulsa and Oklahoma City areas, as well as several locally owned small community banks in every other community in which we do business throughout the rest of the state. BOK Financial competes in the Dallas-Ft. Worth combined metropolitan area, in the Albuquerque, New Mexico market, and in Fayetteville, Arkansas through subsidiary banks. Bank of Texas competes against numerous financial institutions, including some of the largest in the U.S. Bank of Texas's market share is approximately 2%, including three 1999 Texas bank acquisitions which will be merged into Bank of Texas in 2000. Bank of Albuquerque has a number four market share position in the City of Albuquerque behind two super-regional competitors followed by several locally-owned smaller community banks. Bank of Arkansas operates as a community bank serving Benton and Washington counties in Arkansas. 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 regional banking environment in our markets. 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, Bank of Texas, Bank of Albuquerque, or Bank of Arkansas. BOK Financial As a bank holding company, BOK Financial is subject to regulation under the BHCA (as amended by the Financial Services Modernization Act or Gramm-Leach-Bliley Act) and to supervision by the Board of Governors of the Federal Reserve System (the "Reserve Board"). Under the BHCA, BOK Financial files 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 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 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 pay-out, nonoperating basis. A bank holding company 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, 1999, BOK Financial's Leverage, Tier 1 and Total Capital ratios were 5.92%, 7.27% and 10.72%, respectively. Bank Subsidiaries BOk, Bank of Texas, Bank of Albuquerque, and Bank of Arkansas 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. Bank of Arkansas 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. Applicable federal statutes and regulations require national banks to meet certain leverage and risk-based capital requirements. At December 31, 1999, all of BOK Financial Corporation's leverage and risk-based capital ratios were well above the required minimum ratios. Additional discussion regarding regulatory capital is incorporated by reference to Note 15 of "Notes to Consolidated Financial Statements" (page 46 - 47) in BOK Financial's 1999 Annual Report to Shareholders. 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. Foreign Operations BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments. ITEM 2 - Properties BOK Financial, through BOk, BOk's subsidiaries, Bank of Texas, Bank of Albuquerque and Bank of Arkansas, owns improved real estate that was carried at $69 million, net of depreciation and amortization, as of December 31, 1999. BOK Financial conducts its operations through 69 locations in Oklahoma, 13 locations in Texas, 15 banking locations in New Mexico, and 3 locations in Arkansas as of December 31, 1999. 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 39 and 45, respectively) of BOK Financial's 1999 Annual Report to Shareholders provides further discussion related to properties and is incorporated herein by reference. ITEM 3 - Legal Proceedings The information set forth in Note 13 of "Notes to Consolidated Financial Statements" (page 45) of BOK Financial's 1999 Annual Report to Shareholders is incorporated herein by reference. 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, 1999. 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, 1999, common shareholders of record numbered 1,241 with 49,065,937 shares outstanding. During 1999, BOK Financial declared a 3% stock dividend in respect of its Common Stock payable in shares of Common Stock. The dividend was paid on October 18, 1999 to shareholders of record on October 5, 1999. On January 26, 1999, BOK Financial declared a two-for-one stock split effected in the form of a 100% stock dividend for common stockholders on record on February 8, 1999 and paid on February 22, 1999. BOK Financial's quarterly market information follows: First Second Third Fourth --------------- -------------- -------------- --------------- 1999: Low $22.03 $23.75 $18.94 $19.81 High 25.94 25.75 25.50 21.75 1998: Low $19.50 $22.69 $20.25 $21.30 High 25.38 26.63 24.50 24.03 In February, 1999, BOK Financial announced that its board of directors approved a continuance of its common stock repurchase program and approved the repurchase of an additional 400,000 shares, increasing the total authorization to 800,000 shares. The purchases were made from time-to-time in accordance with SEC Rule 10(b)18 transactions. Since the original authorization announced in 1998, BOK Financial has repurchased 466,540 shares. The information set forth under the captions "Table 1 - Consolidated Selected Financial Data" (page 9), "Table 11 - Selected Quarterly Financial Data" (page 17) and Note 15 of "Notes to Consolidated Financial Statements" (page 46) of BOK Financial's 1999 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 9) of BOK Financial's 1999 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 10 - 24), "Annual Financial Summary - Unaudited" (pages 56 - 57) and "Quarterly Financial Summary Unaudited" (pages 58 - - 59) of BOK Financial's 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 7A - Quantitative and Qualitative Disclosures About Market Risk The information set forth under the caption "Market Risk" (pages 22 -24) of BOK Financial's 1999 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 11 - Selected Quarterly Financial Data" (page 17) of BOK Financial's 1999 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 2000 Annual Proxy Statement for its Annual Meeting of Shareholders scheduled for April 25, 2000 ("2000 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 2000 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 2000 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 2000 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 36, 38 - 39, and 41, respectively) of BOK Financial's 1999 Annual Report to Shareholders is incorporated herein by reference. 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, 1999 are incorporated by reference in Parts I and II of this Annual Report on Form 10-K. Exhibit 13 1999 Annual Report Description Page Number Consolidated Selected Financial Data 9 Selected Quarterly Financial Data 17 Report of Management on Financial Statements 25 Report of Independent Auditors 25 Consolidated Statements of Earnings 26 Consolidated Balance Sheets 27 Consolidated Statements of Changes in Shareholders' Equity 28-29 Consolidated Statements of Cash Flows 30 Notes to Consolidated Financial Statements 31-55 Annual Financial Summary - Unaudited 56-57 Quarterly Financial Summary - Unaudited 58-59 (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. 10.1 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. 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 1997 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-32649. 10.7.6 BOK Financial Corporation 2000 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 333-93957. 10.7.7 BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79836. 10.7.8 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. 10.7.9 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. 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 Registration 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. 10.24 Purchase and Assumption Agreement between Bank of America National Trust and Savings Association and BOK Financial Corporation dated July 27, 1998. 10.25 Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation No. Seven, First Bancshares of Muskogee, Inc., First National Bank and Trust Company of Muskogee, and Certain Shareholders of First Bancshares of Muskogee, Inc. dated December 30, 1998. 10.26 Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation Number Nine, and Chaparral Bancshares, Inc. dated February 19, 1999. 10.27 Merger Agreement among BOK Financial Corporation, Park Cities Bancshares, Inc., Mid-Cities Bancshares, Inc. and Mid-Cities National Bank dated February 24, 1999. 10.28 Merger Agreement among, BOK Financial Corporation, Park Cities Bancshares, Inc., PC Interim State Bank, Swiss Avenue State Bank and Certain Shareholders of Swiss Avenue State Bank dated March 4, 1999. 13.0 Annual Report to Shareholders for the fiscal year ended December 31, 1999. 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 for year ended December 31, 1999. 27.1 Financial Data Schedule for years ended December 31, 1998, and 1997 as applicable for restatement of previous years information for pooling of interest transaction in 1999. 27.2 Financial Data Schedule for period ending March 31, 1999 as applicable for restatement of previous years information for pooling of interest transaction in 1999. 27.3 Financial Data Schedule for periods ending March 31, 1998, June 30, 1998, and September 30, 1998 as applicable for restatement of previous years information for pooling of interest transaction in 1999. 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. 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. 99.7 Undertakings incorporated by reference into S-8 Registration Statement No. 333-32649 for BOK Financial Corporation 1997 Stock Option Plan, Incorporated by reference to Exhibit 99.7 of Form 10-K for the fiscal year ended December 31, 1997. 99.8 Undertakings incorporated by reference into S-8 Registration Statement No. 333-93957for BOK Financial Corporation 2000 Stock Option Plan, Incorporated by reference to Exhibit 99.8 of Form 10-K for the fiscal year ended December 31, 1999. (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. 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 /s/ George B. Kaiser DATE: March 29, 2000 BY: -------------------------- 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 29, 2000, 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/ Steven E. Nell /s/ John C. Morrow - ---------------------------------- ------------------------- Steven E. Nell, John C. Morrow Senior Vice Presiden and Senior Vice President and Corporate Controller Director of Financial Accounting and Reporting DIRECTORS /s/ W. Wayne Allen /s/ John C. Lopez - -------------------------------------- ------------------------------------- W. Wayne Allen John C. Lopez /s/ C. Fred Ball, Jr. /s/ Frank A. McPherson - -------------------------------------- -------------------------------------- C. Fred Ball, Jr. Frank A. McPherson - -------------------------------------- -------------------------------------- James E. Barnes Steven E. Moore /s/ Sharon J. Bell /s/ J. Larry Nichols - -------------------------------------- -------------------------------------- Sharon J. Bell J. Larry Nichols /s/ Luke R. Corbett /s/ Ronald J. Norick - -------------------------------------- -------------------------------------- Luke R. Corbett Ronald J. Norick /s/ Robert H. Donaldson /s/ Robert L. Parker, Sr. - -------------------------------------- -------------------------------------- Robert H. Donaldson Robert L. Parker, Sr. /s/ James. W. Pielsticker - -------------------------------------- -------------------------------------- William E. Durrett James W. Pielsticker /s/ James O. Goodwin - -------------------------------------- -------------------------------------- James O. Goodwin E.C. Richards /s/ V. Burns Hargis - -------------------------------------- -------------------------------------- V. Burns Hargis James A. Robinson /s/ L. Francis Rooney, III - -------------------------------------- -------------------------------------- Howard E. Janzen L. Francis Rooney, III /s/ E. Carey Joullian, IV - -------------------------------------- -------------------------------------- E. Carey Joullian, IV David J. Tippeconnic /s/ Robert J. LaFortune /s/ Tom E. Turner - -------------------------------------- -------------------------------------- Robert J. LaFortune Tom E. Turner /s/ Philip C. Lauinger, Jr. /s/ Robert L. Zemanek - -------------------------------------- -------------------------------------- Philip C. Lauinger, Jr. Robert L. Zemanek EX-13 2 1999 ANNUAL REPORT TO SHAREHOLDERS BOK FINANCIAL CORPORATION EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS Table of Contents Consolidated Selected Financial Data 9 Management's Assessment of Operations and Financial Condition 10 Selected Quarterly Financial Data 17 Report of Management on Financial Statements 25 Report of Independent Auditors 25 Consolidated Financial Statements 26 Notes to Consolidated Financial Statements 31 Annual Financial Summary - Unaudited 56 Quarterly Financial Summary - Unaudited 58 Appendix A 66 Financial Highlights (Dollars In Thousands Except Share Data) 1999 1998(2)(3) 1997(2)(3) ------------------------------- For the Years Ended December 31 Net income $ 89,226 $ 79,611 $ 68,155 Earnings per share: Basic 1.79 1.60 1.36 Diluted 1.60 1.43 1.23 Book value per share $ 11.36 $ 10.76 $ 9.80 Return on average assets 1.17% 1.34% 1.29% Return on average equity 16.45 16.38 16.78 ------------------------------------------------------------------------------- Tangible operating results (see Table 2): Tangible net income $ 102,262 $ 88,104 $ 76,154 Tangible net income per diluted share 1.83 1.58 1.37 Tangible return on assets 1.34% 1.48% 1.45% Tangible return on shareholders' equity 18.85 18.13 18.75 ------------------------------------------------------------------------------- As of December 31 Loans, net of reserves $4,567,255 $3,581,177 $2,801,977 Assets 8,373,997 7,059,507 5,613,233 Deposits 5,263,184 4,607,727 3,924,405 Shareholders' equity 557,164 524,793 451,880 Nonperforming assets(4) 22,943 18,762 25,249 ------------------------------------------------------------------------------- Tier 1 capital ratio 7.27% 7.93% 9.87% Total capital ratio 10.72 12.02 14.95 Leverage ratio 5.92 6.60 7.06 Average shareholders' equity to average assets 7.12 8.17 7.71 Reserve for loan losses to nonperforming loans 391.65 467.70 270.65 Reserve for loan losses to loans(1) 1.66 1.86 1.95 Net charge offs to average loans .04 .09 .14 =============================================================================== (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. (2) Restated for pooling of interest in 1999. (3) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999. (4) Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing. 1 To Our Shareholders, Customers, Employees and Friends: BOK Financial Corporation had another landmark year in 1999 - a year of continued financial progress, broader expansion into new markets, further penetration into current markets, and continued commitment to the communities and customers we serve. We reported growth in earnings for the eighth consecutive year, while growing our assets by 23 percent from year-end 1998 to year-end 1999.(5) Annual earnings were $89.2 million, representing a 12 percent increase over the previous year. Earnings per share were $1.60, compared to $1.43 last year. Tangible net income per diluted share grew 16 percent to $1.83 per share.(6) Assets of the company now stand at $8.4 billion, reflecting our position as one of the region's leading bank holding companies. Net interest revenue after provision for loan losses was up 28 percent over 1998. Fees and commissions increased 12 percent. The company achieved a return on average equity of 16.45 percent, while posting a 12 percent gain in earnings per share. Our growth across the region in 1999 was bolstered by acquisitions in high-growth markets. Mid-Cities National Bank in Hurst, Texas, gave us our first location in Tarrant County, near Fort Worth. Swiss Avenue State Bank gave us three more key locations in Dallas, each adjacent to a major medical center. Canyon Creek National Bank positioned us in rapidly growing Richardson and McKinney. We now have a network of 13 locations from Dallas-Fort Worth, northward to Sherman. The three new banks have combined assets of $380 million, bringing our total assets in Texas to $1.2 billion. Meanwhile, we continued to expand in our home state of Oklahoma. We merged with First Muskogee Bancshares, making us the clear market leader in eastern Oklahoma. And we acquired another Kansas City area mortgage firm, First Mortgage Investment Company. We now have mortgage offices in Lee's Summit, Missouri; Topeka, Kansas; and Lenexa, Kansas. 2 In addition to our internal growth, these acquisitions mean our company continues to evolve from primarily an Oklahoma bank to a regional holding company with successful banking operations in multiple states. Our Bank of Texas franchise now represents 14 percent of the company's assets, while Bank of Albuquerque comprises 11 percent. Bank of Arkansas, while smaller than the other banks, achieved substantial growth in 1999 as well. In addition to this geographic diversity, our sources of fee income also remain diverse. We have historically ranked among the highest in our peer group in the proportion of non-interest revenue to total revenue, and 1999 was no exception. Fee-based lines of business comprised 43 percent of total revenue. We saw growth of 34 percent in transaction card revenue, 21 percent in service charges and fees on deposits, and 17 percent in trust fees. Overall, fee-based revenue grew by 12 percent. We expect revenue from fee-based businesses to grow as we introduce our proven fee-based products to our new customers. Our strategy for continued growth remains unchanged. We have demonstrated our ability to compete against nationally prominent banks by offering sophisticated products and services delivered in a style reflecting our community bank roots. We know our customers, and seek to provide them with banking resources tailored to their specific needs. The Internet is becoming an increasingly vital delivery channel for us. Our web sites are constantly adding more valuable services for our customers. Last year alone we added online investing and an improved small-business cash management system. We also established an online system enabling 401(k) participants to access their accounts, and started accepting mortgage applications online. We encourage you as shareholders to visit our web site at www.bokf.com for current stock quotes, news releases and more. We will continue to boost our presence in Oklahoma, Texas, New Mexico and Arkansas by reaching new customers and pinpointing strategic acquisitions. As we grow, we will maintain our competitive advantage by delivering superior service to our customers. To help achieve this, we will be moving 700 employees this year to our new state-of-the-art operations and technology center in Tulsa, which will improve work flow and accelerate processes while giving us a platform for continued growth and greater cost efficiencies. We look forward to future success, as we build on our track record of excellent financial performance, market leadership, and superior customer and community service. As always, we appreciate your support and your business. George B. Kaiser Stanley A. Lybarger Chairman of the Board President and Chief Executive Officer (5) Based on financial statements issued prior to restatement for pooling of interests merger with First Muskogee Bancshares, Inc. (6) All per share data are diluted, and have been restated for the effects of a 3 percent stock dividend paid in October 1999, and the merger with First Muskogee Bancshares Inc., which was accounted for as a pooling of interests transaction. 3 Our proven strategy for growth. BOK Financial Corporation continued its historical pattern of growth and progress during 1999. We have been able to achieve this progress by following a proven strategy that emphasizes four key points. First, reflecting our community bank roots, we place a great deal of emphasis on knowing our customers and delivering superior service. Combining that service commitment with the resources and products of a national bank makes a winning combination, and that's where we have found our niche - as a bank with nationally competitive products and community bank service. Second, we continue to extend our leadership position in our home state of Oklahoma, ranking No. 1 in commercial banking, consumer banking, trust services, mortgage lending, and electronic funds transfer. With 69 locations statewide and counting, we are easily the most visible, most accessible bank in Oklahoma. And across the board, our staff includes the most experienced bank personnel in the state - people who know their communities and customers, and understand their markets. With such a successful track record in our home state, it makes sense to duplicate it in our other markets, which is our third objective: to expand our presence in high-growth markets in contiguous states. Our primary emphasis is to grow our current markets, leveraging from our platforms in Arkansas, New Mexico and Texas. Simultaneously, we plan to continue implementing our successful model for building fee-based growth in acquired banks that have historically relied on interest revenue as their primary source of income. Our final objective is to focus on expense control, productivity and efficiency. In 2000, we're moving our operations functions into the new Technology Center in Tulsa, enabling us to make vast improvements in processes and efficiencies. As always, our goal is to maintain service quality and reliability at a level that provides a clear advantage over our competitors. If 1999 is any measure, we are successfully executing this four-pronged strategy. BOK Financial Corporation's assets grew by 23 percent in 1999, from $6.8 billion(5) to $8.4 billion. Our assets have doubled in the last five years. Annual earnings were up 12 percent in 1999, marking our eighth consecutive year of earnings growth. 4 Our continued expansion throughout the region. A key ingredient to our recent and future success is our market growth outside of Oklahoma. Just seven years ago, we were exclusively an Oklahoma bank. Our expansion has been steady and diverse, while we have also upheld our standards of quality. Last year was no exception. Loans outside of Oklahoma nearly doubled, from $655 million to $1.2 billion. Our growth is coming from non-lending sources as well, as we introduce our successful fee-based business lines into acquired banks that have traditionally relied almost exclusively on interest income. Texas Our move into the Texas market began with a series of small steps starting in 1994, when we acquired a trust company in Sherman, Texas. We acquired two Dallas banks in 1997, and since then, our progress has remained steady. Last year, we completed three acquisitions in the Dallas-Fort Worth Metroplex, bringing our total locations in Texas to 13. Texas now represents 14 percent of the company's total assets at $1.2 billion. Bank of Texas in 1999 produced an impressive $260 million increase in loans. Trust assets in Texas grew by 57 percent, and trust fees increased by 26 percent. Our expansion is spreading throughout north Texas, and in 1999 we opened our first Texas supermarket bank, in Sherman. We also opened a mortgage origination office in Dallas, and will continue developing our services in private banking, consumer banking, retail investments and trust. We have made tremendous strides in Texas in the last few years, and have every intention for this pattern of growth to continue. New Mexico Our New Mexico franchise was another story of progress in 1999. At the close of 1998, Bank of Albuquerque was a newly acquired bank with $500 million in assets. Since then we have significantly broadened the bank's appeal, growing from a consumer-oriented bank to one that includes trust, private banking, mortgage lending, brokerage services and commercial banking. Bank of Albuquerque has also been attracting the attention of the most experienced bankers in the market. We recruited talented people with lengthy records of success in the area, further positioning ourselves to gain momentum and continue growing. Our strategy of adding top people and products - proven successful in our other markets - is working at Bank of Albuquerque. 5 Arkansas Our Arkansas operation, now in its sixth year, showed its best performance yet, and its services continue to expand. Our Little Rock-based brokerage unit continues to thrive, with 27 representatives handling a full range of institutional investments, and corporate and public finance underwriting. Our mortgage operation now includes offices in Little Rock, Fayetteville and Bentonville. We opened a loan production office in Little Rock during 1999, and also developed several significant relationships in Fort Smith, a sizeable Arkansas expansion market. The year also proved to be financially successful for Bank of Arkansas, with growth in loans and net interest income of 24 and 21 percent, respectively. Fee-income picked up as well, growing by 20 percent, led by increases in trust and retail investments. Oklahoma While our growth continues in contiguous states, we remain steadfast in our commitment to our home state. In fact, our Oklahoma business is thriving. In 1999 our Oklahoma lenders produced $534 million of new loans, ending the year at $3.4 billion. We acquired First National Bank of Muskogee, more than doubling our size in the Muskogee market and making us the clear market leader in eastern Oklahoma. We opened four new supermarket locations in Oklahoma, bringing our total supermarket branches to 28 - including a branch in every Albertsons in the Tulsa area. Our recent success - throughout the region - has added to the economic vitality of our home state. Our Oklahoma employment has more than doubled during the '90s, as our growth into a regional banking firm has made us one of the leading employers in the state. Elsewhere We remain interested in gaining a foothold in new, high-growth markets, and continue looking for opportunities that meet the criteria of our strategic plan. In 1999, we acquired a successful mortgage company which expanded our operations in the Kansas City area and gave us an entry into the Topeka market. 6 Our diversity of income sources. A major component of our recent success can be attributed to the diversity of our sources of income. While we maintain a solid, balanced loan portfolio, we have also historically ranked among the highest in our peer group in the proportion of non-interest revenue to total revenue. Fee-based Lines of Business In 1999, 43 percent of our revenue came from fee-based businesses despite our acquisition of new banks with lower fee-income proportion. In all, fee-based revenues grew by 12 percent last year, and were balanced among several lines of business. Eighteen percent of all fee-based income came from our transaction card and electronic funds transfer network. Transaction card revenue grew by 34 percent in 1999, and our TransFund unit's Visa Check Card was used to make 30.7 million purchases, an increase of 35 percent. TransFund is now the 20th largest electronic funds transfer network in the U.S., with more than 1,000 machines installed in an eight-state area, providing services to more than 270 financial institutions and 1.2 million cardholders Trust revenues made up 19 percent of our fee-based income in 1999. Trust revenues grew by 17 percent, including a 26 percent increase in Texas alone, with personal trust in Oklahoma City doubling in the last two years. Overall trust assets are now $17.2 billion, up from $14.4 billion last year. Our trust line-up includes our highly successful employee benefits products, which serve more than 100,000 defined contribution plan participants. Our self-directed 401(k) option attracted clients from New York to California. The American Performance Fund, a mutual fund family managed by our trust investments group, continues to be one of the most successful mutual fund families in the United States. At year-end 1999, assets for the fund stood at $1.8 billion - an increase of $264 million from a year before, for a gain of 17 percent. In addition, eight of the nine American Performance funds ranked by Lipper outperformed their respective peer group for the three-year period ending December 31, 1999. Twenty percent of our fee-based revenue in 1999 was generated by our mortgage division. At year-end, the servicing portfolio stood at $7 billion, servicing more than 94,000 loans in all 50 states and the District of Columbia. According to the latest available figures, our mortgage servicing portfolio is the 39th largest in the United States. We are the No. 1 mortgage originator in Oklahoma, including the top ranking in Oklahoma City and Tulsa. Within our own system, Oklahoma comprises 73 percent of our total mortgage originations, but other states are gaining ground. Kansas and Arkansas each hold about 10 percent of our total business. And with new offices in New Mexico and Texas, we're sure to see an even more balanced distribution in 2000 and beyond. BOSC Inc., our securities unit, initiated several structural changes in 1999 and is now a full-service, regional brokerage and public finance firm. By consolidating inter-firm trading functions, expanding securities trading, and unifying management accounting and reporting systems, BOSC has created a more efficient, effective way of meeting the needs of public entities, not-for-profit enterprises, corporations, and individual investors. 7 Nine percent of all our fee-based revenues in 1999 came from our brokerage units. Our retail investments group opened over 9,000 new accounts, and conducted nearly 70,000 transactions totaling $718 million. On the public finance side, the Oppenheim division is Oklahoma's clear leader in underwriting and financial advisory services, and its revenues for 1999 were $5.2 million. Service charges and fees for our nationally competitive cash management products comprised the fifth source of our diverse fee-based revenue. We will be introducing a number of new cash management products during 2000, but 1999 was a successful year in itself. Growth from these services was 21 percent, and these services made up 22 percent of total fee-based revenues. Lending Our loan portfolio is still strong, diverse and growing, with total loans - excluding acquisitions - up 23 percent. Including acquisitions, loans increased nearly $1 billion during the year, rising 27 percent. Our traditional strength has been in lending to small and middle-market businesses, and we have found this expertise welcomed in our new markets. All segments of commercial loans grew, showing an overall increase of 34 percent over year-end 1998. Our credit quality remains strong. In fact, we had net recoveries from the commercial loan portfolio in 1999. At year-end our reserve for loan losses stood at 1.66 percent of total loans. Our advances in technology and service delivery. One of the key components to maintaining our competitive advantage has been to make our products convenient and easy to use, while also improving our service quality. Several initiatives have taken place - and more are underway - to achieve this goal. In 1999, the further expansion of our web sites and other Internet-based applications allowed us to improve upon our delivery of services and products. All four of our banks now have their own web sites, which can be accessed on the Internet by typing the name of the individual bank (for example, www.bankoftexas.com), or through our corporate site at www.bokf.com. This delivery channel has been widely accepted by our customers. Online banking IDs and online consumer loan applications each grew by 400 percent last year. We started opening online consumer deposit accounts in Oklahoma, and also began taking mortgage applications online. Our 24-hour call center, ExpressBank, also continues to be very popular among customers. Twenty-five percent of all consumer loan applications were initiated through ExpressBank, which services customers in all four states. In 1999, ExpressBank handled 6 million calls. 8 We also launched online brokerage for retail clients, offering Internet delivery of quotes, research, account data and more. The use of such technology positions our brokerage units to improve efficiency as our sales force and volumes expand. On the commercial banking side, several new Internet-based products are making it easier than ever for our commercial clients to transfer funds, plot cash flow, and gain access to vital information. Small businesses now have the Business Express Web, allowing customers to obtain balance information and initiate transactions over the Internet. A similar product for larger businesses will be enhanced with Internet capability in 2000, and we will introduce electronic bill presentment, which allows businesses to present bills to consumers for review and payment over the Internet. We are also making advances in image technology. For example, we are implementing an image lockbox service that will enable our customers to retrieve images of documents from a compact disc rather than from paper-based records. In turn, they will be able to better serve their customers' needs. Likewise, customers of our trust division are reaping great benefits from advances in technology. Over one-third of our clients' 401(k) participants now use Internet-based technology to access their accounts. That number is expected to more than double by mid-2000. Our improving efficiencies. One of our biggest steps in improving efficiency will occur in 2000, as we begin moving our service operations into a new Technology Center. The first units will move in June 2000. The center should be fully occupied and operational by December 2000. This will enable us to make numerous efficiency improvements to service quality. It will improve our communications capability by incorporating the latest technologies in the industry, such as bringing fiber optics to every workstation and improving performance of the network. We'll also increase capacity and improve back-up capabilities for business resumption. But above all, the new Technology Center allows us to streamline workflow, improve control and reduce processing time, while lowering costs. By configuring the layout to optimize processes, the center allows us the capacity to expand and grow, as our operations continue growing - a luxury we have not enjoyed in our present facilities. Finally, the much-anticipated Y2K came and went without fanfare, thanks to the efforts of many people in our organization. It was a non-event, but it didn't happen by accident. Our preparations proved to be successful - every bit of work, time and money spent was well worth it, and full credit goes to our staff. Their diligence, persistence and extra work all paid off. 9 Table 1 Consolidated Selected Financial Data (Dollars In Thousands Except Share Data) December 31, ------------------------------------------------------------------ 1999 1998(2)(3) 1997(2)(3) 1996(2)(3) 1995(2)(3) ------------------------------------------------------------------ Selected Financial Data For the year: Interest revenue $ 500,274 $ 402,832 $ 357,074 $ 300,930 $ 284,230 Interest expense 264,150 212,406 194,842 167,610 164,086 Net interest revenue 236,124 190,426 162,232 133,320 120,144 Provision for loan losses 10,365 14,591 9,256 4,419 261 Net income 89,226 79,611 68,155 56,263 50,957 Period-end: Loans, net of reserve 4,567,255 3,581,177 2,801,977 2,424,337 2,221,489 Assets 8,373,997 7,059,507 5,613,233 4,764,191 4,377,061 Deposits 5,263,184 4,607,727 3,924,405 3,384,874 3,057,506 Subordinated debenture 148,642 146,921 148,356 - - Shareholders' equity 557,164 524,793 451,880 373,272 312,882 Nonperforming assets(4) 22,943 18,762 25,249 24,584 33,871 Profitability Statistics Earnings per share (based on average equivalent shares): Basic $ 1.79 $ 1.60 $ 1.36 $ 1.12 $ 1.01 Diluted 1.60 1.43 1.23 1.02 .92 Percentages (based on daily averages): Return on average assets 1.17% 1.34% 1.29% 1.27% 1.22% Return on average shareholders' equity 16.45 16.38 16.78 16.89 17.98 Average shareholders' equity to average assets 7.12 8.17 7.71 7.49 6.79 Common Stock Performance and Existing Shareholder Statistics Per Share: Book Value $ 11.36 $ 10.76 $ 9.80 $ 8.38 $ 7.26 Market price: December 31 bid 20.19 23.38 19.40 13.50 9.75 Market range - High bid 25.81 25.56 21.25 13.50 11.75 - Low bid 18.94 18.62 13.44 9.62 9.25 Selected Balance Sheet Statistics Period-end: Tier 1 capital ratio (see Note 15) 7.27% 7.93% 9.87% 10.57% 9.99% Total capital ratio (see Note 15) 10.72 12.02 14.95 11.82 11.24 Leverage ratio (see Note 15) 5.92 6.60 7.06 7.48 6.58 Reserve for loan losses to nonperforming loans 391.65 467.70 270.65 229.95 129.70 Reserve for loan losses to loans(1) 1.66 1.86 1.95 1.93 1.79 Miscellaneous (at December 31) Number of employees (FTE) 3,101 2,850 2,404 2,179 1,917 Number of banking locations 100 91 76 72 69 Number of TransFund locations 1,020 998 785 638 552 Mortgage loan servicing portfolio $7,028,247 $6,375,239 $6,981,744 $5,948,187 $5,363,175 ---------------------------------------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. (2) Restated for pooling of interest in 1999. (3) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999. (4) Includes nonaccrual loans, renegotiated loans and assets acquired in satisfaction of loans. Excludes loans past due 90 days or more and still accruing.
10 MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION BOK Financial Corporation ("BOK Financial") is a bank holding company that offers full service banking in Oklahoma, Northwest Arkansas, North Texas and New Mexico. BOK Financial's principal subsidiaries are Bank of Oklahoma, N.A., ("BOk"), Bank of Texas, N.A., Bank of Albuquerque, N.A., and Bank of Arkansas, N.A. Other significant operating subsidiaries include BOK Capital Services Corporation which provides leasing and mezzanine financing and BOSC, Inc., a broker/dealer and "Section 20" company that engages in retail and institutional securities sales and municipal underwriting. Our discussion of Bank of Texas includes Canyon Creek National Bank, Swiss Avenue State Bank and Mid-Cities National Bank. These banks were acquired during 1999 and were accounted for by the purchase method of accounting. These banks will be merged into Bank of Texas during 2000. Assessment of Operations SUMMARY OF PERFORMANCE BOK Financial recorded net income of $89.2 million for 1999 compared to $79.6 million for 1998. Diluted earnings per common share were $1.60 for 1999 compared to $1.43 for 1998. Prior year's results have been restated to reflect the merger with First Muskogee Bancshares, Inc. during 1999. This merger was accounted for as a pooling of interests. Prior period per share data have been restated to reflect a 3% stock dividend paid in the fourth quarter of 1999. Returns on average assets and average equity were 1.17% and 16.45%, respectively, for 1999 compared to 1.34% and 16.38%, respectively, for 1998. The increase in net income for 1999 was due to increases of $45.7 million or 24% in net interest revenue, $19.2 million or 12% in fees and commissions and a $4.2 million reduction in the provision for loan losses. These increases were partially offset by increases of $46.5 million or 20% in operating expenses and $7.2 million in income taxes and a $5.8 million decrease in gains on asset sales. Net income for the fourth quarter of 1999 was $23.2 million or $0.42 per diluted common share, an increase of 14% over the same period on 1998. The primary sources of increased quarterly earnings included net interest revenue, which increased $14.0 million or 27%, and fees and commissions, which increased $4.1 million or 10%. These increases were partially offset by a $12.0 million increase in operating expenses. Net income for 1997 was $68.2 million or $1.23 per diluted common share. Returns on average assets and equity were 1.29% and 16.78%, respectively. TANGIBLE OPERATING RESULTS Since inception, BOK Financial has completed several acquisitions that were accounted for under the purchase method of accounting. The purchase method results in the recording of goodwill and other identifiable intangible assets that are amortized as noncash charges in future years into operating expense. The intangible assets that result from the purchase method of accounting are deducted from shareholders' equity in the determination of regulatory capital. Thus, tangible net income, net income excluding the after-tax effect of intangible amortization, represents regulatory capital generated during the year. While the definition of tangible net income may vary by company, we believe this definition is appropriate as it measures the per share growth of regulatory capital, which affects the amounts available for dividends and acquisitions. Operating results excluding the impact of these intangible assets are summarized below: Table 2 Tangible Operating Results (Dollars in Thousands Except Share Data) Years ended December 31, ------------------------------------------ 1999 1998(1) 1997(1) ------------- ------------- -------------- Net income $ 89,226 $ 79,611 $ 68,155 After-tax impact of amortization of intangible assets 13,036 8,493 7,999 - ------------------------------------- ------------- ------------- -------------- Tangible net income $ 102,262 $ 88,104 $ 76,154 ===================================== ============= ============= ============== Tangible net income per diluted share $ 1.83 $ 1.58 $ 1.37 ===================================== ============= ============= ============== Tangible return on average shareholders' equity 18.85% 18.13% 18.75% ===================================== ============= ============= ============== Tangible return on average assets 1.34% 1.48% 1.45% ===================================== ============= ============= ============== (1) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999. 11 NET INTEREST REVENUE Net interest revenue, on a tax-equivalent basis, totaled $244.5 million for 1999 compared to $199.9 million for 1998. The increase in net interest revenue was primarily due to an increase in average earning assets. Average earning assets increased by $1.4 billion during 1999, including $626 million due to acquisitions and $821 million due to growth in existing businesses. Additionally, the mix of earning assets improved during 1999. Average loans, which generally have higher yields than other types of earning assets, increased to 60% of earning assets in 1999 compared to 56% in 1998. These volume factors contributed $111.7 million to the increase in net interest revenue. Average interest bearing liabilities also increased by $1.5 billion during 1999, including $811 million from borrowed funds and $490 million from deposits at acquired banks. The increase in average interest bearing liabilities decreased net interest revenue by $69.4 million. Table 3 Volume/Rate Analysis (In Thousands) 1999/1998 1998/1997 ------------------------------------- ------------------------------------ Change Due To(1) Change Due To(1) ------------------------ ------------------------ Change Volume Yield/Rate Change Volume Yield/Rate ------------ ----------- ------------ ----------- ------------ ----------- Tax-equivalent interest revenue: Securities $ 25,746 $ 27,741 $ (1,995) $ 12,510 $ 13,881 $ (1,371) Trading securities 1,245 990 255 759 856 (97) Loans 72,768 82,821 (10,053) 29,884 35,528 (5,644) Funds sold and resell agreements (102) 122 (224) (946) (954) 8 - ------------------------------------------ ------------ ----------- ------------ ----------- ------------ ----------- Total 99,657 111,674 (12,017) 42,207 49,311 (7,104) - ------------------------------------------ ------------ ----------- ------------ ----------- ------------ ----------- Interest expense: Transaction deposits 9,362 14,438 (5,076) 3,420 4,528 (1,108) Savings deposits (866) 188 (1,054) 365 372 (7) Time deposits 4,121 10,323 (6,202) 6,417 8,005 (1,588) Borrowed funds 39,486 44,438 (4,952) 1,835 3,247 (1,412) Subordinated debenture (359) 7 (366) 5,527 5,463 64 - ------------------------------------------ ------------ ----------- ------------ ----------- ------------ ----------- Total 51,744 69,394 (17,650) 17,564 21,615 (4,051) - ------------------------------------------ ------------ ----------- ------------ ----------- ------------ ----------- Tax-equivalent net interest revenue 47,913 $ 42,280 $ 5,633 $ 24,643 $ 27,696 $ (3,053) =========== ============ ============ =========== Add change in nonrecurring foregone interest (3,262) 3,262 Less change in tax-equivalent adjustment (1,047) (289) - ------------------------------------------ ------------ ----------- Net interest revenue $45,698 $ 28,194 ========================================== ============ ===========
4th Qtr 1999/4th Qtr 1998 ------------------------------------ Change Due To(1) ------------------------ Change Volume Yield/Rate ----------- ----------- ------------ Tax-equivalent interest revenue: Securities $ 5,960 $ 5,563 $ 397 Trading securities 158 (27) 185 Loans 26,232 23,940 2,292 Funds sold and resell agreements 132 82 50 - ----------------------------------------- ----------- ----------- ------------ Total 32,482 29,558 2,924 - ----------------------------------------- ----------- ----------- ------------ Interest expense: Transaction deposits 3,513 4,327 (814) Savings deposits (229) (2) (227) Time deposits 6,334 6,435 (101) Borrowed funds 9,271 7,927 1,344 Subordinated debenture 54 19 35 - ----------------------------------------- ----------- ----------- ------------ Total 18,943 18,706 237 - ----------------------------------------- ----------- ----------- ------------ Tax-equivalent net interest revenue $ 13,539 $ 10,852 $ 2,687 =========== ============ Less change in tax-equivalent adjustment (506) - ----------------------------------------- ----------- Net interest revenue $ 14,045 ========================================= =========== (1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis. 12 Net interest margin, the ratio of net interest revenue to average earning assets, decreased from 3.72% in 1998 to 3.63% in 1999. This decrease was due primarily to the effect of competitive pricing on loans in BOK Financial's primary markets. Since inception in 1990, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth and to invest in securities. Although this strategy frequently results in a net interest margin that falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. Management estimates that for 1999, this strategy resulted in a 59 basis point decrease in net interest margin. However, this strategy contributed $13.2 million to net interest revenue for the year. As more fully discussed in the subsequent Market Risk Section, management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy. The financial service environment in BOK Financial's primary markets is highly competitive due to a large number of commercial banks, thrifts, credit unions and brokerage firms. Additionally, many customers already had access to national and regional financial institutions for many products and services. Management expects that BOK Financial will continue to be able to successfully compete with these financial institutions by delivering the products and services traditionally associated with a large bank with the responsiveness of a smaller, community bank. Tax-equivalent net interest revenue for the fourth quarter of 1999 was $67.0 million compared to $53.4 million for the fourth quarter of 1998. This increase was due to the growth in average earning assets, which increased $1.5 billion or 26%. Net interest margin decreased 2 basis points to 3.70%. Net interest revenue, on a tax-equivalent basis, totaled $199.9 million for 1998 compared to $171.9 million in 1997. 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 7.85% in 1997 to 7.75% in 1998 as both securities and loans showed yield decreases. At the same time, the cost of interest-bearing liabilities decreased from 4.87% to 4.77%. Average earning assets increased $610 million, including $392 million increase from net loan fundings, and $228 million from net securities purchases. Over the same period, average interest-bearing liabilities increased $448 million, including a $307 million increase in deposit accounts that generally have a lower cost of funds rate. Other Operating Revenue Table 4 Other Operating Revenue (In Thousands) Years ended December 31, ------------------------------------------------------------ 1999 1998 1997 1996 1995 ------------ ----------- ----------- ----------- ----------- Brokerage and trading revenue $ 16,233 $ 15,301 $ 9,556 $ 7,896 $ 6,046 Transaction card revenue 32,648 24,426 19,339 14,298 11,045 Trust fees and commissions 35,127 29,956 24,072 21,652 19,377 Service charges and fees on deposit accounts 41,067 33,920 30,181 25,363 22,181 Mortgage banking revenue 36,986 41,733 32,235 26,234 20,336 Leasing revenue 3,725 7,111 5,861 2,236 586 Other revenue 17,589 11,688 10,330 11,201 9,750 - -------------------------------------------- ------------ ----------- ----------- ----------- ----------- Total fees and commissions 183,375 164,135 131,574 108,880 89,321 - -------------------------------------------- ------------ ----------- ----------- ----------- ----------- Gain on student loan sale 600 1,548 1,311 1,069 762 Gain (loss) on branch sales - - - (325) 1,170 Gain on loan securitization 270 - - - - Gain on sale of other assets 4,626 - - - - Gain (loss) on securities (419) 9,337 (1,329) (2,604) 1,173 - -------------------------------------------- ------------ ----------- ----------- ----------- ----------- Total other operating revenue $ 188,452 $ 175,020 $ 131,556 $ 107,020 $ 92,426 ============================================ ============ =========== =========== =========== ===========
Other operating revenue increased $13.4 million or 8% compared to 1998. Fees and commissions, which are included in other operating revenue, increased $19.2 million or 12% while net gains on sales of securities and other assets decreased $5.8 million. The increase in fees and commissions included deposit fees of $4.9 million, transaction card fees of $1.5 million and other fees of $599 thousand from acquired banks. Fees and commissions excluding the acquired fees increased 7%. Fees and commissions contributed 43% of BOK Financial's total revenue for 1999 compared to 45% in 1998. The decrease in the contribution of fees and commissions to total revenue was due to the large increase in net interest revenue relative to the growth in fees and commissions and decreases in mortgage banking revenue and leasing revenue. Service fees on deposits totaled $41.1 million, an increase of 21% over 1998. Revenue generated by card-based transactions such as the TransFund ATM network, bankcards, and related merchant deposits increased by 34% to $32.6 million. These increases are generally due to a higher volume of transactions processed in 1999. Other revenue included $5.2 million of private placement and underwriting fees related to BOSC's activities in 1999 compared to $819 thousand in 1998. During 1999, BOK Financial sold its interest in four leasing partnerships for a gain of $3.6 million which caused a decrease in leasing revenue for the year. The decrease in leasing revenue was substantially offset by a reduction in depreciation expense on the leased equipment and the opportunity to reinvest the $29 million sales proceeds. 13 Many of BOK Financial's fee generating activities, such as brokerage and trading activities, trust fees, and mortgage servicing revenue, are indirectly affected by changes in interest rates. Significant increases in interest rates may tend to decrease the volume of trading activities, and may lower the value of trust assets managed, which is the basis of certain fees, but would tend to decrease the incidence of mortgage loan prepayments. Similarly, a decrease in economic activity would decrease ATM, bankcard and related revenue. While management expects continued growth in other operating revenue, the future rate of increase could be affected by increased competition from national and regional financial institutions and from market saturation. Continued growth may require BOK Financial to introduce new products or to enter new markets. This growth introduces additional demands on capital and managerial resources. Other operating revenue for the fourth quarter of 1999 totaled $46.7 million compared to $45.4 million for the fourth quarter of 1998. The fourth quarter of 1998 included securities gains of $3.0 million compared to $80 thousand in the fourth quarter of 1999. Changes in the components of other revenue during the fourth quarter were consistent with the year to date changes. Transaction card revenue and deposit service fees increased by $2.4 million and $1.1 million, respectively, while mortgage banking revenue decreased by $1.9 million. Leasing revenue decrease by $1.4 million due to the sale of BOK Financial's interests in several leasing partnerships during the second quarter of 1999. Other operating revenue for 1998 increased $43.5 million or 33% compared to 1997. Approximately $10.7 million of this increase was due to the net change in gains on securities sold. All areas contributed to this increase in other revenue, including mortgage banking revenue which increased $9.5 million, trust fees which increased $5.9 million and brokerage and trading revenue which increased $5.7 million. LINES OF BUSINESS BOK Financial operates four principal lines of business under its Bank of Oklahoma franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth principal line of business, regional banks, which includes banking functions for Bank of Albuquerque, Bank of Arkansas and Bank of Texas. These five principal lines of business combined account for approximately 86% of total revenue. Other lines of business include the TransFund ATM system and BOSC, Inc. Corporate Banking The Corporate Banking Division provides loan and lease financing and treasury and cash management services to businesses throughout Oklahoma and seven surrounding states. In addition to serving the banking needs of middle market and larger customers, the Corporate Banking Division has specialized groups which serve customers in the energy, agriculture, healthcare and banking/finance industries. The Corporate Banking Division contributed 53% of consolidated net income for 1999 compared to 48% of consolidated net income for 1998. Total revenue for this division increased 16% primarily due to a 26% increase in outstanding loans. Operating expense for this division increased 7%. Table 5 Corporate Banking (In Thousands) Years ended December 31, ---------------------------------------- 1999 1998 1997 ---------------------------------------- Total revenue $ 127,539 $ 110,271 $ 95,197 ============================================================ Operating expense 51,731 48,214 33,647 ============================================================ Net income 46,998 37,878 37,690 ============================================================ Average assets 3,222,779 2,562,320 2,136,278 ============================================================ Average equity 337,742 268,677 221,205 ============================================================ Return on assets 1.46% 1.48% 1.76% ============================================================ Return on equity 13.92% 14.10% 17.04% ============================================================ Efficiency ratio 40.56% 43.72% 35.34% ============================================================ Consumer Banking The Consumer Banking Division provides its customers throughout Oklahoma with a full line of deposit, loan and fee-based services through four major distribution channels: traditional branches, supermarket branches, the 24-hour ExpressBank call center, and the Internet. Additionally, the division is a significant referral source for the Bank of Oklahoma Mortgage Division ("BOk Mortgage") and BOSC's Retail Brokerage division. The Consumer Banking Division contributed 12% of consolidated net income for 1999 and 11% of consolidated net income for 1998. Total revenue, which consists primarily of intercompany credit for funds provided to other divisions within BOK Financial and fees generated by various services, increased 4% during 1999. Operating expenses for this same period decreased slightly during 1999. The result is an improvement in returns on average assets and equity for the division and a lower efficiency ratio. Table 6 Consumer Banking (In Thousands) Years ended December 31, ---------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Total revenue $ 69,126 $ 66,246 $ 65,002 ============================================================ Operating expense 49,692 50,348 50,029 ============================================================ Net income 10,369 8,429 7,609 ============================================================ Average assets 1,886,620 1,941,184 1,927,948 ============================================================ Average equity 43,412 46,008 47,220 ============================================================ Return on assets 0.55% 0.43% 0.39% ============================================================ Return on equity 23.89% 18.32% 16.11% ============================================================ Efficiency ratio 71.89% 76.00% 76.97% ============================================================ 14 Mortgage Banking BOK Financial engages in mortgage banking activities through BOk Mortgage. These activities include the origination, marketing and servicing of mortgage loans. BOk Mortgage contributed 2% to consolidated net income in 1999 compared to 8% in 1998. Total revenue from BOk Mortgage decreased $7.2 million or 14% during 1999. Revenue provided by origination and marketing activities in 1999 decreased $4.7 million or 57% compared to 1998. Total mortgage loan production was $688 million for 1999 compared to $923 million in 1998. The decrease in loan production was due to rising interest rates in 1999. Commitments to originate mortgage loans create both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, and interest rate risk is partially hedged through forward sales contracts. All fixed rate mortgage loans are generally sold in the secondary market pursuant to forward sales contracts. All adjustable rate mortgage loans are sold to an affiliate. BOk Mortgage currently does not securitize pools of mortgage loans either for sale or retention. Mortgage loan servicing revenue totaled $33.4 million for 1999 compared to $33.5 million for 1998. Mortgage loans serviced by BOk Mortgage totaled $7.0 billion at December 31, 1999 compared to $6.4 billion at the end of 1998. These amounts include loans serviced for BOk of $107 million for 1999 and $130 million for 1998. Capitalized mortgage servicing rights, which totaled $114.1 million at December 31, 1999 and $69.2 million at December 31, 1998 represent mortgage loans serviced for others carried at the lower of amortized cost or fair value. Fair value is based on the present value of projected net servicing revenue over the estimated life of the mortgage loans serviced. This estimated life and the value of the servicing rights are very sensitive to changes in interest rates and loan prepayment assumptions. Rising interest rates tend to decrease loan prepayments and increase the value of mortgage servicing rights while falling interest rates have the opposite effect. A valuation allowance is provided for the excess of the carrying value of servicing rights over their fair values. In 1998, BOk Mortgage implemented a program that uses futures contracts and call and put options to hedge against this risk. Gains generated by this program reduce the cost basis of the mortgage servicing rights while losses incurred by this program increase the cost basis of the servicing rights. At December 31, 1999, cumulative hedging losses increased the cost of mortgage servicing rights by $10.4 million. At December 31, 1998, cumulative gains generated by this program increased the cost basis of the mortgage servicing rights by $22.5 million. Additional discussion about the sensitivity of the mortgage servicing portfolio to changes in interest rates is in the Market Risk section. Table 7 Mortgage Banking (In Thousands) Years ended December 31, ------------------------------------ 1999 1998 1997 ------------------------------------ Total revenue $ 42,864 $ 50,056 $ 39,307 ======================================================== Operating expense 39,724 41,926 33,208 ======================================================== Provision for impairment of mortgage servicing rights - (2,290) 4,100 ======================================================== Net income 1,868 6,288 1,121 ======================================================== Average assets 355,888 367,934 391,011 ======================================================== Average equity 25,273 30,213 28,050 ======================================================== Return on assets 0.52% 1.71% 0.29% ======================================================== Return on equity 7.39% 20.81% 4.00% ======================================================== Efficiency ratio 92.67% 83.76% 84.48% ======================================================== Trust Services BOK Financial provides a wide range of trust services, including institutional, investment and retirement products and services to affluent individuals and businesses, to not-for-profit organizations and governmental agencies through the Bank of Oklahoma Trust Division and Bank of Texas Trust Company. Trust services are primarily provided to clients in Oklahoma, Texas, Arkansas and New Mexico. Additionally, trust services include a nationally competitive self-directed 401-K program with clients in Dallas, Chicago, New York and Los Angeles. At December 31, 1999, trust assets with an aggregate market value of $17.2 billion were subject to various fiduciary arrangements, compared to $14.4 billion at December 31, 1998. Trust services contributed 10% to consolidated net income for 1999 compared to 8% for 1998. Total revenue from trust services increased $8.6 million or 19% during 1999 while operating expenses increased $3.8 million. Table 8 Trust Services (In Thousands) Years ended December 31, -------------------------------------- 1999 1998 1997 ------------- ----------- ------------ Total revenue $ 54,863 $ 46,224 $ 38,408 ============================================================= Operating expense 39,602 35,788 28,496 ============================================================= Net income 9,282 6,300 5,946 ============================================================= Average assets 333,423 293,562 254,430 ============================================================= Average equity 35,476 29,827 24,112 ============================================================= Return on assets 2.78% 2.15% 2.34% ============================================================= Return on equity 26.16% 21.12% 24.66% ============================================================= Efficiency ratio 72.18% 77.42% 74.19% ============================================================= 15 Regional Banks Regional banks include Bank of Texas, Bank of Arkansas, and Bank of Albuquerque. Each of these banks provides a full range of corporate and consumer banking, trust services, treasury services and retail investments in their respective markets. Small businesses and middle-market corporations are the regional banks' primary customer focus. During 1999, BOK Financial acquired Canyon Creek National Bank, Mid Cities National Bank and Swiss Avenue State Bank. These acquisitions added assets of $430 million and deposits of $354 million to Bank of Texas. Regional banks contributed $7.7 million or 9% to consolidated net income in 1999 compared to $5.7 million or 7% in 1998. Total revenue for 1999 increased $38.9 million compared to 1998 while operating expenses increased $35.3 million. The increase in operating expenses included a $6.1 million increase in intangible amortization expense. Average equity assigned to the regional banks included both an amount based on management's assessment of risk and an additional amount based upon BOK Financial's investment in these entities. Table 9 Regional Banks (In Thousands) Years ended December 31, ------------------------------------ 1999 1998 1997 -------------------------------------- Total revenue $ 70,908 $ 31,999 $ 23,542 ========================================================= Operating expense 56,892 21,563 15,881 ========================================================= Net income 7,717 5,744 2,973 ========================================================= Average assets 1,808,218 644,236 465,780 ========================================================= Average equity 191,477 85,197 63,648 ========================================================= Return on assets 0.43% 0.89% 0.64% ========================================================= Return on equity 4.03% 6.74% 4.67% ========================================================= Efficiency ratio 80.23% 67.39% 67.46% ========================================================= YEAR 2000 CONSIDERATIONS The Year 2000 issue, in general, is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions or to engage in similar normal business activities. BOK Financial personnel continue to monitor its information technology and non-information technology systems and to communicate with large customers to determine whether any disruptions have occurred. To date, no significant disruptions in operations have been identified. Total accumulated expenditures directly related to the Year 2000 issue were less than $1 million and no more are expected. OTHER OPERATING EXPENSE Other operating expense totaled $280.5 million for 1999 compared to $234.0 million in 1998, an increase of 20%. Approximately $30.2 million of this increase was related to acquisitions. Operating expenses for acquisitions increased personnel costs by $11.5 million, occupancy, equipment and data processing expenses by $5.5 million, and amortization of intangible assets by $6.8 million. Excluding the effects of acquisitions, other operating expense increased $16.3 million or 7%. Personnel costs increased $26.6 million or 24%. Regular compensation and benefits (including overtime and temporary assistance) increased $18.0 million or 22%. Staffing on a full time equivalent ("FTE") basis increased by 333 employees or 13% while average compensation expense per FTE increased by 9%. The transition toward performance based compensation continued during 1999. Incentive compensation increased by $5.4 million or 46% compared to 1998 due to growth in revenue over pre-determined targets and growth in the number of business units covered by incentive plans. Net occupancy, equipment and data processing expense for 1999 increased $14.5 million or 33%. Net occupancy expense increased by $4.4 million, including $2.5 million due to acquisitions. The remaining increase was due to additional locations in Oklahoma and Texas. Data processing expenses increased $5.9 million or 28%, including $1.2 million from acquisitions. Amortization and maintenance costs increased $1.3 million during 1999 to $3.3 million due primarily to various systems implemented over the past two years. The remaining increase was due to a higher volume of transactions processed. Other operating expenses for the fourth quarter of 1999 totaled $74.3 million compared to $62.3 million for the fourth quarter of 1998. The fourth quarter of 1999 included expenses of $9.4 million related to recent acquisitions and the fourth quarter of 1998 included the reversal of the valuation allowance for mortgage servicing rights of $4.3 million. Excluding the effects of these items, operating expenses for the quarters were essentially unchanged. Other operating expense totaled $234.0 million for 1998 compared to $199.9 million in 1997, an increase of 17%. Personnel costs increased $18.8 million due primarily to an 11% increase in the number of full time equivalent staffing and a 6% increase in average compensation per employee. Net occupancy, equipment and data processing expenses increased $7.3 million. Occupancy costs increased by $2.5 million due to lower rental income of $1.2 million and a $1.3 million increase in expenses. The lower rental income was related to a change in BOk's ownership interest in its Oklahoma City headquarters building while the increase in occupancy expenses was due to an increase in rent for BOk. Data processing expenses increased $4.1 million or 24% due to a greater volume of transactions processed. Additionally, data processing expenses for 1998 included $350 thousand for Bank of Albuquerque system conversions and related start up costs. 16 Table 10 Other Operating Expense (In Thousands) Years ended December 31, ------------------------------------------------------ 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Personnel expense $136,010 $109,437 $ 90,625 $ 74,460 $ 69,562 Business promotion 9,077 8,220 8,886 6,552 6,243 Contribution of stock to BOk Charitable Foundation - 2,257 3,638 - - Professional fees and services 9,584 9,781 6,906 5,508 5,978 Net occupancy, equipment and data processing expense 58,024 43,519 36,265 31,460 27,943 FDIC and other insurance 1,356 1,368 1,380 1,812 4,596 Special deposit insurance assessment - - - 3,820 - Printing, postage and supplies 11,599 9,524 8,067 7,042 6,565 Net gains and operating expenses on repossessed assets (3,473) (474) (3,831) (4,496) (2,903) Amortization of intangible assets 15,823 9,515 8,968 5,555 6,109 Write-off of core deposit intangible assets related to SAIF-insured deposits - - - 3,821 - Mortgage banking costs 23,932 25,949 19,968 15,473 11,990 Provision for impairment of mortgage servicing rights - (2,290) 4,100 361 539 Other expense 18,584 17,189 14,882 11,837 9,675 - -------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- Total $280,516 $233,995 $199,854 $163,205 $146,297 ======================================================== ========== ========== ========== ========== ==========
Income Taxes Income tax expense was $44.5 million, $37.2 million, and $16.5 million for 1999, 1998, and 1997, respectively, representing 33%, 32%, and 20%, respectively, of book taxable income. Tax expense currently payable totaled $43.8 million in 1999 compared to $46.4 million in 1998 and $11.0 million in 1997. The Internal Revenue Service closed its examination of 1996 during the first quarter of 2000. This examination had no adverse impact on the financial statements and BOK Financial is evaluating the impact, if any, on its tax reserve. During 1998, Internal Revenue Service examinations for 1994 and 1995 were closed with no significant adjustments. During 1997, the Internal Revenue Service closed its examination of BOk and BOK Financial for 1992 and 1993, respectively. As a result of the outcome of these examinations, BOK Financial reduced its tax reserve by $9.0 million. Income tax expense for 1997 was 30% of pre-tax book income excluding the elimination of this allowance. 17 Table 11 Selected Quarterly Financial Data (In Thousands Except Per Share Data) Fourth Third(1) Second(1) First(1) ------------ ------------ ------------ ------------ 1999 --------------------------------------------------- Interest revenue $139,714 $131,734 $118,256 $110,570 Interest expense 74,571 69,347 61,673 58,559 ---------------------------------------------------- ------------ ------------ ------------ ------------ Net interest revenue 65,143 62,387 56,583 52,011 Provision for loan losses 2,255 2,142 2,538 3,430 ---------------------------------------------------- ------------ ------------ ------------ ------------ Net interest revenue after provision for loan losses 62,888 60,245 54,045 48,581 Other operating revenue 46,641 45,320 49,719 47,191 Securities gains (losses), net 80 (485) (288) 274 Other operating expense 74,257 70,755 70,678 64,826 ---------------------------------------------------- ------------ ------------ ------------ ------------ Income before taxes 35,352 34,325 32,798 31,220 Income tax expense 12,155 11,589 10,742 9,983 ---------------------------------------------------- ------------ ------------ ------------ ------------ Net income $ 23,197 $ 22,736 $ 22,056 $ 21,237 ==================================================== ============ ============ ============ ============ Earnings per share: Basic .47 .46 .44 .43 ==================================================== ============ ============ ============ ============ Diluted .42 .41 .40 .38 ==================================================== ============ ============ ============ ============ Average shares: Basic 49,063 49,011 48,938 48,894 ==================================================== ============ ============ ============ ============ Diluted 55,729 55,787 55,834 55,786 ==================================================== ============ ============ ============ ============ 1998 --------------------------------------------------- Interest revenue $106,726 $102,589 $96,974 $96,543 Interest expense 55,628 53,728 50,461 52,589 ---------------------------------------------------- ------------ ------------ ------------ ------------ Net interest revenue 51,098 48,861 46,513 43,954 Provision for loan losses 4,087 4,061 3,973 2,470 ---------------------------------------------------- ------------ ------------ ------------ ------------ Net interest revenue after provision for loan losses 47,011 44,800 42,540 41,484 Other operating revenue 42,417 42,877 41,599 38,790 Securities gains, net 2,967 538 3,320 2,512 Other operating expense 62,299 58,171 55,186 58,339 ---------------------------------------------------- ------------ ------------ ------------ ------------ Income before taxes 30,096 30,044 32,273 24,447 Income tax expense 9,729 10,049 10,624 6,847 ---------------------------------------------------- ------------ ------------ ------------ ------------ Net income $ 20,367 $ 19,995 $21,649 $17,600 ==================================================== ============ ============ ============ ============ Earnings per share: Basic .41 .40 .43 .35 ==================================================== ============ ============ ============ ============ Diluted .37 .36 .39 .31 ==================================================== ============ ============ ============ ============ Average shares: Basic 48,839 48,842 48,906 49,006 ==================================================== ============ ============ ============ ============ Diluted 55,720 55,727 55,891 55,945 ==================================================== ============ ============ ============ ============ (1) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999.
18 ASSESSMENT OF FINANCIAL CONDITION Securities Portfolio Securities are identified as either investment or available for sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Investment securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Amortization or accretion of mortgage-backed securities is periodically adjusted for estimated prepayments. Available for sale securities are those that may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available for sale are carried at fair value. Unrealized gains or losses on available for sale securities, less applicable deferred taxes, are recorded as accumulated other comprehensive income in Shareholders' Equity. During 1999, BOK Financial increased its securities portfolio by $335 million. Most notably, mortgage-backed securities increased by $460 million while municipal securities decreased by $78 million. BOK Financial's total securities portfolio value changed from an unrealized gain of $19 million at December 31, 1998 to an unrealized loss of $73 million at December 31, 1999 due to an increase in market interest rates during the year. Rising interest rates tend to both decrease the value of fixed rate securities and extend the average expected life of mortgage-backed securities. The average expected life of the mortgage-backed securities was 4.4 years at December 31, 1999 compared to 4.0 years at December 31, 1998. The effect of changes in interest rates on BOK Financial's earnings and equity is discussed in the Market Risk section of this report. Table 12 presents the book values and fair values of BOK Financial's securities portfolio at December 31, 1999, 1998 and 1997. Additional information regarding the securities portfolio is presented in Note 4 to the Consolidated Financial Statements. Table 12 Securities (In Thousands) December 31, ----------------------------------------------------------------------------- 1999 1998 1997 ------------------------- ------------------------- ------------------------- Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value ------------ ------------ ------------ ------------ ------------ ------------ Investment: U.S. Treasury $ 196 $ 198 $ 600 $ 600 $ 850 $ 845 Municipal and other tax-exempt 186,177 184,748 184,988 184,521 164,379 164,873 Mortgage-backed U.S. agency securities 18,051 17,926 30,385 30,829 46,849 47,374 Other debt securities 8,756 8,752 11,804 11,804 1,033 1,033 - ------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total $ 213,180 $ 211,624 $ 227,777 $ 227,754 $ 213,111 $ 214,125 =========================================== ============ ============ ============ ============ ============ ============ Available for sale: U.S. Treasury $ 112,902 $ 111,860 $ 170,862 $ 171,707 $ 292,732 $ 293,692 Municipal and other tax-exempt 13,086 13,094 92,082 93,131 113,278 114,907 Mortgage-backed securities: U.S. agencies 2,174,916 2,106,094 1,902,568 1,913,869 1,289,167 1,295,409 Other 202,229 200,558 1,772 1,762 2,183 2,185 - ------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total mortgage-backed securities 2,377,145 2,306,652 1,904,340 1,915,631 1,291,350 1,297,594 - ------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Other debt securities 353 353 456 462 4,480 4,498 Equity securities and mutual funds 156,476 156,745 142,460 148,444 132,150 141,694 - ------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total $ 2,659,962 $ 2,588,704 $ 2,310,200 $ 2,329,375 $ 1,833,990 $ 1,852,385 =========================================== ============ ============ ============ ============ ============ ============
19 LOANS Loans increased $996 million or 27% during 1999, including $148 million from acquisitions. Excluding acquisitions, loans increased $848 million or 23%. Commercial loans increased by $675 million or 34% over 1998. This continues a trend of strong growth in commercial loans. All segments of commercial loans grew by more than 10% except agriculture. Commercial loans now comprise 57% of total loans compared to 55% at December 31, 1998. Energy loans increased by $138 million or 29% during 1999 and totaled $607 million or 13% of the loan portfolio at year-end. Commercial loans to service entities increased by $172 million or 27% during 1999. Total commercial real estate loans grew by $334 million or 44% during 1999. Multifamily loans and construction and land development loans, which consists primarily of single family construction loans, increased by 42% and 43%, respectively, during 1999. Management plans to decrease the rate of loan growth in 2000 through a selective tightening of credit standards. The primary focus will be on commercial lending activities that have an opportunity to provide other banking services to the customer. During 1999, BOK Financial securitized and sold approximately $100 million of automobile loans for net cash proceeds of $94.5 million. BOK Financial retained the servicing rights associated with the loans and a residual interest in cash flows in excess of set targets. At December 31, 1999, the carrying value of the servicing rights was $343 thousand and the carrying value of the residual interest was $9.8 million. These carrying values are based on the present value of future net cash that BOK Financial expects to receive. Additional information regarding the automobile loan securitization is presented in Note 5 to the Consolidated Financial Statements. Table 13 Loans (In Thousands) December 31, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------- ------------ ------------ Commercial: Energy $ 606,561 $ 468,700 $ 333,988 $ 290,162 $ 220,845 Manufacturing 344,175 245,268 205,836 147,931 145,660 Wholesale/retail 407,785 279,265 264,029 242,859 210,678 Agriculture 173,653 160,241 155,868 129,202 106,502 Services 807,184 635,585 482,476 340,956 289,685 Other commercial and industrial 325,343 200,214 107,260 128,158 143,336 Commercial real estate: Construction and land development 249,160 174,059 104,322 69,265 51,559 Multifamily 257,187 181,525 103,218 150,457 143,643 Other real estate loans 588,195 404,985 284,220 221,499 197,937 Residential mortgage: Secured by 1-4 family residential properties 531,058 500,690 435,753 403,958 410,914 Residential mortgages held for sale 57,057 100,269 79,779 96,789 75,369 Consumer 296,131 296,298 299,272 249,008 264,477 - ------------------------------------------------- ------------ ------------ ------------- ------------ ------------ Total $4,643,489 $3,647,099 $2,856,021 $2,470,244 $2,260,605 ================================================= ============ ============ ============= ============ ============
While BOK Financial continues to increase geographic diversification through expansion in the Dallas, Texas and Albuquerque, New Mexico areas, geographic concentration subjects the loan portfolio to the general economic conditions in Oklahoma. Notable loan concentrations by the primary industry of the borrowers are presented in Table 13. Agriculture includes loans totaling $144 million to the cattle industry. Services include loans totaling $195 million to the health care industry and $108 million to the hotel industry. Approximately 53% of commercial real estate loans are secured by property located in Oklahoma, primarily in the Tulsa or Oklahoma City metropolitan areas. An additional 12% of commercial real estate loans are secured by property located in Texas. The major components of other real estate loans are office buildings, $207 million and retail facilities, $169 million. Table 14 Loan Maturity and Interest Rate Sensitivity on December 31, 1999 (In Thousands) Remaining Maturities of Selected Loans --------------------------------------- Total Within 1 Year 1-5 Years After 5 Years ------------- ------------ ------------- ------------ Loan maturity: Commercial $2,664,701 $1,137,809 $1,198,550 $328,342 Commercial real estate 1,094,542 362,349 492,885 239,308 - --------------------------------------------- ------------- ------------ ------------- ------------ Total $3,759,243 $1,500,158 $1,691,435 $567,650 - --------------------------------------------- ------------- ------------ ------------- ------------ Interest rate sensitivity for selected loans with: Predetermined interest rates $ 797,075 $ 102,160 $ 474,528 $220,387 Floating or adjustable interest rates 2,962,168 1,397,998 1,216,907 347,263 - --------------------------------------------- ------------- ------------ ------------- ------------ Total $3,759,243 $1,500,158 $1,691,435 $567,650 ============================================= ============= ============ ============= ============
20 SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loans losses, which is available to absorb losses inherent in the loan portfolio, totaled $76 million at December 31, 1999, compared to $66 million at December 31, 1998. This represents 1.66% and 1.86% of total loans, excluding loans held for sale, at December 31, 1999 and 1998, respectively. Losses on loans held for sale, principally mortgage loans accumulated for placement in securitized pools, are charged to earnings through adjustments in carrying value to the lower of cost or market value in accordance with accounting standards applicable to mortgage banking. Table 15 presents statistical information regarding the reserve for loan losses for the past five years. Table 15 Summary of Loan Loss Experience (Dollars In Thousands) Years ended December 31, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------------------------------------------------------------- Beginning balance $65,922 $54,044 $45,907 $39,116 $39,236 Loans charged-off: Commercial 2,136 3,219 3,350 2,469 864 Commercial real estate 35 175 698 529 182 Residential mortgage 617 202 440 240 204 Consumer 4,560 4,000 4,791 3,515 2,924 - ------------------------------------------------------------------------------------------------------------------------------ Total 7,348 7,596 9,279 6,753 4,174 - ------------------------------------------------------------------------------------------------------------------------------ Recoveries of loans previously charged-off: Commercial 3,110 1,487 2,543 3,748 1,632 Commercial real estate 487 1,398 957 4,113 993 Residential mortgage 17 162 557 262 378 Consumer 2,156 1,836 1,578 1,002 850 - ------------------------------------------------------------------------------------------------------------------------------ Total 5,770 4,883 5,635 9,125 3,853 - ------------------------------------------------------------------------------------------------------------------------------ Net loans charged-off (recoveries) 1,578 2,713 3,644 (2,372) 321 Provision for loan losses 10,365 14,591 9,256 4,419 201 Additions due to acquisitions 1,525 - 2,525 - - - ------------------------------------------------------------------------------------------------------------------------------ Ending balance $76,234 $65,922 $54,044 $45,907 $39,116 - ------------------------------------------------------------------------------------------------------------------------------ Reserve for loan losses to loans outstanding at year-end(1) 1.66% 1.86% 1.95% 1.93% 1.79% Net charge-offs (recoveries) to average loans .04 .09 .14 (.10) .02 Provision for loan losses to average loans .26 .48 .35 .19 .01 Recoveries to gross charge-offs 78.52 64.28 60.73 135.13 92.31 Reserve as a multiple of net charge-offs (recoveries) 48.31x 24.30x 14.83x (19.35)x 121.86x - ------------------------------------------------------------------------------------------------------------------------------ Problem Loans - ------------------------------------------------------------------------------------------------------------------------------ Loans past due (90 days) $11,336 $ 9,553 $10,710 $ 9,729 $ 2,755 Nonaccrual(2) 19,465 14,095 19,761 19,964 30,159 Renegotiated - - 207 - - - ------------------------------------------------------------------------------------------------------------------------------ Total $30,801 $23,648 $30,678 $29,693 $32,914 - ------------------------------------------------------------------------------------------------------------------------------ Foregone interest on nonaccrual loans(2) $ 2,321 $ 2,271 $ 2,981 $ 3,088 $ 3,015 ============================================================================================================================== (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. (2) Interest collected and recognized on nonaccrual loans was $3.3 million in 1998 and was not significant in 1999 and previous years disclosed.
The adequacy of the reserve for loan losses is assessed by management based upon an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, and includes probable losses on both outstanding loans and unused commitments to provide financing. A consistent methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based upon a statistical migration analysis for each category of loans, and unallocated reserves that are based upon an analysis of current economic conditions, loan concentrations, portfolio growth, and other relevant factors. An independent Credit Administration department is responsible for performing this evaluation for all of BOK Financial's subsidiaries to ensure that the methodology is applied consistently. All significant criticized loans are reviewed quarterly with written documentation. Specific reserves for impairment are determined in accordance with generally accepted accounting principles and appropriate regulatory standards. At December 31, 1999 specific impairment reserves totaled $2.5 million. The adequacy of general loan loss reserves is determined primarily through an internally developed migration analysis model. Management uses an eight-quarter aggregate accumulation of net loan losses as the basis for this model. Greater emphasis is placed on net loan losses in the more recent periods. This model is used to assign general loan loss reserves to commercial loans and leases, residential mortgage loans and consumer loans. All loans, leases and letters of credit are allocated a migration factor by this model. Management can override the general allocation only by utilizing a specific allocation that is greater than the general allocation. General loan loss reserves assigned to various categories of loans are presented in Table 16. A nonspecific allowance for loan losses is maintained for risks beyond those factors specific to a particular loan or those identified by the migration analysis. These factors include trends in general economic conditions in BOK Financial's primary lending areas, duration of the business cycle, specific conditions in industries where BOK Financial has a concentration of loans, overall growth in the loan portfolio, bank regulatory examination results, error potential in either the migration analysis model or in the underlying data, and other relevant factors. A range of potential losses is then determined for each factor identified. 21 At December 31, 1999, the loss potential ranges for the more significant factors are: Concentration of large loans - $1.1 million to $2.1 million Loan portfolio growth and expansion into new markets - $1.3 million to $2.6 million A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate allowance for loan losses. These provisions totaled $10.4 million for 1999, $14.6 million for 1998 and $9.3 million for 1997. The provision for 1999 reflected management's assessment of changes in the risk of loan losses due primarily to continued growth in the loan portfolio and geographic expansion of BOK Financial's market area to include North Texas and New Mexico. Table 16 Loan Loss Reserve Allocation (Dollars in Thousands) December 31, -------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------------- ------------------- ------------------ ------------------- ------------------- % of % of % of % of % of Reserve(3) Loans(1) Reserve(3) Loans(1) Reserve(3) Loans(1) Reserve(3) Loans(1) Reserve(3) Loans(1) --------- --------- --------- --------- --------- -------- --------- --------- --------- --------- Loan category: Commercial(2) $47,261 58.10% $37,570 56.09% $35,009 55.81% $26,741 53.91% $26,532 51.12% Commercial real estate 11,216 23.86 7,949 21.44 3,236 17.71 3,907 18.59 3,774 17.98 Residential mortgage 2,137 11.58 1,807 14.12 1,783 15.70 1,659 17.01 646 18.80 Consumer 6,721 6.46 6,689 8.35 5,763 10.78 5,174 10.49 2,567 12.10 Nonspecific allowance 8,899 - 11,907 - 8,253 - 8,426 - 5,597 - - ------------------------- --------- --------- --------- --------- --------- -------- --------- --------- --------- --------- Total $76,234 100.00 $65,922 100.00 $54,044 100.00 $45,907 100.00 $39,116 100.00 ========================= ========= ========= ========= ========= ========= ======== ========= ========= ========= ========= (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. (2) Specific allocation for Year 2000 risks were $2.0 million in 1999, $3.6 million in 1998 and $4.8 million in 1997. (3) Specific allocation for the loan concentration risks are included in the appropriate category: Energy, Agriculture and Hotel/Motel.
NONPERFORMING ASSETS Information regarding nonperforming assets, which were $23 million at December 31, 1999 and $19 million at December 31, 1998 is presented in Table 17. Nonperforming loans include nonaccrual loans and renegotiated loans and excludes loans 90 days or more past due. Nonaccrual commercial loans increased during 1999 due primarily to an identified weakness in one agriculture loan. The loan review process also identifies loans 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, 1999, loans totaling $67 million were assigned to the substandard risk category and loans totaling $29 million were assigned to the special mention risk category, compared to $60 million and $31 million, respectively, at December 31, 1998. Table 17 Nonperforming Assets (Dollars in Thousands) December 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------ ------------ ------------ ----------- Nonperforming loans Nonaccrual loans: Commercial $12,686 $ 8,394 $12,745 $13,495 $15,107 Commercial real estate 2,046 1,950 3,276 2,813 10,808 Residential mortgage 3,383 2,583 2,985 3,070 2,946 Consumer 1,350 1,168 755 586 1,298 - ------------------------------------------------ ------------- ------------ ------------ ------------ ----------- Total nonaccrual loans 19,465 14,095 19,761 19,964 30,159 Renegotiated loans - - 207 - - - ------------------------------------------------ ------------- ------------ ------------ ------------ ----------- Total nonperforming loans 19,465 14,095 19,968 19,964 30,159 Other nonperforming assets 3,478 4,667 5,281 4,620 3,712 - ------------------------------------------------ ------------- ------------ ------------ ------------ ----------- Total nonperforming assets $22,943 $18,762 $25,249 $24,584 $33,871 ================================================ ============= ============ ============ ============ =========== Ratios: Reserve for loan losses to nonperforming loans 391.65% 467.70% 270.65% 229.95% 129.70% Nonperforming loans to period-end loans(2) .42 .40 .72 .84 1.38 ================================================ ============= ============ ============ ============ =========== Loans past due (90 days)(1) $11,336 $ 9,553 $10,710 $ 9,729 $ 2,755 ================================================ ============= ============ ============ ============ =========== (1) Includes residential mortgages guaranteed by agencies of the U.S. Government. $ 8,538 $ 8,122 $ 7,072 $ 4,755 $ - Excludes residential mortgages guaranteed by agencies of the U.S. Government in foreclosure. 8,310 6,953 7,396 9,177 6,754 (2) Excludes residential mortgage loans held for sale.
22 DEPOSITS Average deposits for 1999 increased $771 million compared to 1998, including $596 million from acquisitions. Demand deposits, interest-bearing transaction accounts and time deposits increased by $65 million, $501 million and $196 million, respectively. The average cost of each category of interest bearing deposits has decreased during 1999 due to lower market interest rates. As shown in Table 18, average core deposits increased $487 million to $3.2 billion. This represented 65% of average deposits in both 1999 and 1998. Concurrently, uninsured deposits increased to 27% of total deposits for 1999 compared to 24% in 1998. Average uninsured deposits included approximately $257 million of brokered deposits. Uninsured deposits as used in this presentation is based on a simple analysis of account balances and does not reflect combined ownership and other account styling that would determine insurance based on FDIC regulations. Table 18 Deposit Analysis (In Thousands) Average Balances ---------------------------- 1999 1998 ---------------------------- Core deposits $3,155,930 $2,668,954 Public funds 383,329 423,702 Uninsured deposits 1,322,679 997,999 - ------------------------------------------------------------ Total $4,861,938 $4,090,655 ============================================================ BOK Financial competes for deposits by offering a broad range of products and services to its customers. While this includes offering competitive interest rates and fees, the primary means of competing for deposits is convenience and service to the customers. BOk offers banking convenience to its customers though 69 branches, including 26 branches with extended hours in local supermarkets and a 24-hour ExpressBank call center. During 1999, BOk opened four supermarket branches to further enhance customer convenience. Acquisitions during 1999 added 6 locations to Bank of Texas which brought its total locations to 13. Bank of Albuquerque has 15 banking locations in Albuquerque, New Mexico and Bank of Arkansas has 3 locations in Fayetteville, Arkansas. Table 19 Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More (In Thousands) December 31, --------------------------- 1999 1998 --------------------------- Months to maturity: 3 or less $ 461,647 $491,560 Over 3 through 6 274,456 107,855 Over 6 through 12 285,010 116,270 Over 12 167,670 68,699 - ------------------------------------------------------------ Total $1,188,783 $784,384 ============================================================ BORROWINGS AND CAPITAL BOK Financial and its subsidiary banks use several borrowing sources to supplement deposits as a source of funds to support loan and securities growth. Primarily these sources include federal funds purchased and securities repurchase agreements, advances from the Federal Home Loan Bank, and borrowings from lines of credit through commercial banks. Average borrowed funds increased $811 million or 71% over 1998 and represented 28% of all funds for 1999 compared to 22% for 1998. Interest rates and maturity dates for the various sources of funds are matched with specific types of assets in the asset/liability management process. In February 1999, the Board of Directors increased the number of shares which management is authorized to repurchase an additional 400,000 shares, increasing total authorization to 800,000 shares. Since the original authorization announced in 1998, the Company has repurchased 466,540 shares. During the fourth quarter of 1999, BOK Financial negotiated a $125 million variable rate, unsecured line of credit. The proceeds of this line were primarily used to pay off bank debt that had been incurred to fund acquisitions. Interest on amounts outstanding under this line is based on either the LIBOR rate or a base rate, plus a defined margin which is determined by the amount of principal outstanding and BOK Financial's debt rating. The base rate is defined as the greater of either the daily federal funds rate or the prime rate. Equity capital for BOK Financial averaged $542 million and $486 million for 1999 and 1998, respectively. The $56 million increase resulted from 1999 earnings and a $24 million decrease in unrealized gains on available for sale securities. See Note 15 to the Consolidated Financial Statements for additional information regarding the capital adequacy of BOK Financial and its subsidiary banks. Management has identified capital and funding needs totaling approximately $50 million for anticipated growth in 2000. Resources available to meet these needs include dividends from BOK Financial's subsidiary banks and the possible issuance of debt. Management currently believes that its funding needs can be met by dividends from its subsidiary banks. However, the timing and extent of future growth plans will be evaluated based upon available resources. MARKET RISK Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices. Additionally, the financial instruments subject to market risk can be classified either as held for trading or held for purposes other than trading. BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its portfolio of assets held for purposes other than trading and trading assets. The effect of other changes, such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. The responsibility for managing market risk rests with the Asset/Liability Committee which operates under policy guidelines established by the Board of Directors. The negative acceptable variation in net interest revenue and economic value of equity due to a 200 basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. 23 Interest Rate Risk Management (Other than Trading) BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions on net interest revenue, net income and economic value of equity. A simulation model is used to estimate the effect of changes in interest rates over the next twelve months based on three interest rate scenarios. These are a "most likely" rate scenario and two "shock test" scenarios, the first assuming a sustained parallel 200 basis point increase and the second a sustained parallel 200 basis point decrease in interest rates. An independent source is used to determine the most likely interest rates for the next year. The Federal Reserve Bank's discount rate affects short-term borrowings, the prime lending rate and the London InterBank Offering Rate ("LIBOR"). These rates in turn are the basis for much of the variable-rate loan pricing, the 30-year mortgage rate (which directly affects the prepayment speeds for mortgage-backed securities and mortgage servicing rights), and the 10-year U.S. Treasury rate (which affects the value of the mortgage servicing hedges) and, therefore, are BOK Financial's primary interest rate exposures. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. In addition, sensitivity of fee income to market interest rate levels, such as those related to cash management services and mortgage servicing, are included. The model incorporates assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate changes. The assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Interest rate swaps on all products are included to the extent that they are effective in the 12-month simulation period. Changes in prepayment behavior of mortgage-backed securities, residential mortgage loans and mortgage servicing in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. The impact of planned growth and new business activities is factored into the simulation model. At December 31, 1999 and 1998, this modeling indicated interest rate sensitivity as follows: Table 20 Interest Rate Sensitivity (Dollars in Thousands) 200 bp Increase 200 bp Decrease Most Likely ------------------------ ------------------------- -------------------------- 1999 1998 1999 1998 1999 1998 ------------------------ ------------------------- -------------------------- Anticipated impact over the next twelve months: Net interest revenue $ (3,936) $ 2,314 $3,406 $(3,932) $ (413) $(1,013) (1.4)% 1.1% 1.2% (1.9)% (0.1)% (0.5)% ===================================================================== ========================= ========================== Net income $ (2,440) $ 1,847 $2,112 $(4,114) $ (256) $ (41) (2.4)% 2.0% 2.1% (4.5)% (0.3)% 0.0% ===================================================================== ========================= ========================== Economic value of equity $ (36,214) $ (79,092) $1,669 $ 3,763 $ (4,943) $ 10,096 (3.2)% (10.1)% 0.1% 0.5% (0.4)% 1.3% ===================================================================== ========================= ==========================
The estimated changes in interest rates on net interest revenue, net income, and economic value of equity is within guidelines established by the Board of Directors for all interest rate scenarios. BOK Financial has a significant risk of loss on its capitalized mortgage servicing rights in a declining interest rate environment. During 1998, a program to hedge this exposure through the use of futures contracts, call options and put options was developed. These derivatives are based upon 10-year U.S. Treasury securities. The changes in value of these derivatives have a highly correlated, inverse relation to changes in value of the mortgage servicing rights within a +/- 50 basis point range. During 1999, the interest rates that affect the value of the servicing rights and the hedging derivatives increased by 179 basis points. This large change in rates caused the derivatives to generate losses of $32.2 million while the value of the hedged portion of the servicing portfolio increased by $25.9 million. Cumulative losses on the hedging portfolio at December 31, 1999 were $8.9 million before amortization. The interest rate sensitivity of the mortgage servicing portfolio and the related hedge is modeled over a range of + or - 50 basis points. At December 31, 1999 and 1998, the pre-tax results of this modeling are as follows: Table 21 Mortgage Servicing Interest Rate Sensitivity (In Thousands) 1999 1998 --------------------------------------- 50 bp 50 bp 50 bp 50 bp Increase Decrease Increase Decrease --------------------------------------- Anticipated change in: Mortgage servicing rights $ 3,721 $(5,231) $12,962 $(17,303) Hedging instruments (4,577) 4,678 (11,567) 11,960 - ------------------------------------------------------------ Net $ (856) $ (553) $ 1,395 $ (5,343) ============================================================ The simulations used to manage market risk are based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. 24 BOK Financial uses interest rate swaps, a form of off-balance sheet derivative product, in managing its interest rate sensitivity. These products are generally used to more closely match interest paid on certain long-term certificates of deposit and subordinated debt with earning assets. During 1999, income from these swaps exceeded the cost 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. Trading Activities BOK Financial enters into trading account activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations, and financial institutions. BOK Financial will also take trading positions in U.S. Treasury securities, mortgage-backed securities, municipal securities, and financial futures for its own account either through BOk or BOSC, Inc. These positions are taken with the objective of generating trading profits. Both of these activities involve interest rate risk. A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs. The Risk Management Department monitors trading activity daily and reports to senior management and the Risk Oversight and Audit Committee of the BOK Financial Board of Directors any exceptions to trading position limits and risk management policy exceptions. BOK Financial uses a Value at Risk ("VAR") methodology to measure the market risk inherent in its trading activities. VAR is calculated based upon historical simulations over the past five years. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the nominal aggregate trading positions to $360 million, the VAR to $6.5 million. At December 31, 1999, the nominal aggregate trading positions was $4.9 million, the VAR was $149 thousand. The greatest value at risk during 1999 was $2.1 million. NEW ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The effective date for FAS 133 has been deferred until fiscal years beginning after June 15, 2000. BOK Financial expects to adopt FAS 133 effective January 1, 2001. FAS 133 will require the recognition of all derivatives on the balance sheet at fair value. Derivatives that do not qualify for special hedge accounting treatment must be adjusted to fair value through income. If the derivative qualifies for hedge accounting, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against changes in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. BOK Financial is currently analyzing the effect of FAS 133 on the derivatives used as part of its asset/liability management program. The effect of FAS 133 on earnings and financial position has not yet been determined. FORWARD-LOOKING STATEMENTS This Annual Report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about BOK Financial, the financial services industry, and the economy in general. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans," "projects," variations of such words, and similar expressions are intended to identify such forward-looking statements. Management judgments relating to, and discussion of the provision and reserve for loan losses involve judgments as to future events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events, based in part on information provided by others which BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to, (1) the ability to fully realize expected cost savings from mergers within the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies, and assessments, (7) the impact of technological advances, and (8) trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. 25 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 accounting principles generally accepted in the United States. This system includes written policies and procedures, a corporate code of conduct, an internal audit program and standards for the hiring and training of qualified personnel. The Board of Directors of BOK Financial maintains a Risk Oversight and Audit Committee consisting of outside directors that meet periodically with management and BOK Financial's internal and independent auditors. The Committee considers the audit and nonaudit services to be performed by the independent auditors, makes arrangements for the internal and independent audits and recommends BOK Financial's selection of independent auditors. The Committee also reviews the results of the internal and independent audits, considers and approves certain of BOK Financial's accounting principles and practices, and reviews various shareholder reports and other reports and filings. Ernst & Young LLP, certified public accountants, have been engaged to audit the consolidated financial statements of BOK Financial and its subsidiaries. Their audit is conducted in accordance with accounting principles generally accepted in the United States and their report on BOK Financial's consolidated financial statements is set forth below. REPORT OF INDEPENDENT AUDITORS We have audited the accompanying consolidated balance sheets of BOK Financial Corporation as of December 31, 1999 and 1998, 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, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BOK Financial Corporation at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Tulsa, Oklahoma January 18, 2000 26 BOK FINANCIAL CORPORATION Consolidated Statements of Earnings (In Thousands Except Share Data) 1999 1998(1) 1997(1) ----------------- ----------------- ----------------- Interest Revenue Loans $336,630 $267,458 $234,568 Taxable securities 144,901 115,733 101,853 Tax-exempt securities 14,233 16,274 17,099 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Total securities 159,134 132,007 118,952 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Trading securities 2,291 1,046 287 Funds sold and resell agreements 2,219 2,321 3,267 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Total interest revenue 500,274 402,832 357,074 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Interest Expense Deposits 150,621 138,004 127,802 Borrowed funds 104,195 64,709 62,874 Subordinated debenture 9,334 9,693 4,166 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Total interest expense 264,150 212,406 194,842 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Net Interest Revenue 236,124 190,426 162,232 Provision for Loan Losses 10,365 14,591 9,256 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Net Interest Revenue After Provision for Loan Losses 225,759 175,835 152,976 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Other Operating Revenue Brokerage and trading revenue 16,233 15,301 9,556 Transaction card revenue 32,648 24,426 19,339 Trust fees and commissions 35,127 29,956 24,072 Service charges and fees on deposit accounts 41,067 33,920 30,181 Mortgage banking revenue 36,986 41,733 32,235 Leasing revenue 3,725 7,111 5,861 Other revenue 17,589 11,688 10,330 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Total fees and commissions 183,375 164,135 131,574 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Gain on student loan sales 600 1,548 1,311 Gain on loan securitization 270 - - Gain on sale of other assets 4,626 - - Gain (loss) on securities (419) 9,337 (1,329) - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Total other operating revenue 188,452 175,020 131,556 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Other Operating Expense Personnel expense 136,010 109,437 90,625 Business promotion 9,077 8,220 8,886 Contribution of stock to BOk Charitable Foundation - 2,257 3,638 Professional fees and services 9,584 9,781 6,906 Net occupancy, equipment and data processing expense 58,024 43,519 36,265 FDIC and other insurance 1,356 1,368 1,380 Printing, postage and supplies 11,599 9,524 8,067 Net gains and operating expenses on repossessed assets (3,473) (474) (3,831) Amortization on intangible assets 15,823 9,515 8,968 Mortgage banking costs 23,932 25,949 19,968 Provision for impairment of mortgage servicing rights - (2,290) 4,100 Other expense 18,584 17,189 14,882 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Total other operating expense 280,516 233,995 199,854 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Income Before Taxes 133,695 116,860 84,678 Federal and state income tax 44,469 37,249 16,523 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- Net Income $ 89,226 $ 79,611 $ 68,155 ================================================================== ================= ================= ================= Earnings Per Share(2): Basic: Net income 1.79 1.60 1.36 ================================================================== ================= ================= ================= Diluted: Net income 1.60 1.43 1.23 ================================================================== ================= ================= ================= Average Shares Used in Computation(2): Basic 48,974 48,897 48,895 Diluted 55,771 55,803 55,636 - ------------------------------------------------------------------ ----------------- ----------------- ----------------- (1) Restated for pooling of interest in 1999. (2) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999. See accompanying notes to consolidated financial statements.
27 Consolidated Balance Sheets (In Thousands Except Share Data) December 31, -------------------------------- 1999 1998(1)(2) ---------------- -------------- Assets Cash and due from banks $ 397,895 $ 431,874 Funds sold and resell agreements 28,960 39,551 Trading securities 14,452 41,138 Securities: Available for sale 2,588,704 2,329,375 Investment (fair value: 1999 - $211,624; 1998 - $227,754) 213,180 227,777 - --------------------------------------------------------------------------------- ---------------- -------------- Total securities 2,801,884 2,557,152 - --------------------------------------------------------------------------------- ---------------- -------------- Loans 4,643,489 3,647,099 Less reserve for loan losses 76,234 65,922 - --------------------------------------------------------------------------------- ---------------- -------------- Net loans 4,567,255 3,581,177 - --------------------------------------------------------------------------------- ---------------- -------------- Premises and equipment, net 119,239 87,721 Accrued revenue receivable 67,640 64,409 Excess cost over fair value of net assets acquired and core deposit premiums (net of accumulated amortization: 1999 - $65,292; 1998 - $49,469) 125,011 97,578 Mortgage servicing rights, net 114,134 69,224 Real estate and other repossessed assets 3,478 4,667 Bankers' acceptances 30,161 5,343 Other assets 103,888 79,673 - --------------------------------------------------------------------------------- ---------------- -------------- Total assets $8,373,997 $7,059,507 ================================================================================= ================ ============== Liabilities and Shareholders' Equity Noninterest-bearing demand deposits $1,020,996 $1,165,283 Interest-bearing deposits: Transaction 1,866,499 1,453,236 Savings 155,839 185,971 Time 2,219,850 1,803,237 - --------------------------------------------------------------------------------- ---------------- -------------- Total deposits 5,263,184 4,607,727 - --------------------------------------------------------------------------------- ---------------- -------------- Funds purchased and repurchase agreements 1,345,683 1,040,683 Other borrowings 938,020 660,347 Subordinated debenture 148,642 146,921 Accrued interest, taxes and expense 62,431 58,034 Bankers' acceptances 30,161 5,343 Other liabilities 28,712 15,659 - --------------------------------------------------------------------------------- ---------------- -------------- Total liabilities 7,816,833 6,534,714 - --------------------------------------------------------------------------------- ---------------- -------------- Shareholders' equity: Preferred stock 25 25 Common stock ($.00006 par value; 2,500,000,000 shares authorized; issued: 1999 - 49,382,262; 1998 - 48,111,647) 3 3 Capital surplus 274,980 236,726 Retained earnings 332,751 278,365 Treasury stock (shares at cost: 1999 - 316,325; 1998 - 748,576) (7,018) (2,623) Accumulated other comprehensive income (loss) (43,577) 12,297 - --------------------------------------------------------------------------------- ---------------- -------------- Total shareholders' equity 557,164 524,793 - --------------------------------------------------------------------------------- ---------------- -------------- Total liabilities and shareholders' equity $8,373,997 $7,059,507 ================================================================================= ================ ============== (1) Restated for pooling of interest in 1999. (2) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999. See accompanying notes to consolidated financial statements.
28 BOK FINANCIAL CORPORATION Consolidated Statements of Changes in Shareholders' Equity (In Thousands) Preferred Stock(4) Common Stock(4) ----------------- --------------- Shares Amount Shares(3) Amount ----------------- ---------------- December 31, 1996 250,000 $23 45,348 $ 3 Comprehensive income: Net income - - - - Other comprehensive income, net of tax: Unrealized gain on securities available for sale - - - - Total comprehensive income Director retainer shares - - 17 - Issuance of common stock to Thrift Plan - - 36 - Exercise of stock options - - 216 - Payments on stock options notes receivable - - - - Purchase of common stock - - - - Dividends paid in shares of common stock: Preferred stock - - 107 - Common stock - - 1,278 - ---------------------------------- December 31, 1997 250,000 23 47,002 3 Comprehensive income: Net income - - - - Other comprehensive income, net of tax: Unrealized gain on securities available for sale - - - - Total comprehensive income Director retainer shares - - 12 - Issue preferred stock - 2 - - Treasury stock purchase - - - - Issuance of common stock to Thrift Plan - - - - Exercise of stock options - - 234 - Payments on stock options notes receivable - - - - Common stock dividend - - - - Dividends paid in shares of common stock: Preferred stock - - 69 - Common stock - - 795 - ---------------------------------- December 31, 1998 250,000 25 48,112 3 Comprehensive income: - - - - Net income Other comprehensive loss, net of tax: Unrealized loss on securities available for sale - - - - Total comprehensive income Director retainer shares - - 9 - Treasury stock purchase - - - - Cancel treasury stock - - (725) - Issuance of common stock to Thrift Plan - - 17 - Exercise of stock options - - 480 - Common stock dividend - - - - Dividends paid in shares of common stock: Preferred stock - - 57 - Common stock - - 1,432 - ---------------------------------- December 31, 1999 250,000 $25 49,382 $ 3 ================================================================================ (1) December 31, --------------------------------- 1999 1998 1997 --------------------------------- Reclassification adjustment: Unrealized gains (losses)on available for sale securities $(56,155) $ 6,785 $ 9,170 Less reclassification adjustment for gains (losses) realized and included in net income, net of tax (281) 6,157 (1,059) --------------------------------- Net unrealized gains on securities $(55,874) $ 628 $10,229 ================================= (2) Notes receivable from exercise of stock options. (3) Shares and per share data have been restated to reflect the 3% stock dividend paid in October 1999. (4) Restated for pooling of interest in 1999. See accompanying notes to consolidated financial statements. 29 Consolidated Statements of Changes in Shareholders' Equity, (Continued) Accumulated Other Comprehensive Capital Retained Treasury Stock(4) Notes ---------------------- Income(Loss)(4)Surplus(4)Earnings(4)Shares(3) Amount Receivable(2)(4) Total(4) - ----------- ----------- --------- --------- ------------ ------------- --------- $ 1,440 $179,527 $194,988 808 $(2,623) $(87) $373,271 - - 68,155 - - - 68,155 10,229 - - - - - 10,229 --------- 78,384 --------- - 258 - (1) 2 - 260 - 715 - - - - 715 - 2,390 - 80 (1,639) - 751 - - - - - 83 83 - 45 - (10) 27 - 72 - 1,500 (1,500) - - - - - 27,448 (29,023) 4 (81) - (1,656) - ----------- ----------- --------- --------- ------------ ------------- --------- 11,669 211,883 232,620 881 (4,314) (4) 451,880 - - 79,611 - - - 79,611 628 - - - - - 628 --------- 80,239 --------- - 292 - - - - 292 - - - - - - 2 - - - 386 (9,138) - (9,138) - 94 - (56) 1,204 - 1,298 - 3,937 - 55 (1,355) - 2,582 - - - - - 4 4 - - (2,344) - - - (2,344) - 1,500 (1,500) - - - - - 19,020 (30,022) (517) 10,980 - (22) - ----------- ----------- --------- --------- ------------ ------------- --------- 12,297 236,726 278,365 749 (2,623) - 524,793 - - 89,226 - - - 89,226 (55,874) - - - - - (55,874) --------- 33,352 --------- - 294 - - - - 294 - - - 74 (1,574) - (1,574) - (2,062) - 725) 2,062 - - - 406 - (1) 36 - 442 - 7,424 - 215 (4,823) - 2,601 - - (2,734) - (2,734) - 1,500 (1,500) - - - 30,692 (30,606) 4 (96) - (10) - ----------- ----------- --------- --------- ------------ ------------- --------- $ (43,577) $274,980 $332,751 316 $ (7,018) $ - $557,164 =========== =========== ========= ========= ============ ============= ========= 30 BOK FINANCIAL CORPORATION Consolidated Statements of Cash Flows (In Thousands) 1999 1998(1) 1997(1) ------------ ------------- ------------ Cash Flows From Operating Activities: Net income $ 89,226 $ 79,611 $ 68,155 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses 10,365 14,591 9,256 Provisions for mortgage servicing rights - (2,290) 4,100 Depreciation and amortization 41,088 39,962 32,865 Net amortization of securities discounts and premiums 1,413 701 3,012 Net gain on sale of assets (15,039) (23,209) (7,802) Contribution of stock to BOk Charitable Foundation - 2,257 3,638 Mortgage loans originated for resale (687,857) (922,585) (849,457) Proceeds from sale of mortgage loans held for resale 738,109 913,700 870,198 (Increase) decrease in trading securities 34,734 (36,139) 1,455 (Increase) decrease in accrued revenue receivable 21 (11,999) 399 (Increase) decrease in other assets (65,824) (14,971) 6,563 Increase (decrease) in accrued interest, taxes and expense 24,151 14,533 (12,713) Increase in other liabilities 29,806 3,139 3,867 - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Net cash provided by operating activities 200,193 57,301 133,536 - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Cash Flows From Investing Activities: Proceeds from sales of available for sale securities 1,397,956 1,816,796 1,026,464 Proceeds from maturities of investment securities 59,684 33,163 25,904 Proceeds from maturities of available for sale securities 634,527 511,690 237,302 Purchases of investment securities (45,330) (48,791) (40,701) Purchases of available for sale securities (2,223,829) (2,795,309) (1,446,877) Loans originated or acquired net of principal collected (1,045,516) (684,389) (272,585) Proceeds from sales of assets 190,673 60,505 14,674 Purchases of assets (93,755) (45,028) (74,543) Cash and cash equivalents of subsidiaries and branches acquired and sold, net 25,584 311,977 12,365 - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Net cash used by investing activities (1,100,006) (839,386) (517,997) - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Cash Flows From Financing Activities: Net increase (decrease) in demand deposits, transaction deposits, and savings accounts (20,535) 118,411 154,202 Net increase in certificates of deposit 321,702 68,730 39,738 Net increase in other borrowings 554,433 675,128 66,986 Repayment of subordinated debenture - - (20,000) Issuance of subordinated debt - - 168,356 Repurchase of subordinated debt - (1,538) - Issuance of preferred, common and treasury stock, net 3,961 4,152 1,777 Purchase of treasury stock (1,574) (9,138) - Dividends paid (2,744) (2,344) (1,636) Payments on notes receivable - 4 83 - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Net cash provided by financing activities 855,243 853,405 409,506 - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Net increase (decrease) in cash and cash equivalents (44,570) 71,320 25,045 Cash and cash equivalents at beginning of period 471,425 400,105 375,060 - -------------------------------------------------------------------------------------- ------------ ------------- ------------ Cash and cash equivalents at end of period $ 426,855 $ 471,425 $ 400,105 ====================================================================================== ============ ============= ============ Cash paid for interest $ 265,548 $ 182,143 $ 192,146 ====================================================================================== ============ ============= ============ Cash paid for taxes 43,664 29,569 20,167 ====================================================================================== ============ ============= ============ Net loans transferred to repossessed real estate 1,857 2,945 3,165 ====================================================================================== ============ ============= ============ Payment of dividends in common stock 32,192 31,500 28,948 ====================================================================================== ============ ============= ============ (1) Restated for pooling of interest in 1999. See accompanying notes to consolidated financial statements.
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Consolidated Financial Statements of BOK Financial Corporation ("BOK Financial") have been prepared in conformity with accounting principles generally accepted in the United States, including general practices of the banking industry. The consolidated financial statements include the accounts of BOK Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its subsidiaries ("BOk"), Bank of Texas, N.A., Bank of Arkansas, N.A., and Bank of Albuquerque, 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, North Texas and Northern New Mexico. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust. Use of Estimates Preparation of BOK Financial's consolidated financial statements requires management to make estimates of future economic activities, including interest rates, loan collectibility and prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates. Acquisitions Assets and liabilities acquired by purchase are recorded at fair values on the acquisition dates. Intangible assets are amortized using straight-line and accelerated methods over the estimated benefit periods. These periods range from 7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The net book values of intangible assets are evaluated for impairment when economic conditions indicate an impairment may exist. These conditions would include an ongoing performance history and a forecast of anticipated performance that is significantly below management's expectations for acquired entities. Impairment would be determined by a comparison of the fair value of assets and liabilities of the acquired entity plus an estimate of current market premiums paid for similar entities. The Consolidated Statements of Earnings include the results of purchases from the dates of acquisition. The financial statements of companies acquired in pooling-of-interests transactions are combined with the Consolidated Financial Statements of BOK Financial at historical cost as if the mergers occurred at the beginning of the earliest period presented. Cash Equivalents Due from banks, funds sold (generally federal funds sold for one-day periods) and resell agreements (which generally mature within one to 30 days) are considered cash equivalents. Securities Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities, which are acquired for profit through resale, are carried at market value with unrealized gains and losses included in current period earnings. Investment securities are carried at amortized cost. Amortization is computed by methods which approximate level yield and is adjusted for changes in prepayment estimates. Securities identified as available for sale are carried at fair value. Unrealized gains and losses are recorded, net of deferred income taxes, as accumulated other comprehensive income (loss) in shareholders' equity. Realized gains and losses on sales of securities are based upon the amortized cost of the specific security sold. Loans Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk of loss on loans due to the borrower's difficulties, which may arise from any number of factors including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccrual status when, in the opinion of management, full collection of principal or interest is uncertain, generally when the collection of principal or interest is 90 days or more past due. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loan origination and commitment fees, and direct loan origination costs when significant, are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on related forward sales contracts. 32 Reserve for Loan Losses The adequacy of the reserve for loan losses is assessed by management based upon an ongoing quarterly evaluation of the probable estimated losses inherent in the portfolio, and includes probable losses on both outstanding loans and unused commitments to provide financing. A consistent methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based upon a statistical migration analysis for each category of loans, and other allocated reserves that are based upon an analysis of current economic conditions, loan concentrations, portfolio growth, and other relevant factors. The reserve for loan losses related to loans that are identified for evaluation in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114"), is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreement. This is substantially the same criteria used to determine when a loan should be placed on nonaccrual status. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In accordance with the provisions of FAS 114, management has excluded small balance, homogeneous loans from the impairment evaluation specified in FAS 114. Such loans include 1-4 family mortgage loans, consumer loans, and commercial loans with committed amounts less than $1 million. The adequacy of the reserve for loan losses applicable to these loans is evaluated in accordance with standards established by the banking regulatory authorities and adopted as policy by BOK Financial. A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. Loans are charged off when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Loans are evaluated quarterly and charge offs are taken in the quarter in which the loss is identified. Additionally, all unsecured or under-secured loans which are past due by 180 days or more are charged off within 30 days. Recoveries of loans previously charged off are added to the reserve. Asset Securitization BOK Financial securitizes and sells pools of assets. These transactions are designed to comply with the requirements of Statement of Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," ("FAS 125") for treatment as a sale. As part of these sales, BOK Financial may retain the right to service the assets and a residual interest in excess cash flows generated by the assets. The fair value of these retained assets is determined by a discounting of expected future net cash to be received using assumed market interest rates for these instruments. Servicing rights are carried at the lower of amortized cost or fair value. A valuation allowance is provided when amortized cost of servicing rights exceeds fair value. Residual interests are carried at fair value. Changes in fair values are recorded in income. Real Estate and Other Repossessed Assets Real estate and other repossessed assets are assets acquired in partial or total forgiveness of debt. These assets are carried at the lower of cost, which is determined by fair value at date of foreclosure or current fair value less estimated selling costs. Income generated by these assets is recognized as received, and operating expenses are recognized as incurred. Premises and Equipment Premises and equipment are carried at cost 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. During 1998, BOK Financial adopted Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." The statement requires the capitalization of certain costs incurred to acquire, develop and install computer software subject to certain conditions. Previously, only costs to acquire software were capitalized. All other costs, including installation costs, were charged to expense. Upgrades and enhancements to existing software will generally continue to be charged to expense. The current year effect of this statement was not material. Mortgage Servicing Rights Capitalized mortgage servicing rights are carried at the lower of cost or fair value. Cost is determined by acquisition amount minus accumulated amortization plus/minus deferred loss/gain on hedges and changes in valuation allowances, if any. Amortization is determined in proportion to the projected cash flows over the estimated lives of the servicing portfolios. The actual cash flows are dependent upon the prepayment of the mortgage loans and may differ significantly from the estimates. Fair value is determined by discounting the estimated cash flows of servicing revenue, less projected servicing costs, using risk-adjusted rates, which is the assumed market rate for these instruments. Prepayment assumptions are based on industry consensus provided by independent reporting sources. Changes in current interest rates may significantly affect these assumptions by changing loan refinancing activity. Fair value for capitalized servicing rights is based upon an interest rate stratification. 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 net amortized cost of each interest rate strata exceeds the calculated fair value. Originated mortgage servicing rights are recognized when either mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. Substantially all fixed rate mortgage loans originated by BOK Financial are sold under existing commitments. The fair value of the originated servicing rights is determined at closing based upon current market rates. 33 Hedging of Mortgage Servicing Rights BOK Financial enters into futures contracts and call and put options on futures contracts to hedge against the risk of loss on mortgage servicing rights due to accelerated loan prepayments during periods of falling interest rates. Contracts on underlying securities which are expected to have a similar duration to the mortgage servicing portfolio, such as 10-year U.S. Treasury notes, are used for these hedges. The combination of contracts selected is based upon an analysis of the expected range of market value changes over a probable range of interest rates to achieve a high degree of correlation between changes in the fair value of the mortgage servicing rights and changes in the market value of the contracts. These contracts are designated as hedges on the trade date. Transaction fees are charged to expense when incurred. Premiums paid or received on option contracts are deferred and amortized against mortgage banking costs over the life of the options. Both unrealized and realized gains and losses on futures contracts and option contracts are deferred as part of the capitalized mortgage servicing rights. These deferred gains and losses are amortized over the estimated life of the loan servicing portfolio. Changes in the fair value of the contracts and changes in the market value of the mortgage servicing rights are reviewed at least monthly to determine whether a high degree of correlation exists on a statistically valid basis. If correlation criteria are not met, the contracts are no longer accounted for as a hedge. In such circumstances, any remaining unamortized deferred gains or losses are recognized in current income. Interest Rate Swaps and Forward Commitments Interest rate swaps and forward sales contracts are used as part of an interest rate risk management strategy. Interest rate swaps are used primarily to modify the interest expense of certain long-term, fixed rate assets and liabilities. Amounts payable to or receivable from the counterparties are reported in interest expense using the accrual method. In the event of the early redemption of hedged obligations, any realized or unrealized gain or loss from the swaps would be recognized in income coincident with the redemption. The fair value of the swap agreements and changes in the fair value due to changes in market interest rates are not recognized in the financial statements. Forward sales contracts are used to hedge existing and anticipated loans in conjunction with mortgage banking activities. The fair value of these instruments is included in determining the adjustment of the loan held for sale portfolio to the lower of cost or market. Gains or losses on closed contracts are recognized when the underlying assets are disposed. The cost of terminating these contracts prior to their expiration dates is expensed when incurred. Federal and State Income Taxes BOK Financial utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statement and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. BOK Financial and its subsidiaries file consolidated tax returns. The subsidiaries provide for income taxes on a separate return basis, and remit to BOK Financial amounts determined to be currently payable. Employee Benefit Plans BOK Financial sponsors various plans, including a defined benefit pension plan ("Pension Plan"), qualified profit sharing plans ("Thrift Plans"), and employee health care plans. Employer contributions to the Thrift Plans, which match employee contributions subject to percentage and years of service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the estimated remaining lives of the participants. BOK Financial recognizes the expense of health care benefits on the accrual method. Employer contributions to the Pension Plan and various health care plans are in accordance with Federal income tax regulations. Executive Benefit Plans BOK Financial has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock options on the date of grant, no compensation expense is recorded. BOK Financial has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123"), included in Note 12. Fiduciary Services Fees and commissions on approximately $17 billion of assets managed by BOK Financial under various fiduciary arrangements are recognized on the accrual method. Comprehensive Income As of January 1, 1998, BOK Financial adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes new rules for reporting and display of comprehensive income and its components; however, the adoption of FAS 130 had no impact on BOK Financial's net income or shareholders' equity. FAS 130 requires unrealized gains or losses on available-for-sale securities to be included in other comprehensive income. The components of comprehensive income are disclosed in the Consolidated Statements of Changes in Shareholders' Equity. 34 Segment Disclosures On December 31, 1998, BOK Financial adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. BOK Financial operates five principal lines of business - corporate banking, consumer banking, mortgage banking, trust services and regional banks which account for more than 75% of total revenue. The disclosures required by FAS 131 have been included in Note 17. Effect of Pending Statements of Financial Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133, which requires BOK Financial to recognize all derivatives on the balance sheet at fair value, is effective for years beginning after June 15, 2000. FAS 133 permits early adoption as of the beginning of any fiscal quarter that begins after June 1998. BOK Financial expects to adopt FAS 133 effective January 1, 2001. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portions of a derivative's change in fair value will be immediately recognized in earnings. BOK Financial has not yet determined what effect the adoption of this statement will have on its results of operations or financial positions. (2) ACQUISITIONS On May 14, 1999, BOK Financial paid $26.8 million to acquire all outstanding common shares of Chaparral Bancshares, Inc. and its subsidiaries, including Canyon Creek National Bank, (collectively "Canyon Creek"). On June 2, 1999, BOK Financial paid $17.0 million to acquire all outstanding stock of Mid-Cities Bancshares, Inc. and its subsidiaries (collectively "Mid-Cities"). On June 15, 1999, BOK Financial paid $32.0 million to acquire all outstanding stock of Swiss Avenue State Bank ("Swiss"). On December 4, 1998, BOK Financial, through Bank of Albuquerque, paid a premium of $34 million to Bank of America to assume the deposits and to acquire the premises and equipment and certain loans at 17 branches, primarily in Albuquerque, New Mexico. During the first quarter of 1997, BOK Financial completed the acquisitions of Park Cities Bancshares, Inc. and its subsidiary, First National Bank of Park Cities, Dallas, Texas (collectively "Park Cities") and First Texcorp, Inc. and its subsidiary First Texas Bank, Dallas, Texas (collectively "First Texas"). On February 12, 1997, BOK Financial issued notes totaling $10.9 million and $40 million in cash to acquire all outstanding common shares of Park Cities and on March 4, 1997, BOK Financial paid $39.3 million to acquire all outstanding common shares of First Texas. All of the above transactions were accounted for by the purchase method of accounting. Allocation of the purchase price to the net assets acquired in 1999 and the aggregate acquisitions in 1998 and 1997 were as follows (in thousands): 1999 ------------------------------ Aggregate Acquisitions Canyon -------------------- Creek Mid-Cities Swiss 1998 1997 ---------- ---------- -------- ---------- --------- Cash and cash equivalents $ 34,858 $ 17,405 $ 50,952 $ 9,029 $ 91,581 Securities 13,347 19,018 114,037 - 148,472 Loans 54,074 43,183 50,440 144,209 137,838 Less reserve for loan losses 356 583 586 - 2,525 --------- --------- --------- ---------- --------- Loans, net 53,718 42,600 49,854 144,209 135,313 Premises and equipment 6,672 452 8,942 11,205 5,141 Core deposit premium 3,943 2,240 6,338 13,495 11,109 Other assets 2,665 849 2,060 233 9,382 --------- --------- --------- ---------- --------- Total assets acquired 115,203 82,564 232,183 178,171 400,998 Deposits: Noninterest bearing 31,164 12,993 7,678 47,361 123,716 Interest bearing 67,946 59,557 174,954 418,490 221,016 ---------- --------- --------- ---------- --------- Total deposits 99,110 72,550 182,632 465,851 344,732 Borrowed funds 21 165 28,240 - 623 Other liabilities 866 136 1,232 9 2,793 ---------- --------- --------- ---------- --------- Net assets acquired 15,206 9,713 20,079 (287,689) 52,850 Less purchase price 26,751 17,000 32,005 (267,189) 90,118 ---------- --------- --------- ---------- --------- Goodwill $ 11,545 $ 7,287 $ 11,926 $ 20,500 $ 37,268 ========== ========= ========= ========== ========= 35 On June 30, 1999, BOK Financial issued 2,371,809 common shares to acquire First Muskogee Bancshares, Inc. and its subsidiary, First National Bank and Trust Company of Muskogee (collectively "First Muskogee") in a pooling of interests. Financial statements of BOK Financial for 1997 and 1998 have been restated to reflect this merger. Information regarding this acquisition follows (in thousands): Six Months ended June 30, 1999 December 31 ------------------------- (Unaudited) 1998 1997 - ----------------------------------------------------------- Net interest revenue: BOK Financial $104,233 $182,252 $155,600 First Muskogee 4,361 8,174 6,632 - --------------------- ------------- ----------- ----------- Combined $108,594 $190,426 $162,232 ===================== ============= =========== =========== Net income: BOK Financial $ 40,845 $ 74,716 $ 64,625 First Muskogee 2,448 4,895 3,530 - --------------------- ------------- ----------- ----------- Combined $ 43,293 $ 79,611 $ 68,155 ===================== ============= =========== =========== Earnings per share: Basic: BOK Financial $ .82 $ 1.50 $ 1.29 First Muskogee .05 .10 .07 - --------------------- ------------- ----------- ----------- Combined $ .87 $ 1.60 $ 1.36 ===================== ============= =========== =========== Diluted: BOK Financial $ .73 $ 1.34 $ 1.16 First Muskogee .05 .09 .07 - --------------------- ------------- ----------- ----------- Combined $ .78 $ 1.43 $ 1.23 ===================== ============= =========== =========== Average shares: Basic 48,911 48,897 48,895 Diluted 55,784 55,803 55,636 - --------------------- ------------- ----------- ----------- The following unaudited condensed consolidated pro forma statements of earnings for BOK Financial presents the effects on income had all of these acquisitions described above occurred at the beginning of 1998: Condensed Consolidated Pro Forma Statements of Earnings For the Years ended December 31, 1999 and 1998 (In Thousands) (Unaudited) 1999 1998 ------------ ----------- Net interest revenue $240,796 $217,278 Provision for loan losses 10,397 17,551 - ----------------------------------- ------------ ----------- Net interest revenue after provision for loan losses 230,399 199,727 Other operating revenue 189,111 182,901 Other operating expense 284,332 260,058 - ----------------------------------- ------------ ----------- Income before taxes 135,178 122,570 Federal and state income tax 44,969 39,102 - ----------------------------------- ------------ ----------- Net income $ 90,209 $ 83,468 =================================== ============ =========== Earnings per share: Basic net income $ 1.81 $ 1.68 Diluted net income 1.62 1.50 - ----------------------------------- ------------ ----------- Average shares: Basic 48,974 48,897 Diluted 55,771 55,803 - ----------------------------------- ------------ ----------- In 1999, BOK Financial acquired a mortgage bank office in the Kansas City area for $1.3 million. In 1998, BOK Financial completed the acquisitions of Leo Oppenheim & Co., a public finance firm, and a branch office in Bartlesville, Oklahoma which provided net cash of $35.8 million and deposits of $30.3 million. These acquisitions were not material to BOK Financial's financial position or results of operations. 36 (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 $688 thousand, $3.2 million and $829 thousand for 1999, 1998 and 1997, respectively. (4) SECURITIES Investment Securities The amortized cost and fair values of investment securities are as follows (in thousands): December 31, ------------------------------------------------------------------------------------- 1999 1998 ---------------------------------------- -------------------------------------------- Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized ------------------ ----------------------- Cost Value Gain Loss Cost Value Gain Loss ------------------------------------------------------------------------------------- U.S. Treasury $ 196 $ 198 $ 2 $ - $ 600 $ 600 $ - $ - Municipal and other tax exempt 186,177 184,748 696 (2,125) 184,988 184,521 1,159 (1,626) Mortgage-backed U.S. agency securities 18,051 17,926 70 (195) 30,385 30,829 452 (8) Other debt securities 8,756 8,752 1 (5) 11,804 11,804 - - - -------------------------------------------------------------------------------------------------------------------- Total $213,180 $211,624 $769 $(2,325) $227,777 $227,754 $1,611 $(1,634) ====================================================================================================================
The amortized cost and fair values of investment securities at December 31, 1999, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity(4) ------------ -------------- ------------- ------------- ------------- ------------- U.S. Treasuries: Amortized cost $ 196 $ - $ - $ - $ 196 .17 Fair value 198 - - - 198 Nominal yield 5.21% - - - 5.21% Municipal and other tax exempt: Amortized cost 30,691 114,639 37,554 3,293 186,177 3.27 Fair value 30,538 114,112 36,908 3,190 184,748 Nominal yield(1) 7.20% 6.98% 7.55% 9.14% 7.17% Other debt securities: Amortized cost 1,015 956 6,685 100 8,756 4.53 Fair value 1,016 956 6,684 96 8,752 Nominal yield 4.70% 5.73% 6.76% 7.00% 6.41% ------------ -------------- ------------- ------------- ------------- ------------- Total fixed maturity securities: Amortized cost $31,902 $115,595 $44,239 $3,393 195,129 3.32 Fair value 31,752 115,068 43,592 3,286 193,698 Nominal yield 7.10% 6.97% 7.43% 9.08% 7.13% ============ ============== ============= ============= Mortgage-backed securities: Amortized cost 18,051 -(2) Fair value 17,926 Nominal yield(3) 6.91% ------------- Total investment securities: Amortized cost $213,180 Fair value 211,624 Nominal yield 7.11% ============= (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 3.4 years based upon current prepayment assumptions. (3) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. (4) Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
37 Available for Sale Securities The amortized cost and fair value of available for sale securities are as follows (in thousands): December 31, ----------------------------------------------------------------------------------------------- 1999 1998 ----------------------------------------------- ----------------------------------------------- Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized ----------------------- ---------------------- Cost Value Gain Loss Cost Value Gain Loss ----------------------------------------------------------------------------------------------- U.S. Treasury $ 112,902 $ 111,860 $ 10 $ (1,052) $ 170,862 $ 171,707 $ 1,223 $ (378) Municipal and other tax exempt 13,086 13,094 75 (67) 92,082 93,131 1,324 (275) Mortgage-backed securities: U. S. agencies 2,174,916 2,106,094 290 (69,112) 1,902,568 1,913,869 13,391 (2,090) Other 202,229 200,558 1 (1,672) 1,772 1,762 - (10) - ------------------------------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 2,377,145 2,306,652 291 (70,784) 1,904,340 1,915,631 13,391 (2,100) - ------------------------------------------------------------------------------- ----------------------------------------------- Other debt securities 353 353 2 (2) 456 462 6 - Equity securities and mutual 156,476 156,745 1,104 (835) 142,460 148,444 8,041 (2,057) funds - ------------------------------------------------------------------------------- ----------------------------------------------- Total $2,659,962 $2,588,704 $1,482 $(72,740) $2,310,200 $2,329,375 $23,985 $(4,810) ===============================================================================================================================
The amortized cost and fair values of available for sale securities at December 31, 1999, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity(5) ------------ -------------- ------------- ------------- -------------- ----------- U.S. Treasuries: Amortized cost $67,936 $44,966 $ - $ - $ 112,902 1.10 Fair value 67,734 44,126 - - 111,860 Nominal yield 5.57% 5.01% - - 5.35% Municipal and other tax exempt: Amortized cost 1,947 8,737 2,402 - 13,086 3.30 Fair value 1,939 8,734 2,421 - 13,094 Nominal yield(1) 6.91% 7.06% 8.33% - 7.27% Other debt securities: Amortized cost - - 153 200 353 10.40 Fair value - - 152 201 353 Nominal yield(1) - - 7.38% 7.22% 7.29% ------------ -------------- ------------- ------------- -------------- ----------- Total fixed maturity securities: Amortized cost $69,883 $53,703 $2,555 $200 126,341 1.35 Fair value 69,673 52,860 2,573 201 125,307 Nominal yield 5.61% 5.35% 8.27% 7.22% 5.55% ============ ============== ============= ============= Mortgage-backed securities: Amortized cost 2,377,145 -(2) Fair value 2,306,652 Nominal yield(4) 6.17% -------------- Equity securities and mutual funds: Amortized cost 156,476 -(3) Fair value 156,745 Nominal yield 6.88% -------------- Total available-for-sale securities: Amortized cost $2,659,962 Fair value 2,588,704 Nominal yield 6.18% ============== (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 4.4 years based upon current prepayment assumptions. (3) Primarily common stock and preferred stock of U.S. Government agencies with no stated maturity. (4) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. (5) Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
38 Sales of available for sale securities resulted in gains and losses as follows (in thousands): 1999 1998 1997 ----------- ----------- ---------- Proceeds $1,397,956 $1,816,796 $1,026,464 Gross realized gains 4,069 15,508 3,159 Gross realized losses 4,488 6,171 4,488 Related federal and state income tax expense (138) 3,180 (270) (benefit) =========================== =========== =========== ========== Securities with amortized costs of $2.1 billion and $1.7 billion at December 31, 1999 and 1998, 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, ----------------------------------------------------------------------------------------------- 1999 1998 ------------------------------------------------ ---------------------------------------------- Fixed Variable Non- Fixed Variable Non- Rate Rate accrual Total Rate Rate accrual Total ------------------------------------------------ ---------------------------------------------- Commercial $ 489,545 $2,162,470 $12,686 $2,664,701 $ 308,624 $1,672,255 $ 8,394 $1,989,273 Commercial real estate 305,208 787,288 2,046 1,094,542 251,875 506,744 1,950 760,569 Residential mortgage 369,860 157,815 3,383 531,058 315,946 182,161 2,583 500,690 Residential mortgage - held 57,057 - - 57,057 100,269 - - 100,269 for sale Consumer 221,399 73,382 1,350 296,131 214,691 80,439 1,168 296,298 - ------------------------------------------------------------------------------------------------------------------------------ Total $1,443,069 $3,180,955 $19,465 $4,643,489 $1,191,405 $2,441,599 $14,095 $3,647,099 ============================================================================================================================== Foregone interest on nonaccrual loans $ 2,321 $ 2,271 ==============================================================================================================================
The majority of the commercial and consumer loan portfolios and approximately 63% of the residential mortgage loan portfolio (excluding loans held for sale) are loans to businesses and individuals in Oklahoma. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the commercial loan classification, loans to energy-related businesses total $606.6 million, or 13% of total loans. Other notable segments include wholesale/ retail, $407.8 million; manufacturing, $344.2 million; agriculture, $173.7 million, which includes $143.9 million loans to the cattle industry; and services, $807.2 million, which include nursing homes of $84.6 million, hotels of $108.0 million and healthcare of $110.3 million. Approximately 53% of commercial real estate loans are secured by properties located in Oklahoma, primarily in the Tulsa or Oklahoma City metropolitan areas. An additional 12% of commercial real estate loans are secured by property located in Texas. The major components of these properties are multifamily residences, $257.2 million; construction and land development, $249.2 million; retail facilities, $169.4 million; and office buildings, $207.5 million. Included in loans at December 31 are loans to executive officers, directors or principal shareholders of BOK Financial, as defined in Regulation S-X of the Securities and Exchange Commission. Such loans have been made on substantially the same terms as those prevailing at the time for loans to other customers in comparable transactions. Information relating to loans to executive officers, directors or principal shareholders is summarized as follows (in thousands): 1999 1998 ----------- ------------ Beginning balance $63,098 $69,668 Advances 46,820 9,950 Payments (11,205) (15,135) Adjustments (3,852) (1,385) ----------------------------------------------------------- Ending balance $94,861 $63,098 =========================================================== 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): 1999 1998 1997 -------------------------------- Beginning balance $65,922 $54,044 $45,907 Provision for loan losses 10,365 14,591 9,256 Loans charged off (7,348) (7,596) (9,279) Recoveries 5,770 4,883 5,635 Addition due to acquisitions 1,525 - 2,525 ----------------------------------------------------------- Ending balance $76,234 $65,922 $54,044 =========================================================== At December 31, 1999, 1998 and 1997, respectively, the recorded investment in loans that are considered to be impaired under FAS 114 was $15.6 million, $11.3 million and $16.8 million (all of which were on a nonaccrual basis). Included in this amount at December 31, 1999, is $9.1 million of impaired loans for which the related specific reserve for loan losses is $2.5 million and $6.6 million that did not have a specific related reserve for loan losses. At December 31, 1998 and 1997, respectively, this amount included $2.7 million and $2.6 million, of impaired loans for which the related allowance for credit loss was $1.4 million and $919 thousand and $8.6 million and $14.2 million, respectively, that did not have a related allowance for credit losses. The average recorded investments in impaired loans during the years ended December 31, 1999, 1998 and 1997 were approximately $15.3 million, $13.8 million and $19.5 million, respectively. Interest income recognized on impaired loans during 1999, 1998 and 1997 was not significant. 39 During 1999, BOK Financial sold approximately $100 million of automobile loans and retained the right to service the loans and a residual interest in certain excess cash flows generated by the loans. The proceeds of the sale were provided by the issuance of debt certificates that totaled $95.9 million by an independent special purpose entity. These retained interests are being carried on the books in accordance with FAS 125. A spread account is maintained by a trustee to hold excess cash received. Funds will be released from the spread account to BOK Financial once certain criteria are met. At December 31, 1999, the carrying values of the servicing rights asset and residual interest were $343 thousand and $9.8 million, respectively. Significant information and assumptions used to determine the value of these assets at December 31, 1999 were: Current outstanding loan principal $56.7 million Average interest rate on loans sold 11.44% Current outstanding debt certificates $52.6 million Interest rate on debt certificates 6.07% Current spread account balance $ 4.6 million Estimated remaining life including Prepayments 30 months Discount rates: Servicing rights 10.00% Residual interest 12.00% (6) PREMISES AND EQUIPMENT Premises and equipment at December 31 are summarized as follows (in thousands): December 31, ------------------------- 1999 1998 ------------ ------------ Land $ 22,474 $15,559 Buildings and improvements 65,646 47,695 Furniture and equipment 93,388 68,335 - ---------------------------------- ------------ ------------ Subtotal 181,508 131,589 - ---------------------------------- ------------ ------------ Less accumulated depreciation 62,269 43,868 - ---------------------------------- ------------ ------------ Total $119,239 $87,721 ================================== ============ ============ Depreciation expense of premises was $13.3 million, $8.6 million and $8.1 million for the years ended December 31, 1999, 1998 and 1997, respectively. (7) MORTGAGE BANKING ACTIVITIES BOK Financial engages in mortgage-banking activities through the BOk Mortgage Division of BOk. Residential mortgage loans held for sale totaled $57.1 million and $100.3 million and outstanding mortgage loan commitments totaled $123.2 million and $239.0 million, respectively, at December 31, 1999 and 1998. 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, 1999, forward sales contracts totaled $72.3 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, 1999, BOk owned the rights to service 94,352 mortgage loans with outstanding principal balances of $7.0 billion, including $107.4 million serviced for BOk, and held related funds for investors and borrowers of $93.6 million. The weighted average interest rate and remaining term was 7.46% and 272 months, respectively. Mortgage loans sold with recourse totaled $4.2 million at December 31, 1999. At December 31, 1998, BOk owned the rights to service mortgage loans with outstanding principal balances of $6.4 billion and held related funds for investors and borrowers of $153.8 million. The portfolio of mortgage servicing rights exposes BOk to interest rate risk. During periods of falling interest rates, mortgage loan prepayments increase. This reduces the value of the mortgage servicing rights. BOk uses a combination of futures contracts and options related to 10-year U.S. Treasury securities to hedge this risk. The value of these derivative instruments moves inversely to the value of the mortgage servicing rights. See Note 1 for specific accounting policies for mortgage servicing rights and the related hedges. 40 Activity in capitalized mortgage servicing rights and related valuation allowance during 1999, 1998 and 1997 are as follows (in thousands): Capitalized Mortgage Servicing Rights Valuation Hedging ------------------------------------- Purchased Originated Total Allowance (Gain)/Loss Net ------------------------------------------------------------------------- Balance at December 31, 1996 $57,256 $ 5,188 $ 62,444 $ (900) $ - $ 61,544 Additions 33,238 6,013 39,251 - - 39,251 Amortization expense (11,533) (1,272) (12,805) - - (12,805) Provision for impairment - - - (4,100) - (4,100) - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 78,961 9,929 88,890 (5,000) - 83,890 Additions 9,443 14,355 23,798 - - 23,798 Amortization expense (15,185) (3,085) (18,270) - 739 (17,531) Provision for impairment - - - 2,290 - 2,290 Impairment charge-off (2,710) - (2,710) 2,710 - - Realized hedge gains - - - - (22,705) (22,705) Unrealized hedge gains - - - - (518) (518) - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 70,509 21,199 91,708 - (22,484) 69,224 Additions 16,509 11,073 27,582 - - 27,582 Amortization expense (12,106) (3,457) (15,563) - 734 (14,829) Realized hedge losses - - - 28,293 28,293 Unrealized hedge losses - - - 3,864 3,864 - -------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $74,912 $28,815 $103,727 $ - $10,407 $114,134 ========================================================================================================================== Estimated fair value of mortgage servicing rights at: December 31, 1997(1) $86,335 $14,022 $100,357 $100,357 December 31, 1998(1) $66,663 $23,527 $ 90,190 $ 90,190 December 31, 1999(1) $83,279 $37,547 $120,826 $120,826 - -------------------------------------------------------------------------------------------------------------------------- (1) Excludes approximately, $19 million, $9 million and $8 million at December 31, 1997, 1998 and 1999, respectively, of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122.
Fair value is determined by discounting the projected net cash flows. Significant assumptions are: Discount rate - Risk adjusted rates by loan product, ranging from 9.50% to 21.25%. Prepayment rate - Industry consensus annual prepayment estimates ranging from 7.32% to 43.58% from an independent reporting source based upon loan interest rate, original term and loan type. Loan servicing costs - $40 to $50 per loan based upon loan type. Stratification of the mortgage loan servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at December 31, 1999 follows (in thousands): < 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total ---------------------------------------------------------------------------- Cost less accumulated amortization $ 9,203 $ 62,417 $ 29,357 $ 2,750 $ 103,727 Deferred hedge losses - 8,177 2,230 - 10,407 - --------------------------------------------------------------------------------------------------------------------------- Adjusted cost 9,203 70,594 31,587 2,750 114,134 Fair value 10,420 71,929 33,468 5,009 120,826 - --------------------------------------------------------------------------------------------------------------------------- Impairment $ - $ - $ - $ - $ - =========================================================================================================================== Outstanding principal of loans serviced $ 614,812 $ 3,810,409 $ 1,814,772 $ 296,754 $ 6,536,747(1) =========================================================================================================================== (1) Excludes outstanding principal of $491.5 million for loans serviced by BOk for which there are no capitalized mortgage servicing rights.
(8) DEPOSITS Interest expense on deposits is summarized as follows (in thousands): 1999 1998 1997 ----------------------------------- Transaction deposits $ 46,510 $ 37,148 $ 33,730 Savings 2,971 3,837 3,472 Time: Certificates of deposits under $100,000 41,418 43,789 43,772 Certificates of deposits $100,000 and over 49,166 42,110 35,358 Other time deposits 10,556 11,120 11,470 - ------------------------------------------------------------------- Total time 101,140 97,019 90,600 =================================================================== Total $150,621 $138,004 $127,802 =================================================================== The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 1999 and 1998 were $1.2 billion and $784.4 million, respectively. Time deposit maturities are as follows: 2000 - $1.7 billion, 2001 - $230.0 million, 2002 - $25.9 million, 2003 - $18.9 million, 2004 - $2.3 million and $1.0 million thereafter. Interest expense on time deposits during 1999 and 1998 was reduced by net income from interest rate swaps of $79.0 thousand and $542.3 thousand, respectively. 41 (9) OTHER BORROWINGS Information relating to other borrowings is summarized as follows (dollars in thousands): Rate at Maximum Period-End Daily average end of outstanding at --------------------------- Balance Balance Rate year any month-end ------------------------------------------------------------------- 1999: Funds purchased and repurchase agreements $1,345,683 $1,146,918 5.12% 6.58% $1,384,596 Other 1,086,662 960,606 5.71 5.91 1,086,662 - ------------------------------------------------------------ Total $2,432,345 $2,107,524 5.39 6.28 2,432,345 ==================================================================================================== 1998: Funds purchased and repurchase agreements $1,040,683 $ 733,031 5.38% 4.98% $1,040,683 Other 807,268 563,188 6.20 5.98 807,268 - ------------------------------------------------------------ Total $1,847,951 $1,296,219 5.74 5.41 1,847,951 ==================================================================================================== 1997: Funds purchased and repurchase agreements $ 631,815 $ 705,870 5.53% 5.83% $ 822,109 Other 542,443 449,348 6.23 4.50 548,355 - ------------------------------------------------------------ Total $1,174,258 $1,155,218 5.80 5.22 $1,287,295 ====================================================================================================
Other borrowings at December 31, 1999 included $816.3 million in advances from the Federal Home Loan Bank. These advances, which are used for funding purposes, include term funds of $426.3 million bearing interest from 5.37% - 7.80%. Of these term funds, $352.1 million mature in 2000, $18.1 million mature in 2001, $17.5 million mature in 2002, $54 thousand mature in 2003, and $38.5 million mature thereafter. In accordance with policies of the Federal Home Loan Bank, BOK Financial has granted a blanket pledge of eligible assets (generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family loans and multifamily loans) as collateral for these advances. The unused credit available to BOK Financial at December 31, 1999 pursuant to the Federal Home Loan Bank's collateral policies is $78.0 million. BOK Financial has a revolving, unsecured credit agreement from certain banks at December 31, 1999 with available credit of $125 million that expires in November 2002; $105 million was outstanding at year-end. Interest is based on either LIBOR or a base rate, plus a defined margin which is determined by the amount of principal outstanding and BOK Financial's debt rating. The base rate is defined as the greater of either the daily federal funds rate or the prime rate. Interest is paid quarterly. Facility fees are paid quarterly on the average daily undrawn commitment at a rate of 0.20% - 0.30 % as determined by BOK Financial's current debt rating. This credit agreement also includes, among other things, certain restrictive covenants relative to additional borrowings, capital levels, maintenance of certain net worth ratios and dividends on capital stock. BOK Financial filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $250 million of senior debt securities during the fourth quarter of 1998. These securities will be direct, unsecured obligations, and are not insured by the Federal Deposit Insurance Corporation or guaranteed by any governmental agency. None of this debt has been issued at December 31, 1999. BOk issued $150 million of subordinated debentures in 1997 at a discounted cost of 7.2%, which had a balance at December 31, 1999 of $148.6 million and will mature in 2007. Interest expense on the subordinated debenture was reduced by net income from interest rate swaps of $1.5 million during 1999. Funds purchased generally mature within one to 90 days from the transaction date. At December 31, 1999, securities sold under agreements to repurchase totaled $906.9 million with related accrued interest payable of $1.6 million. Additional information relating to repurchase agreements at December 31, 1999 is as follows (dollars in thousands): Carrying Market Repurchase Average Security Sold/Maturity Value Value Liability(1) Rate - -------------------------------------------------------------------------------------------------------------- U.S. Treasury Securities: Overnight $ 28,474 $ 28,099 $ 15,636 4.04% U.S. Agency Securities: Overnight 407,163 391,506 288,334 5.03 Term of up to 30 days 317,122 307,811 268,733 6.14 Term of 30 to 90 days 381,621 369,216 335,818 5.95 - ---------------------------------------------------------------------------------------------- Total Agency Securities 1,105,906 1,068,533 892,885 5.71 - ---------------------------------------------------------------------------------------------- Total $1,134,380 $1,096,632 $908,521 5.61 ============================================================================================== (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.
42 (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, ---------------------- 1999 1998 ---------------------- Deferred tax liabilities: Available for sale securities Mark-to-market $ 400 $ 7,800 Pension contributions in excess of book expense 3,800 3,000 Securities valuation adjustments 4,200 3,500 Mortgage servicing 14,800 12,600 Other 3,400 2,900 - ------------------------------------------------------------- Total deferred tax liabilities 26,600 29,800 - ------------------------------------------------------------- Deferred tax assets: Available for sale securities Mark-to-market 28,000 400 Loan loss reserve 28,800 24,500 Valuation adjustments 15,400 18,700 Book expense in excess of tax 4,200 4,900 Other 7,300 4,500 - ------------------------------------------------------------- Total deferred tax assets 83,700 53,000 - ------------------------------------------------------------- Deferred tax assets in excess of deferred tax $57,100 $23,200 liabilities ============================================================= The reconciliations of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense are as follows (in thousands): Years ended December 31, ------------------------------- 1999 1998 1997 ------------------------------- Amount: Federal statutory tax $46,793 $40,901 $29,637 Tax exempt revenue (3,715) (4,110) (4,219) Effect of state income taxes, Net of federal benefit 3,050 3,533 2,184 Goodwill amortization 2,987 2,296 2,267 Utilization of tax credits (786) (750) (774) Reduction of tax reserve - - (9,000) Income taxed at shareholder Level (1,026) (1,713) (1,209) Other, net (2,834) (2,908) (2,363) - ------------------------------------------------------------- Total $44,469 $37,249 $16,523 ============================================================= As of December 31, 1997, the Internal Revenue Service closed its examination of BOk and BOK Financial for 1992 and 1993, respectively. As a result of the outcome of these examinations, BOK Financial reduced its tax reserve by $9 million, which was credited against current federal income tax expense in 1997. In addition, the Internal Revenue Service has closed its examination for 1994 and 1995 with no material impact on the financial statements. The Internal Revenue Service closed its examination of 1996 during the first quarter of 2000. This examination had no adverse impact on the financial statements and BOK Financial is evaluating the impact, if any, on its tax reserve. The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): Years ended December 31, ----------------------------------- 1999 1998 1997 ----------------------------------- Current: Federal $40,860 $41,415 $ 9,631 State 2,948 4,937 1,333 - ------------------------------------------------------------ Total current 43,808 46,352 10,964 - ------------------------------------------------------------ Deferred: Federal 559 (7,699) 4,708 State 102 (1,404) 851 - ------------------------------------------------------------ Total deferred 661 (9,103) 5,559 - ------------------------------------------------------------ Total income tax $44,469 $37,249 $16,523 ============================================================ Years ended December 31, ------------------------------- 1999 1998 1997 ------------------------------- Percent of pretax income: Federal statutory rate 35% 35% 35% Tax-exempt revenue (3) (4) (5) Effect of state income taxes, Net of federal benefit 3 3 3 Goodwill amortization 2 2 3 Utilization of tax credits (1) (1) (1) Reduction of tax reserve - - (11) Income taxed at shareholder Level (1) (1) (1) Other, net (2) (2) (3) - -------------------------------------------------------------- Total 33% 32% 20% ============================================================== The above income tax analysis has been restated to include the operations of First Muskogee. Additionally, for income tax purposes, First Muskogee elected to be treated as an S Corporation effective January 1, 1997. This type of corporation does not generally pay income taxes and its income and expense items are passed through to its shareholders. For this reason, First Muskogee did not pay federal or state income taxes for the years ended December 31, 1998 and 1997. If First Muskogee had been required to pay income taxes in those years as a regular corporation, such amounts would not have been material to the consolidated results of operations of BOK Financial. 43 (11)EMPLOYEE BENEFITS BOK Financial sponsors a defined benefit Pension Plan for all employees who satisfy certain age and service requirements. The following table presents information regarding this plan (dollars in thousands): December 31, --------------------------- 1999 1998 --------------------------- Change in projected benefit obligation: Projected benefit obligation, at beginning of year $ 15,622 $ 13,313 Service cost 2,908 2,145 Interest cost 1,041 897 Actuarial (gain) loss (612) 592 Benefits paid (2,067) (1,325) - -------------------------------------------------------------------------------- Projected benefit obligation at end of year $ 16,892 $ 15,622 ================================================================================ Change in plan assets: Plan assets at fair value, at beginning of year $ 20,419 $ 17,102 Actual return on plan assets 1,848 2,681 Company contributions 5,203 1,961 Benefits paid (2,067) (1,325) - -------------------------------------------------------------------------------- Plan assets at fair value at end of year $ 25,403 $ 20,419 ================================================================================ Reconciliation of prepaid (accrued) and total amount recognized: Benefit obligation $(16,892) $(15,622) Fair value of assets 25,403 20,419 - -------------------------------------------------------------------------------- Funded status of the plan 8,511 4,797 Unrecognized net loss 464 1,154 Unrecognized prior service cost 741 801 - -------------------------------------------------------------------------------- Prepaid pension costs $ 9,716 $ 6,752 ================================================================================ Components of net periodic benefit costs: Service cost $ 2,908 $ 2,145 Interest cost 1,041 897 Expected return on plan assets (1,850) (1,638) Amortization of unrecognized amounts: Net loss 81 90 Prior service cost 60 60 - -------------------------------------------------------------------------------- Net periodic pension cost $ 2,240 $ 1,554 ================================================================================ Weighted-average assumptions as of December 31: Discount rate 8.00% 7.00% Expected return on plan assets 10.00% 10.00% Rate of compensation increase 5.25% 5.25% Assets of the Pension Plan consist primarily of shares in cash management funds, common stock and bond funds, and guaranteed investment contract funds. Benefits are based on the employee's age and length of service. Employee contributions to the Thrift Plans, defined contribution plans, are matched by BOK Financial up to 5% of base compensation, based upon years of service. Participants may direct the investment of their accounts in a variety of options, including BOK Financial Common Stock. Employer contributions vest over five years. Expenses incurred by BOK Financial for the Thrift Plans totaled $2.4 million, $1.9 million and $1.5 million for 1999, 1998 and 1997, respectively. BOK Financial also sponsors a defined benefit post-retirement employee medical plan which pays 50 percent of annual medical insurance premiums for retirees who meet certain age and service requirements. Assets of the retiree medical plan consist primarily of shares in a cash management fund. Eligibility for the post-retirement plan is limited to current retirees and certain employees currently age 60 or older. Under various performance incentive plans, participating employees may be granted awards based on defined formulas or other criteria. Earnings were charged $19.3 million in 1999, $14.9 million in 1998 and $10.4 million in 1997, for such awards. 44 (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. The following table presents options outstanding during 1998 and 1999 under these plans: Weighted- Average Exercise Number Price -------------------------- Options outstanding at December 31, 1996 2,382,687 9.22 Options awarded 659,676 10.19 Options exercised (237,775) 8.48 Options forfeited (97,599) 9.89 Options expired (288) 8.92 - ------------------------------------------------------------- Options outstanding at December 31, 1997 2,706,701 11.45 Options awarded 684,067 18.19 Options exercised (245,717) 8.94 Options forfeited (170,650) 12.02 Options expired (980) 8.98 - ------------------------------------------------------------- Options outstanding at December 31, 1998 2,973,421 13.87 Options awarded 536,475 21.41 Options exercised (434,865) 9.37 Options forfeited (115,249) 15.20 Options expired (585) 9.27 - ------------------------------------------------------------- Options outstanding at December 31, 1999 2,959,197 15.68 ============================================================= Options vested at December 31, 1999 867,006 11.90 ============================================================= The following table summarizes information concerning currently outstanding and vested options: Options Outstanding Options Vested - ------------------------------------------------- ----------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (years) Price Vested Price - ------------------------------------------------------------------------- $ 6.10 112,707 1.92 $ 6.10 112,707 $ 6.10 9.06-10.91 1,111,416 3.29 9.85 517,698 9.75 18.19 586,625 4.85 18.19 149,276 18.19 20.52-21.41 1,148,449 5.96 20.99 87,325 21.41 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: 1999 1998 1997 --------- --------- --------- Average risk-free interest rate 6.12% 4.71% 5.72% Dividend yield None None None Volatility factors .192 .198 .200 Weighted-average expected life 7 years 7 years 7 years The weighted-average fair value of options granted during 1999, 1998 and 1997 was $7.34, $7.00 and $5.93, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because BOK Financial's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1994: 1999(1) 1998(1) 1997(1) ------------------------------- Pro forma net income $87,736 $78,504 $67,478 Pro forma earnings per share: Basic 1.76 $1.58 $1.35 Diluted 1.57 1.41 1.21 (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. 45 (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 $3.2 million. BOk subleases portions of its space for annual rents of $406 thousand in 2000 and $22 thousand for years 2001 through 2003. Net rent expense on this lease was $2.8 million in 1999, and $2.7 million in 1998 and 1997. Total rent expense for BOK Financial was $10.2 million in 1999, $9.0 million in 1998 and $7.7 million in 1997. At December 31, 1999, the future minimum lease payments for equipment and premises under operating leases were as follows: $10.8 million in 2000, $10.1 million in 2001, $8.8 million in 2002, $6.6 million in 2003, $5.9 million in 2004 and a total of $106.7 million thereafter. BOk and Williams Companies, Inc. guaranteed 30 percent and 70 percent, respectively, of the $15.7 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 $273 thousand in 1999, $281 thousand in 1998 and $226 thousand in 1997. The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were approximately $164.6 million for 1999 and $90.8 million for 1998. (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, 1999, outstanding commitments totaled $2.4 billion. Since some of the commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Since the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. At December 31, 1999, outstanding standby letters of credit totaled $155.0 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, 1999, outstanding commercial letters of credit totaled $4.7 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 of certain long-term, fixed rate assets and liabilities. 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, 1999, the notional amount of BOK Financial's interest rate swaps totaled $575.6 million with related credit exposure, represented by the fair value of the contracts, of $9.2 million. During 1999 and 1998, income from the swaps exceeded costs by $1.4 million and $1.7 million, respectively, which reduced interest expense. Scheduled repricing periods for the swaps are as follows (notional value in thousands): 31-90 91-365 Over days days 1 year Total -------------------------------------------- Pay floating $(316,000) $(28,000) $ - $(344,000) Receive fixed - - 344,000 344,000 Pay fixed - - (231,583) (231,583) Receive floating 231,583 - - 231,583 - ------------------------------------------------------------------ Total $ (84,417) $(28,000) $112,417 $ - ================================================================== The expiration dates of the swap contracts are designed to match the estimated maturity dates of the underlying assets and liabilities and matures as follows: $4.2 million in 2001, $201.6 million in 2002, $39.5 million in 2003, $22.8 million in 2004, $8.0 million in 2005, $16.5 million in 2006, $164.3 million in 2007, $35.5 million in 2008 and $83.2 million in 2009. BOK Financial utilized securities forward sales contracts associated with its mortgage banking activities as described in Note 7. 46 (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 41 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation preference is $15.0 million. During 1999, 1998 and 1997, 57,340 shares, 68,765 shares and 107,230 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 1999, 1998 and 1997, based on average market price, as defined, for a 65 business day period preceding declaration. Various officers own 125 nonvoting units in an entity owned by BOk. These units are eligible for an annual, cumulative distribution of $8 per unit and have a preferred value upon liquidation of $100 per unit. Common Stock Common stock consists of 2.5 billion authorized shares, $0.00006 par value. Holders of common shares are entitled to one vote per share at the election of the Board of Directors and on any question arising at any shareholders' meeting and to receive dividends when and as declared. No common stock dividends can be paid unless all accrued dividends on the Series A Preferred Stock have been paid. The present policy of BOK Financial is to retain earnings for capital and future growth, and management has no current plans to recommend payment of cash dividends on common stock. Additionally, regulations restrict the ability of national banks and bank holding companies to pay dividends and BOK Financial's credit agreement restricts the payment of dividends by the holding company. During 1999, 1998 and 1997, 3% dividends payable in shares of BOK Financial common stock were declared and paid. The shares issued were valued at $30.6 million, $30.3 million and $27.4 million, respectively, based on the average closing bid/ask prices on the day preceding declaration. Presently, management plans to recommend continued payment of annual dividends in shares of common stock. All share and per share amounts for previous years presented have been retroactively adjusted for a two-for-one stock split effected in the form of a stock dividend declared January 26, 1999 for stockholders of record on February 8, 1999. Subsidiary Banks The amounts of dividends which BOK Financial's subsidiary banks can declare and the amounts of loans the subsidiary banks can extend to affiliates are limited by various federal and state banking regulations. Generally, dividends declared during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The amounts of dividends are further restricted by minimum capital requirements. Pursuant to the most restrictive of the regulations at December 31, 1999, BOK Financial's subsidiary banks could declare dividends up to $81.8 million without prior regulatory approval. The subsidiary banks declared and paid dividends of $63.0 million in 1999, $26.3 million in 1998 and $69.8 million in 1997. Loans to a single affiliate may not exceed 10.0% and loans to all affiliates may not exceed 20.0% of unimpaired capital and surplus, as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 1999 and 1998, these loans totaled $35.3 million and $40.4 million, respectively, including $9.2 million and $27.9 million to consolidated entities. Total loan commitments to affiliates at December 31, 1999 were $82.7 million. Regulatory Capital BOK Financial and its banking subsidiaries are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a material effect on BOK Financial's operations. These capital requirements include quantitative measures of assets, liabilities, and certain off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. For a banking institution to qualify as well capitalized, its Tier I, Total and Leverage capital ratios must be at least 6%, 10% and 5%, respectively. Tier I capital consists primarily of common stockholders' equity, excluding unrealized gains or losses on available for sale securities, less goodwill, core deposit premiums, and certain other intangible assets. Total capital consists primarily of Tier I capital plus preferred stock, subordinated debt and reserves for loan losses, subject to certain limitations. All of BOK Financial's banking subsidiaries exceeded the regulatory definition of well capitalized. 47 December 31, --------------------------------------- 1999 1998 --------------------------------------- Amount Ratio Amount Ratio --------------------------------------- (Dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $700,875 10.72% $628,782 12.02% BOk 594,182 10.80 535,070 12.13 Bank of Arkansas 11,569 15.73 11,323 11.33 Bank of Texas(1) 87,299 12.41 55,848 15.81 Bank of Albuquerque 57,451 16.04 40,716 18.87 Tier I Capital (to Risk Weighted Assets): Consolidated $475,687 7.27% $414,918 7.93% BOk 383,255 6.96 331,426 7.51 Bank of Arkansas 10,639 14.47 10,073 10.08 Bank of Texas(1) 78,382 11.15 51,430 14.56 Bank of Albuquerque 56,075 15.65 40,341 18.70 Tier I Capital (to Average Assets): Consolidated $475,687 5.92% $414,918 6.60% BOk 383,255 5.88 331,426 6.02 Bank of Arkansas 10,639 9.86 10,073 9.47 Bank of Texas(1) 78,382 8.19 51,430 11.52 Bank of Albuquerque 56,075 6.78 40,341 8.91 (1) Includes Mid-Cities National Bank, Canyon Creek National Bank and Swiss Avenue State Bank, all of which were acquired in 1999 and will be merged into Bank of Texas during 2000. The decrease in regulatory capital ratios for BOK Financial consolidated, BOk and Bank of Texas reflects the increase in goodwill and core deposit premiums during the year as well as a higher level of assets. (16)EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands except share data): Years ended December 31, ------------------------------------------- 1999 1998 1997 ------------------------------------------- Numerator: Net income $89,226 $79,611 $68,155 Preferred stock dividends (1,500) (1,500) (1,500) - --------------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common stockholders 87,726 78,111 66,655 - --------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Preferred stock dividends 1,500 1,500 1,500 - --------------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $89,226 $79,611 $68,155 ===================================================================================================================== Denominator: Denominator for basic earnings per share -weighted average shares 48,974,382 48,897,092 48,894,809 Effect of dilutive securities: Employee stock options(1) 647,633 756,662 591,716 Convertible preferred stock 6,149,365 6,149,365 6,149,365 - --------------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 6,796,998 6,906,027 6,741,081 - --------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 55,771,380 55,803,119 55,635,890 ===================================================================================================================== Basic earnings per share $1.79 $1.60 $1.36 ===================================================================================================================== Diluted earnings per share $1.60 $1.43 $1.23 ===================================================================================================================== (1) Excludes employee stock options with exercise price 7,344 - - greater than current market price
48 (17) REPORTABLE SEGMENTS BOK Financial operates four principal lines of business under its Bank of Oklahoma franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth principal line of business, regional banks, which includes all banking functions for Bank of Albuquerque, Bank of Arkansas and Bank of Texas. These five principal lines of business combined account for approximately 86% of total revenue. Other lines of business include the TransFund ATM system and BOSC, Inc. The Corporate Banking segment consists of eight operating units that provide credit and lease financing, deposit and cash management, and international collection services to commercial and industrial customers and to other financial institutions in Oklahoma and surrounding states. The Consumer Banking segment consists of two operating units which provide direct and indirect consumer loans and deposit services to individuals primarily within Oklahoma. The Mortgage Banking segment consists of two operating units that originate a full range of mortgage products from federally sponsored programs to "jumbo loans" on higher priced homes in BOK Financial's primary market areas. The Mortgage Banking segment also services mortgage loans acquired from throughout the United States. The Trust Services segment consists of one operating unit that provides financial services to both individual and corporate clients. Individual financial services include personal trust management, administration of estates and management of investment and custodial accounts. Individual financial services also includes lending and investment services to select individuals. Corporate financial services include administration of employee benefit plans, transfer and paying agent services and investment advisory services. Regional Banks include Bank of Arkansas, Bank of Albuquerque and Bank of Texas. Bank of Texas includes Canyon Creek National Bank, Mid-Cities National Bank and Swiss Avenue State Bank which were acquired in 1999 and which will be merged into Bank of Texas in 2000. Information regarding regional banks was included in total nonreportable segments in previous years. BOK Financial identifies reportable segments by type of service provided for the Mortgage Banking and the Trust Services segments and by type of customer for the Corporate Banking and Consumer Banking segments. Regional Banks are identified by legal entity. Operating results are adjusted for intercompany loan participations and allocated service costs and management fees. BOK Financial evaluates performance and allocates resources based upon a measurement of performance after the allocation of certain indirect expenses, taxes and capital cost. Capital is assigned to the lines of business based on an internal allocation method that reflects management's assessment of risk. An additional amount of capital is assigned to the regional banks based upon BOK Financial's investment in these entities. The accounting policies of the reportable segments generally follow those described in the summary of significant account policies except interest income is reported on a fully tax-equivalent basis, loan losses are based on actual net amounts charged off and the amortization of intangible assets is generally excluded. The cost of funds provided from one segment to another is transfer-priced at rates that approximate market for funds with similar duration. Assessment of performance is based on net interest revenue after internal funds transfer pricing. Nonreportable business segments include TransFund and BOSC, Inc. The sources of revenue in these segments include interest, commissions earned on securities transactions, securities trading gains or losses, and fees earned on various banking activities, including merchant discounts and interchange fees. BOK Financial has not made any significant investments in long-term assets other than financial instruments, including core deposit intangible assets and purchased mortgage servicing rights. Substantially all revenue is from domestic customers. No single external customer accounts for more than 10% of total revenue. 49 Corporate Consumer Mortgage Trust Regional All Banking Banking Banking Services Banks Other Total ------------------------------------------------------------------------------------------------ Year ended December 31, 1999 Net interest revenue/(expense) from external sources $ 192,783 $ (33,645) $ 11,627 $ 3,626 $ 67,056 $ (5,323) $ 236,124 Net interest revenue/(expense) from internal sources (94,801) 78,513 (8,296) 7,193 (7,612) 25,003 - - ------------------------------------------------------------------------------------------------------------------------------ Total net interest revenue 97,982 44,868 3,331 10,819 59,444 19,680 236,124 Provision for loan losses (1,111) 2,462 82 70 64 8,798 10,365 Other operating revenue 29,557 24,258 39,533 44,044 11,464 40,015 188,871 Securities gains/(losses) - - - - (53) (366) (419) Other operating expense 51,731 49,692 39,724 39,602 56,892 42,875 280,516 Income taxes 29,921 6,603 1,190 5,909 6,182 (5,336) 44,469 - ------------------------------------------------------------------------------------------------------------------------------ Net income $ 46,998 $ 10,369 $ 1,868 $ 9,282 $ 7,717 $ 12,992 $ 89,226 ============================================================================================================================== Average assets $ 3,222,779 $ 1,886,620 $ 355,888 $ 333,423 $ 1,808,218 $ 6,122 $ 7,613,050 Average equity 337,742 43,412 25,273 35,476 191,477 (90,988) 542,392 Performance measurements: Return on assets 1.46% 0.55% 0.52% 2.78% 0.43% - 1.17% Return on equity 13.92% 23.89% 7.39% 26.16% 4.03% - 16.45% Efficiency ratio 40.56% 71.89% 92.67% 72.18% 80.23% - 66.00% Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Average Revenue Revenue Expense Assets -------------------------------------------------------- Total reportable segments $216,444 $148,856 $237,641 $7,606,928 Total nonreportable segments 725 37,262 30,432 58,919 Unallocated items: Tax-equivalent adjustment (8,380) - - - Funds management 28,975 1,057 10,996 122,463 All others, net (1,640) 1,696 1,447 (175,260) - -------------------------------------------------------------------------------------- BOK Financial consolidated $236,124 $188,871 $280,516 $7,613,050 ======================================================================================
50 Corporate Consumer Mortgage Trust Regional All Banking Banking Banking Services Banks Other Total -------------------------------------------------------------------------------------------------- Year ended December 31, 1998 Net interest revenue/(expense) from external sources $ 159,929 $ (40,527) $ 16,133 $ 1,881 $ 29,457 $ 23,553 $ 190,426 Net interest revenue/(expense) from internal sources (76,711) 83,617 (10,456) 6,415 (1,673) (1,192) - - ------------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 83,218 43,090 5,677 8,296 27,784 22,361 190,426 Provision for loan losses 64 2,103 128 124 187 11,985 14,591 Other operating revenue 27,053 23,156 44,379 37,928 4,215 28,952 165,683 Securities gains/(losses) - - - - 613 8,724 9,337 Other operating expense 48,214 50,348 41,926 35,788 21,563 38,446 236,285 Provision for impairment of mortgage servicing rights - - (2,290) - - - (2,290) Income taxes 24,115 5,366 4,004 4,012 5,118 (5,366) 37,249 - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 37,878 $ 8,429 $ 6,288 $ 6,300 $ 5,744 $ 14,972 $ 79,611 =============================================================================================================================== Average assets $ 2,562,320 $ 1,941,184 $ 367,934 $ 293,562 $ 644,236 $ 136,778 $ 5,946,014 Average equity 268,677 46,008 30,213 29,827 85,197 25,957 485,879 Performance measurements: Return on assets 1.48% 0.43% 1.71% 2.15% 0.89% - 1.34% Return on equity 14.10% 18.32% 20.81% 21.12% 6.74% - 16.38% Efficiency ratio 43.72% 76.00% 83.76% 77.42% 7.39% - 66.35% Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Average Revenue Revenue Expense Assets ----------------------------------------------------------------- Total reportable segments $168,065 $136,731 $197,839 $5,809,236 Total nonreportable segments 507 27,204 21,890 36,439 Unallocated items: Tax-equivalent adjustment (9,427) - - - Funds management 31,097 3,371 10,692 138,183 Contribution to BOk Foundation - - 2,257 - All others, net 184 (1,623) 3,607 (37,844) - ------------------------------------------------------------------------------------------------------------- BOK Financial consolidated $190,426 $165,683 $236,285 $5,946,014 =============================================================================================================
51 Corporate Consumer Mortgage Trust Regional All Banking Banking Banking Services Banks Other Total ------------------------------------------------------------------------------------------------- Year ended December 31, 1997 Net interest revenue/(expense) from external sources $ 139,855 $ (43,854) $ 21,897 $ 2,460 $ 20,796 $ 21,078 $ 162,232 Net interest revenue/(expense) from internal sources (67,274) 87,082 (16,798) 5,864 (490) (8,384) - - ------------------------------------------------------------------------------------------------------------------------------- Total net interest revenue 72,581 43,228 5,099 8,324 20,306 12,694 162,232 Provision for loan losses (133) 2,520 165` 180 930 5,594 9,256 Other operating revenue 22,616 21,774 34,208 30,084 3,236 20,967 132,885 Securities gains/(losses) - - - - (141) (1,188) (1,329) Other operating expense 33,647 50,029 33,208 28,496 15,881 34,493 195,754 Provision for impairment of mortgage servicing rights - - 4,100 - - - 4,100 Income taxes 23,993 4,844 713 3,786 3,617 (20,430) 16,523 - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 37,690 $ 7,609 $ 1,121 $ 5,946 $ 2,973 $ 12,816 $ 68,155 =============================================================================================================================== Average assets $ 2,136,278 $ 1,927,948 $ 391,011 $ 254,430 $465,780 $ 90,235 $ 5,265,682 Average equity 221,205 47,220 28,050 24,112 63,648 21,845 406,080 Performance measurements: Return on assets 1.76% 0.39% 0.29% 2.34% 0.64% - 1.29% Return on equity 17.04% 16.11% 4.00% 24.66% 4.67% - 16.78% Efficiency ratio 35.34% 76.97% 84.48% 74.19% 67.46% - 66.33% Reconciliation to Consolidated Financial Statements Other Other Net Interest Operating Operating Average Revenue Revenue Expense Assets ---------------------------------------------------------- Total reportable segments $149,538 $111,918 $161,261 $5,175,447 Total nonreportable segments 380 19,172 15,758 16,872 Unallocated items: Tax-equivalent adjustment (9,716) - - - Funds management 23,073 992 8,579 23,953 Contribution to BOk Foundation - - 3,638 - All others, net (1,043) 803 6,518 49,410 - --------------------------------------------------------------------------------------------------- BOK Financial consolidated $162,232 $132,885 $195,754 $5,265,682 ===================================================================================================
52 (18) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 1999 and 1998 (dollars in thousands): Range of Average Estimated Carrying Contractual Repricing Discount Fair Value Yields (in years) Rate Value ------------------------------------------------------------------- 1999: Cash and cash equivalents $ 426,855 - - - $ 426,855 Securities 2,816,336 - - - 2,814,780 Loans: Commercial 2,664,701 4.50-17.00% .56 5.70- 8.65% 2,662,515 Commercial real estate 1,094,542 5.34-13.00 1.41 8.39- 8.58 1,091,407 Residential mortgage 531,058 3.81-14.25 2.21 6.02- 8.47 520,643 Residential mortgage - held for sale 57,057 - - - 57,057 Consumer 296,131 6.51-18.25 2.27 7.96- 13.50 288,402 - ---------------------------------------------------------------------------------------------------------------------- Total loans 4,643,489 4,620,024 Reserve for loan losses (76,234) - - ---------------------------------------------------------------------------------------------------------------------- Net loans 4,567,255 4,620,024 Deposits with no stated maturity 3,043,334 - - - 3,043,334 Time deposits 2,219,850 2.18- 6.71 .62 5.45- 6.40 2,206,447 Other borrowings 2,283,703 4.94- 8.35 .19 4.74- 7.44 2,263,433 Subordinated debt 148,642 6.29 7.46 7.24 139,267 ====================================================================================================================== 1998: Cash and cash equivalents $ 471,425 - - - $ 471,425 Securities 2,598,290 - - - 2,598,267 Loans: Commercial 1,989,273 4.50- 13.69% .60 6.89- 10.03% 1,992,288 Commercial real estate 760,569 6.08- 12.93 1.37 8.05- 9.75 756,461 Residential mortgage 500,690 3.81- 14.25 3.24 6.62- 6.95 511,644 Residential mortgage - held for sale 100,269 - - - 100,269 Consumer 296,298 6.40- 17.90 1.48 7.02- 12.75 298,997 - ---------------------------------------------------------------------------------------------------------------------- Total loans 3,647,099 - - - 3,659,659 Reserve for loan losses (65,922) - - - - - ---------------------------------------------------------------------------------------------------------------------- Net loans 3,581,177 - - - 3,659,659 Deposits with no stated maturity 2,804,490 - - - 2,804,490 Time deposits 1,803,237 2.03- 10.00 .62 3.62- 5.12 1,804,564 Other borrowings 1,701,030 4.76- 6.95 .24 4.50- 7.75 1,705,048 Subordinated debt 146,921 6.53 8.46 5.42 158,869 ======================================================================================================================
The preceding table presents the estimated fair values of financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involved significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, BOK Financial does not know whether the fair values shown above represent values at which the respective financial instruments could be sold individually or in the aggregate. 53 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 $12.0 million and $9.6 million at December 31, 1999 and 1998, respectively. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and hedging transactions. Deposits The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions. Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments," ("FAS 107") defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these deposits. Accordingly, the positive effect of such deposits is not included in this table. Other Borrowings and Subordinated Debenture The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments. Off-Balance-Sheet Instruments The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance-sheet instruments were not significant at December 31, 1999 and 1998. Residential mortgage loan commitments are included in determining the fair value of the mortgage loans held for sale. The fair values of interest rate swaps are based on pricing models using current assumptions to arrive at replacement cost. The estimated fair value of interest rate swaps were $9.2 million and $10.2 million at December 31, 1999 and 1998, respectively. 54 (19) PARENT COMPANY ONLY FINANCIAL STATEMENTS Summarized financial information for BOK Financial - Parent Company Only follows: Balance Sheets (In Thousands) December 31, ---------------------------- 1999 1998 ---------------------------- Assets Cash and cash equivalents $ 12,489 $ 762 Securities - available for sale 9,459 24,904 Investment in subsidiaries 638,850 591,610 Other assets 3,034 2,313 - -------------------------------------------------------------------------------- Total assets $663,832 $619,589 ================================================================================ Liabilities and Shareholders' Equity Other borrowings $105,132 $ 92,132 Other liabilities 1,536 2,664 - -------------------------------------------------------------------------------- Total liabilities 106,668 94,796 - -------------------------------------------------------------------------------- Preferred stock 25 25 Common stock 3 3 Capital surplus 274,980 236,726 Retained earnings 332,751 278,365 Treasury stock (7,018) (2,623) Accumulated other comprehensive income (loss) (43,577) 12,297 - -------------------------------------------------------------------------------- Total shareholders' equity 557,164 524,793 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $663,832 $619,589 ================================================================================ Statements of Earnings (In Thousands) 1999 1998 1997 ------------------------------------------- Dividends, interest and fees received from $63,556 $30,861 $72,439 subsidiaries Other operating revenue 2,327 1,717 2,612 - ------------------------------------------------------------------------------------------------- Total revenue 65,883 32,578 75,051 - ------------------------------------------------------------------------------------------------- Interest expense 6,225 2,469 3,566 Personnel expense 9 579 293 Professional fees and services 600 670 172 Contribution of stock to BOk Charitable Foundation - 2,257 3,638 Other operating expense 80 116 106 - ------------------------------------------------------------------------------------------------- Total expense 6,914 6,091 7,775 - ------------------------------------------------------------------------------------------------- Income before taxes and equity in undistributed income of subsidiaries 58,969 26,487 67,276 Federal and state income tax credit (3,243) (3,093) (3,657) - ------------------------------------------------------------------------------------------------- Income before equity in undistributed income of 62,212 29,580 70,933 subsidiaries Equity in undistributed income (loss) of subsidiaries 27,014 50,031 (2,778) - ------------------------------------------------------------------------------------------------- Net income $89,226 $79,611 $68,155 =================================================================================================
55 Statements of Cash Flows (In Thousands) 1999 1998 1997 ----------------------------------------- Cash flows from operating activities: Net income $89,226 $79,611 $ 68,155 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income (loss) of (27,014) (50,030) 2,778 subsidiaries Gain on sale of available for sale securities - - (1,226) Contribution of stock to BOk Charitable Foundation - 2,257 3,638 (Increase) decrease in other assets 1,036 (373) (349) Increase (decrease) in other liabilities (1,980) 2,593 (3,610) - ------------------------------------------------------------------------------------------------- Net cash provided by operating activities 61,268 34,058 69,386 - ------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from maturities of available for sale 9,881 - 12,157 securities Purchases of available for sale securities - - (10,000) Investment in subsidiaries (72,293) (85,842) (104,488) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (62,412) (85,842) (102,331) - ------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in short-term borrowings 13,228 59,245 32,887 Issuance of preferred, common and treasury stock, net 3,961 4,152 1,777 Purchase treasury stock (1,574) (9,138) - Cash dividends (2,744) (2,344) (1,636) Payments on notes receivable - 4 83 - ------------------------------------------------------------------------------------------------- Net cash provided by financing activities 12,871 51,919 33,111 - ------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 11,727 135 166 Cash and cash equivalents at beginning of period 762 627 461 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $12,489 $ 762 $ 627 ================================================================================================= Payment of dividends in common stock $32,192 $ 31,500 $ 28,948 ================================================================================================= Cash paid for interest $ 5,933 $ 2,364 $ 3,395 =================================================================================================
56 BOK FINANCIAL CORPORATION ANNUAL FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) 1999 ----------------------------------------------- Average Revenue/ Yield/ Balance Expense(1) Rate ----------------------------------------------- Assets Taxable securities $2,383,198 $144,901 6.08% Tax-exempt securities 288,094 21,785 7.56 - --------------------------------------------------------------------------------------------------------------------- Total securities 2,671,292 166,686 6.24 - --------------------------------------------------------------------------------------------------------------------- Trading securities 37,508 2,291 6.11 Funds sold and resell agreements 43,373 2,219 5.12 Loans(2)(3) 4,046,920 337,458 8.34 Less reserve for loan losses 72,306 - --------------------------------------------------------------------------------------------------------------------- Loans, net of reserve 3,974,614 337,458 8.49 - --------------------------------------------------------------------------------------------------------------------- Total earning assets 6,726,787 508,654 7.56 - --------------------------------------------------------------------------------------------------------------------- Cash and other assets 886,263 - --------------------------------------------------------------------------------------------------------------------- Total assets $7,613,050 ===================================================================================================================== Liabilities and Shareholders' Equity Transaction deposits $1,717,314 $ 46,510 2.71% Savings deposits 161,484 2,971 1.84 Time deposits 1,983,829 101,140 5.10 - --------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 3,862,627 150,621 3.90 - --------------------------------------------------------------------------------------------------------------------- Other borrowings 1,959,015 104,195 5.32 Subordinated debenture 148,509 9,334 6.29 - --------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 5,970,151 264,150 4.42 - --------------------------------------------------------------------------------------------------------------------- Demand deposits 999,311 Other liabilities 101,196 Shareholders' equity 542,392 - --------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $7,613,050 ===================================================================================================================== Tax-equivalent Net Interest Revenue $244,504 3.14% Tax-equivalent Net Interest Revenue to Earning Assets 3.63 Less tax-equivalent adjustment(1) 8,380 - --------------------------------------------------------------------------------------------------------------------- Net Interest Revenue 236,124 Provision for loan losses 10,365 Other operating revenue 188,452 Other operating expense 280,516 - --------------------------------------------------------------------------------------------------------------------- Income before taxes 133,695 Federal and state income tax 44,469 - --------------------------------------------------------------------------------------------------------------------- Net Income $ 89,226 ===================================================================================================================== (1) Tax equivalent at the statutory federal and state rates of 38.9% for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy. (3) Excludes $3,262 of nonrecurring foregone interest in 1998.
57 1998 1997 - ------------------------------------------------------------------------------------------------------ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate - ----------------------------------------------- ----------------------------------------------- $1,877,515 $115,733 6.16% $1,629,446 $101,853 6.25% 330,576 25,207 7.63 350,592 26,577 7.58 - ------------------------------------------------------------------------------------------------------ 2,208,091 140,940 6.38 1,980,038 128,430 6.49 - ------------------------------------------------------------------------------------------------------ 20,038 1,046 5.22 4,785 287 6.00 41,109 2,321 5.65 58,036 3,267 5.63 3,070,245 267,952 8.62(3) 2,677,984 234,806 8.77 59,480 - - 50,940 - - - ------------------------------------------------------------------------------------------------------ 3,010,765 267,952 8.79(3) 2,627,044 234,806 8.94 - ------------------------------------------------------------------------------------------------------ 5,280,003 412,259 7.75(3) 4,669,903 366,790 7.85 - ------------------------------------------------------------------------------------------------------ 666,011 595,779 - ------------------------------------------------------------------------------------------------------ $5,946,014 $5,265,682 ====================================================================================================== $1,216,230 $ 37,148 3.05% $1,070,296 $ 33,728 3.15% 152,830 3,837 2.51 138,030 3,472 2.52 1,787,668 97,019 5.43 1,641,413 90,602 5.52 - ------------------------------------------------------------------------------------------------------ 3,156,728 138,004 4.37 2,849,739 127,802 4.48 - ------------------------------------------------------------------------------------------------------ 1,147,815 64,709 5.64 1,090,844 62,874 5.76 148,404 9,693 6.53 64,374 4,166 6.47 - ------------------------------------------------------------------------------------------------------ 4,452,947 212,406 4.77 4,004,957 194,842 4.87 - ------------------------------------------------------------------------------------------------------ 933,927 781,742 73,261 72,904 485,879 406,080 - ------------------------------------------------------------------------------------------------------ $5,946,014 $5,265,683 ====================================================================================================== $199,853 2.98%(3) $171,948 2.98% 3.72 (3) 3.68 9,427 9,716 - ------------------------------------------------------------------------------------------------------ 190,426 162,232 14,591 9,256 175,020 ` 131,556 233,995 199,854 - ------------------------------------------------------------------------------------------------------ 116,860 84,678 37,249 16,523 - ------------------------------------------------------------------------------------------------------ $ 79,611 $ 68,155 ======================================================================================================
58 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, 1999 September 30, 1999 ---------------------------------- ---------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate ---------------------------------- ---------------------------------- Assets Taxable securities $2,453,800 $38,381 6.21% $2,456,120 $37,735 6.10% Tax-exempt securities(1) 259,760 4,656 7.11 275,749 5,219 7.51 -------------------------------------------------------------------------------------- ---------------------------------- Total securities 2,713,560 43,037 6.29 2,731,869 42,954 6.24 -------------------------------------------------------------------------------------- ---------------------------------- Trading securities 17,845 390 8.67 27,606 393 5.65 Funds sold 37,650 552 5.82 37,558 495 5.23 Loans(2) 4,480,283 97,563 8.64 4,256,430 89,882 8.38 Less reserve for loan losses 76,166 74,539 -------------------------------------------------------------------------------------- ---------------------------------- Loans, net of reserve 4,404,117 97,563 8.79 4,181,891 89,882 8.53 -------------------------------------------------------------------------------------- ---------------------------------- Total earning assets 7,173,172 141,542 7.83 6,978,924 133,724 7.60 -------------------------------------------------------------------------------------- ---------------------------------- Cash and other assets 963,257 890,977 -------------------------------------------------------------------------------------- ---------------------------------- Total assets $8,136,429 $7,869,901 ====================================================================================== ================================== Liabilities and Shareholders' Equity Transaction deposits $1,885,730 $12,639 2.66% $1,858,386 $12,278 2.62% Savings deposits 159,442 721 1.79 167,875 779 1.84 Other time deposits 2,206,956 29,109 5.23 2,046,295 26,236 5.09 -------------------------------------------------------------------------------------- ---------------------------------- Total interest-bearing deposits 4,252,128 42,469 3.96 4,072,556 39,293 3.83 -------------------------------------------------------------------------------------- ---------------------------------- Other borrowings 2,071,787 29,715 5.69 2,065,207 27,681 5.32 Subordinated debenture 148,620 2,387 6.37 148,576 2,373 6.34 -------------------------------------------------------------------------------------- ---------------------------------- Total interest-bearing liabilities 6,472,535 74,571 4.57 6,286,339 69,347 4.38 -------------------------------------------------------------------------------------- ---------------------------------- Demand deposits 977,825 969,289 Other liabilities 132,646 77,574 Shareholders' equity 553,423 536,699 -------------------------------------------------------------------------------------- ---------------------------------- Total liabilities and shareholders' equity $8,136,429 $7,869,901 ====================================================================================== ================================== Tax-equivalent Net Interest Revenue(1) $66,971 3.26% $64,377 3.22% Tax-equivalent Net Interest Revenue(1) to Earning Assets 3.70 3.66 Less tax-equivalent adjustment(1) 1,828 1,990 -------------------------------------------------------------------------------------- ---------------------------------- Net Interest Revenue 65,143 62,387 Provision for loan losses 2,255 2,142 Other operating revenue 46,721 44,835 Other operating expense 74,257 70,755 -------------------------------------------------------------------------------------- ---------------------------------- Income before taxes 35,352 34,325 Federal and state income tax (benefit) 12,155 11,589 -------------------------------------------------------------------------------------- ---------------------------------- Net Income $23,197 $22,736 ====================================================================================== ================================== Earnings Per Average Common Share Equivalent: Net income: Basic .47 .46 ====================================================================================== ================================== Diluted .42 .41 ====================================================================================== ================================== (1) Tax equivalent at the statutory federal and state rates of 38.9% for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discounted and are stated net of unearned income. See Note 1 of Notes to the Consolidated Financial Statements for a description of income recognition policy.
59 Three Months Ended - ------------------------------------------------------------------------ ----------------------------------- June 30, 1999 March 31, 1999 December 31, 1998 - ---------------------------------- ----------------------------------- ----------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate - ---------------------------------- ----------------------------------- ----------------------------------- $2,418,685 $35,841 5.94% $2,198,972 $32,944 6.08% $2,011,692 $30,808 6.08% 295,095 5,742 7.80 324,297 6,168 7.71 328,998 6,269 7.56 - ---------------------------------- ----------------------------------- ----------------------------------- 2,713,780 41,583 6.15 2,523,269 39,112 6.29 2,340,690 37,077 6.28 - ---------------------------------- ----------------------------------- ----------------------------------- 50,190 812 6.49 54,907 696 5.14 19,415 232 4.74 63,353 759 4.81 34,962 413 4.79 31,779 420 5.24 3,822,018 77,330 8.12 3,617,162 72,683 8.15 3,365,960 71,331 8.41 70,968 67,428 64,682 - ---------------------------------- ----------------------------------- ----------------------------------- 3,751,050 77,330 8.27 3,549,734 72,683 8.30 3,301,278 71,331 8.57 - ---------------------------------- ----------------------------------- ----------------------------------- 6,578,373 120,484 7.35 6,162,872 112,904 7.43 5,693,162 109,060 7.60 - ---------------------------------- ----------------------------------- ----------------------------------- 831,059 833,945 689,808 - ---------------------------------- ----------------------------------- ----------------------------------- $7,409,432 $6,996,817 $6,382,970 ================================== =================================== =================================== $1,655,457 $11,035 2.67% $1,463,556 $10,558 2.93% $1,264,080 $ 9,126 2.86% 162,874 742 1.83 155,634 729 1.90 159,914 950 2.36 1,822,915 22,643 4.98 1,854,590 23,152 5.06 1,720,035 22,775 5.25 - ---------------------------------- ----------------------------------- ----------------------------------- 3,641,246 34,420 3.79 3,473,780 34,439 4.02 3,144,029 32,851 4.15 - ---------------------------------- ----------------------------------- ----------------------------------- 1,978,349 25,000 5.07 1,715,715 21,799 5.15 1,504,257 20,444 5.39 148,275 2,253 6.09 148,482 2,321 6.34 147,418 2,333 6.28 - ---------------------------------- ----------------------------------- ----------------------------------- 5,767,870 61,673 4.29 5,337,977 58,559 4.45 4,795,704 55,628 4.60 - ---------------------------------- ----------------------------------- ----------------------------------- 1,008,502 1,042,679 984,589 89,319 83,315 87,304 543,741 532,846 515,373 - ---------------------------------- ----------------------------------- ----------------------------------- $7,409,432 $6,996,817 $6,382,970 ================================== =================================== =================================== $58,811 3.06% $54,345 2.98% ` $53,432 3.00% 3.59 3.58 3.72 2,228 2,334 2,334 - ---------------------------------- ----------------------------------- ----------------------------------- 56,583 52,011 51,098 2,538 3,430 4,087 49,431 47,465 45,384 70,678 64,826 62,299 - ---------------------------------- ----------------------------------- ----------------------------------- 32,798 31,220 30,096 10,742 9,983 9,729 - ---------------------------------- ----------------------------------- ----------------------------------- $22,056 $21,237 $20,367 ================================== =================================== =================================== .44 .43 .41 ================================== =================================== =================================== .40 .38 .37 ================================== =================================== ===================================
60 BOK Financial Corporation Board of Directors W. Wayne Allen (1) Retired Chairman of the Board Phillips Petroleum Company C. Fred Ball (3) President & CEO Bank of Texas, N.A. James E. Barnes Retired Chairman, President & CEO MAPCO, Inc. Peter C. Boylan, III (1)(4) President & COO TV Guide, Inc. Sharon J. Bell (1) Managing Partner Rogers & Bell Luke R. Corbett Chairman & CEO Kerr-McGee Corporation Robert H. Donaldson (1) Trustees Professor of Political Science University of Tulsa William E. Durrett Senior Chairman American Fidelity Corp. James O. Goodwin (1) Chief Executive Officer The Oklahoma Eagle Publishing Company, Inc. LLC V. Burns Hargis (1) Vice Chairman BOK Financial Corporation and Bank of Oklahoma, N.A. Eugene A. Harris (2) Executive Vice President BOK Financial Corporation and Bank of Oklahoma, N.A. Howard E. Janzen (1) President & CEO Williams Communications E. Carey Joullian, IV (1) President & CEO Mustang Fuel Corporation George B. Kaiser (1) Chairman BOK Financial Corporation and Bank of Oklahoma, N.A. Robert J. LaFortune Personal Investments Philip C. Lauinger, Jr. Chairman & CEO Lauinger Publishing Co. John C. Lopez (1) Chief Executive Officer Lopez Foods, Inc. Stanley A. Lybarger (1)(3) President & CEO BOK Financial Corporation and Bank of Oklahoma, N.A. Frank A. McPherson (1) Retired Chairman & CEO Kerr-McGee Corporation Steven E. Moore Chairman, President & CEO Oklahoma Gas & Electric Company J. Larry Nichols (1) President & CEO Devon Energy Corporation Ronald J. Norick (1) Controlling Manager Norick Investment Company, LLC Robert L. Parker, Sr. Chairman of the Board Parker Drilling Company James W. Pielsticker (1) President Arrow Trucking Company Emmet C. Richards (1) President 27th Street LLC James A. Robinson Personal Investments L. Francis Rooney, III (1) Chairman and CEO Manhattan Construction Company David J. Tippeconnic President & CEO CITGO Petroleum Corporation Tom E. Turner (3) Chairman Bank of Texas, N.A. Robert L. Zemanek (3) President, Energy Delivery Central and South West Services, Inc. (1) Director of BOK Financial Corp. and Bank of Oklahoma, N.A. (2) Director of Bank of Oklahoma, N.A. (3) Director of BOK Financial Corp. and Bank of Texas, N.A. (4) Advisory pending election at shareholders meeting April 25 Executive Officers George B. Kaiser Chairman of the Board Stanley A. Lybarger President, Chief Executive Officer V. Burns Hargis Vice Chairman Eugene A. Harris Executive Vice President Chief Credit Officer Frederic Dorwart Secretary Lowell E. Faulkenberry Senior Vice President Director, Risk Management John C. Morrow Senior Vice President Director of Financial Accounting & Reporting Steven E. Nell Senior Vice President Corporate Controller Bank of Albuquerque, N.A. Gregory K. Symons Chairman, President & CEO Bank of Arkansas, N.A. Jeffrey R. Dunn Chairman, President & CEO Bank of Oklahoma, N.A. Steven G. Bradshaw Executive Vice President Consumer Banking Chairman, BOSC, Inc. Paul M. Elvir Executive Vice President Operations & Technology Mark W. Funke President, Oklahoma City H. James Holloman Executive Vice President Trust Division David L. Laughlin President BOK Mortgage W. Jeffrey Pickryl Executive Vice President Commercial Banking Charles D. Williamson Executive Vice President Capital Markets Bank of Texas, N.A. Tom E. Turner Chairman C. Fred Ball, Jr. President & CEO Steven D. Poole President Bank of Texas Trust Company 61 Bank of Albuquerque, N.A. Board of Directors Steven G. Bradshaw Executive Vice President Bank of Oklahoma, N.A. Douglas M. Brown President & CEO Tuition Plan, Inc. Rudy A. Davolos Athletic Director University of New Mexico Thomas D. Growney President Tom Growney Equipment, Inc. Eugene A. Harris Executive Vice President BOK Financial Corporation and Bank of Oklahoma, N.A. Stanley A. Lybarger President & CEO BOK Financial Corporation and Bank of Oklahoma, N.A. W. Jeffrey Pickryl Executive Vice President Bank of Oklahoma, N.A. Doreen Rast Senior Vice President Bank of Albuquerque, N.A. Michael D. Sivage Chief Executive Officer Sivage-Thomas Homes, Inc. David L. Sutter Senior Vice President Bank of Oklahoma, N. A. Gregory K. Symons Chairman, President and CEO Bank of Albuquerque, N.A. Bank of Arkansas, N.A. Board of Directors John W. Anderson Senior Vice President Bank of Oklahoma, N.A. Steven G. Bradshaw Executive Vice President Bank of Oklahoma, N.A. Jeffrey R. Dunn Chairman, President and CEO Bank of Arkansas, N.A. George C. Faucette, Jr. President Coldwell Banker Faucette Real Estate Mark W. Funke President Bank of Oklahoma- Oklahoma City Gerald Jones President Jones Motorcars, Inc. Jerry D. Sweetser Sweetser Properties, Inc. Bank of Texas, N.A. Board of Directors C. Thomas Abbott (2) Vice Chairman Bank of Texas, N. A. Charles A. Angel, Jr. (2) Vice Chairman Bank of Texas, N. A. C. Fred Ball, Jr.(3) President and CEO Bank of Texas, N. A. C. Huston Bell (3) President The Vantage Companies Edward O. Boshell, Jr. (3) Columbia General Investments, L. P. Ben R. Briggs (3) Owner, Ben R. Briggs Investments R. Neal Bright (3) Managing Partner Bright & Bright, L.L.P. Dudley Chambers (3) Partner, Jackson & Walker, L.L.P. H. Lynn Craft (2) President & CEO Baptist Foundation of Texas Edward F. Doran, Sr. (3) Charles W. Eisemann (2) Investments James J. Ellis (3) Managing Partner Ellis/Roiser Associates R. William Gribble, Jr. (2) President Gribble Oil Company J. T. Hairston, Jr. (3) Investments Douglas D. Hawthorne (2) President & CEO Texas Health Resources Noble Hurley (2) Investments Jerry Lastelick (3) Attorney Lastelick, Anderson and Arneson Stanley A. Lybarger (3) President and CEO BOK Financial Corp. Michael A. McBee (3) Owner McBee Operating Co. Jon L. Mosle, Jr. (1) Investments Mrs. Rozene Pride (1) Investments Robert F. Sanford, Jr. (2) Investments William E. Stahnke (3) Vice Chairman Bank of Texas, N. A. Mrs. Jere W. Thompson (3) Community Leader Tom E. Turner (3) Chairman Bank of Texas, N. A. John C. Vogt (2) Investments Robert L. Zemanek (3) President, Energy Delivery Central and South West Services, Inc. (1) Park Cities Bancshares, Inc. (2) Bank of Texas, N. A. (3) Park Cities Bancshares, Inc./ Bank of Texas, N. A. 62 Major Customer Service Offices Business Banking Centers Albuquerque Business Banking Group 201 Third St., NW, 14th Fl. (505) 222-8444 Dallas 2650 Royal Lane (972) 443-2800 Fayetteville 3500 N. College (501) 973-2660 Oklahoma City Commerce Center 9520 N. May (405) 936-3700 OKC-South 7701 S. Western (405) 616-7500 Sherman 307 W. Washington (903) 891-8100 Tulsa Brookside Banking Center 3237 S. Peoria (918) 746-7400 Consumer Banking Albuquerque 3900 Vassar, NE (505) 855-0850 Dallas 8255 Walnut Hill (214) 378-0109 Oklahoma City Windsor Hills 2601 N. Meridian (405) 272-2000 Tulsa Bank of Oklahoma Tower One Williams Center, 16th Fl. (918) 588-6000 Corporate Banking Albuquerque 201 Third St., NW, 14th Fl. (505) 222-8444 Dallas 5956 Sherry Lane, Suite 1800 (214) 987-8800 Fayetteville 3500 N. College (501) 973-2660 Oklahoma City Bank of Oklahoma Plaza Robinson at Robert S. Kerr (405) 272-2000 Tulsa Bank of Oklahoma Tower One Williams Center, 8th Fl. (918) 588-6127 BOSC, Inc. (800) 364-1818 Dallas 5956 Sherry Lane, Suite 917 Little Rock 2200 N. Rodney Parham Rd. Suite 215 Oklahoma City 201 Robert S. Kerr, 4th Fl. 9520 N. May Tulsa One Williams Center, 9th Fl. 3045 S. Harvard, Suite 101 BOSC Oppenhiem Division Bank of Oklahoma Plaza Robinson at Robert S. Kerr Oklahoma City (800) 725-2663 BancAlbuquerque Investment Center 2500 Louisiana Blvd., NE Albuquerque BancArkansas Investment Center 3500 N. College, Fayetteville BancOklahoma Investment Center 3045 S. Harvard, Tulsa Private Banking Dallas 6701 Preston Road (214) 525-7600 7600 West Northwest Highway (214) 706-0373 Private Financial Services Albuquerque 2500 Louisiana Blvd., NE, Suite 208 (505) 837-4272 Enid 2308 N. Van Buren (580) 548-8523 Oklahoma City Commerce Center 9520 N. May, 2nd Floor (405) 936-3900 Tulsa Midtown 2021 S. Lewis, Suite 200 (918) 748-7257 Downtown 320 S. Boston (918) 588-6214 Brookside 3237 S. Peoria (918) 746-7487 61st & Yale 6036 S. Yale (918) 493-5210 Oklahoma Community Banking Bartlesville 3815 S.E. Frank Phillips Blvd. (918) 335-5300 Enid 2308 N. Van Buren (580) 548-8500 Eufaula 219 S. Main (918) 689-2567 Grove 201 S. Main (918) 787-2700 McAlester One E. Choctaw (918) 426-1100 Muskogee 215 S. State (918) 686-5900 Sand Springs 401 E. Broadway (918) 241-8000 63 Operating Subsidiaries Bank of Albuquerque, N.A. Albuquerque 201 Third St., NW, 14th Fl. (505) 222-8469 Bank of Arkansas, N.A. Fayetteville 3500 N. College (501) 973-2660 Bank of Oklahoma, N.A. Oklahoma City Bank of Oklahoma Plaza Robinson at Robert S. Kerr (405) 272-2000 Tulsa Bank of Oklahoma Tower One Williams Center (918) 588-6000 Bank of Texas, N.A. Dallas 5956 Sherry Lane, Suite 1800 (214) 987-8880 Other Operating Subsidiaries Bank of Oklahoma Trust Division Oklahoma City Commerce Center 9520 N. May, 2nd Floor (405) 936-3700 Tulsa Bank of Oklahoma Tower One Williams Center, 10th Fl. (918) 588-6437 Southwest Trust Company Commerce Center 9520 N. May, 2nd Fl. (405) 936-3919 Bank of Texas Trust Division Dallas 7600 West Northwest Hwy (214) 706-0309 Sherman 2009 Independence Dr. (903) 813-5100 Bank of ALBUQUERQUE Trust Division Albuquerque 2500 Louisiana Blvd., NE, Suite 208 (505) 837-4133 BOK Mortgage Edmond 1515 S. Broadway (405) 272-2307 Enid 2308 N. Van Buren (580) 548-8528 Lawton 2602 W. Gore Blvd. (580) 250-0070 Muskogee 215 S. State (918) 686-5959 Norman 3550 W. Main (405) 366-3618 Oklahoma City 5015 N. Pennsylvania (405) 879-8700 7701 S. Western (405) 879-8700 Owasso 413 E. 2nd Ave. (918) 588-8650 Tulsa Copper Oaks 7060 S. Yale, Suite 100 (918) 488-7140 Pine & Lewis 1604 N. Lewis (918) 588-8608 Bank of ALBUQUERQUE Mortgage group Albuquerque 2500 Louisiana Blvd., NE, Suite 220 (505) 837-4111 Bank of Arkansas Mortgage Group Bentonville 1706 S.E. Walton Blvd., Ste C (501) 271-6800 Fayetteville 3500 N. College (501) 973-2600 Little Rock 11610 Pleasant Ridge Rd. Suite 104 (501) 223-9000 Bank of TEXAS Mortgage Group Dallas 6209 Hillcrest Ave. (214) 525-5052 First Mortgage Investment Company Lee's Summit, Missouri 987 N.E. Rice Rd. (816) 246-7000 Lenexa, Kansas 15220 W. 87th St. Parkway (913) 307-1600 Topeka, Kansas 2655 S.W. Wanamaker Rd. (785) 272-0375 64 Shareholder Information Corporate Headquarters Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 (918) 588-6000 Independent Auditors Ernst & Young LLP 3900 One Williams Center Tulsa, Oklahoma 74172 (918) 560-3600 Legal Counsel Frederic Dorwart Lawyers Old City Hall 124 E. Fourth St. Tulsa, Oklahoma 74103-5010 (918) 583-9922 Common Shares: Traded NASDAQ National Market NASDAQ Symbol: BOKF Number of common shareholders of record at December 31, 1999: 1,241 Market Makers: B-Trade Services LLC Cantor, Fitzgerald & Co. CIBC World Markets Corp. Herzog, Heine, Geduld, Inc. Howe Barnes Investments Instinet Corporation Investment Technology Group Keefe Bruyette & Woods Knight Securities LP Salomon Smith Barney Sherwood Securities Southwest Securities, Inc. Stephens, Inc. Strike Technologies Transfer Agent and Registrar The Bank of New York (800) 524-4458 Address Shareholders Inquiries to: Shareholder Relations Department-11E P.O. Box 11258 Church Street Station New York, NY 10286 E-Mail Address: Shareowner-svcs@Email.bony.com Send Certificates for Transfer and Address Changes to: Receive and Deliver Department - 11W P.O. Box 11002 Church Street Station New York, NY 10286 Copies of BOK Financial Corporation's Annual Report to Shareholders, Quarterly Reports and Form 10-K to the Securities and Exchange Commission are available without charge upon written request. Analysts, shareholders and other investors seeking financial information about BOK Financial Corporation are invited to contact James F. Ulrich, Senior Vice President, Investor Relations, (918) 588-6752. News media and others seeking general information should contact Becky J. Frank, Vice President, Public Relations Manager, (918) 588-6831. Information about BOK Financial is also readily available at our website: www.bokf.com Bank of Albuquerque, N.A. P.O. Box 26148, Albuquerque, NM 87125 (505) 855-0850 www.bankofalbuquerque.com BANK OF ARKANSAS, N.A. P.O. Box 1407, Fayetteville, AR 72703 (501) 973-2660 www.bankofarkansas.com BANK OF OKLAHOMA, N.A. Bank of Oklahoma Tower P.O. Box 2300, Tulsa, OK 74192 (918) 588-6000 www.bankofoklahoma.com or www.bok.com BANK OF OKLAHOMA PLAZA P.O. Box 24128, Oklahoma City, OK 73124 (405) 272-2000 www.bankofoklahoma.com or www.bok.com BANK OF TEXAS, N.A. 6215 Hillcrest Avenue, Dallas, TX 75205 (214) 525-5000 www.bankoftexas.com (c)2000 BOK Financial Corporation BOK Financial Corporation Appendix A Graph I - --------------------------------------------- --------------------- Description Percentage Composition - --------------------------------------------- --------------------- Service charges and fees on deposit accounts 22% - --------------------------------------------- ------------------- Mortgage banking 20% - --------------------------------------------- ------------------- Trust fees and commissions 19% - --------------------------------------------- ------------------- Transaction card 18% - --------------------------------------------- ------------------- Other 10% - --------------------------------------------- ------------------- Brokerage and trading 9% - --------------------------------------------- ------------------- Leasing 2% - --------------------------------------------- ------------------- EX-21 3 BOK FINANCIAL SUBSIDIARIES BOK FINANCIAL CORPORATION EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Banking Subsidiaries Bank of Oklahoma, National Association Bank of Arkansas, National Association Bank of Texas, National Association Bank of Albuquerque, National Association Canyon Creek National Bank Mid-Cities National Bank Swiss Avenue State Bank Other subsidiaries of BOK Financial Corporation BOK Capital Services Corporation BOK Plaza Holding Corporation BOSC, Inc. Chaparral Bancshares, Inc. Chaparral Delaware, Inc. First of Muskogee Insurance Corporation Merger Corporation Number Seven Park Cities Bancshares, Inc. Park Cities Corporation Sabre 1996 Partnership, an Oklahoma Limited Partnership Subsidiaries of Bank of Oklahoma, N.A. Affiliated BancServices, Inc. Affiliated Financial Holding Company Affiliated Financial Insurance Agency, Inc. Affiliated Financial Life Insurance Company BancOklahoma Agri-Service Corporation BancOklahoma Mortgage Corporation BOK Auto Receivable Corporation BOK Delaware, Inc. BOK Real Estate Trust CVV Management, Inc. CVV Partnership, an Oklahoma General Partnership Cottonwood Valley Ventures, Inc. Investment Concepts, Inc. Pacesetter Leasing Company Southwest Trust Company 115 East Fifth Corporation Subsidiaries of Bank of Texas, N.A. Bank of Texas Trust Company, National Association All subsidiaries are incorporated in Oklahoma, with the exception of Bank of Oklahoma, National Association, Bank of Arkansas, National Association, Bank of Texas, National Association, Bank of Texas Trust Company, National Association, Bank of Albuquerque, National Association, Mid-Cities National Bank, and Canyon Creek National Bank which are chartered by the United States of America; Affiliated Financial Life Insurance Company, which is incorporated in Arizona; Chaparral Bancshares, Inc., Park Cities Bancshares, Inc., Swiss Avenue State Bank, and BOK Real Estate Trust, which are incorporated in Texas; BOK Delaware, Inc. and Chaparral Delaware which are incorporated in Delaware; and Park Cities Corporation, which is incorporated in Nevada. EX-23 4 CONSENT OF ERNST & YOUNG BOK FINANCIAL CORPORATION Exhibit 23.0 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated January 18, 2000, with respect to the consolidated financial statements of BOK Financial Corporation incorporated by reference in the annual report (Form 10-K) for the year ended December 31, 1999, in the following registration statements: o Registration Statement (Form S-8, No. 33-44121) pertaining to the Reoffer Prospectus of the Bank of Oklahoma Master Thrift Plan and Trust Agreement. o Registration Statement (Form S-8, No. 33-44122) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1991 Special Stock Option Plan. o Registration Statement (Form S-8, No. 33-55312) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1992 Stock Option Plan. o Registration Statement (Form S-8, No. 33-70102) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1993 Stock Option Plan. o Registration Statement (Form S-8, No. 33-79834) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1994 Stock Option Plan. o Registration Statement (Form S-8, No. 33-79836) pertaining to the Reoffer Prospectus of the BOK Financial Corporation Directors' Stock Compensation Plan. o Registration Statement (Form S-8, No. 333-32649) pertaining to the Reoffer Prospectus of BOK Financial Corporation 1997 Stock Option Plan. o Registration Statement (Form S-8, No. 333-93957) pertaining to the Reoffer Prospectus of BOK Financial Corporation 2000 Stock Option Plan. /s/ Ernst & Young LLP Tulsa, Oklahoma March 29, 2000 EX-27.0 5 1999 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the BOK Financial Corporation's 10-K for the period ended Decmeber 31, 1999 and is qualified in its entirety by reference to such financial statments. 0000875357 BOK Financial Corporation 1,000 Year DEC-31-1999 DEC-31-1999 397,895 0 28,960 14,452 2,588,704 213,180 211,624 4,643,489 76,234 8,373,997 5,263,184 1,713,620 91,143 718,725 23 2 3 557,136 8,373,997 336,630 159,134 4,510 500,274 150,621 264,150 236,124 10,365 (419) 280,516 133,695 89,226 0 0 89,226 1.79 1.60 3.63 19,465 11,336 0 6,600 65,922 7,348 5,770 76,234 76,234 0 8,899
EX-27.1 6 1998 AND 1997 RESTATED FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the BOK Financial Corporation's 10-K for the period ended Decmeber 31, 1999 and is qualified in its entirety by reference to such financial statments. 0000875357 BOK Financial Corporation 1,000 Year Year DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997 431,874 378,500 0 0 39,551 21,605 41,138 4,999 2,329,375 1,852,385 227,777 213,111 227,754 214,125 3,647,099 2,856,021 65,922 54,044 7,059,507 5,613,233 4,607,727 3,924,405 1,511,331 855,822 73,693 62,690 336,620 318,436 23 23 2 0 3 3 524,765 451,854 7,059,507 5,613,233 267,458 234,568 132,007 118,952 3,367 3,554 402,832 357,074 138,004 127,802 212,406 194,842 190,426 162,232 14,591 9,256 9,337 (1,329) 233,995 199,854 116,860 84,678 79,611 68,155 0 0 0 0 79,611 68,155 1.60 1.36 1.43 1.23 3.72 3.68 14,095 19,761 9,553 10,710 0 0 8,600 14,200 54,044 45,907 7,596 9,279 4,883 5,635 65,992 54,044 65,992 54,044 0 0 11,907 8,253
EX-27.2 7 1999 QUARTERLY FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the BOK Financial Corporation's 10-K for the period ended Decmeber 31, 1999 and is qualified in its entirety by reference to such financial statments. 0000875357 BOK Financial Corporation 1,000 3-mos MAR-31-1999 DEC-31-1999 412,557 0 17,631 51,924 2,506,070 230,190 229,719 3,680,926 68,994 7,289,409 4,570,143 1,945,825 89,290 149,268 23 2 3 534,755 7,289,409 72,464 36,930 1,109 110,503 34,455 56,621 51,928 3,430 274 64,760 31,278 21,295 0 0 21,295 .43 .38 3.49 15,945 13,144 0 72,034 65,922 1,217 859 68,994 68,994 0 0
EX-27.3 8 1998 QUARTERLY FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the BOK Financial Corporation's 10-K for the period ended Decmeber 31, 1999 and is qualified in its entirety by reference to such financial statments. 0000875357 BOK Financial Corporation 1,000 3-mos 6-mos 9-mos MAR-31-1998 JUN-30-1998 SEP-30-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998 422,089 450,700 352,892 0 0 0 5,450 37,865 36,826 19,027 29,240 22,730 1,988,991 1,919,488 2,100,329 221,825 222,038 221,329 222,545 227,754 220,161 2,921,968 2,975,085 3,167,205 55,734 58,676 63,057 5,854,832 5,939,453 6,169,784 4,221,744 4,131,013 4,003,211 961,655 950,059 1,332,206 57,011 80,118 76,611 149,204 296,074 243,628 23 23 23 0 0 0 1 3 3 465,194 482,163 514,102 5,854,832 5,939,453 6,169,784 62,700 127,648 196,240 32,910 63,960 97,152 933 1,909 2,714 96,543 193,517 296,106 35,229 70,812 105,153 50,744 32,238 51,625 43,954 90,467 139,328 2,470 6,443 10,504 2,512 5,832 6,370 58,339 113,525 171,696 24,447 56,720 86,764 17,600 39,249 59,244 0 0 0 0 0 0 17,600 39,249 59,244 .35 .81 1.19 .31 .72 1.06 3.72 3.72 3.72 19,863 15,711 19,442 18,471 21,684 15,714 0 0 0 52,457 76,810 37,897 54,044 55,734 58,676 1,584 3,905 5,437 804 2,094 3,945 55,734 58,676 63,056 55,734 58,676 63,056 0 0 0 0 0 0
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