10-Q 1 q10-93002.txt QUARTERLY REPORT FOR 9/30/02 As filed with the Securities and Exchange Commission on November 14, 2002 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2002 Commission File No. 0-19341 BOK FINANCIAL CORPORATION Incorporated in the State of Oklahoma I.R.S. Employer Identification No. 73-1373454 Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Registrant's Telephone Number, Including Area Code (918) 588-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (NONE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK ($.00006 Par Value) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 55,243,707 shares of common stock ($.00006 par value) as of October 31, 2002. ------------------------------------------------------------------------------- BOK Financial Corporation Form 10-Q Quarter Ended September 30, 2002 Index Part I. Financial Information Management's Discussion and Analysis 2 Report of Management on Consolidated Financial Statements 18 Unaudited Consolidated Statements of Earnings 19 Unaudited Consolidated Balance Sheets 21 Unaudited Consolidated Statements of Changes in Shareholders' Equity 22 Unaudited Consolidated Statements of Cash Flows 23 Unaudited Notes to Consolidated Financial Statements 24 Financial Summaries - Unaudited 27 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 30 Signature 30 CFO Certification 32 CEO Certification 33 MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION ASSESSMENT OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial Corporation ("BOK Financial") recorded net income of $44.1 million or $0.73 per diluted common share for the third quarter of 2002 compared to $29.8 million or $0.50 per diluted common share for the third quarter of 2001. Prior year's earnings per share have been restated for a 3% dividend paid in common shares in May 2002. The returns on average assets and equity were 1.55% and 18.44%, respectively for the quarter ended September 30, 2002 compared to 1.16% and 14.82% for the same period of 2001. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142) was implemented January 1, 2002 and Statement of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions" (FAS 147) was implemented during the third quarter. The first and second quarters of 2002 have been restated to reflect the retroactive application of FAS 147 to January 1, 2002. These statements require that certain intangible assets are no longer amortized. If these rules had been applied retroactively to 2001 the proforma net income and earnings per diluted common share for the third quarter of 2001 would have been $31.5 million and $0.53. BOK Financial has completed its first required goodwill impairment test according to FAS 142, and no impairment was indicated. Net interest revenue for the third quarter of 2002 grew $7.5 million over same period 2001 due to increases in average earning assets, partially offset by the net effect of declining interest rates. Fees and commissions revenue grew $8.5 million during the third quarter of 2002 with increases in brokerage and trading, transaction card revenue and service charges on deposit accounts, offset slightly from declines in trust fees and commissions. Operating expense, excluding the provision for impairment of mortgage servicing rights of $29.0 million and pro forma impact of FAS 142 and FAS 147 on prior year increased $21.2 million or 8% due to personnel costs, data processing and communications and mortgage banking costs. The provision for loan loss decreased $3.0 million. Net gains on sales of securities totaled $34.3 million for the quarter ending September 30, 2002, which included net gains from sales of securities held as an economic hedge of the mortgage servicing rights portfolio of $27.5 million. The impact of the mortgage servicing rights hedge net gains and the provision for impairment of the mortgage servicing portfolio was a net loss of $1.6 million during the third quarter of 2002. Net gains on derivatives of $7.2 million for the quarter ending September 30, 2002 represented mark to market on derivatives used to manage interest rate risk. On October 25, 2002, BOK Financial acquired Bank of Tanglewood, National Association, located in Houston, Texas for 2,003,352 shares of stock valued at approximately $64.5 million. BOK Financial has a contingent obligation to issue additional shares over the next five years based on certain predetermined market valuations of its common stock. Based upon current market prices, a total of 189,237 shares of BOK Financial common stock would be issued to satisfy this contingent obligation and under no circumstances will BOK Financial be obligated to issue more than 10 million shares. The estimated fair value of this contingent price guarantee was $3.2 million, which will be included in the total purchase price. Bank of Tanglewood had total assets, deposits and equity of $248 million, $223 million and $16 million, respectively, at the acquisition date before push-down accounting is applied. Conversion and merger into Bank of Texas, N.A. is expected to be completed during the fourth quarter of 2002. Net income for the nine months ended September 30, 2002 totaled $111.6 million, an increase of 30% over the same period of 2001. Diluted earnings per share were $1.85 compared to $1.45 in 2001. Proforma results of FAS 142 and FAS 147 on the nine months ending September 30, 2001 were net income of $91.1 million and $1.53 per diluted share. The returns on average assets and equity were 1.34% and 16.64%, respectively, for the nine months ended September 30, 2002 compared to 1.14% and 15.16% for the same period of 2001. NET INTEREST REVENUE Net interest revenue on a tax-equivalent basis was $93.4 million for the third quarter of 2002 compared to $86.4 million for the third quarter of 2001. The growth in net interest revenue was primarily due to a $1.2 billion increase in average earning assets, offset by a $739 million increase in interest bearing liabilities. The growth in average earning assets included securities, which increased by $853 million, and loans, which increased by $379 million. Average transaction deposit accounts increased by $517 million and federal funds purchased and repurchase agreements increased by $175 million. Yields on average earning assets and rates paid on average interest bearing liabilities both continued to decline during the third quarter of 2002. This resulted in a net interest margin, the ratio of tax-equivalent net interest revenue to average earning assets, of 3.58% in the third quarter of 2002 compared to 3.75% in the third quarter of 2001 and 3.63% in the second quarter of 2002. Table 1 shows how net interest revenue was affected by changes in average balances and interest rates for the various types of earning assets and interest bearing liabilities. ------------------------------------------------------------------------------------------------------------------- TABLE 1 - VOLUME/RATE ANALYSIS (In thousands) Three months ended Nine months ended September 30, 2002/2001 September 30, 2002/2001 ------------------------------------------------------------------------ Change Due To (1) Change Due To (1) ------------------------------------------------------------- Yield Yield Change Volume /Rate Change Volume /Rate ------------------------------------------------------------------------ Tax-equivalent interest revenue: Securities $ 549 $ 11,633 $ (11,084) $ (1,774) $ 29,743 $ (31,517) Trading securities (2) (47) 45 (292) (51) (241) Loans (18,434) 6,389 (24,823) (74,171) 19,111 (93,282) Funds sold (73) (21) (52) (545) (178) (367) ------------------------------------------------------------------------------------------------------------------- Total (17,960) 17,954 (35,914) (76,782) 48,625 (125,407) ------------------------------------------------------------------------------------------------------------------- Interest expense: Interest bearing transaction deposits (2,035) 2,266 (4,301) (10,336) 7,597 (17,933) Savings deposits (73) 30 (103) (306) 102 (408) Time deposits (11,614) 633 (12,247) (44,524) (257) (44,267) Federal funds purchased and repurchase agreements (6,341) 1,144 (7,485) (35,798) (1,828) (33,970) Other borrowings (4,748) (165) (4,583) (16,205) 3,216 (19,421) Subordinated debentures (146) (13) (133) 12 349 (337) ------------------------------------------------------------------------------------------------------------------- Total (24,957) 3,895 (28,852) (107,157) 9,179 (116,336) ------------------------------------------------------------------------------------------------------------------- Tax-equivalent net interest revenue 6,997 14,059 (7,062) 30,375 39,446 (9,071) Decrease in tax-equivalent adjustment 527 1,528 ------------------------------------------------------------------------------------------------------------------- Net interest revenue $ 7,524 $ 31,903 ------------------------------------------------------------------------------------------------------------------- (1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.
Since inception, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth in order to fund increased investments in securities. The primary objective of this strategy is to reduce total interest rate risk. The interest rate on these borrowed funds, which generally reacts quickly to changes in market interest rates, tends to match the effect of changes in interest rates on the loan portfolio. Interest rates earned on the securities purchased with the proceeds of these borrowed funds are affected less quickly by changes in market interest rates. The timing of changes in interest rates earned on securities more closely matches the timing of changes in interest rates paid on deposit accounts. Although this strategy may result in a net interest margin that falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. Management estimates that for the third quarter of 2002, this strategy enhanced net interest revenue $13.8 million. Year-to-date 2002 this strategy enhanced net interest revenue $42.7 million. Excluding this strategy, net interest margin for the third quarter of 2002 was 3.72% and 3.79% for the year ending September 30, 2002. Management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy, the results of which are presented in the Market Risk section. OTHER OPERATING REVENUE Other operating revenue for the third quarter 2002 increased $9.0 million or 16%, excluding net gains on sales of securities and derivatives, over the same period in 2001. Service charges and fees on deposit accounts grew 42% or $5.4 million during the third quarter of 2002 compared to the third quarter of 2001, due mostly to increases in service charges from an overdraft privilege product initiated in 2002. Transaction card revenues have increased $2.0 million or 17% due to growth in merchant fees, ATM network fees (TransFund) and check card fees. Brokerage and trading increased $940 thousand or 19% during the third quarter compared to the same period of 2001 due to increased institutional sales offset by $1.1 million of trading losses and mark-to-market adjustments. Trust fees declined $606 thousand or 6% when compared to the same quarter 2001 due to declines in the asset values on which many fees are based. Net gain on sales of securities of $34.3 million included net gains from the general securities portfolio of $6.8 million and $27.5 million from the securities portfolio that management has designated as an economic hedge against the risk of loss on mortgage servicing rights. Net gain on derivatives represents the mark to market of the derivative portfolio used for interest rate risk management. Additional discussion about the mortgage servicing rights and related hedge portfolio and BOK Financial's use of derivative instruments is located in the Market Risk section of this report. ---------------------------------------------------------------------------------------------------------- TABLE 2 - OTHER OPERATING REVENUE (In thousands) Three Months Ended --------------------------------------------------------------- Sept. 30, June 30, March 31, Dec.31, Sept. 30, 2002 2002 2002 2001 2001 --------------------------------------------------------------- Brokerage and trading revenue $ 5,878 $ 7,014 $ 7,092 $ 5,926 $ 4,938 Transaction card revenue 13,654 13,439 12,486 11,489 11,679 Trust fees and commissions 9,605 10,300 10,374 9,740 10,211 Service charges and fees on deposit accounts 18,395 16,391 13,855 13,741 12,961 Mortgage banking revenue, net 12,556 10,759 10,652 14,923 12,499 Leasing revenue 790 822 892 915 810 Other revenue 5,105 5,698 5,042 5,578 4,341 ---------------------------------------------------------------------------------------------------------- Total fees and commissions 65,983 64,423 60,393 62,312 57,439 ---------------------------------------------------------------------------------------------------------- Gain on sale of assets 444 7 676 18 11 Gain (loss) on sales of securities, net 34,341 21,602 (7,581) (3,770) 19,746 Gain (loss) on derivatives, net 7,218 (1,453) (536) (3,300) (1,105) ---------------------------------------------------------------------------------------------------------- Total other operating revenue $ 107,986 $ 84,579 $ 52,952 $ 55,260 $ 76,091 ----------------------------------------------------------------------------------------------------------
Year to date other operating revenue increased $21.6 million or 13%, excluding net gains on sales of securities and derivatives. Service charges on deposits increased $11.1 million or 30% during the first nine months of 2002 compared to the same period of 2001 due to increases in growth in overdraft privilege fees and growth of treasury services revenue. Transaction card revenue increased $6.6 million or 20% for the nine months ending September 30, 2002 as compared to the same period of 2001 due to increases in merchant fees, ATM network fees and check card fees. Brokerage and trading fees increased 26% or $4.1 million due mostly to institutional sales. These increases are offset slightly by declines in mortgage banking revenue of $1.3 million due to lower servicing fees; see additional discussion in the Lines of Business section of this report. Year to date net gains on sales of securities of $48.4 million included net gains from the general securities portfolio of $29.3 million and net gains of $19.1 million from the securities portfolio that management has designated as an economic hedge against the risk of loss on mortgage servicing rights. Net gains on sales of derivatives included $519 thousand realized gains from sale of options designated as an economic hedge against the risk of loss on mortgage servicing rights and $4.7 million net gains on interest rate risk management instruments. Management expects continued growth in other operating revenue. However, increased competition, market saturation and the level of economic activity could affect the future rate of increase. Additionally, BOK Financial's ability to generate fee revenue is affected by numerous market, economic and demographic factors such as equity market performance, consumer spending, and cash management preferences. OTHER OPERATING EXPENSE Operating expense for the third quarter of 2002 increased $9.9 million or 12% over the same period of 2001 to $94.5 million, excluding certain significant or nonrecurring items as presented in Table 4. Personnel costs increased $4.5 million or 11%, of which $2.9 million was salaries and benefits attributable to a 2% increase in full time equivalent employees (FTE) and a 6% increase in salaries and benefits per FTE plus a $1.6 million to increases in incentive bonuses tied directly to production. Data processing & communications increased 19% or $2.0 million from the same period 2001 due to transaction costs relating to transaction cards and external processing charges due both to increased volumes. Mortgage banking costs have increased $4.4 million due to an increase in amortization of capitalized mortgage servicing rights. An impairment of mortgage servicing rights of $29.0 million was also recognized due to market conditions existing at this time. These market conditions and impact on the mortgage banking business are more thoroughly discussed in the Lines of Business - Mortgage Banking section of this report. During the third quarter of 2002, BOK Financial entered into a contract to change its primary data processing servicer. Expenses incurred to date on this project totaled $218 thousand and quarterly operating expenses are expected to increase by amounts ranging from $950 thousand to $1.6 million over the next year. Management anticipates this change to occur during the second half of 2003. ---------------------------------------------------------------------------------------------- TABLE 3 - OTHER OPERATING EXPENSE (In thousands) Three Months Ended ----------------------------------------------------------- Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2002 2002 2002 2001 2001 --------------------------------------------------------- Personnel $ 44,963 $ 44,885 $ 43,332 $ 42,575 $ 40,491 Business promotion 2,483 3,208 2,878 2,798 2,560 Professional fees and services 2,816 3,732 2,908 4,189 2,983 Occupancy & equipment 10,578 10,299 10,340 10,637 11,017 Data processing & communications 12,138 11,216 10,438 10,486 10,173 FDIC and other insurance 468 483 439 388 443 Printing, postage and supplies 3,172 3,018 3,057 3,132 3,141 Net gains and operating expenses on repossessed assets 108 656 47 239 1,189 Amortization of intangible assets 1,867 1,882 1,887 5,014 5,015 Mortgage banking costs 11,635 7,791 8,357 9,512 7,191 Provision (recovery) for impairment of mortgage servicing rights 29,042 23,774 (5,278) (8,861) 15,224 Other expense 4,425 2,854 4,746 4,692 4,164 -------------------------------------------------------------------------------------------- Total $ 123,695 $ 113,798 $ 83,151 $ 84,801 $ 103,591 --------------------------------------------------------------------------------------------
Amortization of intangible assets decreased $3.1 million for the quarter ending September 30, 2002 and $9.5 million year to date. The implementation of FAS 142 and FAS 147 accounted for $2.6 million of the quarter ending September 30, 2002 change and $7.7 million of the year to date change. FAS 142 established new rules of accounting for intangible assets. FAS 147 applied FAS 142 to goodwill resulting from certain business combinations, such as branch acquisitions. Under these new rules, intangible assets with indefinite lives such as goodwill are no longer be amortized but are subject to impairment testing. Other intangible assets will continue to be amortized over their useful lives. FAS 142 was applied to periods after adoption on January 1, 2002. FAS 147 was adopted September 30, 2002, effective January 1, 2002, restating the first and second quarter of 2002; prior years are not restated for this change in accounting. If these rules had been applied retroactively to the prior year, operating expense would have decreased $2.6 million for the quarter ended September 30, 2001 and $7.7 million for the nine months ended September 30, 2001. ------------------------------------------------------------------------------------------------------ TABLE 4 - OTHER OPERATING EXPENSE, EXCLUDING CERTAIN SIGNIFICANT OR NONRECURRING ITEMS (In thousands) Three Months Ended ---------------------------------------------------------------- Sept. 30, June 30, March 31, Dec.31, Sept. 30, 2002 2002 2002 2001 2001 ---------------------------------------------------------------- Total other operating expense $ 123,695 $ 113,798 $ 83,151 $ 84,801 $ 103,591 Net gains and operating costs from repossessed assets (108) (656) (47) (239) (1,189) Proforma effect of FAS 142 and 147 - - - (2,575) (2,575) (Provision) recovery for impairment of mortgage servicing rights (29,042) (23,774) 5,278 8,861 (15,224) ------------------------------------------------------------------------------------------------------ Total $ 94,545 $ 89,368 $ 88,382 $ 90,848 $ 84,603 ------------------------------------------------------------------------------------------------------
Year to date other operating expense increased $21.6 million or 9% over same period of 2001, excluding certain significant or nonrecurring items. Personnel costs increased $11.9 million or 10% due to increased full time equivalent employees and incentive compensation tied directly to production. Data processing and communications increased $4.3 million due to volume. Mortgage banking costs increased $7.0 million due to increased amortization of mortgage servicing rights, detailed discussion can be found in the Lines of Business - Mortgage Banking section of this report. LINES OF BUSINESS BOK Financial operates four principal lines of business under its Bank of Oklahoma ("BOk") franchise: corporate banking, consumer banking, mortgage banking and trust services. It also operates a fifth line of business, regional banks, which includes all banking functions for Bank of Albuquerque, N.A., Bank of Arkansas, N.A., and Bank of Texas, N.A. Other lines of business include the TransFund ATM network and BOSC, Inc., a securities broker-dealer. BOK Financial allocates resources and evaluates performance of its lines of business after the allocation of funds, certain indirect expenses, taxes and capital costs. The cost of funds provided from one segment to another is transfer-priced at rates that approximate market for funds with similar duration. Deposit accounts with indeterminate maturities are transfer-priced at a rolling average rate based on expected duration of the accounts. Over the past year, the average transfer-pricing rate for these deposit accounts decreased by approximately 250 basis points. The impact of this significant decline in transfer-pricing rates shifted net interest revenue from the providers of funds, primarily consumer banking, trust services and regional banks, to funds management. This is reflected in net interest revenue in the funds management department of $13.8 million for the quarter ended September 30, 2002 compared to $10.9 million for the third quarter of 2001. Corporate Banking The Corporate Banking Division provides loan and lease financing and treasury and cash management services to businesses throughout Oklahoma and seven surrounding states. In addition to serving the banking needs of small businesses, middle market and larger customers, the Corporate Banking Division has specialized groups that serve customers in the energy, agriculture, healthcare and banking/finance industries. The Corporate Banking Division contributed $12.7 million or 29% to consolidated net income for the third quarter of 2002 and $36.2 million or 32% for the nine months ending September 31, 2002. This compares to $11.8 million or 39% of consolidated net income for the third quarter of 2001 and $34.1 million or 40% for the nine months ended September 30, 2001. The decrease in net interest revenue from external sources was due to lower loan yields. The provision for loan loss represents net loans charged off or recovered for the Corporate Banking Division. Table 5 Corporate Banking (In thousands) Three months ended Sept. 30, Nine months ended Sept. 30, ----------------------------- ------------------------------ 2002 2001 2002 2001 ------------ --------------- ------------------------------- NIR (expense) from external sources $ 39,424 $ 49,458 $ 117,568 $ 158,456 NIR (expense) from internal sources (11,948) (20,172) (36,077) (72,083) ------------ ------------- ------------- ------------- Total net interest revenue 27,476 29,286 81,491 86,373 Other operating revenue 8,030 7,150 24,629 21,768 Operating expense 14,271 14,212 43,154 42,606 Provision for loan loss 507 2,775 4,037 9,520 Net income 12,689 11,761 36,238 34,103 Average assets $3,957,383 $ 3,810,837 $ 3,981,424 $ 3,803,639 Average equity 446,537 436,475 448,619 437,638 Return on assets 1.27% 1.22% 1.22% 1.20% Return on equity 11.27% 10.69% 10.80% 10.42% Efficiency ratio 40.19% 39.01% 40.67% 39.40%
Consumer Banking The Consumer Banking Division, which provides a full line of deposit, loan and fee-based services to customers throughout Oklahoma, contributed $2.2 million or 5% to consolidated net income for the third quarter of 2002 and $5.9 million or 5% for the nine months ended September 30, 2002. This compares to $4.0 million or 13% of consolidated net income for the third quarter of 2001 and $13.2 million or 15% for the nine months ended September 30, 2001. Revenue from internal sources, primarily funds provided to other business lines, decreased $7.2 million due to lower transfer pricing rates. At the same time, expense from external sources decreased $2.9 million due to lower interest paid on deposit accounts. Other operating revenue increased $3.3 million or 44% over third quarter of 2001 due primarily to increases in service charges from an overdraft privilege product initiated during the second quarter of 2002. The increase in provision for loan loss, which represents actual net charge-offs, of $1.6 million during the third quarter compared to same quarter 2001, was due to $863 thousand of charge-offs from the overdraft privilege product and $696 thousand to indirect auto loans. Table 6 Consumer Banking (In thousands) Three months ended Sept. 30, Nine months ended Sept. 30, --------------------------------- ----------------------------------- 2002 2001 2002 2001 ------------- -- -------------- ---------------------- ------------- NIR (expense) from external sources $ (4,599) $ (7,514) $ (13,335) $ (28,886) NIR (expense) from internal sources 15,126 22,284 46,543 75,286 ------------- -------------- --------------- ------------- Total net interest revenue 10,527 14,770 33,208 46,400 Other operating revenue 10,784 7,496 27,953 22,166 Operating expense 15,315 14,835 46,606 44,203 Provision for loan loss 2,444 885 4,830 2,821 Net income 2,171 4,000 5,942 13,162 Average assets $ 2,311,550 $ 2,182,276 $ 2,322,765 $ 2,184,837 Average equity 72,929 67,755 72,964 68,301 Return on assets 0.37% 0.73% 0.34% 0.81% Return on equity 11.81% 23.42% 10.89% 25.77% Efficiency ratio 71.86% 66.63% 76.20% 64.47%
Mortgage Banking The Mortgage Banking Division contributed $4.9 million or 11% to consolidated net income for the third quarter of 2002 compared to $2.4 million or 8% for the third quarter of 2001. Year to date September 30, 2002 the Mortgage Banking Division contributed $13.1 million or 12% to consolidated net income compared to $7.2 million or 8% for the same period of 2001. Economic hedging activities contributed realized gains of $27.5 million that substantially offset a $29.0 million provision for impairment of mortgage servicing rights. Revenue from loan production activities was $11.8 million for the third quarter of 2002 compared to $8.1 million for the same period of 2001 due primarily to an increase in loan volumes. Mortgage loans originated totaled $347 million compared to $264 million for the third quarter of 2001. Pre-tax income from loan origination activities totaled $7.3 million in 2002 compared to $3.6 million in 2001. Approximately 66% of the loans originated during the third quarter of 2002 were in Oklahoma. Mortgage servicing fees totaled $6.9 million for the third quarter of 2002 compared to $7.3 million in 2001. The decrease in mortgage servicing revenue was due primarily to a lower outstanding principal balance of loans serviced. Amortization of mortgage servicing rights, which is included in operating expenses, totaled $10.2 million in the third quarter of 2002 compared to $5.5 million in 2001 due to an increase in loan prepayments. The valuation allowance from impairment of mortgage servicing rights totaled $29.0 million. Net realized gains from sales of securities designated as an economic hedge of the mortgage servicing portfolio totaled $27.5 million. These factors combined for pre-tax income on mortgage servicing activities of $342 thousand for the third quarter of 2002 compared to a pre-tax loss of $165 thousand for 2001. See the Market Risk section of this report for additional discussion of the prepayment risk of the mortgage servicing portfolio and related hedging strategies. Table 7 Mortgage Banking (In thousands) Three months ended Sept. 30, Nine months ended Sept. 30, ---------------------------- -------------------------- 2002 2001 2002 2001 ------------ -------------- --------------------------- NIR (expense) from external sources $ 8,508 $ 7,511 $ 24,291 $ 24,435 NIR (expense) from internal sources (3,258) (4,645) (11,222) (17,239) ------------ ------------ ----------- ---------- Total net interest revenue 5,250 2,866 13,069 7,196 Capitalized mortgage servicing rights 4,318 3,773 14,235 11,572 Other operating revenue 12,301 9,392 25,512 25,493 Operating expense 15,247 11,383 38,719 33,629 Provision (recovery) for impairment of mortgage servicing rights 29,042 15,224 47,538 24,412 Gains (losses) on sales of financial 27,490 13,165 19,587 23,847 instruments Net income (loss) 4,888 2,364 (6,719) 6,127 Average assets $ 666,978 $ 636,058 $ 672,565 $ 633,526 Average equity 53,249 41,975 60,251 42,592 Return on assets 2.91% 1.47% (1.34)% 1.29% Return on equity 36.42% 22.34% (14.91)% 19.23% Efficiency ratio 69.72% 71.01% 73.31% 75.98%
Trust Services Trust Services, which includes institutional, investment and retirement products and services to affluent individuals, businesses, not-for-profit organizations, and governmental agencies, contributed $1.2 million or 3% of consolidated net income for the third quarter of 2002 and $4.9 million or 4% for the nine months ending September 30, 2002. This compared to $2.5 million or 8% of consolidated net income for the third quarter of 2001 and $7.6 million or 9% for the nine months ending September 30, 2001. Other operating revenue declined $705 thousand compared to the third quarter of 2001 due to declines in the asset values on which many fees are based. At September 30, 2002, trust assets with an aggregate market value of $16.4 billion were subject to various fiduciary arrangements compared to $16.6 billion at September 30, 2001. Table 8 Trust Services (In thousands) Three months ended Sept. 30, Nine months ended Sept. 30, -------------------------- -------------------------- 2002 2001 2002 2001 ----------- ------------- --------------------------- NIR (expense) from external sources $ 279 $ 42 $ 1,078 $ (391) NIR (expense) from internal sources 2,148 3,366 6,153 10,799 ----------- ------------ ------------ ----------- Total net interest revenue 2,427 3,408 7,231 10,408 Other operating revenue 9,554 10,259 30,162 31,065 Operating expense 9,691 9,640 29,044 29,024 Net income 1,208 2,460 4,879 7,606 Average assets $ 522,299 $ 468,457 $ 527,098 $ 471,569 Average equity 44,080 40,345 44,312 40,380 Return on assets 0.92% 2.08% 1.24% 2.16% Return on equity 10.88% 24.19% 14.72% 25.18% Efficiency ratio 80.89% 70.53% 77.67% 69.98%
Regional Banking Regional banks include Bank of Texas, Bank of Albuquerque, and Bank of Arkansas. Each of these banks provides a full range of corporate and consumer banking, trust services and retail investments in their respective markets. Small businesses and middle-market corporations are the regional banks' primary customer focus. Regional banks contributed $10.3 million or 23% to consolidated net income for the third quarter 2002 and $26.4 million or 24% for the nine months ended September 30, 2002. This compared to $7.8 million or 26% of consolidated net income for the third quarter of 2001 and $23.6 million or 27% for the nine months ended September 30, 2001. BOK Financial's operations in Texas, New Mexico and Arkansas contributed $6.8 million, $3.1 million, and $397 thousand, respectively, to consolidated net income for the third quarter of 2002. This compared to net income of $5.4 million, $2.0 million, and $428 thousand, respectively, for the third quarter 2001. Average equity assigned to regional banks included both an amount based on management's assessment of risk and an additional amount based on BOK Financial's investment in these entities. Management measures performance for regional banks based on tangible net income, return on assets and return on equity. Tangible net income is defined as net income excluding the after-tax effect of goodwill and core deposit intangible asset amortization. Table 9 Regional Banking (In thousands) Three months ended Sept. 30, Nine months ended Sept. 30, ---------------------------- ----------------------------- 2002 2001 2002 2001 ------------ -------------- ------------------------------ NIR (expense) from external sources $ 28,794 $ 35,076 $ 100,950 $ 101,744 NIR (expense) from internal sources 2,359 (3,164) (9,615) (8,055) ------------ ------------- ------------ ------------ Total net interest revenue 31,153 31,912 91,335 93,689 Other operating revenue 7,309 4,954 19,261 14,400 Operating expense 22,688 23,397 67,335 67,204 Provision for loan loss 1,583 1,357 5,119 3,542 Gains (losses) on sales of financial 519 279 3,480 (70) instruments Net income 10,317 7,836 26,423 23,587 Tangible net income 11,895 11,606 31,158 35,013 Average assets $3,763,527 $3,254,156 $ 3,787,722 $ 3,286,842 Average equity 441,080 397,677 443,454 402,729 Tangible return on assets 1.25% 1.41% 1.10% 1.42% Tangible return on equity 10.70% 11.58% 9.39% 11.62% Efficiency ratio 58.99% 63.46% 60.88% 62.17%
ASSESSMENT OF FINANCIAL CONDITION SECURITIES PORTFOLIO The securities portfolio totaled $4.3 billion at September 30, 2002 compared to $3.8 billion at June 30, 2002 and $3.7 billion at December 31, 2001. Mortgage-backed securities classified as available for sale were $4.0 billion at September 30, 2002, $3.5 billion at June 30, 2002 and $3.3 billion at December 31, 2001. Management's strategy during the third quarter was to sell securities that had limited potential for further appreciation and to replace them with lower-yielding securities with less prepayment risk. This strategy resulted in realized gains of $6.8 million, excluding net gains on sales of securities designated as an economic hedge of the mortgage servicing portfolio. The net growth in mortgage-backed securities since June 30, 2002 was intended to take advantage of a steeper yield curve for such securities and anticipated prepayments during the fourth quarter. Net unrealized gains in the securities portfolio increased from $55.3 million at June 30, 2002 to $71.5 million at September 30, 2002. LOANS The aggregate loan portfolio at September 30, 2002 totaled $6.6 billion compared to $6.3 billion at June 30, 2002. Total loans increased by $228 million or 4%, excluding a $54 million increase in residential mortgage loans held for sale. The increase in loans was due primarily to a $135 million increase in commercial loans. Commercial loan demand accelerated in the third quarter after being flat during the first half of 2002. --------------------------------------------------------------------------------------------------------------------- TABLE 10 - LOANS (In thousands) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2002 2002 2002 2001 2001 --------------------------------------------------------------------------------- Commercial: Energy $ 1,006,151 $ 936,381 $ 970,234 $ 987,556 $ 942,381 Manufacturing 507,798 513,019 499,870 467,260 490,839 Wholesale/retail 671,127 655,081 613,612 600,470 585,351 Agricultural 154,221 134,612 156,334 170,861 199,155 Services 1,166,193 1,118,239 1,075,852 1,084,480 1,087,329 Other commercial and industrial 286,972 300,239 339,355 364,123 313,801 --------------------------------------------------------------------------------------------------------------------- Total commercial 3,792,462 3,657,571 3,655,257 3,674,750 3,618,856 --------------------------------------------------------------------------------------------------------------------- Commercial real estate: Construction and land development 331,073 320,730 329,335 327,455 330,964 Multifamily 309,173 297,576 301,402 291,687 252,093 Other real estate loans 767,083 744,391 739,646 722,633 767,012 --------------------------------------------------------------------------------------------------------------------- Total commercial real estate 1,407,329 1,362,697 1,370,383 1,341,775 1,350,069 --------------------------------------------------------------------------------------------------------------------- Residential mortgage: Secured by 1-4 family residential properties 849,254 795,834 726,228 703,080 753,153 Residential mortgages held for 136,330 82,714 89,439 166,093 94,219 sale --------------------------------------------------------------------------------------------------------------------- Total residential mortgage 985,584 878,548 815,667 869,173 847,372 --------------------------------------------------------------------------------------------------------------------- Consumer 409,779 414,571 407,909 409,680 402,117 --------------------------------------------------------------------------------------------------------------------- Total $ 6,595,154 $ 6,313,387 $ 6,249,216 $ 6,295,378 $ 6,218,414 ---------------------------------------------------------------------------------------------------------------------
Outstanding loans to the services industry totaled $1.2 billion or 18% of total loans at September 30, 2002. Services included loans of $107 million to the healthcare industry, $214 million to nursing homes and $69 million to the hotel industry. Energy loans represent 15% of the total loan portfolio. This category included loans to oil and gas producers that totaled $819 million, an increase of $60 million during the quarter. Agriculture included $135 million of loans to the cattle industry, an increase of $16 million. Other notable loan concentrations by primary industry of the borrowers are presented in Table 10. Commercial real estate loans totaled $1.4 billion or 21% of total loans at September 30, 2002. Construction and land development loans included $269 million for single-family residential lots and premises. The major components of other commercial real estate loans were office buildings, $306 million and retail facilities, $189 million. Loans secured by office buildings increased $34 million during the quarter while loans secured by retail facilities decreased $11 million. Residential mortgage loans included $315 million of home equity loans, $316 million of mortgage loans held for business relationship and community investment purposes, and $200 million of adjustable rate mortgage loans. The increase in residential mortgage loans during the third quarter included $34 million of loans held for business relationship and community investment purposes and $23 million of adjustable rate mortgages. Consumer loans included $179 million of indirect automobile loans. Substantially all of these loans were purchased from dealers in Oklahoma. Approximately 25% of the indirect automobile loan portfolio was considered sub-prime. While BOK Financial continues to increase geographic diversification through expansion into Texas and New Mexico, geographic concentration subjects the loan portfolio to the general economic conditions in Oklahoma. Loan growth attributed to Oklahoma, excluding mortgage loans held for sale, totaled $207 million or 5% during the third quarter. This included $40 million of commercial loan growth in the Denver loan production office. Table 11 reflects the distribution of the major loan categories among BOK Financial's principal market areas. --------------------------------------------------------------------------------------------------------------------- TABLE 11 - LOANS BY PRINCIPAL MARKET AREA (In thousands) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2002 2002 2002 2001 2001 --------------------------------------------------------------------- Oklahoma: Commercial $2,663,752 $ 2,547,218 $ 2,594,237 $2,606,977 $ 2,610,357 Commercial real estate 790,638 752,757 743,728 739,419 741,978 Residential mortgage 750,293 642,080 588,329 642,116 613,565 Consumer 311,877 314,061 312,505 314,060 300,193 --------------------------------------------------------------------- Total Oklahoma $4,516,560 $ 4,256,116 $ 4,238,799 $4,302,572 $ 4,266,093 --------------------------------------------------------------------- Texas: Commercial $ 789,846 $ 773,649 $ 771,167 $ 775,788 $ 760,686 Commercial real estate 391,207 381,068 400,350 380,602 378,364 Residential mortgage 149,983 148,463 138,987 136,181 137,482 Consumer 85,651 88,783 83,985 85,347 91,513 --------------------------------------------------------------------- Total Texas $1,416,687 $ 1,391,963 $ 1,394,489 $1,377,918 $ 1,368,045 --------------------------------------------------------------------- Albuquerque: Commercial $ 276,222 $ 270,278 $ 222,960 $ 219,257 $ 195,054 Commercial real estate 141,298 142,829 139,044 136,425 146,512 Residential mortgage 80,298 82,926 83,310 85,309 90,864 Consumer 10,191 9,711 9,245 8,200 8,109 --------------------------------------------------------------------- Total Albuquerque $ 508,009 $ 505,744 $ 454,559 $ 449,191 $ 440,539 --------------------------------------------------------------------- Northwest Arkansas: Commercial $ 62,642 $ 66,426 $ 66,893 $ 72,728 $ 52,759 Commercial real estate 84,186 86,043 87,260 85,329 83,215 Residential mortgage 5,010 5,079 5,042 5,567 5,461 Consumer 2,060 2,016 2,174 2,073 2,302 --------------------------------------------------------------------- Total Northwest Arkansas $ 153,898 $ 159,564 $ 161,369 $ 165,697 $ 143,737 ---------------------------------------------------------------------
OTHER DERIVATIVES WITH CREDIT RISK During 2001, BOK Financial developed a program that permits its energy-producing customers to hedge against price fluctuations through energy option and swap contracts. These contracts are executed between BOk and its customers. Offsetting contracts are executed between BOk and selected energy dealers to minimize the risk of changes in energy prices. The dealer contracts are identical to the customer contracts, except for a fixed pricing spread paid to BOk as compensation for administrative costs, credit risk and profit. The fair values of energy derivative contracts included in other assets and other liabilities each totaled $40 million at September 30, 2002. The primary dealer counterparties on asset contracts were BankOne, $1.8 million; Coral Energy, $4.7 million; JP Morgan Chase, $5.6 million; Morgan Stanley, $1.7 million. A deterioration of the credit standing of one or more of the counterparties may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contract. SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $111 million at September 30, 2002, compared to $108 million at June 30, 2002 and $96 million at September 30, 2001. This represented 1.72%, 1.73% and 1.57% of total loans, excluding loans held for sale, at September 30, 2002, June 30, 2002 and September 30, 2001, respectively. Losses on loans held for sale, principally residential mortgage loans, 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. Consumer loans charged off increased to $3.2 million in the third quarter of 2002 compared to $2.3 million in the preceding quarter and $1.6 million in the third quarter of 2001. This reflected increased losses on indirect automobile loans and on a consumer overdraft privilege that was initiated earlier in 2002. Table 12 presents statistical information regarding the reserve for loan losses for the past five quarters. ------------------------------------------------------------------------------------------------- TABLE 12 - SUMMARY OF LOAN LOSS EXPERIENCE (In thousands) Three Months Ended -------------------------------------------------------------- Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2002 2002 2002 2001 2001 -------------------------------------------------------------- Beginning balance $ 108,084 $ 105,900 $ 101,905 $ 96,051 $ 90,036 Loans charged-off: Commercial 2,873 3,378 3,525 3,803 4,241 Commercial real estate - - 123 62 - Residential mortgage 88 11 94 102 37 Consumer 3,164 2,258 2,514 1,993 1,561 ------------------------------------------------------------------------------------------------- Total 6,125 5,647 6,256 5,960 5,839 ------------------------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Commercial 332 169 334 196 285 Commercial real estate 9 45 49 139 5 Residential mortgage 118 6 20 25 7 Consumer 779 777 982 937 534 ------------------------------------------------------------------------------------------------- Total 1,238 997 1,385 1,297 831 ------------------------------------------------------------------------------------------------- Net loans charged-off 4,887 4,650 4,871 4,663 5,008 Provision for loan losses 8,029 6,834 8,866 10,517 11,023 ------------------------------------------------------------------------------------------------- Ending balance $ 111,226 $ 108,084 $ 105,900 $ 101,905 $ 96,051 ------------------------------------------------------------------------------------------------- Reserve to loans outstanding at period-end (1) 1.72% 1.73% 1.72% 1.66% 1.57% Net loan losses (annualized) to average loans (1) .31 0.30 0.32 0.30 0.33 ------------------------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value.
The reserve for loan losses is assessed by management based upon an ongoing evaluation of the probable estimated losses inherent in the portfolio, including probable losses on both outstanding loans and unused commitments to provide financing. A consistent, well-documented methodology has been developed that includes reserves assigned to specific criticized loans, general reserves that are based on statistical migration analysis and nonspecific reserves that are based on 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. Specific reserves for impairment are determined through evaluation of future cash flow and collateral value in accordance with generally accepted accounting principles and regulatory standards. At September 30, 2002, specific impairment reserves totaled $3.4 million on total impaired loans of $48 million. The adequacy of the general loan loss reserve is determined primarily through an internally developed migration analysis model. The purpose of this model is to determine the probability that each loan in the portfolio has an inherent loss based on historic trends. Management uses an eight-quarter aggregate accumulation of net loan losses as the basis for this model. Greater emphasis is placed on loan losses in more recent periods. This model assigns a general allowance to commercial loans and leases, excluding loans that have a specific impairment reserve, residential mortgage loans and consumer loans. A nonspecific reserve 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 the 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 and overall growth in the loan portfolio. Additional factors considered are bank regulatory examination results, error potential in the migration analysis model or the underlying data and other relevant factors. A range of potential losses is determined for each factor identified. At September 30, 2002, the range of potential losses for the more significant factors were: General economic conditions - $4.5 million to $5.5 million Concentration of large loans - $1.2 million to $2.5 million Loan portfolio growth - $1.4 million to $2.8 million Evaluation of the loan loss reserve requires a significant level of assumptions by management including estimation of future cash flows, collateral values, relevance of historic loss trends to the loan portfolio and assessment of current economic conditions on the borrowers' ability to repay. The required loan loss reserve could be materially affected by changes in these assumptions. The loan loss reserve is adequate to absorb losses inherent in the loan portfolio based upon current conditions and information available to management. However, actual losses may differ significantly due to changing conditions or information that is currently not available. NONPERFORMING ASSETS Information regarding nonperforming assets, which totaled $60 million at September 30, 2002, $45 million at June 30, 2002 and $55 million at September 30, 2001, is presented in Table 13. Nonperforming assets included nonaccrual and renegotiated loans and excluded loans 90 days or more past due but still accruing interest. Newly identified nonaccruing loans totaled $22.8 million during the third quarter of 2002, including $14.7 million of loans related to the cattle industry and $4.6 million of loans related to the energy industry. Total nonaccruing loans decreased by $1.0 million from cash payments received and $1.0 million from losses charged against the loan loss reserve. Two loans with a combined outstanding balance of $5.5 million were returned to accruing status based on a satisfactory payment history and improved outlook. --------------------------------------------------------------------------------------------------------------------- TABLE 13 - NONPERFORMING ASSETS (In thousands) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2002 2002 2002 2001 2001 ---------------------------------------------------------------------- Nonperforming assets: Nonperforming loans: Nonaccrual loans: Commercial $ 41,093 $ 28,803 $ 33,784 $ 35,075 $ 39,377 Commercial real estate 5,788 4,388 3,360 3,856 4,338 Residential mortgage 6,025 4,486 4,182 4,140 4,060 Consumer 556 605 555 469 333 --------------------------------------------------------------------------------------------------------------------- Total nonaccrual loans 53,462 38,282 41,881 43,540 48,108 Renegotiated loans - - - 27 618 --------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 53,462 38,282 41,881 43,567 48,726 Other nonperforming assets 6,427 6,630 7,655 7,141 6,522 --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 59,889 $ 44,912 $ 49,536 $ 50,708 $ 55,248 --------------------------------------------------------------------------------------------------------------------- Ratios: Reserve for loan losses to nonperforming loans 208.05% 282.34% 252.86% 233.90% 197.12% Nonperforming loans to period-end loans (2) 0.83 0.72 0.68 0.71 0.80 --------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) (1) $ 10,274 $ 12,215 $ 13,023 $ 8,108 $ 16,143 --------------------------------------------------------------------------------------------------------------------- (1) Includes residential mortgages guaranteed by agencies of the U.S. Government $ 6,640 $ 6,764 $ 6,314 $ 6,222 $ 6,200 Excludes residential mortgages guaranteed by agencies of the U.S. Government in foreclosure. 4,931 4,853 4,044 4,396 4,925 (2) Excludes residential mortgage loans held for sale ---------------------------------------------------------------------------------------------------------------------
The loan review process also identifies loans that possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. These loans are not included in nonperforming assets because the borrowers are still performing in accordance with the original terms of the loan agreements and no loss of principal or interest is anticipated. However, known information causes management to have concerns as to the borrower's ability to comply with the current repayment terms. Potential problem loans totaled $71 million at September 30, 2002 compared to $68 million at June 30, 2002 and $38 million at September 30, 2001. At September 30, 2002, the composition of potential problem loans by primary industry categories included management of recreational properties, $16 million; manufacturing, $12 million; healthcare, $11 million and energy, $11 million. CAPITAL Shareholders' equity totaled $980 million at September 30, 2002 compared to $924 million at June 30, 2002. The increase in equity was due primarily to net income of $44 million and a $10 million increase in unrealized gains on available for sale securities. BOK Financial and its subsidiary banks are subject to various capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and additional discretionary actions by regulators that could have a material effect on operations. These capital requirements include quantitative measures of assets, liabilities and certain off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulatory agencies about components, risk weightings and other factors. Management has developed and the Board of Directors has approved an internal capital policy that is more restrictive than the regulatory capital standards. At September 30, 2002, BOK Financial and each of its subsidiary banks exceeded the regulatory definition of well capitalized. -------------------------------------------------------------------------------- TABLE 14 - CAPITAL RATIOS Sept. 30 June 30, March 31, Dec. 31, Sept. 30, 2002 2002 2002 2001 2001 ----------------------------------------------------- Average shareholders' equity to average assets 8.38% 8.01% 7.93% 7.91% 7.86% Risk-based capital: Tier 1 capital 9.03 8.69 8.49 8.08 7.83 Total capital 12.43 12.11 11.99 11.56 11.35 Leverage 6.99 6.78 6.63 6.38 6.27 MARKET RISK Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange prices, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading. BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its assets held for trading and held for purposes other than trading. The effects of other changes, such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. Responsibility for managing market risk rests with the Asset / Liability Committee that operates under policy guidelines established by the Board of Directors. The acceptable negative variation in net interest revenue, net income or economic value of equity due to a 200 basis point increase or decrease in interest rates is generally limited by these guidelines to +/- 10%. These guidelines also set maximum levels for short-term borrowings, short-term assets, public funds, and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. INTEREST RATE RISK - OTHER THAN TRADING BOK Financial 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, first assuming a sustained parallel 200 basis point increase and second assuming a sustained parallel 100 basis point decrease in interest rates. Management historically evaluated interest rate sensitivity for a sustained 200 basis point decrease in rates. However, these results are not meaningful in the current low-rate environment. An independent source is used to determine the most likely interest rate scenario. BOK Financial's primary interest rate exposures that can affect the simulation model are included the Federal Reserve Bank's discount rate, which affects short-term borrowings, and the prime lending rate and the London Interbank Offering Rate, which are the basis for much of the variable-rate loan pricing. Additionally, mortgage rates directly affect the prepayment speeds for mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. The model incorporates assumptions regarding the effects of changes in interest rates and account balances on indeterminable maturity deposits based on a combination of historical analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation model. The effects of changes in interest rates on the value of mortgage servicing rights are excluded from Table 15 due to the extreme volatility over such a large rate range. The effects of interest rate changes on the value of mortgage servicing rights and securities identified as economic hedges are shown in Table 16. Table 15 - INTEREST RATE SENSITIVITY (Dollars in Thousands) Increase Decrease -------------------------- ---------------------------------------------- 200 bp 100 bp 200 bp Most Likely ------------------------ ------------------------ -------------------- 2002 2001 2002 2001 2002 2001 ------------- ---------- ----------- ------------ ---------- --------- Anticipated impact over the next twelve months: Net interest revenue $10,380 $ 6,001 $ (4,928) $ (9,525) $3,769 $ 3,124 2.8% 1.7% (1.3)% (2.7)% 1.0% 0.9% -------------------------------- --------------------------- ------------------------ --------------------- Net income $ 6,487 $ 3,751 $ (3,080) $ (5,953) $2,355 $ 1,953 4.7% 2.9% (2.3)% (4.6)% 1.7% 1.5% -------------------------------- --------------------------- ------------------------ --------------------- Economic value of equity $12,919 $(27,563) $(40,374) $(118,993) $49,822 $10,258 1.0% (2.1)% (3.0)% (9.0)% 3.7% 0.8% -------------------------------- --------------------------- ------------------------ ---------------------
BOK Financial has market risk associated with its portfolio of mortgage servicing rights. The primary risk is due to loan prepayments. Generally, the value of mortgage servicing rights declines when interest rates fall due to an increase in loan prepayments. The decrease in value of the servicing rights is recorded as an impairment allowance. Both the amortized cost and the fair value of the servicing rights are stratified by interest rate and loan type. An impairment provision is charged against earnings whenever the amortized cost exceeds the fair value of each stratum. Generally, the value of mortgage servicing rights increases when interest rates rise due to a decrease in loan prepayments. This increase in value can only be recognized up to the amortized cost. Any increase in fair value beyond amortized cost is not recognized. There is no active market for trading servicing rights. Fair value is determined by using projected prepayment speeds and assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates. Management uses independent sources for many of these assumptions. However, actual fair values may differ significantly from computed fair values due to assumption changes or modeling error. BOK Financial designates a portion of its securities portfolio as an economic hedge against the risk of loss on its mortgage servicing rights. Mortgage-backed and principal only securities are acquired and held as available for sale when prepayment risk exceeds certain levels. The fair value of these securities is expected to vary inversely to the fair value of the mortgage servicing rights. Management may sell these securities and realize gains or losses when necessary to offset losses or gains on the mortgage servicing rights. However, this strategy presents certain risks. A well-developed market determines the fair value for securities. As previously noted, there is no comparable market for mortgage servicing rights. Therefore, the computed change in value of the servicing rights for a specified change in interest rates may not correlate to the change in value of the securities. At September 30, 2002, securities with a fair value of $175 million and an unrealized gain of $6.0 million were held for the hedge program. This unrealized gain, net of income taxes, is included in shareholders' equity as part of other comprehensive income. The interest rate sensitivity of the mortgage servicing rights and securities held as a hedge is modeled over a range of +/- 50 basis points. At September 30, 2002, the pre-tax results of this modeling on reported earnings were: TABLE 16 - Interest Rate Sensitivity - Mortgage Servicing (Dollars in Thousands) 50 bp increase 50 bp decrease Anticipated change in: -------------- --------------- Mortgage servicing rights $ 21,681 $(10,491) Hedging securities ( 341)(1) 6,283 ----------------- ---------------- Net $ 21,340 $ (4,208) ----------------- ---------------- (1) Anticipated decrease in value of hedging instruments totals $6.3 million, which would reduce the existing unrealized gain before any losses would be realized. The simulations used to manage market risk are based on numerous assumptions regarding the effects of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors. BOK Financial uses interest rate swaps, a derivative product, in managing its interest rate sensitivity. These products are generally used to more closely match interest paid on certain fixed rate loans with funding sources and long-term certificates of deposits with earning assets. Credit risk from these swaps is closely monitored and counterparties to these contracts are assigned swap limits based on a credit analysis of the counterparties. Derivative products are not used for speculative purposes. BOK Financial recorded net unrealized gains on interest rate swaps of $7.2 million during the third quarter of 2002. These gains are primarily attributable to the interest rate swaps associated with fixed-rate certificates of deposit. These swaps increased in value as interest rates declined. Concurrently, the fixed-rate certificates of deposit decreased in value. Because management did not designate these interest rate swaps as hedges for accounting purposes, the decreased value of the certificates of deposit is not currently recognized. These gains may be reversed in future periods either due to rising interest rates or through periodic settlements of the interest rate swaps over their remaining lives. --------------------------------------------------------------------------------------------------- TABLE 17 - INTEREST RATE SWAPS (In Thousands) Notional Pay Receive Positive Negative Amount Rate Rate Fair Value Fair Value -------------------------------------------------------------------------------------- Expiration: 2004 $71,945 1.79%(1) - 4.22% 1.81%(1) - 7.36% $ 4,532 $ (437) 2006 220,739 1.79%(1) - 5.85% 1.81%(1) - 5.85% 5,368 (1,657) 2007 275,000 1.79%(1) 4.09% - 4.51% 5,488 - 2009 5,466 1.81%(1) - 4.75% 1.81%(1) - 4.75% 357 (357) 2011 45,033 5.21% - 5.51% 1.81% - (3,642) ---------------------------------------------------------------------------------------------------- $ 15,745 $ (6,093) ----------------------------- (1) Rates are variable based on LIBOR and reset monthly, quarterly or semiannually.
TRADING ACTIVITIES BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary, BOK Financial will take positions in securities, generally mortgage-backed securities, government agency securities, and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. BOK Financial will also take trading positions in U.S. Treasury securities, mortgage-backed securities, municipal bonds and financial futures for its own account. These positions are taken with the objective of generating trading profits. Both of these activities involve interest rate risk. A variety of methods are used to manage the interest rate risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs. The Risk Management Department monitors trading activity daily and reports to senior management and the Risk Oversight and Audit Committee of the BOK Financial Board of Directors any exceptions to trading position limits and risk management policy exceptions. BOK Financial uses a Value at Risk ("VAR") methodology to measure the market risk inherent in its trading activities. VAR is calculated based upon historical simulations over the past five years using a variance / covariance matrix of interest rate changes. It represents an amount of market loss that is likely to be exceeded only one out of every 100 two-week periods. Trading positions are managed within guidelines approved by the Board of Directors. These guidelines limit the nominal aggregate trading positions to $100 million and the VAR to $6.5 million. At September 30, 2002, the nominal aggregate trading positions was $16.9 million and the VAR was $418 thousand. The greatest value at risk during the third quarter of 2002 was $1.1 million. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about BOK Financial, the financial services industry, and the economy in general. Words such as "anticipates", "believes", "estimates", "expects", "forecasts", "plans", "projects", variations of such words, and similar expressions are intended to identify such forward-looking statements. Management judgments relating to, and discussion of the provision and reserve for loan losses involve judgments as to 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 risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to, (1) the ability to fully realize expected cost savings from mergers with the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies, and assessments, (7) the impact of technological advances, and (8) trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. REPORT OF MANAGEMENT ON CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial condition, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods presented. As of September 30, 2002, an evaluation was performed under the supervision and with the participation of BOK Financial's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of BOK Financial's disclosure controls and procedures. Based on that evaluation, BOK Financial's management, including the CEO and CFO, concluded that BOK Financial's disclosure controls and procedures were effective as of September 30, 2002. There have been no significant changes in BOK Financial's internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2002. The financial information included in this interim report has been prepared by management without audit by independent public accountants and should be read in conjunction with BOK Financial's 2001 Form 10-K filed with the Securities and Exchange Commission which contains audited financial statements. --------------------------------------------------- -- --------- --- ------------- -- ------------- --- ------------ Unaudited Consolidated Statement of Earnings (In Thousands Except Share Data) Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- -- ------------------------------ 2002 2001 2002 2001 ----------- --- ------------- -- ------------- --- ------------ Interest Revenue Loans $ 95,588 $ 113,936 $ 281,978 $ 355,875 Taxable securities 46,473 44,705 141,191 138,687 Tax-exempt securities 2,103 2,898 7,206 10,270 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Total securities 48,576 47,603 148,397 148,957 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Trading securities 209 194 583 835 Funds sold 57 130 199 744 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Total interest revenue 144,430 161,863 431,157 506,411 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Interest Expense Deposits 37,057 50,779 112,055 167,221 Other borrowings 12,598 23,687 39,273 91,276 Subordinated debenture 2,725 2,871 8,171 8,159 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Total interest expense 52,380 77,337 159,499 266,656 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Net Interest Revenue 92,050 84,526 271,658 239,755 Provision for Loan Losses 8,029 11,023 23,729 27,093 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Net Interest Revenue After Provision for Loan Losses 84,021 73,503 247,929 212,662 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Other Operating Revenue Brokerage and trading revenue 5,878 4,938 19,984 15,896 Transaction card revenue 13,654 11,679 39,579 32,992 Trust fees and commissions 9,605 10,211 30,279 30,827 Service charges and fees on deposit accounts 18,395 12,961 48,641 37,543 Mortgage banking revenue, net 12,556 12,499 33,967 35,232 Leasing revenue 790 810 2,504 2,830 Other revenue 5,105 4,341 15,845 14,509 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Total fees and commissions revenue 65,983 57,439 190,799 169,829 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Gain on sales of assets 444 11 1,127 539 Gain (loss) on sales of securities, net 34,341 19,746 48,362 34,409 Gain (loss) on derivatives 7,218 (1,105) 5,229 (761) ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Total other operating revenue 107,986 76,091 245,517 204,016 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Other Operating Expense Personnel 44,963 40,491 133,180 121,260 Business promotion 2,483 2,560 8,569 7,860 Professional fees and services 2,816 2,983 9,456 9,202 Occupancy & equipment 10,578 11,017 31,217 32,127 Data processing & communications 12,138 10,173 33,792 29,527 FDIC and other insurance 468 443 1,390 1,329 Printing, postage and supplies 3,172 3,141 9,247 9,197 Net gains and operating expenses on repossessed assets 108 1,189 811 1,162 Amortization of intangible assets 1,867 5,015 5,636 15,099 Mortgage banking costs 11,635 7,191 27,783 20,749 Provision (recovery) for impairment of mortgage servicing rights 29,042 15,224 47,538 24,412 Other expense 4,425 4,164 12,025 12,037 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Total other operating expense 123,695 103,591 320,644 283,961 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Income Before Taxes 68,312 46,003 172,802 132,717 Federal and state income tax 24,183 16,216 61,172 46,783 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Income before cumulative effect of a change in accounting principle, net of tax 44,129 29,787 111,630 85,934 Transition adjustment of adoption of FAS 133 - - - 236 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Net Income $ 44,129 $ 29,787 111,630 $86,170 ----------------------------------------------- ---- ----------- --- ------------- -- ------------- --- ------------ Earnings Per Share: Basic: Before cumulative effect of change in accounting principle $ 0.83 $ 0.56 $ 2.09 $ 1.62 Transition adjustment of adoption of FAS 133 - - - - ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------ Net Income $ 0.83 $ 0.56 $ 2.09 $ 1.62 ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------ Diluted: Before cumulative effect of change in accounting principle $ 0.73 $ 0.50 $ 1.85 $ 1.45 Transition adjustment of adoption of FAS 133 - - - - ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------ Net Income $ 0.73 $ 0.50 $ 1.85 $ 1.45 ---------------------------------------------- --- ------------- --- ------------- -- ------------- --- ------------ Average Shares Used in Computation: Basic 53,008,737 52,582,819 52,937,235 52,482,061 -------------------------------------------- -- ----------------- ----------------- ---------------- ---------------- Diluted 60,240,222 59,875,805 60,198,389 59,622,109 ---------------------------------------------- ----------------- ----------------- ---------------- ----------------
-------------------------------------------------------------------------------------------------------------------- UNAUDITED CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) September 30, December 31, September 30, 2002 2001 2001 -------------------------------------------------- ASSETS Cash and due from banks $ 531,269 $ 643,938 $ 516,675 Funds sold 8,315 3,400 22,100 Trading securities 6,791 10,327 17,753 Securities: Available for sale 3,463,280 2,815,070 2,542,135 Available for sale securities pledged to creditors 657,655 634,479 435,725 Investment (fair value: September 30, 2002 - $199,739; December 31, 2001 -$242,628; September 30, 2001 - $245,368) 195,643 241,113 242,735 -------------------------------------------------------------------------------------------------------------------- Total securities 4,316,578 3,690,662 3,220,595 -------------------------------------------------------------------------------------------------------------------- Loans 6,595,154 6,295,378 6,218,414 Less reserve for loan losses (111,226) (101,905) (96,051) -------------------------------------------------------------------------------------------------------------------- Net loans 6,483,928 6,193,473 6,122,363 -------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 144,389 141,425 139,356 Accrued revenue receivable 65,935 68,728 70,984 Intangible assets, net 145,940 152,076 157,090 Mortgage servicing rights, net 42,252 98,796 91,338 Real estate and other repossessed assets 6,427 7,141 6,522 Bankers' acceptances 28,365 15,393 25,294 Other assets 125,221 116,243 134,338 -------------------------------------------------------------------------------------------------------------------- Total assets $ 11,905,410 $ 11,141,602 $ 10,524,408 -------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Noninterest-bearing demand deposits $ 1,359,893 $ 1,366,690 $ 1,206,858 Interest-bearing deposits: Transaction 2,821,579 2,559,714 2,317,882 Savings 164,188 158,234 157,158 Time 3,128,317 2,821,106 2,994,422 -------------------------------------------------------------------------------------------------------------------- Total deposits 7,473,977 6,905,744 6,676,320 -------------------------------------------------------------------------------------------------------------------- Funds purchased and repurchase agreements 1,730,894 1,601,989 1,634,355 Other borrowings 1,098,242 1,220,948 1,021,736 Subordinated debentures 185,640 186,302 186,523 Accrued interest, taxes and expense 78,187 67,014 79,031 Amount due on unsettled security transactions 242,148 231,660 - Bankers' acceptances 28,365 15,393 25,294 Other liabilities 87,945 84,069 80,510 -------------------------------------------------------------------------------------------------------------------- Total liabilities 10,925,398 10,313,119 9,703,769 -------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred stock 25 25 25 Common stock ($.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding September 30, 2002 -53,690,698; December 31, 2001 - 51,737,154; September 30, 2001 - 51,563,050) 3 3 3 Capital surplus 382,489 323,860 317,643 Retained earnings 570,114 511,301 481,544 Treasury stock (shares at cost: September 30, 2002 - 654,217; December 31, 2001 - 541,240; September 30, 2001 - 498,502) (16,362) (12,498) (11,142) Accumulated other comprehensive income (loss) 43,743 5,792 32,566 -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 980,012 828,483 820,639 -------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 11,905,410 $ 11,141,602 $ 10,524,408 -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
-------------------------------------------------------------------------------------------------------------- UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In Thousands) Accumulated Other Preferred Stock Common Stock Comprehensive Capital Retained Treasury Stock ------------------------------------ -------------------- Shares Amount Shares Amount Income(loss) Surplus Earnings Shares Amount Total ---------------------------------------------------------------------------------------------------- Balances at December 31, 2000 250,000 $ 25 49,706 $ 3 $ 3,320 $278,882 $431,390 488 $ (10,044) $703,576 Comprehensive income: Net income - - - - - - 86,170 - - 86,170 Other Comprehensive income, net of tax: Unrealized gains(loss) on securities available for sale (1) - - - - 29,246 - - - - 29,246 ---------- Comprehensive income 115,416 ---------- Exercise of stock - - 441 - - 5,185 - 142 (3,741) 1,444 options Director retainer - - 3 - - 97 - (7) 126 223 shares Preferred stock - - - - - - (1) - - (1) dividend Dividends paid in shares of common stock: Common stock - - 1,396 - - 32,740 (34,890) (103) 2,131 (19) Preferred stock - - 17 - - 739 (1,125) (21) 386 - --------------------------------------------------------------------------------------------------------------------------- Balance at Sept. 30, 2001 250,000 $ 25 51,563 $ 3 $32,566 $317,643 $481,544 499 $(11,142) $820,639 --------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 2001 250,000 $ 25 51,737 $ 3 $ 5,792 $ 323,860 $511,301 541 $(12,498) $828,483 Comprehensive income: Net income - - - - - - 111,630 - - 111,630 Other Comprehensive income, net of tax: Unrealized gains(loss) on securities available for sale(1) - - - - 37,951 - - - - 37,951 ---------- Comprehensive income 149,581 ---------- Exercise of stock - - 369 - - 5,057 - 96 (3,284) 1,773 options Director retainer - - 6 - - 203 - - - 203 shares Dividends paid in shares of common stock: Common stock - - 1,542 - - 52,244 (51,692) 17 (580) (28) Preferred stock - - 37 - - 1,125 (1,125) - - - --------------------------------------------------------------------------------------------------------------------------- Balance at Sept. 30, 2002 250,000 $ 25 53,691 $ 3 $43,743 $ 382,489 $ 570,114 654 $(16,362) $980,012 ---------------------------------------------------------------------------------------------------------------------------
(1) Sept. 30, 2002 Sept. 30, 2001 -------------- -------------- Change in other comprehensive income: Unrealized gains (losses) on available for sale securities $ 107,110 $ 79,403 Tax (expense) benefit on unrealized gains (losses) on available for sale securities (37,917) (27,791) Reclassification adjustment for (gains) losses realized included in net income (48,362) (34,409) Reclassification adjustment for tax expense (benefit) on realized (gains) 17,120 12,043 losses --------------------------------- Net unrealized gains (losses) on securities $ 37,951 $ 29,246 --------------------------------- --------------------------------------------------------------------------------------------------------------- UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Nine Months Ended September 30, --------------------------------- 2002 2001 --------------------------------- Cash Flow From Operating Activities: Net income $ 111,630 $ 86,170 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 23,729 27,093 Provision (recovery) for mortgage servicing rights 47,538 24,412 Transition adjustment of adoption of FAS 133 - (236) Unrealized (gains) losses from derivatives (4,688) 8,782 Depreciation and amortization 50,028 49,994 Net amortization of financial instrument discounts and premiums 4,024 (2,974) Net gain on sale of assets (64,044) (48,522) Mortgage loans originated for resale (657,926) (743,638) Proceeds from sale of mortgage loans held for resale 711,329 711,631 Change in trading securities 3,536 22,112 Change in accrued revenue receivable 2,793 3,997 Change in other assets (35,824) (5,453) Change in accrued interest, taxes and expense 4,932 (8,146) Change in other liabilities 16,292 (1,344) --------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 213,349 123,878 --------------------------------------------------------------------------------------------------------------- Cash Flow From Investing Activities: Proceeds from maturities of investment securities 74,762 49,852 Proceeds from maturities of available for sale securities 1,080,274 893,667 Purchases of investment securities (29,445) (73,456) Purchases of available for sale securities (7,267,804) (5,414,885) Proceeds from sales of available for sale securities 5,621,370 4,618,978 Proceeds from sales of investment securities - 14,040 Loans originated or acquired net of principal collected (407,936) (533,097) Proceeds from disposition of assets 57,940 66,067 Purchases of assets (37,763) (57,669) Cash and cash equivalents of branches & subsidiaries acquired and sold, net - (73,475) --------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (908,602) (509,978) --------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net change in demand deposits, transaction deposits, money market deposits, and savings accounts 261,022 (56,706) Net change in certificates of deposit 307,842 319,391 Net change in other borrowings 6,199 (120,186) Change in amount due on unsettled security transactions 10,488 - Issuance of subordinated debenture - 30,000 Issuance of preferred, common and treasury stock, net 1,976 1,667 Payment of dividends (28) (20) --------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 587,499 174,146 --------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (107,754) (211,954) Cash and cash equivalents at beginning of period 647,338 750,729 --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 539,584 $ 538,775 --------------------------------------------------------------------------------------------------------------- Cash paid for interest $ 165,958 $ 269,298 --------------------------------------------------------------------------------------------------------------- Cash paid for taxes $ 38,898 $ 24,540 --------------------------------------------------------------------------------------------------------------- Net loans transferred to repossessed real estate and other assets $ 2,761 $ 6,398 --------------------------------------------------------------------------------------------------------------- Payment of dividends in common stock $ 52,789 $ 35,996 ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ACCOUNTING POLICIES Basis of Presentation The accounting and reporting policies of BOK Financial Corporation ("BOK Financial") conform to accounting principles generally accepted in the United States and generally accepted practices within the banking industry. The Consolidated Financial Statements of BOK Financial include the accounts of BOK Financial and its subsidiaries, primarily Bank of Oklahoma, N.A. ("BOk"), Bank of Arkansas N.A., Bank of Texas, N.A., Bank of Albuquerque, N.A., and BOSC, Inc. Certain prior period balances have been reclassified to conform with the current period presentation. Effect of Implementation of Recent Financial Accounting Standards Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142) was implemented January 1, 2002. Under these new rules, intangible assets with indefinite lives such as goodwill are no longer amortized over their useful lives. FAS 142 did not apply to goodwill from certain business combinations, such as branch acquisitions. On October 3, 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions" (FAS 147). FAS 147 was implemented and applied retroactively to January 1, 2002, therefore restating the previously reported quarters of 2002. The below table discloses the impact on previously reported net income and earnings per share after application of FAS 147. Three months ended ------------------------------ March 31, 2002 June 30, 2002 -------------- ------------- Net income previously reported $ 32,416 $ 34,054 Restated net income 32,932 34,569 Diluted earnings per share as previously reported $ 0.54 $ 0.57 Restated diluted earnings per share 0.55 0.57 FAS 142 and FAS 147 are not applied retroactively to prior years, therefore we have provided the following proforma information on net income and fully diluted earnings per share in 2001 for comparability purposes. Three months ended ------------------------------------------------------------------ March 31, 2001 June 30, 2001 Sept. 30, 2001 Dec. 31, 2001 -------------- ------------- -------------- ------------- Net income previously reported $ 27,402 $ 28,981 $ 29,787 $ 30,132 Proforma net income 29,634 31,202 31,450 31,795 Diluted earnings per share as previously reported $ 0.46 $ 0.49 $ 0.50 $ 0.50 Proforma diluted earnings per share 0.50 0.52 0.53 0.53
(2) MORTGAGE BANKING ACTIVITIES At September 30, 2002, BOk owned the rights to service 81,162 mortgage loans with outstanding principal balances of $6.1 billion, including $324 million serviced for BOk. The weighted average interest rate and remaining term was 7.17% and 266 months, respectively. Activity in capitalized mortgage servicing rights and related valuation allowance during the nine months ending September 30, 2002 is as follows (in thousands): Capitalized Mortgage Servicing Rights ----------------------------------------------------------------------------------------- Valuation Hedging Purchased Originated Total Allowance (Gain)/Loss Net ---------------- ------------ --------------- -------------- ---------------- ----------- Balance at December 31, 2001 $ 55,056 $ 53,611 $ 108,667 $ (18,451) $ 8,580 $ 98,796 Additions, net (157) 14,235 14,078 - - 14,078 Write-off - (7,435) (7,435) 7,435 - - Amortization expense (11,117) (10,898) (22,015) - (1,069) (23,084) Provision for impairment - - - (47,538) - (47,538) ------------------------------- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- Balance at Sept. 30, 2002 $ 43,782 $ 49,513 $ 93,295 $ (58,554) $ 7,511 $ 42,252 ------------------------------- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- Estimated fair value of mortgage servicing rights(1)$ 21,601 $ 21,881 $ 43,482 - - $ 43,482 ------------------------------- ---------- -- ---------- -- ---------- -- -------------- -- ---------- -- ----------- (1) Excludes approximately $2 million of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122.
Stratification of the mortgage loan servicing portfolio, outstanding principal of loans serviced, and related hedging information by interest rate at September 30, 2002 follows (in thousands): < 6.50% 6.50% - 7.49% 7.50% - 8.49% => 8.50% Total ---------------- --------------- ---------------- ----------- ------------- Cost less accumulated amortization $ 14,934 $ 57,563 $ 19,601 $ 1,197 $ 93,295 Deferred hedge losses - 6,988 523 - 7,511 ----------------------------------- ---------------- --------------- ---------------- ----------- ------------- Adjusted cost $ 14,934 $ 64,551 $ 20,124 $ 1,197 $ 100,806 ----------------------------------- ---------------- --------------- ---------------- ----------- ------------- Fair value $ 9,111 $ 24,999 $ 7,806 $ 1,566 $ 43,482 ----------------------------------- ---------------- --------------- ---------------- ----------- ------------- Impairment $ 6,236 $ 39,552 $ 12,429 $ 337 $ 58,554 ----------------------------------- ---------------- --------------- ---------------- ----------- ------------- Outstanding principal of loans serviced (1) $ 922,500 $ 3,389,900 $ 1,062,900 $ 148,900 $ 5,524,200 ----------------------------------- ---------------- --------------- ---------------- ----------- ------------- (1) Excludes outstanding principal of $248 million for loans serviced for which there is no capitalized mortgage servicing rights.
(3) DISPOSAL OF AVAILABLE FOR SALE SECURITIES Sales of available for sale securities resulted in gains and losses as follows (in thousands): Nine Months Ended Sept. 30, ---------------------------------- 2002 2001 -------------- --------------- Proceeds $ 5,621,370 $ 4,618,978 Gross realized gains 73,253 40,985 Gross realized losses 24,891 6,576 Related federal and state income tax expense (benefit) 17,120 12,043 (4) STOCKHOLDERS' EQUITY On October 25, 2002 BOK Financial acquired Bank of Tanglewood, N.A. for 2,003,352 shares of common stock valued at approximately $64.5 million. Additionally, BOK Financial agreed to provide benchmark price protection rights for 50% of the common shares issued in the transaction. These rights are non-transerable. One-fifth of the rights must be exercised within each defined period over teh next five years. The rights are non-cumulative. Under the benchmark price protection, BOK Financial will compensate shareholders for the difference between actual price and certain guaranteed prices of BOK Financial shares sold in a 60 day period after each anniversary date. The guaranteed prices range from $34.81 per share at the first anniversary date to $45.12 per share at the fifth anniversary date. This compensation may be paid in cash or in additional shares of common stock determined at BOK Financial's sole discretion. In no case will BOK Financial be required to issue more than 10 million common shares. The value of these benchmark price protection rights was determined to be $3.2 million at the date of acquisition, based on the Black-Scholes option-pricing model, bringing the total purchase price for Bank of Tanglewood to $67.7 million. (5) EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands except share data): Three Months Ended Nine Months Ended ----------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 (2) 2002 2001 (2) ----------------------------------------------------- Numerator: Net income $ 44,129 $ 29,787 $ 111,630 $ 86,170 Preferred stock dividends 375 375 1,125 1,125 --------------------------------------------------------------------------------------------------------------- Numerator for basic earnings per share - income available to common stockholders 43,754 29,412 110,505 85,045 --------------------------------------------------------------------------------------------------------------- Effect of dilutive securities: Preferred stock dividends 375 375 1,125 1,125 --------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $ 44,129 $ 29,787 $ 111,630 $ 86,170 --------------------------------------------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share -weighted average shares 53,008,737 52,582,819 52,937,235 52,482,061 Effect of dilutive securities: Employee stock options (1) 707,624 769,125 737,293 616,187 Convertible preferred stock 6,523,861 6,523,861 6,523,861 6,523,861 --------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 7,231,485 7,292,986 7,261,154 7,140,048 --------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 60,240,222 59,875,805 60,198,389 59,622,109 --------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.83 $ 0.56 $ 2.09 $ 1.62 --------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 0.73 $ 0.50 $ 1.85 $ 1.45 --------------------------------------------------------------------------------------------------------------- (1) Current market price was greater than exercise price on all employee stock options (2) Restated for 3% dividend paid in common shares in May 2002.
(6) REPORTABLE SEGMENTS Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2002 is as follows (in thousands): Net Other Other Interest Operating Operating Net Average Revenue Revenue(1) Expense Income Assets --------- ------------- ----------- ------------ -------------- Total reportable lines of business $ 226,334 $ 141,753 $ 272,396 $ 66,763 $ 11,291,574 Total non-reportable lines of 452 51,538 40,763 18,259 45,097 business Unallocated items: Tax-equivalent adjustment 4,715 - - 4,715 - Funds management 53,815 (1,450) 8,556 36,256 546,705 Eliminations and all others, net (13,658) 85 (1,071) (14,363) (754,230) --------- ------------- ----------- ------------ -------------- BOK Financial consolidated $ 271,658 $ 191,926 $ 320,644 $ 111,630 $ 11,129,146 ========= ============= =========== ============ ============== (1) Excludes securities and derivatives gains/losses.
Reportable segments reconciliation to the Consolidated Financial Statements for the nine months ended September 30, 2001 is as follows (in thousands): Net Other Other Interest Operating Operating Net Average Revenue Revenue(1) Expense Income Assets ---------- ------------ ----------- ------------- ------------- Total reportable lines of business $ 244,066 $ 126,464 $ 241,078 $ 84,896 $ 10,413,214 Total non-reportable lines of 491 44,089 32,343 18,587 29,108 business Unallocated items: Tax-equivalent adjustment 6,243 - - 6,243 - Funds management 6,628 (602) 5,703 (3,424) 245,113 Eliminations and all others, net (17,673) 417 4,837 (20,132) (582,960) ---------- ------------ ----------- ------------- ------------- BOK Financial consolidated $ 239,755 $ 170,368 $ 283,961 $ 86,170 $ 10,104,475 ========== ============ =========== ============= ============= (1) Excludes securities and derivatives gains/losses.
(7) CONTINGENT LIABILITIES In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not be material in the aggregate. ----------------------------------------------------------------------------------------------------------------------------------- NINE MONTH FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (In Thousands Except Share Data) For Nine months ended ------------------------------------------------------------------------------------ September 30, 2002 September 30, 2001 ----------------------------------------- ----------------------------------- Average Revenue/ Yield Average Revenue/ Yield Balance Expense(1) /Rate Balance Expense(1) /Rate ------------------------------------------------------------------------------------ Assets Taxable securities $ 3,720,835 $ 141,191 5.07% $ 2,926,690 $ 138,687 6.34% Tax-exempt securities 213,192 11,383 7.14 290,343 15,661 7.21 ------------------------------------------------------------------------------------------------------------------------------ Total securities 3,934,027 152,574 5.19 3,217,033 154,348 6.41 ------------------------------------------------------------------------------------------------------------------------------ Trading securities 16,095 663 5.51 17,155 955 7.44 Funds sold 13,047 199 2.04 19,787 744 5.03 Loans(2) 6,280,195 282,436 6.01 5,917,006 356,607 8.06 Less reserve for loan losses 108,393 89,983 ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 6,171,802 282,436 6.12 5,827,023 356,607 8.18 ------------------------------------------------------------------------------------------------------------------------------ Total earning assets(2) 10,134,971 435,872 5.75 9,080,998 512,654 7.55 ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 994,175 1,023,477 ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 11,129,146 $ 10,104,475 ------------------------------------------------------------------------------------------------------------------------------ Liabilities And Shareholders' Equity Transaction deposits $ 2,734,492 29,624 1.45% $ 2,212,120 39,960 2.42% Savings deposits 163,528 1,486 1.21 153,887 1,792 1.56 Other time deposits 2,993,374 80,945 3.62 3,000,745 125,469 5.59 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 5,891,394 112,055 2.54 5,366,752 167,221 4.17 ------------------------------------------------------------------------------------------------------------------------------ Federal funds purchased and repurchase agreements 1,557,479 19,747 1.70 1,635,891 55,545 4.54 Other borrowings 1,049,990 19,526 2.49 936,527 35,731 5.10 Subordinated debenture 185,967 8,171 5.87 178,122 8,159 6.12 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing 8,684,830 159,499 2.46 8,117,292 266,656 4.39 liabilities(2) ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,143,752 1,086,938 Other liabilities 403,762 140,421 Shareholders' equity 896,802 759,824 ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' $ 11,129,146 $ 10,104,475 equity ------------------------------------------------------------------------------------------------------------------------------ Tax-Equivalent Net Interest Revenue(1) 276,373 3.29% 245,998 3.16% Tax-Equivalent Net Interest Revenue (1)(3) To Earning Assets 3.65 3.62 Less tax-equivalent adjustment (1) 4,715 6,243 ------------------------------------------------------------------------------------------------------------------------------ Net Interest Revenue 271,658 239,755 Provision for loan losses 23,729 27,093 Other operating revenue (3) 245,517 204,380 Other operating expense 320,644 283,961 ------------------------------------------------------------------------------------------------------------------------------ Income Before Taxes 172,802 133,081 Federal and state income tax (3) 61,172 46,911 ------------------------------------------------------------------------------------------------------------------------------ Net Income $ 111,630 $ 86,170 ------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share: Net Income Basic $ 2.09 $ 1.62 ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 1.85 $ 1.45 ------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are forcomparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. (3) Includes cumulative effect of transition adjustment in adopting FAS 133 in first quarter 2001. (3) Yield/Rate excludes $1,468 million of non-recurring collection of foregone interest in June 30, 1998. ------------------------------------------------------------------------------------------------------------------------------ QUARTERLY FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (In Thousands Except Share Data) For Three months ended ------------------------------------------------------------------------------------- September 30, 2002 June 30, 2002 ------------------------------------------ ------------------------------------- Average Revenue/ Yield Average Revenue/ Yield Balance Expense(1) /Rate Balance Expense(1) /Rate ------------------------------------------------------------------------------------- Assets Taxable securities $ 3,794,732 46,473 4.86% $ 3,696,603 $ 46,564 5.05% Tax-exempt securities 193,645 3,335 6.83 218,747 3,948 7.24 ------------------------------------------------------------------------------------------------------------------------------ Total securities 3,988,377 49,808 4.95 3,915,350 50,512 5.17 ------------------------------------------------------------------------------------------------------------------------------ Trading securities 13,341 221 6.57 19,989 238 4.78 Funds sold 11,331 57 2.00 17,148 92 2.15 Loans(2) 6,444,933 95,731 5.89 6,225,134 93,787 6.04 Less reserve for loan losses 110,590 109,366 ------------------------------------------------------------------------------------------------------------------------------ Loans, net of reserve 6,334,343 95,731 6.00 6,115,768 93,787 6.15 ------------------------------------------------------------------------------------------------------------------------------ Total earning assets 10,347,392 145,817 5.59 10,068,255 144,629 5.76 ------------------------------------------------------------------------------------------------------------------------------ Cash and other assets 981,246 1,005,122 ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 11,328,638 $ 11,073,377 ------------------------------------------------------------------------------------------------------------------------------ Liabilities And Shareholders' Equity Transaction deposits $ 2,795,449 9,882 1.40% $ 2,740,454 9,841 1.44% Savings deposits 164,952 502 1.21 165,496 503 1.22 Other time deposits 3,090,272 26,673 3.42 2,969,488 27,529 3.72 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 6,050,673 37,057 2.43 5,875,438 37,873 2.59 ------------------------------------------------------------------------------------------------------------------------------ Federal funds purchased and repurchase agreements 1,615,075 6,635 1.63 1,485,816 6,197 1.67 Other borrowings 999,140 5,963 2.37 1,032,685 6,637 2.58 Subordinated debenture 185,748 2,725 5.82 185,968 2,724 5.88 ------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 8,850,636 52,380 2.35 8,579,907 53,431 2.50 ------------------------------------------------------------------------------------------------------------------------------ Demand deposits 1,188,441 1,129,412 Other liabilities 340,264 476,886 Shareholders' equity 949,297 887,172 ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' $ 11,328,638 $ 11,073,377 Equity ------------------------------------------------------------------------------------------------------------------------------ Tax-Equivalent Net Interest Revenue (1) 93,437 3.24% 91,198 3.26% Tax-Equivalent Net Interest Revenue (1) To Earning Assets 3.58 3.63 Less tax-equivalent adjustment (1) 1,387 1,632 ------------------------------------------------------------------------------------------------------------------------------ Net Interest Revenue 92,050 89,566 Provision for loan losses 8,029 6,834 Other operating revenue (3) 107,986 84,579 Other operating expense 123,695 113,798 ------------------------------------------------------------------------------------------------------------------------------ Income Before Taxes 68,312 53,513 Federal and state income tax (3) 24,183 18,944 ------------------------------------------------------------------------------------------------------------------------------ Net Income $ 44,129 $ 34,569 ------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share: Net Income Basic $ 0.83 $ 0.65 ------------------------------------------------------------------------------------------------------------------------------ Diluted $ 0.73 $ 0.57 ------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. (3) Includes cumulative effect of transition adjustment in adopting FAS 133 in first quarter 2001. (3) Yield/Rate excludes $1,468 million of non-recurring collection of foregone interest in June 30, 1998. ------------------------------------------------------------------------------------------------------------------------- For Three months ended ------------------------------------------------------------------------------------------------------------------------- March 31, 2002 December 31, 2001 September 30, 2001 ------------------------------------------------------------------------------------------------------------------------- Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield Balance Expense(1) /Rate Balance Expense(1) /Rate Balance Expense(1) /Rate ------------------------------------------------------------------------------------------------------------------------- $ 3,442,504 $ 48,153 5.67% $ 3,177,731 $ 45,777 5.72% $ 2,869,680 $ 44,705 6.18% 230,755 4,101 7.21 238,634 4,274 7.11 265,608 4,554 6.80 ------------------------------------------------------------------------------------------------------------------------- 3,673,259 52,254 5.77 3,416,365 50,051 5.81 3,135,288 49,259 6.23 ------------------------------------------------------------------------------------------------------------------------- 14,971 204 5.53 22,508 245 4.32 16,498 223 5.36 10,656 50 1.90 14,362 85 2.35 14,229 130 3.62 6,164,060 92,918 6.11 6,203,512 99,643 6.37 6,065,512 114,165 7.47 105,166 99,541 93,884 ------------------------------------------------------------------------------------------------------------------------- 6,058,894 92,918 6.22 6,103,971 99,643 6.48 5,971,628 114,165 7.58 ------------------------------------------------------------------------------------------------------------------------- 9,757,780 145,426 6.04 9,557,206 150,024 6.23 9,137,643 163,777 7.11 ------------------------------------------------------------------------------------------------------------------------- 999,738 1,024,243 1,028,385 ------------------------------------------------------------------------------------------------------------------------- $ 10,757,518 $ 10,581,449 $ 10,166,028 ------------------------------------------------------------------------------------------------------------------------- $ 2,666,154 9,902 1.51% $ 2,429,978 9,933 1.62% $ 2,278,393 11,917 2.08% 160,082 481 1.22 158,040 489 1.23 155,908 575 1.46 2,918,473 26,743 3.72 2,839,770 30,744 4.30 3,030,759 38,287 5.01 ------------------------------------------------------------------------------------------------------------------------- 5,744,709 37,126 2.62 5,427,788 41,166 3.01 5,465,060 50,779 3.69 ------------------------------------------------------------------------------------------------------------------------- 1,571,063 6,915 1.79 1,701,655 8,813 2.05 1,440,556 12,976 3.57 1,119,466 6,925 2.51 1,088,792 8,460 3.08 1,019,123 10,711 4.17 186,189 2,722 5.92 186,409 2,764 5.88 186,631 2,871 6.10 ------------------------------------------------------------------------------------------------------------------------- 8,621,427 53,688 2.53 8,404,644 61,203 2.89 8,111,370 77,337 3.78 ------------------------------------------------------------------------------------------------------------------------- 1,112,571 1,150,498 1,093,442 170,643 191,023 163,999 852,877 835,284 797,217 ------------------------------------------------------------------------------------------------------------------------- $ 10,757,518 $ 10,581,449 $ 10,166,028 ------------------------------------------------------------------------------------------------------------------------- 91,738 3.52% 88,821 3.34% 86,440 3.33% 3.05 3.81 3.69 3.75 1,696 1,802 1,914 ------------------------------------------------------------------------------------------------------------------------- 90,042 87,019 84,526 8,866 10,517 11,023 52,952 55,260 76,091 83,151 84,801 103,591 ------------------------------------------------------------------------------------------------------------------------- 50,977 46,961 46,003 18,045 16,829 16,216 ------------------------------------------------------------------------------------------------------------------------- $ 32,932 $ 30,132 $ 29,787 ------------------------------------------------------------------------------------------------------------------------- $ 0.62 $ 0.56 $ 0.56 ------------------------------------------------------------------------------------------------------------------------- $ 0.55 $ 0.50 $ 0.50 -------------------------------------------------------------------------------------------------------------------------
PART II. Other Information (A) Item 6. Exhibits and Reports on Form 8-K Exhibits: Exhibit 10.30 - Remote Outsourcing Services Agreement between Bank of Oklahoma, N.A. and Alltel Information Services, Inc., dated September 1, 2002. (B) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended September 30, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOK FINANCIAL CORPORATION (Registrant) Date: November 13, 2002 /s/ Steven E. Nell ----------------- ------------------ Steven E. Nell Executive Vice President and Chief Financial Officer /s/ John C. Morrow ------------------- John C. Morrow Senior Vice President and Director of Financial Accounting & Reporting CFO Certification I, Steven E. Nell, Executive Vice President and Chief Financial Officer of BOK Financial Corporation ("BOK Financial"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of BOK Financial; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Steven E. Nell ------------------- Steven E. Nell Executive Vice President Chief Financial Officer BOK Financial Corporation CEO Certification I, Stan A. Lybarger, President and Chief Executive Officer of BOK Financial Corporation ("BOK Financial"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of BOK Financial; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Stanley A. Lybarger ------------------------ Stanley A. Lybarger President Chief Executive Officer BOK Financial Corporation