-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B9RiqGHB/M0rgkuhzL4UaYJqrZGmAV47phM9jVzjuKmi16hwTGfEa4bU1uktjePd cMgem+iWBFNhFl1vDXr5aQ== 0000875357-98-000006.txt : 19980324 0000875357-98-000006.hdr.sgml : 19980324 ACCESSION NUMBER: 0000875357-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOK FINANCIAL CORP ET AL CENTRAL INDEX KEY: 0000875357 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 731373454 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19341 FILM NUMBER: 98571247 BUSINESS ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: PO BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 BUSINESS PHONE: 9185886000 MAIL ADDRESS: STREET 1: BANK OF OKLAHOMA TOWER STREET 2: P O BOX 2300 CITY: TULSA STATE: OK ZIP: 74192 10-K 1 1997 FORM 10-K As filed with the Securities and Exchange Commission on March 23, 1998 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1997 Commission File No. 0-19341 BOK FINANCIAL CORPORATION Incorporated in the State I.R.S. Employer Identification of Oklahoma No.73-1373454 Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 Registrant's Telephone Number, Including Area Code (918) 588-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (NONE) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK ($.00006 Par Value) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the Registrant: $63,328,413 as of February 28, 1998. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 21,930,457 shares of common stock ($.00006 par value) as of February 28, 1998. List hereunder the following documents if incorporated by reference and the part of Form 10-K in which the document is incorporated: Part I - Annual Report to Shareholders For Fiscal Year Ended December 31, 1997 (designated portions only) Part II - Annual Report to Shareholders For Fiscal Year Ended December 31, 1997 (designated portions only) Part III - Proxy Statement for Annual Meeting of Shareholders scheduled for April 28, 1998 (designated portions only) Part IV - Annual Report to Shareholders For Fiscal Year Ended December 31, 1997 (designated portions only) ================================================================================ 2 BOK FINANCIAL CORPORATION FORM 10-K ANNUAL REPORT INDEX ITEM PAGE PART I 1. Business 3 2. Properties 8 3. Legal Proceedings 8 4. Submission of Matters to a Vote of Security Holders 8 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 6. Selected Financial Data 9 7. Management's Discussion and Analysis of Financial Condition and 9 Results of Operations 7A. Quantitative and Qualitative Disclosures About Market Risk 9 8. Financial Statements and Supplementary Data 9 9. Changes in and Disagreements with Accountants on Accounting and 9 Financial Disclosure PART III 10. Directors and Executive Officers of the Registrant 9 11. Executive Compensation 9 12. Security Ownership of Certain Beneficial Owners and Management 9 13. Certain Relationships and Related Transactions 9 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10-14 Signatures 15 3 PART I ITEM 1 - BUSINESS General Development of Business BOK Financial Corporation ("BOK Financial") was incorporated under the laws of the State of Oklahoma on October 24, 1990. Active operations as a bank holding company commenced on June 7, 1991 with the acquisition of the preferred stock ("BOk Preferred Stock") of Bank of Oklahoma, National Association ("BOk") from the Federal Deposit Insurance Corporation ("FDIC") and the conversion of the BOk Preferred Stock into 99.99% of the common stock of BOk. BOK Financial is regulated by the Board of Governors of the Federal Reserve System pursuant to the Bank Holding Company Act of 1956, as amended ("BHCA"). BOK Financial operates primarily through BOk, BOk's subsidiaries, Bank of Texas, National Association ("BOT") (formerly First National Bank of Park Cities and First Texas Bank, both of which were acquired during 1997 and merged on January 1, 1998, and Bank of Texas Trust Company, National Association, formerly Alliance Trust Company, National Association), and Bank of Arkansas, National Association ("BOA") (formerly Citizens Bank of Northwest Arkansas, National Association). The existing and future activities of BOK Financial and its subsidiaries are limited by the BHCA, which prohibits a bank holding company from engaging in any business other than banking, managing or controlling banks, and furnishing and performing certain bank-related services and activities. Shares disclosed in the following transactions have not been restated for subsequent stock dividends. On June 7, 1991, BOK Financial paid $60.75 million to the FDIC for the BOk Preferred Stock. To finance this acquisition, BOK Financial issued preferred stock totaling $15.0 million at $6.00 per share and common stock ("Common Stock") totaling $46.0 million at $5.75 per share to George B. Kaiser ("Kaiser"), BOK Financial's principal shareholder. Kaiser purchased an additional $10.0 million of BOK Financial Common Stock at $5.75 per share, and BOK Financial contributed the $10.0 million to BOk as additional capital. Per share amounts reflect a 1-for-100 reverse stock split effective December 17, 1991 ("reverse stock split"). Following a bidding process conducted by the Resolution Trust Corporation ("RTC"), BOK Financial, through the mortgage banking subsidiary of BOk, BancOklahoma Mortgage Corp. ("BOMC"), acquired on June 10, 1991 approximately $1.0 billion of mortgage servicing rights and certain other assets of Maxim Mortgage Corporation ("Maxim"). Maxim was formerly a subsidiary of Sooner Federal Savings and Loan Association, which had failed and had been placed under the control of the RTC. Also following a bidding process by the RTC, BOK Financial acquired on August 9, 1991 certain assets and assumed certain liabilities, primarily deposits, of eight branches of Continental Federal Savings and Loan Association of Oklahoma City, Oklahoma. BOK Financial assumed deposits of approximately $214.5 million and paid the RTC a premium of $4.1 million. Kaiser acquired an additional $20.0 million of BOK Financial's Common Stock at $5.75 per share (after effect of the reverse stock split), and BOK Financial contributed the $20.0 million to BOk to facilitate the purchase. On March 27, 1992, BOA acquired certain assets and assumed the deposits and certain obligations of two branches of the failed Home Federal Savings & Loan Association from the RTC for $1.1 million. On July 16, 1992, Bank of Oklahoma, N.A., South, an unconsolidated banking subsidiary, was merged into BOk. On November 13, 1992, BOK Financial purchased Southwest Trustcorp, Inc. and its subsidiary, The Trust Company of Oklahoma, Oklahoma City, in exchange for 400,000 shares of Common Stock valued at $4.6 million. On December 31, 1992, BOK Financial acquired certain assets and assumed $502.9 million of deposits and other liabilities of 19 branches of the Sooner Division of First Gibraltar Bank, FSB of Irving, Texas for a purchase price of $16.5 million. On May 7, 1993, BOK Financial issued 343,295 common shares valued at $6.9 million and paid $3.9 million to acquire Sand Springs Bancshares, Inc. and its subsidiary, Sand Springs State Bank. Also on May 7, 1993, BOK Financial issued 1,183,691 common shares to acquire Brookside Bancshares, Inc. and its subsidiary, Brookside State Bank, in a pooling-of-interests transaction. Financial information of BOK Financial for 1992 and 1991 has been restated to reflect this acquisition. On October 9, 1993, BOK Financial acquired certain assets and assumed the deposits and certain obligations of two branches of the failed Heartland Federal Savings & Loan Association from the FDIC for $5.1 million. On May 2, 1994, BOK Financial acquired Plaza National Bank, Bartlesville, Oklahoma for $11.7 million. On June 13, 1994, BOK Financial acquired Texas Commerce Trust Company - Sherman, National Association, Sherman, Texas, a national association limited to trust powers only, for $6.1 million. 4 On October 7, 1994, BOK Financial acquired Northwest Bank of Enid, Enid, Oklahoma for $8.2 million. On November 14, 1994, BOK Financial issued 1,380,017 common shares to acquire Citizens Holding Company and its subsidiaries, Citizens Bank of Muskogee and Citizens Bank of Northwest Arkansas, in a pooling-of-interests. Financial information of BOK Financial for 1993 and 1992 has been restated to reflect this acquisition. On February 12, 1997, BOK Financial acquired Park Cities Bancshares, Inc. and its subsidiary, First National Bank of Park Cities, in Dallas, Texas for $50.9 million. On March 4, 1997, BOK Financial acquired First TexCorp., Inc. and its subsidiary, First Texas Bank, in Dallas, Texas for $39.3 million. On January 1, 1998, First National Bank of Park Cities and First Texas Bank were merged under the name of Bank of Texas, National Association and Alliance Trust Company, National Association was transferred to BOT and its name changed to Bank of Texas Trust Company, National Association. Developments relating to individual aspects of the business of BOK Financial are described under "Narrative Description of Business" and "Services Offered" on page 4 of this report. Additional discussion of BOK Financial's activities during the current year is incorporated by reference to "Management's Assessment of Operations and Financial Condition" (pages 6 - 18) in BOK Financial's 1997 Annual Report to Shareholders. Additional information regarding BOK Financial's acquisitions is incorporated by reference to Note 2 of "Notes to Consolidated Financial Statements" (page 28 ) in BOK Financial's 1997 Annual Report to Shareholders. Narrative Description of Business BOK Financial is a bank holding company, and as such, its activities are limited by the BHCA to banking, certain bank-related services and activities, and managing or controlling banks. BOK Financial's banking and bank-related activities are primarily performed through BOk, BOT and BOA. Other significant operating subsidiaries include BOK Capital Services Corporation, which provides leasing and mezzanine financing and Alliance Securities Corporation which is authorized to underwrite municipal revenue bonds, asset-backed securities and commercial paper. Other nonbank subsidiary operations are not significant. As of December 31, 1997, BOK Financial and its subsidiaries had 2,318 full-time equivalent employees. Following is a description of the more significant services offered by BOK Financial and the competitive and regulatory environments in which it operates. Services Offered Commercial Banking Services BOK Financial, through BOk, BOT and BOA, provides a wide range of financial services to commercial and industrial customers, including depository, lending and other financial services such as cash management, leasing and international collections. The loan portfolio is comprised primarily of real estate and commercial loans. The commercial loan portfolio is diversified and distributed among various commercial and industrial customers, including energy-related, manufacturing, trade and service industries. Correspondent Banking Services BOK Financial provides a broad range of financial services to banks, savings and loans, credit unions and other financial institutions in Oklahoma and surrounding states. BOK Financial works closely with community financial institutions, assisting them in satisfying the demands of their customers and trade areas by engaging in loan participations and providing other financial services. Consumer Banking Services At December 31, 1997, BOk had 65 banking locations, with 45 locations in the Tulsa and Oklahoma City areas. BOT had 4 offices in Dallas and another trust office in Sherman, Texas, and BOA had 4 locations in northwest Arkansas. Services offered include deposit accounts, installment loans, student loans, personal lines of credit, debit cards, an automated 24-hour telephone loan application service, a 24-hour telephone branch and telephone and personal computer based bill paying services. The BancOklahoma Investment Center makes available, through representatives in most BOk branches, a full range of mutual funds, annuities and securities. TransFund, BOk's network of automated teller machines, consists of 782 locations across Oklahoma, Arkansas, southwest Missouri, northern Texas and southern Kansas. Investment and Money Market Activities BOk provides securities brokerage, and trading services for corporations, governmental units, individual customers and correspondent banks. Securities include money market instruments, U.S. Government and municipal bonds, corporate stocks 5 and bonds, and mutual funds. The public finance department provides bank-eligible underwriting financial advisory, private placement and term-financing services for governmental and corporate entities. BOK Financial provides a broad range of financial services outside those traditionally associated with banking through its subsidiaries Alliance Securities Corp., which is authorized to provide financial advisory services to both public and corporate sectors, underwriting of municipal revenue bonds, mortgage backed debt, consumer receivables, and commercial paper; and BOK Capital Services Corp. which provides leasing and mezzanine financing. Mortgage Banking BOk through its Mortgage Division (formerly BancOklahoma Mortgage Corp.) offers a full array of mortgage options from federally sponsored programs to "jumbo loans" on higher priced houses. BOk is the largest originator of mortgage loans in Oklahoma and has a servicing portfolio of approximately $7.0 billion, including $216 million serviced for BOk. Trust and Asset Management Services BOK Financial provides a wide range of trust services through BOk's Trust Division (formerly BancOklahoma Trust Company) in Oklahoma and BOT's Bank of Texas Trust Company, N.A. in Texas (formerly Alliance Trust Company, N.A.) Individual financial trust services include personal trust management, administration of estates and management of individual investment and custodial accounts. For corporate clients, the services include management, administration and recordkeeping of pension plans, thrift plans, 401(k) plans and master trust plans, including a state-of-the-art system for employee benefit plan recordkeeping. The BOk trust division also serves as transfer agent and registrar for corporate securities, paying agent for municipalities and governmental agencies and indenture trustee of bond issues. The BOK Trust Division serves as an investment advisor to the American Performance Funds, a family of proprietary mutual funds distributed by the Winsbury Company of Columbus, Ohio. At December 31, 1997, trust subsidiaries were responsible for approximately $11.1 billion in assets. Foreign Operations BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments. Competition The banking industry in Oklahoma is highly competitive. BOK Financial competes with other banks in obtaining deposits, making loans and providing additional services related to banking. There are approximately 320 banks located in Oklahoma, of which approximately 38 are located in the Tulsa County and surrounding metropolitan area and approximately 53 are located in the Oklahoma County and surrounding metropolitan area. BOK Financial is also in competition with other businesses engaged in extending credit or accepting deposits, such as major retail establishments, major brokerage firms, savings and loan associations, credit unions, finance companies, small loan companies, insurance companies and loan production offices of major banks located within and outside Oklahoma. Limited branch banking as permitted in Oklahoma is increasing competition. Generally, a bank may establish two new branch offices within the town or city where the bank is located or in nearby areas not already served by a bank or branch, and may acquire an unlimited number of existing banks and convert them and their branches into branch offices. Within its primary markets, BOk has 23 locations in the Tulsa area and 22 locations in the Oklahoma City area, the state's largest financial markets. Subject to regulatory approval, BOk is considering various locations for additional facilities. Like BOk, other banks are taking advantage of the bank branching laws to establish additional facilities. These additional banking offices are further increasing competition. Limited branch banking is, on the other hand, permitting banks to compete more effectively with savings and loan associations, credit unions and other financial institutions that may establish offices more freely than banks, some of which are not subject to comparable regulatory restrictions on their activities. Oklahoma also permits the acquisition of an unlimited number of wholly-owned bank subsidiaries so long as aggregate deposits at the time of acquisition in a multibank holding company do not exceed 15% of all deposits in Oklahoma financial institutions insured by the federal government, exclusive of credit union deposits. Based on the latest statistical data available (as of June 30, 1997), BOK Financial could acquire additional bank subsidiaries so long as the aggregate deposits of all Oklahoma subsidiaries do not exceed approximately $5.2 billion. Deposits of BOk were $3.2 billion and $3.3 billion at June 30, and December 31, 1997, respectively. Oklahoma also permits out-of-state bank holding companies to acquire banks and bank holding companies located in the state and, subject to certain limitations, make additional acquisitions within the state. During the last few years the Oklahoma banking industry has been consolidated into fewer but larger banks. During 1997, two "super-regional" holding companies completed acquisitions of the second and third largest banks in Oklahoma. The consolidation over the past several years has brought about a highly competitive environment, in which many customers have access to national and regional financial institutions for many products and services. On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal") was signed into law. In summary, commencing one year after passage, qualifying bank holding companies were permitted to acquire 6 banks in any state. As of June 1, 1997, qualifying banks were able to engage in interstate branching by merging banks in different states. States " opt-out" of interstate branching by enacting specific legislation prior to June 1, 1997, in which case out-of-state banks would generally not be able to branch into that state, and banks headquartered in that state would not be permitted to branch into other states. The law imposes a 10% nationwide deposit cap and a 30% state deposit cap; however, the states' authority is preserved to impose a lower, nondiscriminatory deposit cap. Oklahoma elected to "opt-in" to interstate branching effective May 1997 and established a 12.25% deposit cap which was subsequently increased to 15%. It is anticipated that the total number of Oklahoma banks may decrease and national and regional bank presence in the state may increase. Over the near-term, these changes are expected to increase competition with a greater number of products and services available to Oklahoma customers. Over the long-term, the number of competitors could decrease, depending on the extent of consolidations nationwide, but competition could continue to increase as a result of the remaining institutions needing to be stronger, more innovative and more aggressive to retain a significant presence in a consolidated environment. Additional legislation, judicial and administrative decisions also may affect the ability of banks to compete with each other as well as with other businesses. These statutes and decisions may tend to make the operations of various financial institutions more similar and increase competition among banks and other financial institutions or limit the ability of banks to compete with other businesses. Management currently cannot predict whether and, if so, when any such changes might occur or the impact any such changes would have upon the income or operations of BOK Financial or its subsidiaries, or upon the Oklahoma regional banking environment. Supervision and Regulation Bank holding companies and banks are extensively regulated under both federal and state law. The following information, to the extent it describes statutory or regulatory provisions, is qualified in its entirety by reference to the particular statutory and regulatory provisions. It is not possible to predict the changes, if any, that may be made to existing banking laws and regulations or whether such changes, if made, would have a materially adverse effect on the business and prospects of BOK Financial, BOk, BOT and BOA. BOK Financial As a bank holding company, BOK Financial is subject to regulation under the BHCA and to supervision by the Board of Governors of the Federal Reserve System (the "Reserve Board"). Under the BHCA, BOK Financial is required to file with the Reserve Board an annual report and such other additional information as the Reserve Board may require. The Reserve Board may also make examinations of BOK Financial and its subsidiaries. The BHCA requires the prior approval of the Reserve Board in any case where a bank holding company proposes to acquire control of more than five percent of the voting shares of any bank, unless it already controls a majority of such voting shares. Additionally, approval must also be obtained before a bank holding company may acquire all or substantially all of the assets of another bank or before it may merge or consolidate with another bank holding company. The BHCA further provides that the Reserve Board shall not approve any such acquisition, merger or consolidation that will substantially lessen competition, tend to create a monopoly or be in restraint of trade, unless it finds the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than five percent of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company whose activities the Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Reserve Board weighs the Community Reinvestment Act activities of the bank holding company and the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; servicing loans and other extensions of credit; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; owning and operating savings and loan associations; and leasing personal property on a full-payout, nonoperating basis. A bank holding company and its subsidiaries are further prohibited under the BHCA from engaging in certain tie-in arrangements in connection with the provision of any credit, property or services. Thus, a subsidiary of a bank holding 7 company may not extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that (1) the customer obtain or provide some additional credit, property or services from or to the bank holding company or any subsidiary thereof or (2) the customer may not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to insure the soundness of credit extended. The Federal Deposit Insurance Corporation Improvement Act of 1991 established five capital rating tiers ranging from "well capitalized" to "critically undercapitalized". A financial institution is considered to be well capitalized if its Leverage, Tier 1 and Total Capital ratios are at 5%, 6% and 10%, respectively. Any institution experiencing significant growth or acquiring other institutions or branches is expected to maintain capital ratios above the well capitalized level. At December 31, 1997, BOK Financial's Leverage, Tier 1 and Total Capital ratios were 6.81%, 9.39% and 14.54%, respectively. Bank Subsidiaries BOk, BOT and BOA are national banking associations and are subject to the National Banking Act and other federal statutes governing national banks. Under federal law, the Office of the Comptroller of the Currency ("Comptroller") charters, regulates and serves as the primary regulator of national banks. In addition, the Comptroller must approve certain corporate or structural changes, including an increase or decrease in capitalization, payment of dividends, change of place of business, establishment of a branch and establishment of an operating subsidiary. The Comptroller performs its functions through national bank examiners who provide the Comptroller with information concerning the soundness of a national bank, the quality of management and directors, and compliance with applicable laws, rules and regulations. The National Banking Act authorizes the Comptroller to examine every national bank as often as necessary. Although the Comptroller has primary supervisory responsibility for national banks, such banks must also comply with Reserve Board rules and regulations as members of the Federal Reserve System. BOA is also subject to certain consumer-protection laws incorporated in the Arkansas Constitution, which, among other restrictions, limit the maximum interest rate on general loans to five percent above the Federal Reserve Discount Rate. The rate on consumer loans is five percent above the discount rate or seventeen percent, whichever is lower. BOk, BOT and BOA are insured by the FDIC and are required to pay certain fees and premiums to the Bank Insurance Fund ("BIF"). The BIF has implemented a risk-related insurance system for determining premiums to be paid by a bank. Each bank is placed in one of nine risk categories based on its level of capital and supervisory rating with the well-capitalized banks with the highest supervisory rating paying a premium of 0.00% of deposits and the critically undercapitalized banks paying up to 0.27% of deposits. Also, approximately 19% of BOK Financial's total deposits at December 31, 1997 were acquired through Oakar transactions and are insured through the Savings Association Insurance Fund ("SAIF"). The Deposit Insurance Funds Act of 1996 was enacted on September 30, 1996, which recapitalized the SAIF and implemented a risk-related insurance system identical to the BIF system discussed above. In addition, the Deposit Insurance Fund Act of 1996 implemented an additional assessment on BIF and SAIF deposits, the Financing Corporation ("FICO") Quarterly Payment, which is not tied to the BIF risk classification. The FICO BIF annual rate at December 31, 1997 was 1.256 basis points and the FICO SAIF annual rate was 6.28 basis points. Applicable federal statutes and regulations require national banks to meet certain leverage and risk-based capital requirements. At December 31, 1997, BOk's, BOT's and BOA's leverage and risk-based capital ratios were well above the required minimum ratios. 8 Governmental Policies and Economic Factors The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various regulatory authorities and, in particular, the credit policies of the Reserve Board. An important function of the Reserve Board is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Reserve Board to implement its objectives are: open market operations in U.S. Government securities; changes in the discount rate on bank borrowings; and changes in reserve requirements on bank deposits. The effect of such policies in the future on the business and earnings of BOK Financial and its subsidiaries cannot be predicted with certainty. ITEM 2 - PROPERTIES BOK Financial, through BOk, BOk's subsidiaries, BOT and BOA, owns improved real estate that was carried at $43.0 million, net of depreciation and amortization, as of December 31, 1997. BOK Financial conducts its operations through a total of 65 banking and 4 nonbanking locations in Oklahoma, 4 banking locations in Arkansas and 4 banking and 2 nonbanking locations in Texas as of December 31, 1997. BOk's facilities are suitable for their respective uses and present needs. The information set forth in Notes 6 and 13 of "Notes to Consolidated Financial Statements" (pages 32 and 38, respectively) of BOK Financial's 1997 Annual Report to Shareholders provides further discussion related to properties and is incorporated herein by reference. ITEM 3 - LEGAL PROCEEDINGS The information set forth in Note 13 of "Notes to Consolidated Financial Statements" (page 38) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended December 31, 1997. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS BOK Financial's $.00006 par value common stock is traded over-the-counter and is reported on the facilities of the National Association of Securities Dealers Automated Quotation system ("NASDAQ"), with the symbol BOKF. At December 31, 1997, common shareholders of record numbered 1,227 with 21,909,370 shares outstanding. During 1997, BOK Financial declared a 3% stock dividend in respect of its Common Stock payable in shares of Common Stock. The dividend was payable on November 26, 1997 to shareholders of record on November 17, 1997. BOK Financial's quarterly market information follows: First Second Third Fourth --------------- -------------- -------------- --------------- 1997: Low $27.75 $29.25 $32.75 $38.81 High 31.50 36.00 40.50 44.00 1996: Low $19.25 $20.00 $21.25 $23.25 High 23.25 22.75 23.75 28.00 On February 25, 1998, BOK Financial announced that its board of directors approved a common stock repurchase program to purchase up to 200,000 shares. The purchases will be made from time-to-time in accordance with SEC Rule 10(b)18 transactions. The information set forth under the captions "Table 1 - Consolidated Selected Financial Data" (page 5), "Table 6 - Selected Quarterly Financial Data" (page 12) and Note 15 of "Notes to Consolidated Financial Statements" (page 39) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. 9 ITEM 6 - SELECTED FINANCIAL DATA The information set forth under the caption "Table 1 - Consolidated Selected Financial Data" (page 5) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the captions "Management's Assessment of Operations and Financial Condition" (pages 6 - 18), "Annual Financial Summary - Unaudited" (pages 44 - 45) and "Quarterly Financial Summary - Unaudited" (pages 46 - 47) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information set forth under the caption "Market Risk" (pages 17-18) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The supplementary data regarding quarterly results of operations set forth under the caption "Table 6 - Selected Quarterly Financial Data" (page 12) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Election of Directors" and "Executive Compensation" in BOK Financial's 1997 Annual Proxy Statement for its Annual Meeting of Shareholders scheduled for April 28, 1998 ("1997 Annual Proxy Statement") is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in BOK Financial's 1997 Annual Proxy Statement is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in BOK Financial's 1997 Annual Proxy Statement is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions" in BOK Financial's 1997 Annual Proxy Statement is incorporated herein by reference. The information set forth under Notes 3, 5 and 9 of "Notes to Consolidated Financial Statements" (pages 29, 31, and 34, respectively) of BOK Financial's 1997 Annual Report to Shareholders is incorporated herein by reference. 10 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) LIST OF FINANCIAL STATEMENTS FILED. The following financial statements and reports included in BOK Financial's Annual Report to Shareholders for the Fiscal Year Ended December 31, 1997 are incorporated by reference in Parts I and II of this Annual Report on Form 10-K. 1997 Annual Report Description Page Number Consolidated Selected Financial Data 5 Selected Quarterly Financial Data 12 Report of Management on Financial Statements 19 Report of Independent Auditors 19 Consolidated Statements of Earnings 20 Consolidated Balance Sheets 21 Consolidated Statements of Changes in Shareholders' Equity 22-23 Consolidated Statements of Cash Flows 24 Notes to Consolidated Financial Statements 25-43 Annual Financial Summary - Unaudited 44-45 Quarterly Financial Summary - Unaudited 46-47 (A)(2) List of Financial Statement Schedules filed. The schedules to the consolidated financial statements required by Regulation S-X are not required under the related instructions or are inapplicable and are therefore omitted. (A)(3) LIST OF EXHIBITS FILED. Exhibit Number Description of Exhibit 3.0 The Articles of Incorporation of BOK Financial, incorporated by reference to (i) Amended and Restated Certificate of Incorporation of BOK Financial filed with the Oklahoma Secretary of State on May 28, 1991, filed as Exhibit 3.0 to S-1 Registration Statement No. 33-90450, and (ii) Amendment attached as Exhibit A to Information Statement and Prospectus Supplement filed November 20, 1991. 3.1 Bylaws of BOK Financial, incorporated by reference to Exhibit 3.1 of S-1 Registration Statement No. 33-90450. 4.0 The rights of the holders of the Common Stock and Preferred Stock of BOK Financial are set forth in its Certificate of Incorporation. 10.0 Purchase and Sale Agreement dated October 25, 1990, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.0 of S-1 Registration Statement No. 33-90450. 11 10.1 Amendment to Purchase and Sale Agreement effective March 29, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.2 of S-1 Registration Statement No. 33-90450 10.2 Letter agreement dated April 12, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.3 of S-1 Registration Statement No. 33-90450. 10.3 Second Amendment to Purchase and Sale Agreement effective April 15, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.4 of S-1 Registration Statement No. 33-90450. 10.4 Employment agreements. 10.4(a) Employment Agreement between BOk and Stanley A. Lybarger, incorporated by reference to Exhibit 10.4(a) of Form 10-K for the fiscal year ended December 31, 1991. 10.5 Director indemnification agreement dated June 30, 1987, between BOk and Kaiser, incorporated by reference to Exhibit 10.5 of S-1 Registration Statement No. 33-90450. Substantially similar director indemnification agreements were executed between BOk and the following: Date of Agreement James E. Barnes June 30, 1987 William H. Bell June 30, 1987 James S. Boese June 30, 1987 Dennis L. Brand June 30, 1987 Chester E. Cadieux June 30, 1987 William B. Cleary June 30, 1987 Glenn A. Cox June 30, 1987 William E. Durrett June 30, 1987 Leonard J. Eaton, Jr. June 30, 1987 William B. Fader December 5, 1990 Gregory J. Flanagan June 30, 1987 Jerry L. Goodman June 30, 1987 David A. Hentschel July 7, 1987 Philip N. Hughes July 8, 1987 Thomas J. Hughes, III June 30, 1987 William G. Kerr June 30, 1987 Philip C. Lauinger, Jr. June 30, 1987 Stanley A. Lybarger December 5, 1990 Patricia McGee Maino June 30, 1987 Robert L. Parker, Sr. June 30, 1987 James A. Robinson June 30, 1987 William P. Sweich June 30, 1987 10.6 Capitalization and Stock Purchase Agreement dated May 20, 1991, between BOK Financial and Kaiser, incorporated by reference to Exhibit 10.6 of S-1 Registration Statement No. 33-90450. 10.7 BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-44122. 10.7.1 BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-55312. 10.7.2 BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-70102. 10.7.3 BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79834. 12 10.7.4 BOK Financial Corporation 1994 Stock Option Plan (Typographical Error Corrected January 16, 1995), incorporated by reference to Exhibit 10.7.4 of Form 10-K for the fiscal year ended December 31, 1994. 10.7.5 BOK Financial Corporation 1997 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-32642. 10.7.6 BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79836. 10.7.7 Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995), incorporated by reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31, 1994. 10.7.8 Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated by reference to Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994. 10.8 Lease Agreement between One Williams Center Co. and National Bank of Tulsa (predecessor to BOk) dated June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1 Registration Statement No. 33-90450. 10.9 Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1, 1988, incorporated by reference to Exhibit 10.10 of S-1 Registration Statement No. 33-90450. 10.10 Asset Purchase Agreement (OREO and other assets) between BOk and Phi-Lea-Em Corporation dated April 30, 1991, incorporated by reference to Exhibit 10.11 of S-1 Registration Statement No. 33-90450. 10.11 Asset Purchase Agreement (Tanker Assets) between BOk and Green River Exploration Company dated April 30, 1991, incorporated by reference to Exhibit 10.12 of S-1 Registration Statement No. 33-90450. 10.12 Asset Purchase Agreement (Recovery Rights) between BOk and Kaiser dated April 30, 1991, incorporated by reference to Exhibit 10.13 of S-1 Registration Statement No. 33-90450. 10.13 Purchase and Assumption Agreement dated August 7, 1992 among First Gibraltar Bank, FSB, Fourth Financial Corporation and BOk, as amended, incorporated by reference to Exhibit 10.14 of Form 10-K for the fiscal year ended December 31, 1992. 10.13.1 Allocation Agreement dated August 7, 1992 between BOk and Fourth Financial Corporation, incorporated by reference to Exhibit 10.14.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.14 Merger Agreement among BOK Financial, BOKF Merger Corporation Number Two, Brookside Bancshares, Inc., The Shareholders of Brookside Bancshares, Inc. and Brookside State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.15 of Form 10-K for the fiscal year ended December 31, 1992. 10.14.1 Agreement to Merge between BOk and Brookside State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.15.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.15 Merger Agreement among BOK Financial, BOKF Merger Corporation Number Three, Sand Springs Bancshares, Inc., The Shareholders of Sand Springs Bancshares, Inc. and Sand Springs State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1992. 10.15.1 Agreement to Merge between BOk and Sand Springs State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1992. 13 10.16 Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated December 1, 1992, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1993. 10.16.1 Amendment to Partnership Agreement between Kaiser-Francis Oil Company and BOK Financial dated May 17, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1993. 10.17 Purchase and Assumption Agreement between BOk and FDIC, Receiver of Heartland Federal Savings and Loan Association dated October 9, 1993, incorporated by reference to Exhibit 10.17 of Form 10-K for the fiscal year ended December 31, 1993. 10.18 Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza National Bank dated December 20, 1993, incorporated by reference to Exhibit 10.18 of Form 10-K for the fiscal year ended December 31, 1993. 10.18.1 Amendment to Merger Agreement among BOk, Plaza National Bank and The Shareholders of Plaza National Bank dated January 14, 1994, incorporated by reference to Exhibit 10.18.1 of Form 10-K for the fiscal year ended December 31, 1993. 10.19 Stock Purchase Agreement between Texas Commerce Bank, National Association and BOk dated March 11, 1994, incorporated by reference to Exhibit 10.19 of Form 10-K for the fiscal year ended December 31, 1993. 10.20 Merger Agreement among BOK Financial Corporation, BOKF Merger Corporation Number Four, Citizens Holding Company and others dated May 11, 1994, incorporated by reference to Exhibit 10.20 of Form 10-K for the fiscal year ended December 31, 1994. 10.21 Stock Purchase and Merger Agreement among Northwest Bank of Enid, BOk and The Shareholders of Northwest Bank of Enid effective as of May 16, 1994, incorporated by reference to Exhibit 10.21 of Form 10-K for the fiscal year ended December 31, 1994. 10.22 Agreement and Plan of Merger among BOK Financial Corporation, BOKF Merger Corporation Number Five and Park Cities Bancshares, Inc. dated October 3, 1996, incorporated by reference to Exhibit C of S-4 Registration Statement No. 333-16337. 10.23 Agreement and Plan of Merger among BOK Financial Corporation and First TexCorp., Inc. dated December 18, 1996, incorporated by reference to Exhibit 10.24 of S-4 Registration Statement No. 333-16337. 13.0 Annual Report to Shareholders for the fiscal year ended December 31, 1997. Such report, except for those portions thereof which are expressly incorporated by reference in this filing, is furnished for the information of the Commission and is not deemed to be "filed" as part of this Annual Report on Form 10-K. 21.0 Subsidiaries of BOK Financial. 23.0 Consent of independent auditors - Ernst & Young LLP. 27.0 Financial Data Schedule for year ended December 31, 1997 27.1 Restated Financial Data Schedules 99.0 Additional Exhibits. 99.1 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44121 for Bank of Oklahoma Master Thrift Plan and Trust, incorporated by reference to Exhibit 99.1 of Form 10-K for the fiscal year ended December 31, 1993. 99.2 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44122 for BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 99.2 of Form 10-K for the fiscal year ended December 31, 1993. 99.3 Undertakings incorporated by reference into S-8 Registration Statement No. 33-55312 for BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 99.3 of Form 10-K for the fiscal year ended December 31, 1993. 14 99.4 Undertakings incorporated by reference into S-8 Registration Statement No. 33-70102 for BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 99.4 of Form 10-K for the fiscal year ended December 31, 1993. 99.5 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79834 for BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 99.5 of Form 10-K for the fiscal year ended December 31, 1994. 99.6 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79836 for BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 99.6 of Form 10-K for the fiscal year ended December 31, 1994. 99.7 Unertakings incorporated by reference into S-8 Registration Statement No. 33-32642 for BOK financial Corporation 1997 Stock Option Plan, Incorporated by reference to Exhibit 99.7 of Form 10-K for the fiscal year ended December 31, 1997. (B) REPORTS ON FORM 8-K None. (C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K The exhibits listed in response to Item 14(A)(3) are filed as part of this report. (D) FINANCIAL STATEMENT SCHEDULES None. 15 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BOK FINANCIAL CORPORATION DATE: March 23, 1998 BY: /s/George B. Kaiser ---------------------------------- George B. Kaiser, Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 23, 1998 , by the following persons on behalf of the Registrant and in the capacities indicated. OFFICERS /s/ George B. Kaiser /s/ Stanley A. Lybarger - --------------------------------- ----------------------------- George B. Kaiser, Stanley A. Lybarger, Chairman of the Board of Directors Director, President and Chief Executive Officer /s/ James A. White /s/ John C. Morrow - --------------------------------- ----------------------------- James A. White, John C. Morrow Executive Vice President and Senior Vice President and Chief Financial Officer/Treasurer Controller, Financial Accounting DIRECTORS /s/ Robert J. LaFortune ----------------------------------- ---------------------------------------- W. Wayne Allen Robert J. LaFortune /s/ Keith E. Bailey /s/ Philip C. Lauinger, Jr. ----------------------------------- ---------------------------------------- Keith E. Bailey Philip C. Lauinger, Jr. /s/ David R. Lopez ----------------------------------- ---------------------------------------- James E. Barnes David R. Lopez /s/ Sharon J. Bell /s/ Frank A. McPherson ---------------------------------- --------------------------------------- Sharon J. Bell Frank A. McPherson /s/ Glenn A. Cox ----------------------------------- ---------------------------------------- Glenn A. Cox J. Larry Nichols /s/ Nancy J. Davies /s/ Robert L. Parker, Sr. ----------------------------------- ---------------------------------------- Nancy J. Davies Robert L. Parker, Sr. ---------------------------------- ---------------------------------------- Robert H. Donaldson James W. Pielsticker ---------------------------------- ---------------------------------------- William E. Durrett E.C. Richards /s/ James A. Robinson ---------------------------------- ---------------------------------------- James O. Goodwin James A. Robinson /s/ V. Burns Hargis /s/ L. Francis Rooney, III ---------------------------------- ---------------------------------------- V. Burns Hargis L. Francis Rooney, III /s/ E. Carey Joullian, IV /s/ Robert L. Zemanek ---------------------------------- ---------------------------------------- E. Carey Joullian, IV Robert L. Zemanek EX-13 2 1997 ANNUAL REPORT TO SHAREHOLDERS BOK FINANCIAL CORPORATION EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS Table of Contents Consolidated Selected Financial Data 5 Management's Assessment of Operations and Financial Condition 6 Selected Quarterly Financial Data 12 Report of Management on Financial Statements 19 Report of Independent Auditors 19 Consolidated Financial Statements 20 Notes to Consolidated Financial Statements 25 Annual Financial Summary 44 Quarterly Financial Summary 46 Appendix A 48 Financial Highlights (Dollars In Thousands Except Share Data) 1997 1996 1995 --------------- --------------- ----------- For the Years Ended December 31 Net income $ 64,625 $ 54,127 $ 49,205 Earnings per share: Basic 2.89 2.41 2.19 Diluted 2.58 2.18 1.99 Return on average assets 1.27% 1.26% 1.22% Return on average equity 16.41 16.80 18.07 --------------------------------------------------------------- -------------- ------------- Tangible operating results: Tangible net income $ 72,536 $ 61,336 $ 54,050 Tangible net income per diluted share 2.90 2.47 2.18 Return on tangible assets 1.44% 1.44% 1.35% Return on tangible shareholders' equity 22.13 21.18 23.28 --------------------------------------------------------------- -------------- ------------- As of December 31 Loans, net of reserves $ 2,711,992 $ 2,349,432 $ 2,156,081 Assets 5,399,642 4,620,700 4,244,118 Deposits 3,728,079 3,256,755 2,937,709 Shareholders' equity 435,477 359,966 301,565 Nonperforming assets 42,203 42,227 42,066 --------------------------------------------------------------- -------------- ------------- Book value per common share $ 19.45 $ 15.98 $ 13.36 Common shares outstanding (diluted) 25,285,089 25,025,437 23,951,095 --------------------------------------------------------------- -------------- ------------- Tier 1 capital ratio 9.39% 10.49% 9.91% Total capital ratio 14.54 11.74 11.17 Leverage ratio 6.81 7.46 6.55 Shareholders' equity to total assets 8.06 7.79 7.11 Reserve for loan losses to nonperforming loans 143.73 119.91 99.02 Reserve for loan losses to loans1 1.98 1.96 1.80 Net charge offs (recoveries) to average loans .14 (.12) .01 --------------------------------------------------------------- -------------- ------------- 1 Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value.
1 Management Letter 5 Management's Assessment of Operations and Financial Condition 19 Report of Management on Financial Statements 19 Report of Independent Auditors 20 Consolidated Financial Statements 48 Appendix A 49 Shareholder and Corporate Information 1 To Our Shareholders, Customers, Employees and Friends: Your company had a very good year in 1997 in virtually every area of its operations. o Net income increased 19.4 percent to $64.6 million, or $2.58 per share. o Non interest revenue grew at an outstanding pace, increasing by 23.2 percent. * These fee-based services comprised more than 45 percent of total revenue for 1997, one of the very highest such levels among our peers in the banking industry, and a clearly distinguishing feature of our company. - Our TransFund ATM network led all of our lines of business with a revenue increase of 36 percent to a new high level of $12 million. The TransFund Check Card was used to make 14 million purchases - more than double the 1996 volume. - Mortgage banking revenue grew by 23 percent to $32 million. BOk Mortgage's servicing portfolio in 1997 approached $7 billion - 92,000 loans. Its market position within Oklahoma is dominant, and its expansion into surrounding states is making encouraging initial progress. - Our combined retail and institutional brokerage areas increased 21 percent, with revenue of almost $10 million. - Fee income on deposit and related services was up 19 percent to a new high of almost $29 million. - Our trust division assets grew from $7.5 billion in assets to $11.1 billion. Revenue grew 11 percent to more than $24 million. We are very pleased with our success competing against the larger out-of-state organizations that have entered Oklahoma. Largely because of the disruption caused by these ownership changes, we gained a substantial number of new commercial relationships during 1997. Our loans increased 15 percent over the prior year. Our entry into the Dallas Metroplex, including the acquisition of First National Bank of Park Cities and First Texas Bank, has been very positive, setting the stage for substantial future growth. We have attracted to our company some very talented and experienced people to make a major push in commercial and trust services in the Metroplex during 1998. (Net Income graph appears on this page. See Appendix A graph I.) 2 In our Operations & Technology Division, we established a formal systems direction for our future technology. We placed $150 million in subordinated debt of Bank of Oklahoma. This issue, rated investment grade by both major rating agencies, represents our first public debt financing. BOK Financial Corp. became the smallest holding company in the nation approved to underwrite municipal revenue bonds with the approval to form Alliance Securities Corp. BOKF'S EXCITING OPPORTUNITIES IN A TIME OF BANKING CONSOLIDATION Over the past several years, we have succeeded in building Bank of Oklahoma into a position of dominance in our home state. The challenge we face is strengthening that position while expanding into surrounding states in a manner that capitalizes on our strengths which can be brought to those new markets. National banking consolidation is creating new "carbon copy" banks that allow the customer to choose from a pre-selected menu like that of a fast food franchise. We believe that many customers prefer a true community bank with an officer who has the authority and the ability to fashion a solution that truly meets the customer's specific and individual needs. There are now only a handful of banks left which are committed to providing NATIONAL BANK SERVICES WITH COMMUNITY BANK CUSTOMER SENSITIVITY AND LOCAL KNOWLEDGE. BOKF will continue to fill that need and will be rewarded with profitable growth in 1998 by concentrating on these strategies. Continue to take advantage of the acquisition of our principal large competitors to generate an increasingly dominant Oklahoma franchise. Areas of strong potential growth are in small business lending, private financial services, and the public and not-for-profit sector. Build major positions in new markets in Texas and Arkansas. Our expansion into these markets will continue to be a targeted one, with emphasis on commercial lending, corporate services, trust, and mortgage banking, where we have demonstrated that we have superior expertise that can be effectively delivered in large, fast growing markets. Acquire top performing financial institutions in surrounding states with a strong emphasis on identifying companies with the right fit with BOK Financial. Our ideal partners would be those with a strong market position, good management which wants to remain with the company and an interest in expanding their customer service into the business lines in which we excel. (Earnings Per Share graph appears on this page. See Appendix A, graph II.) (Non Interest Revenue graph appears on this page. See Appendix A, graph III.) 3 Develop our existing and new niche lines of business, including merchant banking, insurance, self-directed 401(k) plans, security underwriting, etc. Improve our efficiency ratio. During the past two years, we have placed only secondary emphasis on internal efficiency, choosing to add personnel and systems to take advantage of the opportunities that banking consolidation provided for us. As we accomplish our market objectives, we will gradually shift more emphasis to operating efficiency. BOARD ADDITIONS Our board of directors has long been comprised of the leaders in our region's business and civic community - it has included the CEO's of 10 of the 13 largest publicly held companies in Oklahoma and successful, respected entrepreneurs and community leaders from throughout our region. We were fortunate to add several prominent new members to the board last year. John Massey, outstanding banker and Oklahoma business leader. Steven E. Moore, Chairman of the Board, President and CEO, OGE Energy Corp., Oklahoma's largest electric utility. J. Larry Nichols, President and CEO, Devon Energy Corp., one of the country's leading independent oil and gas companies. E. C. Richards, Senior Vice President, Operations, Sooner Pipe and Supply Corp., one of the largest oil and gas supply companies in the United States. David J. Tippeconnic, President and CEO, Citgo Petroleum Corp., one of the largest petroleum refiners and marketers in the U.S. Wayne D. Stone, Chairman and CEO, Bank of Arkansas. Tom E. Turner, Chairman and CEO, Bank of Texas. ORGANIZATIONAL CHANGES From a strategic standpoint, a key challenge to BOKF is to continue our growth as a geographically diverse company while maintaining a strong credit culture. We have been pleased to experience no net charge-offs in our commercial loan portfolio over the past five year period, but we realize that we need to prepare for the times when we encounter more normal loss potential. We therefore reassigned one of our most senior, seasoned credit officers, Executive Vice President Gene Harris from head of Tulsa commercial lending (Loan graph appears on this page. See Appendix A, graph IV.) (Real Estate Loans graph appears on this page. See Appendix A, gragh.) 4 to a new position as Senior Credit Executive, with system-wide responsibilities. Gene's lending experience and strong credit mind will enable him to oversee credit underwriting in each of our banks, while fostering the local autonomy in each of our markets that is crucial to our success. On January 1, 1998, we combined First National Bank of Park Cities, First Texas Bank, and Alliance Trust Company to form the Bank of Texas. Park Cities is the preeminent private bank in north Dallas, and First Texas is the leading small business bank. We were successful in attracting an extremely skilled commercial lending staff under the management of C. Fred Ball, who has devoted most of his career to the Dallas commercial banking market. Fred was named President of Bank of Texas during 1997, and reports to Tom Turner, CEO. Late in 1997, Wayne Stone, formerly our President of BOk-Oklahoma City, transferred to head Bank of Arkansas. Our plans for Bank of Arkansas call for expansion into several other areas of the state, and Wayne has the challenge of managing that expansion. Mark Funke succeeded Wayne as President, BOk-Oklahoma City and V. Burns Hargis joined us as Vice Chairman. Burns has served on the board of directors of BOK Financial for many years and will add to our leadership position in Oklahoma City and throughout the state. Our progress in 1997 is the result of our organization's fundamental strengths, including especially our talented and dedicated people, and we have established a firm foundation for continued future growth. Our diversification in fee-based services provides a source of earnings less susceptible to the credit cycle. Our expansion into Texas holds a promise of improved geographic diversification and a market which provides substantial opportunities for growth. Our base in Oklahoma is strong, and we are doing our best to grow in our home state with aggressive marketing - while maintaining the level of superior service that is our hallmark. As always, we invite your comments, questions and suggestions. Sincerely, George B. Kaiser Stanley A. Lybarger Chairman of the Board President and Chief Executive Officer (Funding graph appears on this page. See Appendix A, graph VI.) 5 Table 1 Consolidated Selected Financial Data (Dollars In Thousands Except Share Data) BOK Financial ------------------------------------------------------------------- 1997 1996 1995 1994 1993(1) ------------------------------------------------------------------- Selected Financial Data For the year: Interest revenue $ 344,548 $ 290,532 $ 275,441 $ 223,058 $ 181,354 Interest expense 188,948 163,093 160,177 104,055 74,586 Net interest revenue 155,600 127,439 115,264 119,003 106,768 Provision for loan losses 9,026 4,267 231 195 3,376 Income before cumulative effect of change in accounting principle 64,625 54,127 49,205 45,065 37,902 Net income 64,625 54,127 49,205 45,065 39,472 Period-end: Loans, net of reserve 2,711,992 2,349,432 2,156,081 1,805,782 1,641,294 Assets 5,399,642 4,620,700 4,244,118 3,927,276 3,147,041 Deposits 3,728,079 3,256,755 2,937,709 2,629,574 2,610,927 Subordinated debenture 148,356 - - 23,000 23,000 Shareholders' equity 435,477 359,966 301,565 236,902 213,943 Nonperforming assets 42,203 42,227 42,066 31,881 23,452 Profitability Statistics Per share (based on average equivalent shares): Basic earnings: Income before cumulative effect of change in accounting for income taxes $ 2.89 $ 2.41 $ 2.19 $ 1.99 $ 1.69 Net income 2.89 2.41 2.19 1.99 1.77 Diluted earnings: Income before cumulative effect of change in accounting for income taxes 2.58 2.18 1.99 1.81 1.54 Net income 2.58 2.18 1.99 1.81 1.60 Percentages (based on daily averages): Return on average assets(3) 1.27% 1.26% 1.22% 1.26% 1.26% Return on average shareholders' equity(3) 16.41 16.80 18.07 19.92 20.07 Average shareholders' equity to average assets 7.73 7.49 6.73 6.32 6.27 Common Stock Performance and Existing Shareholder Statistics Per Share: Book Value of common shareholders' equity $ 19.45 $ 15.98 $ 13.36 $ 10.44 $ 9.08 Market price: December 31 bid 38.81 27.00 19.50 20.00 24.75 Market range - High bid 42.50 27.00 23.50 25.00 25.50 - Low bid 26.88 19.25 18.50 19.00 17.50 Other statistics: Common shareholders at December 31 1,227 1,674 1,676 1,748 1,924 Selected Balance Sheet Statistics Period-end: Tier 1 capital ratio 9.39% 10.49% 9.91% 9.14% 9.07% Total capital ratio 14.54 11.74 11.17 11.19 11.49 Leverage ratio 6.81 7.46 6.55 5.64 5.76 Reserve for loan losses to nonperforming loans 143.73 119.91 99.02 137.76 233.92 Reserve for loan losses to loans(2) 1.98 1.96 1.80 2.12 2.50 Miscellaneous (at December 31) Number of employees (FTE) 2,318 2,102 1,842 1,801 1,741 Number of banking locations 73 69 66 63 55 Number of TransFund locations 782 635 549 520 614 Mortgage loan servicing portfolio $6,981,744 $5,948,187 $5,363,175 $5,080,859 $3,483,993 - ------------------------------------------------------------------------------------------------------------------------------- (1) Restated for poolings-of-interests which occurred in 1994. (2) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. (3) Excludes the cumulative effect of change in accounting for income taxes in 1993.
6 MANAGEMENT'S ASSESSMENT OF OPERATIONS AND FINANCIAL CONDITION BOK Financial Corporation ("BOK Financial") is a bank holding company which offers full service banking in Oklahoma, Northwest Arkansas and North Texas. BOK Financial's principal subsidiaries are Bank of Oklahoma, NA ("BOk"), Bank of Arkansas, NA ("BOA"), and Bank of Texas, NA ("BOT"). BOT includes First National Bank of Park Cities and First Texas Bank, both of which were acquired during 1997 and merged on January 1, 1998 to form BOT, and Bank of Texas Trust Company, N.A. (formerly Alliance Trust Company, N.A.). Other significant operating subsidiaries include BOK Capital Services Corporation which provides leasing and mezzanine financing and Alliance Securities Corp. which is authorized to underwrite municipal revenue bonds, asset-backed securities and commercial paper. ASSESSMENT OF OPERATIONS SUMMARY OF PERFORMANCE BOK Financial recorded net income of $64.6 million for 1997 compared to $54.1 million for 1996. Diluted earnings per common share were $2.58 for 1997 compared to $2.18 for 1996. Prior period per share data have been restated to reflect the calculation methods required by Statement of Financial Accounting Standards No. 128, "Earnings per Share," which was effective in December, 1997. Returns on average assets and average equity were 1.27% and 16.41%, respectively, for 1997 compared to 1.26% and 16.80%, respectively, for 1996. The increase in net income for 1997 was due to increases of $28.2 million or 22.1% in net interest revenue and $24.4 million or 23.2% in other operating revenue. These increases were partially offset by a $36.1 million increase in operating expenses and a $4.8 million increase in provision for loan losses. Net income for the fourth quarter of 1997 was $16.8 million or $0.67 per diluted common share, an increase of 15.5% over the same period of 1996. The primary sources of increased quarterly earnings included net interest revenue, which increased $9.5 million or 29.4% and other operating revenue, which increased $6.0 million or 21.7%. These increases were offset by a $23.0 million increase in operating expenses, which included a $4.1 million provision for the potential impairment of mortgage loan servicing rights and a $3.6 million charge for the cost of stock contributed to the BOK Charitable Foundation. Additionally, BOK Financial recorded an income tax credit of $6.4 million due to the reversal of $9.0 million of reserves for disputed items which were no longer required. BOK Financial's net income for 1995 was $49.2 million or $1.99 per diluted common share. Returns on average assets and average equity were 1.22% and 18.07%, respectively. TANGIBLE OPERATING RESULTS Since inception, BOK Financial has completed acquisitions which were accounted for under the purchase method of accounting. The purchase method results in the recording of goodwill and other identified intangible assets that are amortized as noncash charges in future years into operating expense. This is in contrast to the "pooling of interests" method, which is only applicable in certain limited circumstances. The pooling of interests method does not result in the recording of goodwill or other intangible assets. Since the amortization of goodwill and other intangible assets does not result in a current period cash expense, the economic value to shareholders under either accounting method is essentially the same. Operating results excluding the impact of these intangible assets are summarized below: Table 2 Tangible Operating Results (Dollars in Thousands Except Share Data) BOK Financial ---------------------------------------- 1997 1996 1995 ------------- ------------- ------------ Net income $ 64,625 $ 54,127 $ 49,205 After-tax impact of amortization of 7,911 7,209 4,845 intangible assets - --------------------------------------- ------------- ------------- ------------ Tangible net income $ 72,536 $ 61,336 $ 54,050 - --------------------------------------- ------------- ------------- ------------ Tangible net income per diluted share $ 2.90 $ 2.47 $ 2.18 - --------------------------------------- ------------- ------------- ------------ Average tangible shareholders' equity $ 327,719 $ 289,603 $ 232,203 Return on tangible shareholders' equity 22.13% 21.18% 23.28% - --------------------------------------- ------------- ------------- ------------ Average tangible assets $ 5,024,557 $ 4,269,774 $ 4,006,031 Return on tangible assets 1.44% 1.44% 1.35% - --------------------------------------- ------------- ------------- ------------ 7 NET INTEREST REVENUE Net interest revenue, on a tax-equivalent basis, totaled $165.2 million for 1997 compared to $135.8 million in 1996. This increase in net interest revenue was due to increases in both net interest margin and average earning assets. The yield on average earning assets increased from 7.79% in 1996 to 7.85% in 1997 as both securities and loans showed yield increases. At the same time, the cost of interest-bearing liabilities decreased from 4.94% to 4.88% due primarily to a 22 basis point decrease in rates paid on deposits. Interest rate swaps, which primarily hedge against interest rate risk on certain long-term certificates of deposit and long-term subordinated debt, reduced interest expense by $1.2 million in 1997 compared to $1.4 million in 1996. Average earning assets increased $676 million, including $265 million from acquisitions, $216 million from net loan fundings and $172 million from securities purchases. Over the same period, average interest-bearing liabilities increased $573 million, including $190 million from acquisitions, $294 million from borrowed funds, $64 million from a subordinated debenture offering and $26 million from deposits. The growth in average earning assets in excess of the growth in average interest-bearing liabilities contributed $23.3 million to 1997's increase in net interest income. Table 3 Volume/Rate Analysis (In Thousands) 1997/1996 1996/1995 ------------------------------------- ------------------------------------ Change Due To(1) Change Due To(1) ------------------------ ------------------------ Change Volume Yield/Rate Change Volume Yield/Rate ------------ ----------- ------------ ----------- ------------ ----------- Tax-equivalent interest revenue: Securities $23,164 $19,843 $ 3,321 $ (1,800) $ (408) $(1,392) Trading securities (53) (20) (33) 98 94 4 Loans 30,745 30,271 474 17,486 21,116 (3,630) Funds sold and resell agreements 1,362 1,337 25 634 734 (100) ----------------------------------------------- ------------ ----------- ------------ -- ----------- ------------ ----------- Total 55,218 51,431 3,787 16,418 21,536 (5,118) ----------------------------------------------- ------------ ----------- ------------ -- ----------- ------------ ----------- Interest expense: Transaction deposits 4,755 6,488 (1,733) 3,060 2,995 65 Savings deposits (97) 129 (226) (493) (428) (65) Time deposits (682) 511 (1,193) 17,760 18,321 (561) Borrowed funds 17,713 16,788 925 (17,059) (13,435) (3,624) Subordinated debenture 4,166 4,166 - (352) (352) - ----------------------------------------------- ------------ ----------- ------------ -- ----------- ------------ ----------- Total 25,855 28,082 (2,227) 2,916 7,101 (4,185) ----------------------------------------------- ------------ ----------- ------------ -- ----------- ------------ ----------- Tax-equivalent net interest revenue 29,363 $23,349 $ 6,014 13,502 $14,435 $ (933) Change in tax-equivalent adjustment (1,202) (1,327) ----------------------------------------------- ------------ ----------- ------------ -- ----------- ------------ ----------- Net interest revenue $28,161 $12,175 =============================================================================================================================
4th Qtr 1997/4th Qtr 1996 ------------------------------------- Change Due To(1) ------------------------ Change Volume Yield/Rate ------------ ----------- ------------ Tax-equivalent interest revenue: Securities $ 4,903 $ 3,704 $ 1,199 Trading securities 21 39 (18) Loans 10,510 9,569 941 Funds sold and resell agreements 368 403 (35) ------------------------------------- ------------ ----------- ------------ Total 15,802 13,715 2,087 ------------------------------------- ------------ ----------- ------------ Interest expense: Transaction deposits 788 1,733 (945) Savings deposits 1 57 (56) Time deposits 455 718 (263) Borrowed funds 2,462 2,365 97 Subordinated debenture 2,439 2,439 - ------------------------------------- ------------ ----------- ------------ Total 6,145 7,312 (1,167) ------------------------------------- ------------ ----------- ------------ Tax-equivalent net interest revenue 9,657 $ 6,403 $ 3,254 Change in tax-equivalent adjustment (189) ------------------------------------- ------------ ----------- ------------ Net interest revenue $ 9,468 =========================================================================== (1) Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis. 8 Net interest margin, the ratio of net interest revenue to average earning assets, increased from 3.54% in 1996 to 3.66% in 1997. This increase was due primarily to yield improvements on securities and loans combined with lower rates paid on deposits. The yield improvement on securities and loans reflects repricing opportunities in response to a 25 basis point increase in the national prime rate late in the first quarter of 1997. BOK Financial has been working to reduce its overall cost of funds primarily by lowering rates paid on deposits. These efforts have been successful as shown by the reduction in both the rates paid on deposits and in the overall cost of interest-bearing liabilities. However, this strategy has limited the growth in deposits and has required an increase in borrowings to fund asset growth. Since inception in 1990, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth and to invest in securities. Although this strategy frequently results in a net interest margin which falls below those normally seen in the commercial banking industry, it provides positive net interest revenue. Management estimates that for 1997, this strategy resulted in a 66 basis point decrease in net interest margin. However, this strategy contributed $16.5 million to net interest revenue for the year. As more fully discussed in the subsequent Market Risk Section, management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy. During 1997, two super regional banks completed significant acquisitions in Oklahoma. The financial services environment in Oklahoma was already highly competitive due to a large number of commercial banks, thrifts, credit unions and brokerage firms in the state. Additionally, many customers already had access to national and regional financial institutions for many products and services. Management expects that BOK Financial will continue to be able to successfully compete with these financial institutions. Tax-equivalent net interest revenue for the fourth quarter of 1997 was $44.1 million compared to $34.5 million for the fourth quarter of 1996. Yields on average earning assets increased 17 basis points to 7.89% due primarily to the repricing of variable rate loans in response to a 25 basis point increase in the national prime rate late in the first quarter of 1997. At the same time, the cost of interest-bearing liabilities decreased 13 basis points to 4.84% due primarily to lower rates paid on deposits. Additionally, average earning assets increased by $696 million while interest-bearing liabilities increased by $581 million. This contributed $6.4 million to the increase in net interest revenue. Net interest revenue on a tax-equivalent basis for 1996 increased $13.5 million to $135.8 million compared to 1995 totals. This was due to increases in both net interest margin and average earning assets. BOK Financial continued efforts to restructure its funding sources in 1996 which increased deposits and decreased borrowed funds. This resulted in a 17 basis point decrease in the cost of interest-bearing liabilities. Over this same period, the yield on average earning assets decreased 5 basis points. However, the growth in average earning assets exceeded the growth in average interest-bearing liabilities by $69 million. OTHER OPERATING REVENUE Other operating revenue, which consists primarily of fee income on products and services, increased $24.4 million or 23.2% compared to 1996. This increase kept other operating revenue at 45% of total revenue, which is consistent with 1996. Service fees on deposits totaled $28.7 million, an increase of 18.9% over 1996, while revenue generated by card-based transactions such as the TransFund ATM network, bankcards and related merchant deposits increased by 35.3% to $19.3 million. These increases are generally due to a higher volume of transactions processed in 1997. Leasing revenue increased to $5.9 million in 1997 compared to $2.2 million in 1996. The financing of specialty oil field and other energy-related equipment, primarily through operating leases, was developed in 1996 and continued to grow in 1997. Many of BOK Financial's fee generating activities, such as brokerage and trading activities, trust fees, and mortgage servicing revenue, are affected by changes in interest rates. Significant increases in interest rates may tend to decrease the volume of trading activities, and may lower the value of trust assets managed, which is the basis of certain fees, but would tend to decrease the incidence of mortgage loan prepayments. Similarly, a decrease in economic activity would decrease ATM, bankcard and related revenue. Table 4 Other Operating Revenue (In Thousands) BOK Financial ------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------- ----------- ---------- ----------- ----------- Brokerage and trading revenue $ 9,556 $ 7,896 $ 6,046 $ 5,517 $ 7,107 Transaction card revenue 19,339 14,298 11,045 8,474 7,872 Trust fees and commissions 24,062 21,638 19,363 17,117 16,824 Service charges and fees on deposit accounts 28,651 24,104 21,152 20,698 20,825 Mortgage banking revenue 32,235 26,234 20,336 15,868 12,564 Leasing revenue 5,861 2,236 586 - - Other revenue 10,013 10,769 9,512 8,299 8,848 - -------------------------------------------- ------------- ----------- ---------- ----------- ----------- Total fees and commissions 129,717 107,175 88,040 75,973 74,040 - -------------------------------------------- ------------- ----------- ---------- ----------- ----------- Gain on student loan sale 1,311 1,069 762 259 674 Gain (loss) on branch sales - (325) 1,170 - - Gain (loss) on securities (1,329) (2,607) 1,174 (1,868) 1,896 - -------------------------------------------- ------------- ----------- ---------- ----------- ----------- Total other operating revenue $129,699 $105,312 $91,146 $74,364 $76,610 =========================================================================================================
9 While management expects continued growth in other operating revenue, the rate of increase achieved in 1997 may not be sustainable due to increased competition from national and regional financial institutions and from market saturation. Continued growth may require BOK Financial to introduce new products or to enter new markets which introduces additional demands on capital and managerial resources. During 1997, BOK Financial received approval from the federal banking regulators to begin securities underwriting through its subsidiary, Alliance Securities Corp. ("ASC"). The primary focus of ASC is underwriting municipal revenue bonds and performing financial advisory services for communities in Oklahoma and surrounding states. Although these activities had minimal effect on BOK Financial's operating results in 1997, they present additional risks to the company. These risks include the failure to comply with various laws and regulations which govern these activities, the failure to perform as represented to clients and the inability to successfully compete in this area. Management has provided additional human and other resources to ASC to address these risks. Other operating revenue for the fourth quarter of 1997 totaled $33.5 million compared to $27.5 million for the fourth quarter of 1996. All significant revenue producing activities contributed to this increase, including $2.2 million from mortgage banking, $1.8 million from card-based fees, and $1.2 million from trust fees and commissions. Other operating revenue for 1996 increased $14.2 million or 15.5% when compared to 1995. Excluding gains and losses from securities sales, student loan sales and branch facilities sales from both years, other operating revenue increased $19.1 million or 21.7%. This increase was primarily due to growth in all areas, including mortgage banking revenue which increased $5.9 million and card-based fees which increased $3.3 million. Other operating revenue includes fees, commissions and certain net marketing gains and losses from trust and mortgage banking activities. While trust and mortgage banking activities are integral parts of a commercial bank's operations, their revenue and expenses are attributable primarily to off-balance sheet assets. The effects of trust and mortgage banking activities on BOK Financial's operations are discussed in the following sections. TRUST BOK Financial provides a wide range of trust services through the Bank of Oklahoma Trust Division (formerly BancOklahoma Trust Company) in Oklahoma and Bank of Texas Trust Company, N.A. (formerly Alliance Trust Company, NA) in Texas. At December 31, 1997, trust assets with an aggregate market value of $11.1 billion were subject to various fiduciary arrangements, compared to $7.5 billion at December 31, 1996. This increase in assets was due primarily to $3.1 billion from new accounts, including $2.0 billion in new employee benefit plan assets. A summary of both direct and internally allocated revenues and expenses from trust operations are (in thousands): 1997 1996 1995 ------------ ----------- ----------- Total revenue $28,901 $25,682 $22,428 Personnel expense 11,213 9,603 8,930 Other expense 9,341 8,420 8,563 ------------------- ------------ ----------- ----------- Total expense 20,554 18,023 17,493 ------------------- ------------ ----------- ----------- Operating profit $ 8,347 $ 7,659 $ 4,935 ======================================================== MORTGAGE BANKING BOK Financial is engaged in mortgage banking activities through the Bank of Oklahoma Mortgage Division (formerly BancOklahoma Mortgage Corp.). These activities include the origination, marketing and servicing of mortgage loans. Notes 1 and 7 to the Consolidated Financial Statements provide additional information regarding mortgage banking activities. Origination and marketing activities resulted in a net gain of $1.5 million in 1997 compared to a net gain of $48 thousand in 1996. The improvement is due to an increase in the volume of loans originated and to improved secondary market conditions during 1997. Total mortgage loan production for 1997 increased $116 million to $830 million compared to $714 million in 1996. Commitments to originate mortgage loans subject BOK Financial to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, and interest rate risk is partially hedged through forward sales contracts. BOK Financial generally sells all fixed rate mortgage loans in the secondary market pursuant to forward sales contracts and all adjustable rate mortgage loans to an affiliate. BOK Financial currently does not securitize pools of mortgage loans either for sale or retention. Consolidated mortgage loan servicing revenue for 1997 was $30.7 million, a $4.5 million increase over 1996. This increase reflects bulk purchases and loan origination which increased the mortgage servicing portfolio to $7.0 billion at the end of 1997 from $5.9 billion at the end of 1996. These amounts include loans serviced for BOk of $216 million and $243 million for 1997 and 1996, respectively. Capitalized mortgage servicing rights, which totaled $83.9 million at December 31, 1997 and $61.5 million at December 31, 1996, represent the value of mortgage loans serviced for others and are carried at the lower of amortized cost or fair value. Fair value is based on the present value of projected net servicing revenue over the estimated life of the mortgage loans serviced. This estimated life and the value of the servicing rights is very sensitive to changes in interest rates and loan prepayment assumptions. Rising interest rates tend to decrease loan prepayments and increase the value of mortgage servicing rights, while falling interest rates have the opposite effect. During the fourth quarter of 1997, mortgage interest rates fell by approximately 65 basis points. The resulting increase in prepayment assumptions required a $4.1 million charge against earnings to increase the valuation allowance for mortgage servicing rights. 10 The extent to which this charge represents actual losses to BOK Financial will be determined by the actual amount of mortgage loan prepayments compared to the prepayment assumptions. Additionally, management has estimated that a further decrease in mortgage rates of 100 and 200 basis points would result in charges to after-tax income of $13.9 million and $22.5 million, respectively. The foregoing estimates are prepared as part of a sensitivity analysis of the impact of various interest rate senarios on BOK Financial's financial statements, and do not reflect the impact of such declines on the balance of BOK Financial's assets and liabilities. The above estimate is further based upon the assumption that rates would remain at the 100 or 200 basis point lower level for the remaining life of the servicing asset. A summary of both direct and internally allocated revenue and expenses from mortgage banking activities are (in thousands): 1997 1996 1995 --------- --------- -------- Servicing revenue $31,675 $27,139 $22,754 Origination and secondary marketing revenue, net 3,583 1,773 767 Other revenue 1,956 1,726 1,511 - ---------------------------- --------- --------- -------- Total revenue 37,214 30,638 25,032 - ---------------------------- --------- --------- -------- Personnel expense 4,867 4,416 4,148 Amortization of mortgage servicing rights 12,805 9,987 8,128 Provision for impairment of mortgage servicing 4,100 361 539 rights Other expense 15,491 13,357 11,184 - ---------------------------- --------- --------- -------- Total expense 37,263 28,121 23,999 - ---------------------------- --------- --------- -------- Operating profit (loss) $ (49) $ 2,517 $ 1,033 ========================================================= YEAR 2000 CONSIDERATIONS The Year 2000 issue, in general, is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or to engage in similar normal business activities. BOK Financial has determined that both it and its outsourced providers of data processing services will be required to modify or replace significant portions of their respective software so that their computer systems will function properly with respect to dates in the year 2000 and thereafter. BOK Financial presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of BOK Financial. BOK Financial has developed a Year 2000 Project Plan ("Plan") to address this issue. Inventories of internally developed and outsourced computer applications, hardware, vendors and environmental systems have been completed and 54 mission-critical applications were identified based upon their importance to BOK Financial's operations. A project team has been established with representatives from all significant business units, subject to senior management oversight. This team is responsible for coordinating the status of Year 2000 compliance internally and with outside vendors, developing and executing test plans, and establishing contingency plans in the event that unidentified problems occur. This Plan has set a goal of December 31, 1998 for BOK Financial to be Year 2000 compliant. BOK Financial, with the assistance of outside consultants, continues to review the Plan, including its staffing, methodology, documentation standards, timelines and other resources. During 1997, BOK Financial invested approximately $5.2 million to upgrade its computer systems. While many of these upgrades, such as a new commercial loan servicing system and a new wire transfer system, would have been completed in the normal course of business for competitive reasons, compliance with Year 2000 issues was a key element in each project. An additional $10.4 million in computer systems upgrades are planned for 1998, a significant portion of which is Year 2000 related. These projects are in addition to upgrades for Year 2000 compliance planned by outside processors which provide services to BOK Financial. BOK Financial has established a system to rate the effect Year 2000 issues may have on credit risk of its borrowers. This system is based on the level of technology dependence common in the borrower's industry, the borrower's individual Year 2000 plan status and the committed loan amounts. This information will be included in loan renewal analysis and in the evaluation of the adequacy of the allowance for loan losses. Numerous assumptions by management will be required to include the effect of the Year 2000 issue in the evaluation of the adequacy of the loan loss reserve. There can be no guarantee that all possible outcomes will be considered or that a significant unanticipated loss will not occur. The costs of the project and the date on which BOK Financial believes it will be Year 2000 compliant are based upon management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans, and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Additionally, BOK Financial's operations are affected by the performance of third parties over which it has no control such as the Federal Reserve System, automated clearinghouse and national securities settlement systems. Failure of these systems to appropriately address the Year 2000 issue could have a material effect on BOK Financial's operations. 11 OTHER OPERATING EXPENSE Other operating expense totaled $195.2 million for 1997 compared to $159.0 million in 1996, an increase of 22.7%. Notable large or non-recurring expenses affected 1997, including acquisitions which added $12.7 million in operating expenses (primarily personnel costs of $5.3 million and amortization expense of $3.9 million), a provision of $4.1 million for impairment of mortgage servicing rights due to falling interest rates, business promotion expenses for the contribution of stock with a cost of $3.6 million (market value at the time of donation was $7.0 million) to the BOk Charitable Foundation, equipment expenses of $1.0 million in conjunction with the development of a new retail banking computer system, and professional fees of $660 thousand for consulting assistance on recommendations for revenue enhancement and expense control opportunities. Excluding these items from 1997 and excluding non-recurring charges related to the Savings and Loan Insurance Fund ("SAIF") of $7.6 million from 1996, "core" operating expenses, excluding OREO gains, increased $21.0 million or 13.5%. Personnel costs, excluding acquisitions, increased $10.5 million or 14.6% compared to 1996. Regular compensation, including overtime, increased $6.7 million or 13.3%. Staffing on a full time equivalent ("FTE") basis increased by 101 employees or 4.8% while average compensation expense per FTE increased by 9.3%. These changes reflect the addition of several senior-level positions in both the lending and operations areas as well as additional support staff. The transition toward performance based compensation continued during 1997. Incentive compensation increased by $2.2 million or 35.7% compared to 1996 due to growth in revenue over pre-determined targets. Net occupancy, equipment and data processing expense for 1997, excluding acquisitions and the retail banking computer systems costs, increased $2.8 million or 9.2% compared to 1996. This included a $1.1 million decrease in equipment costs due to lower maintenance costs. Additionally, net occupancy expense decreased $856 thousand due primarily to a $2.0 million increase in rental income at BOK Financial's main offices in Oklahoma City. Data processing expenses increased $3.8 million or 31.4% due to a higher volume of transactions processed. A significant portion of BOK Financial's data processing is performed by service bureaus under agreements which provide for charges per transaction. Therefore, these costs will vary in direct relation to the number of transactions. Mortgage banking costs increased $8.2 million or 52.0% compared to 1996. Excluding provisions for the impairment of capitalized mortgage servicing rights, mortgage banking costs increased $4.5 million or 29.1% due primarily to a $3.2 million increase in the amortization of capitalized mortgage servicing rights. This increase is consistent with the growth in the balance of capitalized servicing rights. Additionally, expenses related to the origination and servicing of government guaranteed loans increased $1.3 million due to a larger volume of transactions. Table 5 Other Operating Expense (In Thousands) BOK Financial ----------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------- ------------ ------------ Personnel expense $ 87,728 $ 71,945 $ 67,298 $ 63,111 $ 60,891 Business promotion 8,657 6,372 6,039 6,213 5,535 Contribution of stock to BOk Charitable Foundation 3,638 - - - - Professional fees and services 6,769 5,406 5,898 4,664 5,385 Net occupancy, equipment and data processing expense 35,614 30,831 27,324 23,619 25,161 FDIC and other insurance 1,293 1,740 4,406 6,386 6,171 Special deposit insurance assessment - 3,820 - - - Printing, postage and supplies 7,783 6,792 6,340 5,415 4,876 Net gains and operating expenses on repossessed assets (3,849) (4,552) (3,098) (4,575) (2,792) Amortization of intangible assets 8,824 5,411 5,992 5,597 4,133 Write-off of core deposit intangible assets related to SAIF-insured deposits - 3,821 - - - Mortgage banking costs 19,968 15,473 11,990 10,764 7,590 Provision for impairment of mortgage servicing rights 4,100 361 539 - - Other expense 14,641 11,608 9,478 12,281 8,911 -------------------------------------------------------- ------------ ------------ ------------- ------------ ------------ Total $195,166 $159,028 $142,206 $133,475 $125,861 ==========================================================================================================================
Other operating expenses for the fourth quarter of 1997 totaled $61.3 million compared to $38.3 million for the fourth quarter of 1996. Excluding acquisitions and the previously discussed large or non-recurring transactions, core operating expenses for the fourth quarter of 1997 were $49.6 million compared to $39.0 million for the fourth quarter of 1996. In addition to increases in personnel expense, net occupancy, equipment and data processing expenses, and mortgage banking costs, the fourth quarter of 1997 included a $539 thousand increase in depreciation expense on equipment used in BOK Financial's leasing programs and a $413 thousand increase in expenses to relocate personnel. Both of these are included in other expenses. The efficiency ratio, the ratio of other operating expenses, excluding net gains on real estate sales and the previously discussed large or non-recurring transactions, to tax-equivalent net interest revenue and other operating revenue, excluding securities gains and losses, remained unchanged from 1996 at 64.0%. 12 Operating expenses for 1996 totaled $159.0 million compared to $142.2 million for 1995. Excluding non-recurring charges of $7.6 million to record the write-off of intangible assets related to deposits insured by the SAIF and a special deposit insurance assessment to recapitalize the SAIF, operating expenses for 1996 increased 6.5% compared to 1995. This included increases in personnel expenses of $4.6 million or 6.9%; net occupancy, equipment and data process expenses of $3.5 million or 12.8%; and mortgage banking costs of $3.3 million or 26.4%. These increases reflected growth in staffing and other costs incurred in support of increased volume of transactions processed and services offered. INCOME TAXES Income tax expense was $16.5 million, $15.3 million and $14.8 million for 1997, 1996 and 1995, respectively, representing 20%, 22% and 23%, respectively, of book taxable income. Tax expense currently payable totaled $20.0 million in 1997 compared to $19.0 million in 1996 and $17.0 million in 1995. During the fourth quarter of 1997, the Internal Revenue Service closed its examination of BOk and BOK Financial for 1992 and 1993, respectively. As a result of the outcome of these examinations, BOK Financial reversed a $9.0 million tax reserve that was no longer needed. Income tax expense for 1998 is expected to be 34% of pre-tax book income compared to income tax expense for 1997, excluding the tax reserve realized, of 31% of pre-tax book income. BOK Financial is currently under an audit by the Internal Revenue Service for 1994. The ultimate outcome of this audit cannot be determined with any certainty at this time. However, management expects no material adverse impact on the financial statements. During 1996, the limitation on the use of certain built-in losses and net operating loss carryforwards which resulted from the acquisition of BOk by BOK Financial in 1991 expired. As a result, valuation allowances totaling $6.2 million related to these items were eliminated. Income tax expense for 1996 was 31% of pre-tax book income excluding the elimination of these allowances. Table 6 Selected Quarterly Financial Data (In Thousands Except Per Share Data) Fourth Third Second First ---------- ---------- ---------- ---------- 1997 ------------------------------------------- Interest revenue $90,419 $88,548 $86,771 $78,810 Interest expense 48,707 48,890 47,603 43,748 ------------------------------------------------------ ---------- ---------- ---------- ---------- Net interest revenue 41,712 39,658 39,168 35,062 Provision for loan losses 3,500 3,000 1,500 1,026 ------------------------------------------------------ ---------- ---------- ---------- ---------- Net interest revenue after provision for loan losses 38,212 36,658 37,668 34,036 Other operating revenue 35,721 33,506 31,611 30,190 Securities gains (losses), net (2,200) 809 (200) 262 Other operating expense 61,277 46,720 45,443 41,726 ------------------------------------------------------ ---------- ---------- ---------- ---------- Income before taxes 10,456 24,253 23,636 22,762 Income tax expense (benefit) (6,362) 7,857 7,572 7,415 ------------------------------------------------------ ---------- ---------- ---------- ---------- Net income $16,818 $16,396 $16,064 $15,347 ================================================================================================== Earnings per share: Basic $ .75 $ .73 $ .72 $ .69 ------------------------------------------------------ ---------- ---------- ---------- ---------- Diluted .67 .65 .64 .62 ------------------------------------------------------ ---------- ---------- ---------- ---------- Average shares: Basic 21,901 21,880 21,849 21,840 ------------------------------------------------------ ---------- ---------- ---------- ---------- Diluted 25,120 25,073 24,998 24,949 ------------------------------------------------------ ---------- ---------- ---------- ----------
1996 ------------------------------------------- Interest revenue $74,806 $72,890 $72,220 $70,616 Interest expense 42,562 40,944 39,773 39,814 ------------------------------------------------------ ---------- ---------- ---------- ---------- Net interest revenue 32,244 31,946 32,447 30,802 Provision for loan losses 357 62 2,937 911 ------------------------------------------------------ ---------- ---------- ---------- ---------- Net interest revenue after provision for loan losses 31,887 31,884 29,510 29,891 Other operating revenue 28,156 27,228 25,933 26,602 Securities gains (losses), net (622) - (1,967) (18) Other operating expense 38,315 40,297 42,774 37,642 ------------------------------------------------------ ---------- ---------- ---------- ---------- Income before taxes 21,106 18,815 10,702 18,833 Income tax expense (benefit) 6,540 5,840 (2,889) 5,838 ------------------------------------------------------ ---------- ---------- ---------- ---------- Net income $14,566 $12,975 $13,591 $12,995 ================================================================================================== Earnings per share: Basic $ .65 $ .58 $ .61 $ .58 ------------------------------------------------------ ---------- ---------- ---------- ---------- Diluted .59 .52 .55 .53 ------------------------------------------------------ ---------- ---------- ---------- ---------- Average shares: Basic 21,823 21,810 21,805 21,799 ------------------------------------------------------ ---------- ---------- ---------- ---------- Diluted 24,875 24,774 24,753 24,740 ------------------------------------------------------ ---------- ---------- ---------- ----------
13 ASSESSMENT OF FINANCIAL CONDITION SECURITIES PORTFOLIO Securities are identified as either investment or available for sale based upon various factors, including asset/liability management strategies, liquidity and profitability objectives, and regulatory requirements. Investment securities are carried at cost, adjusted for amortization of premiums or accretion of discounts. Amortization or accretion of mortgage-backed securities is periodically adjusted for estimated prepayments. Available for sale securities are those which may be sold prior to maturity based upon asset/liability management decisions. Securities identified as available for sale are carried at fair value. Unrealized gains or losses less applicable deferred taxes, are recorded in Shareholders' Equity. During 1997, BOK Financial increased its securities portfolio by $290 million based on amortized cost, including $153 million from acquisitions. U.S. Treasury securities and mortgage-backed securities increased by $77 million and $209 million, respectively, while municipal securities decreased by $23 million. Table 7 presents the amortized cost and fair values of BOK Financial's securities portfolio at December 31, 1997, 1996 and 1995. Additional information regarding the securities portfolio is presented in Note 4 to the Consolidated Financial Statements. Table 7 Securities (In Thousands) December 31, 1997 1996 1995 ------------------------- ------------------------- ------------------------- Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value ------------ ------------ ------------ ------------ ------------ ------------ Investment: U.S. Treasury $ 850 $ 845 $ 1,000 $ 992 $ 716 $ 721 Municipal and other tax-exempt 164,379 164,873 134,150 134,705 95,907 97,628 Mortgage-backed U.S. agency securities 46,849 47,374 62,282 62,876 78,832 79,777 Other debt securities 1,033 1,033 976 976 3,666 3,660 -------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total $ 213,111 $ 214,125 $ 198,408 $ 199,549 $ 179,121 $ 181,786 ========================================================================================================================== Available-for-sale: U.S. Treasury $ 277,618 $ 278,402 $ 200,505 $ 201,091 $ 221,201 $ 222,478 Municipal and other tax-exempt 107,196 108,720 160,813 161,358 165,709 166,855 Mortgage-backed securities: U.S. agencies 1,210,322 1,215,867 985,219 979,117 941,020 934,433 Other 2,183 2,185 3,288 3,961 8,154 8,011 -------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total mortgage-backed securities 1,212,505 1,218,052 988,507 983,078 949,174 942,444 -------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Other debt securities 4,480 4,498 178 178 250 98 Equity securities and mutual funds 130,196 139,739 106,655 113,417 34,145 34,786 -------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Total $1,731,995 $1,749,411 $1,456,658 $1,459,122 $1,370,479 $1,366,661 ==========================================================================================================================
LOANS Loans increased $371 million or 15.5% during 1997, including $138 million from the acquisitions of First National Bank of Park Cities and First Texas Bank. Excluding period end loans of $152 million at BOT, loans increased $219 million or 9.1%. This increase was the result of continued strength in the Oklahoma economy and of BOK Financial's efforts to capitalize on the disruptions in banking relationships caused by high-profile bank mergers. Commercial loans increased by $207 million or 16.7%, excluding acquisitions, over 1996 year end. This continues a trend of strong growth in commercial loans, which increased by $155 million in 1996. Commercial loans comprise 54% of total loans compared to 52% in 1996. This included energy loans of $333 million or 12.0% of the loan portfolio. The majority of commercial and consumer loans, and approximately 74% of the residential mortgage loans (excluding loans held for sale) are to businesses and individuals in Oklahoma. BOK Financial has achieved some geographic diversification through acquisitions which added loans totaling $62 million in Northwest Arkansas and $152 million in Dallas, Texas. Expansion into New Mexico also has added loans totaling $10 million. However, geographic concentration subjects the portfolio to the general economic conditions in Oklahoma. Notable loan concentrations by the primary industry of the borrowers are presented in Table 8. Agriculture includes loans totaling $137 million to the cattle industry and services includes loans totaling $111 million to the hotel industry. Commercial real estate loans are secured primarily by properties in the Tulsa or Oklahoma City metropolitan areas. The major components of other real estate loans are office buildings, $95 million, and retail facilities, $91 million. 14 Table 8 Loans (In Thousands) December 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------- ------------ ------------ ------------ ------------- Commercial: Energy $ 332,770 $ 289,011 $ 219,909 $ 213,301 $ 214,670 Manufacturing 201,918 144,228 142,650 113,140 107,323 Wholesale/retail 242,156 231,215 201,212 146,152 123,814 Agriculture 151,525 125,097 103,165 89,791 73,729 Services 465,317 324,737 276,500 211,713 185,788 Other commercial and industrial 105,714 127,089 143,143 129,196 117,245 Commercial real estate: Construction and land development 102,800 67,826 50,389 39,398 42,347 Multifamily 100,422 147,814 141,494 106,197 51,265 Other real estate loans 274,579 212,386 190,530 179,084 179,217 Residential mortgage: Secured by 1-4 family residential properties 419,139 388,820 395,941 343,969 227,799 Residential mortgages held for sale 78,669 95,332 72,412 40,909 189,786 Consumer 290,084 241,025 257,023 231,203 165,572 - ----------------------------------------------- ------------- ------------ ------------ ------------ ------------- Total $2,765,093 $2,394,580 $2,194,368 $1,844,053 $1,678,555 ==================================================================================================================
BOK Financial monitors loan performance on a portfolio and individual loan basis. Nonperforming loans are reviewed at least quarterly and are discussed subsequently under the caption "Nonperforming Assets". The loan review process involves evaluating the credit worthiness of customers and their ability, based upon current and anticipated economic conditions, to meet future principal and interest payments. Loans may be identified which possess more than the normal amount of risk due to deterioration in the financial condition of the borrower or the value of the collateral. Because the borrowers are performing in accordance with the original terms of the loan agreements and no loss of principal or interest is anticipated, such loans are not included in the Nonperforming Assets totals. These loans are assigned to various risk categories in order to focus management's attention on the loans with higher risk of loss. At December 31, 1997, loans totaling $57 million were assigned to the substandard risk category and loans totaling $68 million were assigned to the special mention risk category, compared to $40 million and $62 million, respectively, at December 31, 1996. During 1997, BOK Financial made, on a limited and strategically selective basis, certain new loans which were classified as special mention at inception. These loans were to borrowers whose banking relationships were being displaced by merger activity in BOK Financial's primary markets. Generally, the criteria for such loans included a long-term, stable operating history with credit deficiencies which are expected to be temporary. Management expects to build a long-term banking relationship with these customers by meeting their credit needs at this time. A total of $32.4 million was committed under this program. Subsequently, $20.6 million was upgraded to pass due to improved performance by the borrowers, $11.1 million remain assigned to the special mention category and $700 thousand was paid. Table 9 Loan Maturity and Interest Rate Sensitivity on December 31, 1997 (In Thousands) Remaining Maturities of Selected Loans -------------------------------------- Total Within 1 Year 1-5 Years After 5 Years ----------- -------------- ----------- -------------- Loan maturity: Commercial $1,499,400 $663,864 $652,241 $183,295 Commercial real estate 477,801 156,114 249,337 72,350 - --------------------------------------- ----------- ------------- ------------ ----------- Total $1,977,201 $819,978 $901,578 $255,645 ========================================================================================== Interest rate sensitivity for selected loans with: Predetermined interest rates $ 362,163 $ 85,800 $212,443 $ 63,920 Floating or adjustable interest rates 1,615,038 734,178 689,135 191,725 - --------------------------------------- ----------- ------------- ------------ ----------- Total $1,977,201 $819,978 $901,578 $255,645 ==========================================================================================
SUMMARY OF LOAN LOSS EXPERIENCE The reserve for loans losses, which is available to absorb losses inherent in the loan portfolio, totaled $53 million at December 31, 1997, compared to $45 million at December 31, 1996. This represents 1.98% and 1.96% of total loans, excluding loans held for sale, at December 31, 1997 and 1996, respectively. Losses on loans held for sale, principally mortgage loans accumulated for placement in securitized pools, are charged to earnings through adjustments in carrying value to the lower of cost or market value in accordance with accounting standards applicable to mortgage banking. Table 10 presents statistical information regarding the reserve for loan losses for the past five years. 15 Table 10 Summary of Loan Loss Experience (Dollars In Thousands) BOK Financial ------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------------------------------------------------------------- Beginning balance $45,148 $38,287 $38,271 $37,261 $35,100 Loans charged-off: Commercial 3,343 2,318 753 1,112 4,089 Commercial real estate 698 523 171 227 1,195 Residential mortgage 409 237 190 553 548 Consumer 4,753 3,432 2,874 1,345 690 - ---------------------------------------------------------------------------------------------------------------------------- Total 9,203 6,510 3,988 3,237 6,522 - ---------------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Commercial 2,530 3,747 1,579 1,366 2,204 Commercial real estate 957 4,113 987 972 828 Residential mortgage 555 262 373 157 151 Consumer 1,563 982 834 602 482 - ---------------------------------------------------------------------------------------------------------------------------- Total 5,605 9,104 3,773 3,097 3,665 - ---------------------------------------------------------------------------------------------------------------------------- Net loans charged-off 3,598 (2,594) 215 140 2,857 Provision for loan losses 9,026 4,267 231 195 3,376 Additions due to acquisitions 2,525 - - 955 1,642 - ---------------------------------------------------------------------------------------------------------------------------- Ending balance $53,101 $45,148 $38,287 $38,271 $37,261 ============================================================================================================================ Reserve to loans outstanding at year-end(1) 1.98% 1.96% 1.80% 2.12% 2.50% Net loan losses to average loans .14 (.12) .01 .01 .18 Provision for loan losses to average loans .35 .19 .01 .01 .22 Recoveries to gross charge-offs 60.90% 139.85% 94.61% 95.68% 56.19% Reserve as a multiple of net charge-offs 14.76x (17.40)x 178.08x 273.36x 13.04x - ---------------------------------------------------------------------------------------------------------------------------- Problem Loans - ---------------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) $17,971 $18,816 $ 9,379 $ 7,667 $ 5,482 Nonaccrual 18,767 18,835 29,288 20,114 9,124 Renegotiated 207 - - - 1,323 - ---------------------------------------------------------------------------------------------------------------------------- Total $36,945 $37,651 $38,667 $27,781 $15,929 - ---------------------------------------------------------------------------------------------------------------------------- Foregone interest on nonaccrual loans $ 2,882 $ 2,975 $ 2,928 $ 1,392 $ 1,238 - ---------------------------------------------------------------------------------------------------------------------------- (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value.
The adequacy of the reserve for loan losses is assessed by management based upon an evaluation of the current risk characteristics of the loan portfolio including current economic conditions, historical experience, collateral valuation, changes in the composition of the portfolio and other relevant factors. A provision for loan losses is charged against earnings in amounts necessary to maintain the adequacy of the reserve for loan losses. These provisions totaled $9.0 million for 1997, $4.3 million for 1996 and $0.2 million for 1995. The increased provision for 1997 reflected management's assessment of increased risk of loan losses, due primarily to continued growth in the loan portfolio and in criticized assets, geographic expansion of BOK Financial's market area to include North Texas and New Mexico, and an expectation that economic activities will moderate in BOK Financial's primary market areas. Additionally, net loan charge-offs were $3.6 million 1997 compared to net loan recoveries of $2.6 million in 1996 and net loan charge-offs of $215 thousand and $140 thousand in 1995 and 1994, respectively. Table 11 presents management's allocation of the year-end reserve for loan losses for the past five years. The changes in the various allocations reflect the changing composition of the loan portfolio and the changing economic environment in BOK Financial's market area. In addition to reserves allocated to specific loans or categories of loans, reserves are maintained for other relevant factors such as national and local economic conditions and the nature and volume of the loan portfolio. Table 11 Loan Loss Reserve Allocation (Dollars in Thousands) December 31, 1997 1996 1995 1994 1993 ------------------- ------------------- -------------------- ------------------- ------------------- % of % of % of % of % of Reserve Loans(1) Reserve Loans(1) Reserve Loans(1) Reserve Loans(1) Reserve Loans(1) ---------- -------- ---------- -------- ---------- --------- ---------- -------- --------- --------- Loan category: Commercial $28,281 55.81 $25,191 53.99 $25,646 51.21 $23,633 50.09 $20,344 55.25 Commercial real estate 3,233 17.79 3,907 18.62 3,774 18.02 2,524 18.01 2,755 18.33 Residential mortgage 1,778 15.60 1,651 16.91 638 18.66 556 19.08 620 15.30 Consumer 5,728 10.80 5,174 10.48 2,556 12.11 3,436 12.82 1,795 11.12 Nonspecific allocation 14,081 - 9,225 - 5,673 - 8,122 - 11,747 - ----------------------- ---------- -------- ---------- -------- ---------- --------- ---------- -------- --------- --------- Total $53,101 100.00 $45,148 100.00 $38,287 100.00 $38,271 100.00 $37,261 100.00 ============================================================================================================================ (1) Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value.
16 NONPERFORMING ASSETS Information regarding nonperforming assets, which were $42 million at December 31, 1997 and 1996, is presented in Table 12. Nonperforming loans include nonaccrual loans, loans 90 days or more past due and renegotiated loans. Loans 90 days or more past due included $14.5 million of residential mortgage loans guaranteed by agencies of the U.S. Government. These loans were purchased from various investors to minimize operating costs. See Note 5 to the Consolidated Financial Statements for additional information. Table 12 Nonperforming Assets (Dollars in Thousands) December 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------- ------------ ------------ ------------ ------------- Nonperforming loans Nonaccrual loans: Commercial $12,717 $13,494 $14,646 $11,238 $ 2,383 Commercial real estate 2,960 2,313 10,621 5,273 4,854 Residential mortgage 2,441 2,495 2,794 2,916 1,788 Consumer 649 533 1,227 687 99 - ------------------------------------------------- ------------- ------------ ------------ ------------ ------------- Total nonaccrual loans 18,767 18,835 29,288 20,114 9,124 Loans past due (90 days) (1) 17,971 18,816 9,379 7,667 5,482 Renegotiated loans 207 - - - 1,323 - ------------------------------------------------- ------------- ------------ ------------ ------------ ------------- Total nonperforming loans 36,945 37,651 38,667 27,781 15,929 - ------------------------------------------------- ------------- ------------ ------------ ------------ ------------- Other nonperforming assets: Commercial real estate 2,395 2,586 3,023 3,245 5,915 Other 2,863 1,990 376 855 1,608 - ------------------------------------------------- ------------- ------------ ------------ ------------ ------------- Total other nonperforming assets 5,258 4,576 3,399 4,100 7,523 - ------------------------------------------------- ------------- ------------ ------------ ------------ ------------- Total nonperforming assets $42,203 $42,227 $42,066 $31,881 $23,452 ==================================================================================================================== Ratios: Reserve for loan losses to nonperforming loans 143.73% 119.91% 99.02% 137.76% 233.92% Nonperforming loans to period-end loans (2) 1.38 1.64 1.82 1.54 1.07 - ------------------------------------------------- ------------- ------------ ------------ ------------ ------------- 1 Includes residential mortgages guaranteed by agencies of the U.S. Government. $14,468 $13,932 $ 6,754 $ 6,549 $ 3,546 2 Excludes residential mortgage loans held for sale.
LEASING AND MEZZANINE FINANCING During 1997, BOK Financial expanded its interests in leasing and mezzanine financing through its subsidiary, BOK Capital Services Corporation. ("BCS"). BCS engages in financing activities which generally have a higher return potential but which have a higher risk of loss than those normally permissible for banks. Most notably, at December 31, 1997, other assets included $23.4 million of natural gas compression and other equipment which is being leased to various customers by entities in which BCS is a general partner. The terms of these leases are generally much shorter than the estimated useful lives of the equipment. Therefore, as each lease expires, there is a risk that the remaining net book value of the equipment may not be recovered based upon market conditions and re-leasing opportunities at that time. DEPOSITS Average deposits for 1997 increased $345 million compared to 1996. Excluding acquisitions, average deposits increased $55 million or 1.8%. Demand deposits and interest-bearing transaction accounts increased by $29 million and $112 million, respectively, while certificates of deposit decreased by $82 million. These changes reflect BOK Financial's deposit pricing decisions to lower its overall cost of funds. Table 13 Deposit Analysis (In Thousands) Average Balances -------------------------- 1997 1996 ------------- ------------ Core deposits $2,422,803 $2,287,298 Public funds 330,757 273,312 Uninsured deposits 718,315 565,170 - ---------------------------------- ------------- ------------ Total $3,471,875 $3,125,780 ============================================================= 17 As shown in Table 13, average core deposits increased $135 million to $2.4 billion. This represented 69.8% of total deposits in 1997 compared to 73.2% for 1996. Concurrently, uninsured deposits increased to 20.7% of total deposits for 1997 compared to 18.1% in 1996. Average uninsured deposits included approximately $141 million of brokered deposits. Uninsured deposits as used in this presentation is based on a simple analysis of account balances and does not reflect combined ownership and other account styling that would determine insurance based on FDIC regulations. BOK Financial competes for deposits by offering a broad range of products and services to its customers. While this includes offering interest rates and fees which are competitive with other financial institutions, the primary means of competing for deposits is convenience and service to the customers. During 1997, BOk opened 7 branches with extended hours in local supermarkets. BOK Financial plans to open 3 new supermarket branches in 1998 to further enhance customer convenience. Table 14 Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More (In Thousands) December 31, -------------------------- 1997 1996 ------------ ------------- Months to maturity: 3 or less $119,011 $ 66,872 Over 3 through 6 139,958 195,339 Over 6 through 12 272,554 140,777 Over 12 178,095 157,000 --------------------------------- ------------ ------------- Total $709,618 $559,988 ============================================================ BORROWINGS BOk issued $150 million of 10-year subordinated notes, discounted to a cost of 7.2% during the third quarter of 1997. These notes are unsecured obligations of BOk and are not insured by the FDIC or any other government agency and are not guaranteed by BOK Financial. Standard & Poors Rating Service rated the notes as BBB; Moody's Investor Service, Baa3; and Thomson Bank Watch, A-. Concurrent with the issuance of these notes, $50 million was paid as dividends to BOK Financial to repay existing debt, including a $20 million subordinated debenture due to an affiliate of George B. Kaiser, BOK Financial's principal shareholder. The remaining proceeds were retained by BOk to fund future growth. BOk entered into 10-year interest rate swaps with a notional amount of $100 million to change the cost of these notes from fixed rate to variable rate. BOk receives a fixed weighted average rate of 6.77% on these swaps and pays the one month LIBOR. Average borrowings, excluding the subordinated notes, increased $294 million over 1996 and represented 21.4% of all funding sources, up from 18.5% in 1996. See Note 9 to the Consolidated Financial Statements for additional information. CAPITAL Equity capital for BOK Financial averaged $394 million and $322 million for 1997 and 1996, respectively. The $72 million increase resulted from 1997 earnings and a $9 million increase in unrealized gains on available for sale securities. This increase in equity capital, the previously discussed subordinated notes, and available lines of credit which total $28 million are adequate to fund anticipated growth for 1998. See Note 15 to the Consolidated Financial Statements for additional information. On February 25, 1998, BOK Financial announced that its board of directors approved a common stock repurchase program to purchase up to 200,000 shares. The purchases will be made from time-to-time in accordance with SEC Rule 10(b)18 transactions. MARKET RISK Market risk is a broad term related to the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, or equity prices. Financial instruments which 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 its portfolio of assets held for purposes other than trading. Neither the effect of other changes, such as foreign exchange rates, commodity prices or equity prices, nor the effect of market risk on financial instruments held for trading purposes, is material to BOK Financial. The responsibility for managing market risk rests with the Asset/Liability Committee which operates under policy guidelines which have been established by the Board of Directors. These guidelines limit the negative acceptable variation in net interest revenue and economic value of equity due to a 200 basis point increase or decrease in interest rates to +/- 10%, establish maximum levels for short-term borrowings, short-term assets, and public and brokered deposits, and establish minimum levels for unpledged assets, among other things. Compliance with these guidelines is reviewed monthly. At December 31, 1997, BOK Financial is within all guidelines established under these policies. 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 assuming expected interest rates over the next twelve months based upon both a "most likely" rate scenario and on two "shock test" scenarios, the first assuming a sustained parallel 200 basis point increase and the second a sustained parallel 200 basis point decrease in interest rates. An independent source is used to 18 determine the most likely interest rates for the next year. BOK Financial's primary interest rate exposures include the Federal Reserve Bank's discount rate which affects short-term borrowings, the prime lending rate and the London InterBank Offering Rate ("LIBOR") which are the basis for much of the variable-rate loan pricing and the 30-year mortgage rate which directly affects the prepayment speeds for mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. In addition, sensitivity of fee income to market interest rate levels, such as those related to cash management services and mortgage servicing, are included. The model incorporates management's assumptions regarding the level of interest rate or balance changes on indeterminable maturity deposits (demand deposits, interest-bearing transaction accounts and savings accounts) for a given level of market rate changes. The assumptions have been developed through a combination of historical analysis and future expected pricing behavior. Interest rate swaps on all products are included to the extent that they are effective in the 12-month simulation period. Additionally, changes in prepayment behavior of mortgage-backed securities, residential mortgage loans and mortgage servicing in each rate environment are captured using industry estimates of prepayment speeds for various coupon segments of the portfolio. Finally, the impact of planned growth and new business activities is factored into the simulation model. At December 31, 1997, this modeling indicated interest rate sensitivity compared to a constant interest rate scenario as follows: 200 bp 200 bp Most Increase Decrease Likely --------- ---------- ---------- Anticipated impact over the next twelve months: Net interest revenue $ 2,801 $ (1,880) $ 814 1.5% (1.0%) 0.4% - ------------------------------ --------- ---------- ---------- Net income $ 4,844 $(23,706) $ 492 6.7% (32.7%) 0.7% - ------------------------------ --------- ---------- ---------- Economic value of equity $ 20,264 $ 7,780 $ (2,719) 3.0% 1.1% (0.4%) - ------------------------------ --------- ---------- ---------- The estimated changes in interest rates on net interest revenue or economic value of equity is not projected to be significant within the +/- 200 basis point range of assumptions. However, this modeling indicated that under the 200 basis point decrease scenario, the after-tax value of BOK Financial's capitalized mortgage loan servicing rights would decrease by $22.5 million. While this decrease in value would largely be offset by an increase in the value of the securities portfolio, current accounting principles require that the decreased value of mortgage loan servicing rights be charged to earnings while the increased value of available for sale securities be credited to shareholders' equity. The result is a projected decrease in net income of $23.7 million or 32.7% compared to projected net income assuming no changes in interest rates. The simulation is based on numerous assumptions regarding the effect of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest revenue, net income or economic value of equity or precisely predict the impact of higher or lower interest rates on net interest revenue, net income or economic value of equity. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. BOK Financial uses interest rate swaps, a form of off-balance sheet derivative product, in managing its interest rate sensitivity. These products are generally used to more closely match interest paid on certain long-term certificates of deposit and subordinated debt with earning assets. BOK Financial accrues and periodically receives a fixed amount from the counterparties to these swaps and accrues and periodically makes a variable payment to the counterparties. During 1997, income from these swaps exceeded the cost of the swaps by $1.2 million. Credit risk from these swaps is closely monitored and counterparties to these contracts are selected on the basis of their credit worthiness, among other factors. Derivative products are not used for speculative purposes. See Note 14 to the Consolidated Financial Statements for additional information. 19 Report of Management on Financial Statements Management is responsible for the consolidated financial statements which have been prepared in accordance with generally accepted accounting principles. In management's opinion, the consolidated financial statements present fairly the financial conditions, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods indicated. BOK Financial and its subsidiaries maintain a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization, and are recorded as necessary to maintain accountability for assets and to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, a corporate code of conduct, an internal audit program and standards for the hiring and training of qualified personnel. The Board of Directors of BOK Financial maintains a Risk Oversight and Audit Committee consisting of outside directors that meet periodically with management and BOK Financial's internal and independent auditors. The Committee considers the audit and nonaudit services to be performed by the independent auditors, makes arrangements for the internal and independent audits and recommends BOK Financial's selection of independent auditors. The Committee also reviews the results of the internal and independent audits, considers and approves certain of BOK Financial's accounting principles and practices, and reviews various shareholder reports and other reports and filings. Ernst & Young LLP, certified public accountants, have been engaged to audit the consolidated financial statements of BOK Financial and its subsidiaries. Their audit is conducted in accordance with generally accepted auditing standards and their report on BOK Financial's consolidated financial statements is set forth below. REPORT OF INDEPENDENT AUDITORS We have audited the accompanying consolidated balance sheets of BOK Financial Corporation as of December 31, 1997 and 1996, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BOK Financial Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Ernst & Young LLP Tulsa, Oklahoma January 27, 1998 20 BOK FINANCIAL CORPORATION Consolidated Statements of Earnings (In Thousands Except Share Data) 1997 1996 1995 ----------------- ----------------- ----------------- Interest Revenue Loans $227,044 $196,309 $179,052 Taxable securities 97,416 77,588 83,076 Tax-exempt securities 16,809 14,665 12,075 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total securities 114,225 92,253 95,151 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Trading securities 287 340 242 Funds sold and resell agreements 2,992 1,630 996 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total interest revenue 344,548 290,532 275,441 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Interest Expense Deposits 122,042 118,066 97,739 Borrowed funds 62,740 45,027 62,086 Subordinated debenture 4,166 - 352 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total interest expense 188,948 163,093 160,177 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Net Interest Revenue 155,600 127,439 115,264 Provision for Loan Losses 9,026 4,267 231 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Net Interest Revenue After Provision for Loan Losses 146,574 123,172 115,033 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Other Operating Revenue Brokerage and trading revenue 9,556 7,896 6,046 Transaction card revenue 19,339 14,298 11,045 Trust fees and commissions 24,062 21,638 19,363 Service charges and fees on deposit accounts 28,651 24,104 21,152 Mortgage banking revenue 32,235 26,234 20,336 Leasing revenue 5,861 2,236 586 Other revenue 10,013 10,769 9,512 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total fees and commissions 129,717 107,175 88,040 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Gain on student loan sales 1,311 1,069 762 Gain (loss) on branch sales - (325) 1,170 Gain (loss) on securities (1,329) (2,607) 1,174 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total other operating revenue 129,699 105,312 91,146 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Other Operating Expense Personnel expense 87,728 71,945 67,298 Business promotion 8,657 6,372 6,039 Contribution of stock to BOk Charitable Foundation 3,638 - - Professional fees and services 6,769 5,406 5,898 Net occupancy, equipment and data processing expense 35,614 30,831 27,324 FDIC and other insurance 1,293 1,740 4,406 Special deposit insurance assessment - 3,820 - Printing, postage and supplies 7,783 6,792 6,340 Net gains and operating expenses on repossessed assets (3,849) (4,552) (3,098) Amortization on intangible assets 8,824 5,411 5,992 Write-off of core deposit intangible assets related to SAIF-insured - 3,821 - deposits Mortgage banking costs 19,968 15,473 11,990 Provision for impairment of mortgage servicing rights 4,100 361 539 Other expense 14,641 11,608 9,478 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Total other operating expense 195,166 159,028 142,206 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Income Before Taxes 81,107 69,456 63,973 Federal and state income tax 16,482 15,329 14,768 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Net Income $ 64,625 $ 54,127 $ 49,205 =============================================================================================================================== Earnings Per Share: Basic: Net income $ 2.89 $ 2.41 $ 2.19 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Diluted: Net income $ 2.58 $ 2.18 $ 1.99 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- Average Shares Used in Computation: Basic 21,860,260 21,808,828 21,787,884 Diluted 25,022,018 24,792,653 24,742,885 - ------------------------------------------------------------------------- ----------------- ----------------- ----------------- See accompanying notes to consolidated financial statements.
21 Consolidated Balance Sheets (In Thousands Except Share Data) December 31, ------------------------------- 1997 1996 ---------------- -------------- Assets Cash and due from banks $ 371,321 $ 322,791 Funds sold and resell agreements 18,005 44,760 Trading securities 4,999 6,454 Securities: Available for sale 1,749,411 1,459,122 Investment (fair value: 1997 - $214,125; 1996 - $199,549) 213,111 198,408 -------------------------------------------------------------------------------- ---------------- -------------- Total securities 1,962,522 1,657,530 -------------------------------------------------------------------------------- ---------------- -------------- Loans 2,765,093 2,394,580 Less reserve for loan losses 53,101 45,148 -------------------------------------------------------------------------------- ---------------- -------------- Net loans 2,711,992 2,349,432 -------------------------------------------------------------------------------- ---------------- -------------- Premises and equipment, net 65,478 47,479 Accrued revenue receivable 50,754 46,020 Excess cost over fair value of net assets acquired and core deposit premiums (net of accumulated amortization: 1997 - $39,582;1996 - $30,758) 67,796 28,276 Mortgage servicing rights, net 83,890 61,544 Real estate and other repossessed assets 5,258 4,576 Other assets 57,627 51,838 -------------------------------------------------------------------------------- ---------------- -------------- Total assets $5,399,642 $4,620,700 ================================================================================================================ Liabilities and Shareholders' Equity Noninterest-bearing demand deposits $ 881,029 $ 696,853 Interest-bearing deposits: Transaction 1,124,288 954,546 Savings 106,900 97,019 Time 1,615,862 1,508,337 -------------------------------------------------------------------------------- ---------------- -------------- Total deposits 3,728,079 3,256,755 -------------------------------------------------------------------------------- ---------------- -------------- Funds purchased and repurchase agreements 631,815 669,176 Other borrowings 394,087 277,128 Subordinated debenture 148,356 - Accrued interest, taxes and expense 39,998 46,047 Other liabilities 21,830 11,628 -------------------------------------------------------------------------------- ---------------- -------------- Total liabilities 4,964,165 4,260,734 -------------------------------------------------------------------------------- ---------------- -------------- Shareholders' equity: Preferred stock 23 23 Common stock ($.00006 par value; 2,500,000,000 shares authorized; issued: 1997 - 21,975,747; 1996 - 21,148,729) 1 1 Capital surplus 208,327 176,093 Retained earnings 218,629 182,892 Treasury stock (shares at cost: 1997 - 66,377; 1996 - 16,834) (2,190) (428) Unrealized net gain on securities available for sale 10,691 1,472 Notes receivable from exercise of stock options (4) (87) -------------------------------------------------------------------------------- ---------------- -------------- Total shareholders' equity 435,477 359,966 -------------------------------------------------------------------------------- ---------------- -------------- Total liabilities and shareholders' equity $5,399,642 $4,620,700 ================================================================================================================ See accompanying notes to consolidated financial statements.
22 BOK FINANCIAL CORPORATION Consolidated Statements of Changes in Shareholders' Equity (In Thousands) Preferred Stock Common Stock ---------------- ------------ Shares Amount Shares Amount ----------------------------- December 31, 1994 250,000 $ 13 19,735 $ 1 Net income - - - - Director retainer shares - - 8 - Issuance of common stock to Thrift Plan - - 3 - Exercise of stock options - - 6 - Payments on stock options notes receivable - - - - Issuance of preferred stock 102 10 - - Dividends paid in shares of common stock: Preferred stock - - 70 - Common stock - - 594 - Unrealized net gain on securities available for sale - - - - ---------------------------- December 31, 1995 250,102 23 20,416 1 Net income - - - - Director retainer shares - - 8 - Exercise of stock options - - 41 - Payments on stock options notes receivable - - - - Cash dividends paid on preferred stock - - - - Dividends paid in shares of common stock: Preferred stock - - 69 - Common stock - - 615 - Unrealized net gain on securities available for sale - - - - ---------------------------- December 31, 1996 250,102 23 21,149 1 Net income - - - - Director retainer shares - - 8 - Issuance of common stock to Thrift Plan - - 18 - Exercise of stock options - - 108 - Payments on stock options notes receivable - - - - Dividends paid in shares of common stock: Preferred stock - - 54 - Common stock - - 639 - Unrealized net gain on securities available for sale - - - - ---------------------------- December 31, 1997 250,102 $23 21,976 $ 1 ================================================================================ (1) Notes receivable from exercise of stock options. See accompanying notes to consolidated financial statements. 23 Consolidated Statements of Changes in Shareholders' Equity, (Continued) (In Thousands) Capital Retained Treasury Stock Unrealized Notes -------------------- Surplus Earnings Shares Amount Gain (Loss) Receivable(1) Total - -------------------------------------------------------------------------------- $142,718 $111,878 - $ - $(17,423) $(285) $236,902 - 49,205 - - - - 49,205 157 - - - - - 157 70 - - - - - 70 104 - - - - - 104 - - - - - 131 131 - - - - - - 10 1,500 (1,500) - - - - - 12,846 (12,856) - - - - (10) - - - - 14,996 - 14,996 - -------------------------------------------------------------------------------- 157,395 146,727 - - (2,427) (154) 301,565 - 54,127 - - - - 54,127 173 - - - - - 173 569 - 17 (419) - - 150 - - - - - 67 67 - (3) - - - - (3) 1,500 (1,500) - - - - - 16,456 (16,459) - (9) - - (12) - - - - 3,899 - 3,899 - -------------------------------------------------------------------------------- 176,093 182,892 17 (428) 1,472 (87) 359,966 - 64,625 - - - - 64,625 256 - - - - - 256 715 - - - - - 715 2,315 - 47 (1,681) - - 634 - - - - - 83 83 1,500 (1,500) - - - - - 27,448 (27,388) 2 (81) - - (21) - - - - 9,219 - 9,219 - -------------------------------------------------------------------------------- $208,327 $218,629 66 $(2,190) $ 10,691 $ (4) $435,477 ================================================================================ 24 BOK FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) 1997 1996 1995 ------------ ------------- ------------ Cash Flows From Operating Activities: Net income $ 64,625 $ 54,127 $ 49,205 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan and repossessed real estate losses 9,026 4,281 231 Provisions for mortgage servicing rights 4,100 361 539 Depreciation and amortization 32,389 23,693 19,612 Write-off of core deposit intangible assets - 3,821 - Net amortization of securities discounts and premiums 2,926 2,935 1,929 Net gain on sale of assets (7,632) (2,803) (4,742) Contribution of stock to BOk Charitable Foundation 3,638 - - Mortgage loans originated for resale (830,132) (714,447) (519,392) Proceeds from sale of mortgage loans held for resale 850,366 693,012 486,347 (Increase) decrease in trading securities 1,455 1,323 (5,242) (Increase) decrease in accrued revenue receivable 883 (4,899) 277 (Increase) decrease in other assets 6,607 (2,499) 701 Decrease in accrued interest, taxes and expense (12,909) (3,644) (8,176) Increase in other liabilities 3,847 1,033 2,275 - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Net cash provided by operating activities 129,189 56,294 23,564 - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Cash Flows From Investing Activities: Proceeds from sales of available-for-sale securities 1,026,464 484,436 134,109 Proceeds from maturities of investment securities 25,904 25,284 17,242 Proceeds from maturities of available-for-sale securities 231,267 226,162 193,855 Purchases of investment securities (40,701) (44,890) (29,566) Purchases of available for sale securities (1,390,255) (801,999) (250,320) Loans originated or acquired net of principal collected (256,328) (201,139) (357,736) Proceeds from sales of assets 14,048 30,547 43,426 Purchases of assets (74,341) (36,802) (33,439) Cash and cash equivalents of subsidiaries and branches acquired and sold, net 12,365 (200) (19,371) - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Net cash used by investing activities (451,577) (318,601) (301,800) - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Cash Flows From Financing Activities: Net increase in demand deposits, transaction deposits, and savings accounts 126,326 211,353 12,042 Net increase (decrease) in certificates of deposit (592) 107,693 318,100 Net increase (decrease) in other borrowings 68,406 (1,502) (26,528) Repayment of subordinated debenture (20,000) - (23,000) Issuance of subordinated debt 168,356 - - Issuance of preferred, common and treasury stock, net 1,584 311 331 Dividends on preferred stock - (3) - Payments on notes receivable 83 67 131 - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Net cash provided by financing activities 344,163 317,919 281,076 - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Net increase in cash and cash equivalents 21,775 55,612 2,840 Cash and cash equivalents at beginning of period 367,551 311,939 309,099 - ------------------------------------------------------------------------------------- ------------ ------------- ------------ Cash and cash equivalents at end of period $ 389,326 $367,551 $311,939 ============================================================================================================================= Cash paid for interest $ 186,339 $163,777 $157,398 ============================================================================================================================= Cash paid for taxes 20,167 21,375 10,954 ============================================================================================================================= Net loans transferred to repossessed real estate 2,584 2,043 2,159 ============================================================================================================================= Payment of dividends in common stock 28,948 17,956 14,346 ============================================================================================================================= See accompanying notes to consolidated financial statements.
25 Notes to Consolidated Financial Statements (1) Significant Accounting Policies BASIS OF PRESENTATION The Consolidated Financial Statements of BOK Financial Corporation ("BOK Financial") have been prepared in conformity with generally accepted accounting principles, including general practices of the banking industry. The consolidated financial statements include the accounts of BOK Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its subsidiaries ("BOk"), Bank of Texas, N.A. (formerly First National Bank of Park Cities and First Texas Bank), and Bank of Arkansas, N.A. ("BOA"). Certain prior year amounts have been reclassified to conform to current year classifications. NATURE OF OPERATIONS BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers, other financial institutions and consumers throughout Oklahoma, Northwest Arkansas and North Texas. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust. USE OF ESTIMATES Preparation of BOK Financial's consolidated financial statements requires management to make estimates of future economic activities, including interest rates, loan collectibility and prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates. ACQUISITIONS Assets and liabilities acquired by purchase are recorded at fair values on the acquisition dates. Intangible assets are amortized using straight-line and accelerated methods over the estimated benefit periods. These periods range from 7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The net book values of intangible assets are evaluated for impairment when economic conditions indicate an impairment may exist. The Consolidated Statements of Earnings include the results of purchases from the dates of acquisition. The financial statements of companies acquired in pooling-of-interests transactions are combined with the Consolidated Financial Statements of BOK Financial at historical cost as if the mergers occurred at the beginning of the earliest period presented. CASH EQUIVALENTS Due from banks, funds sold (generally federal funds sold for one-day periods) and resell agreements (which generally mature within one to 30 days) are considered cash equivalents. SECURITIES Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities, which are acquired for profit through resale, are carried at market value with unrealized gains and losses included in current period earnings. Investment securities are carried at amortized cost. Amortization is computed by methods which approximate level yield and is adjusted for changes in prepayment estimates. Securities identified as available for sale are carried at fair value with unrealized gains and losses included in shareholders' equity, net of deferred income taxes. Realized gains and losses on sales of securities are based upon the adjusted cost of the specific security sold. LOANS Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower; however, BOK Financial is exposed to risk of loss on loans due to the borrower's difficulties, which may arise from any number of factors including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Interest is accrued at the applicable interest rate on the principal amount outstanding. Loans are placed on nonaccrual status when, in the opinion of management, full collection of principal or interest is uncertain, generally when the collection of principal or interest is 90 days or more past due. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loan origination and commitment fees, and direct loan origination costs when significant, are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. During 1997, BOK Financial adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("FAS 125"). FAS 125 established new rules for determining whether a transfer of financial assets, such as loans, constitutes a sale and, if so, the determination of any resulting gains or losses. BOK Financial has modified its loan participation agreements to be in accordance with the sales criteria of FAS 125. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on related forward sales contracts. 26 RESERVE FOR LOAN LOSSES The reserve for loan losses is maintained at a level that, in the opinion of management, is adequate to absorb losses inherent in the loan portfolio. The adequacy of the reserve for loan losses is determined by management based upon evaluation of the individual credits in the loan portfolio, historical credit losses, anticipated economic conditions in BOK Financial's primary market areas and other relevant factors. The allowance for credit losses related to loans that are identified for evaluation in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114"), is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Loans are considered to be impaired when it becomes probable that BOK Financial will be unable to collect all amounts due according to the contractual terms of the loan agreement. This is substantially the same criteria used to determine when a loan should be placed on nonaccrual status. The amount of impairment determined in accordance with FAS 114 did not differ materially from amounts previously provided. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. In accordance with the provisions of FAS 114, management has excluded small balance, homogeneous loans from the impairment evaluation specified in FAS 114. Such loans include 1-4 family mortgage loans, consumer loans, and commercial loans with committed amounts less than $1 million. The adequacy of the allowance for loan losses applicable to these loans is evaluated in accordance with standards established by the banking regulatory authorities and adopted as policy by BOK Financial. A provision for loan losses is charged against earnings in amounts necessary to maintain an adequate reserve for loan losses. Loans are charged off when the loan balance or a portion of the loan balance is no longer covered by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Loans are evaluated quarterly and charge offs are taken in the quarter in which the loss is identified. Additionally, all unsecured or under-secured loans which are past due by 180 days or more are charged off within 30 days. Recoveries of loans previously charged off are added to the reserve. REAL ESTATE AND OTHER REPOSSESSED ASSETS Real estate and other repossessed assets are assets acquired in partial or total forgiveness of debt. These assets are carried at the lower of cost, fair value at date of foreclosure or current fair value less estimated selling costs. Income generated by these assets is recognized as received, and operating expenses are recognized as incurred. PREMISES AND EQUIPMENT Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. MORTGAGE SERVICING RIGHTS Capitalized mortgage servicing rights are carried at the lower of cost less accumulated amortization or fair value. Amortization is determined in proportion to the projected cash flows over the estimated lives of the servicing portfolios. The actual cash flows are dependent upon the prepayment of the mortgage loans and may differ significantly from the estimates. Fair value is determined by discounting the estimated cash flows of servicing revenue, less projected servicing costs, using a risk-adjusted spread over U.S. Treasury rates, which is the assumed market rate for these instruments. Prepayment assumptions are based on industry consensus provided by independent reporting sources. Changes in current interest rates may significantly affect these assumptions by changing loan refinancing activity. Fair value for each servicing portfolio acquired and for servicing rights originated is based upon an interest rate stratification for each portfolio. Separate prepayment assumptions are then used to project net cash flows by interest rate strata within each portfolio. A valuation allowance is provided when the amortized cost of each portfolio or each interest rate strata exceeds the calculated fair value. FAS 125 extends the requirement to stratify capitalized servicing rights by predominant risk characteristic for the purpose of providing a valuation allowance for the difference between the amortized historical cost and fair value to all capitalized servicing rights. Previously, such stratification was required only for servicing rights capitalized after the adoption of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," ("FAS 122") in 1995. The result of this change is to further increase the volatility of earnings as the fair value of servicing rights react to changes in interest rates and prepayment assumptions. Originated mortgage servicing rights are recognized when either mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. Substantially all fixed rate mortgage loans originated by BOK Financial are sold under existing commitments. The fair value of the originated servicing rights is determined at closing based upon current market rates. INTEREST RATE SWAPS AND FORWARD COMMITMENTS BOk uses interest rate swaps and forward sales contracts as part of its interest rate risk management strategy. Interest rate swaps are used primarily to modify the interest expense of certain long-term, fixed rate certificates of deposit and long-term subordinated debenture. Amounts payable to or receivable from the counterparties are reported in interest expense using the accrual method. In the event of the early redemption of hedged obligations, any realized or unrealized gain or loss from the swaps would be recognized in income coincident with the redemption. The fair value of the swap agreements and changes in the fair value due to changes in market interest rates are not recognized in the financial statements. 27 Forward sales contracts are used to hedge existing and anticipated loans in conjunction with mortgage banking activities. The fair value of these instruments is included in determining the adjustment of the loan held for sale portfolio to the lower of cost or market. Gains or losses on closed contracts are recognized when the underlying assets are disposed. The cost of terminating these contracts prior to their expiration dates is expensed when incurred. Federal and State Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance based upon management's assessment of limitations on the use of certain deferred tax assets pursuant to income tax regulations, estimates of future taxable income, and the amount of previously paid taxes. Employee Benefit Plans BOK Financial sponsors various plans, including a defined benefit pension plan ("Pension Plan"), a qualified profit sharing plan ("Thrift Plan"), employee health care plans and a post-retirement health care plan. Employer contributions to the Thrift Plan, which match employee contributions subject to percentage and years of service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually. Unrecognized prior service cost and net gains or losses are amortized on a straight-line basis over the estimated remaining lives of the participants. BOK Financial recognizes the expense of health care benefits on the accrual method. Employer contributions to the Pension Plan and various health care plans are in accordance with Federal income tax regulations. EXECUTIVE BENEFIT PLANS BOK Financial accounts for its stock option plans under the provisions of APB 25, "Accounting for Stock Issued to Employees," and is also subject to certain disclosures as required under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," included in Note 12. FIDUCIARY SERVICES Fees and commissions on approximately $11.1 billion of assets managed by BOK Financial under various fiduciary arrangements are recognized on the accrual method. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," ("FAS 128"). FAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the FAS 128 requirements. The average number of shares outstanding has been restated for the effects of stock dividends. EFFECT OF PENDING STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125," ("FAS 127") delayed certain provisions of FAS 125 which are applicable to securities lending, repurchase and dollar repurchase agreements and the recognition of collateral until 1988. These provisions require entities engaged in these activities to report both the securities borrowed or collateral received and the obligation for their return on the consolidated balance sheet when certain conditions are met. This would tend to inflate reported assets and liabilities and could affect the amount of capital required under banking regulations. Management does not believe that BOK Financial's activities meet these certain conditions and does not expect these provisions of FAS 125 to have a significant effect on its consolidated balance sheet. Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS 130") was issued in 1997 and is effective for fiscal years beginning after December 15, 1997. FAS 130 requires that items of other comprehensive income be displayed in addition to net income and that the accumulated balance of other comprehensive income be disclosed separately from retained earnings and surplus. These disclosures will be required in financial statements beginning in the first quarter of 1998. FAS 130 will not impact amounts reported as net income or affect the comparability of previously issued financial statements. Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," ("FAS 131") was issued in 1997 and is effective for fiscal years beginning after December 15, 1997. FAS 131 requires companies to report selected information about their operating segments using a management approach, which is defined as revenue producing components for which separate financial information is produced internally and is subject to review by the chief operating decision maker in deciding how to allocate resources. This approach will require BOK Financial to provide disaggregated information about its activities that are currently considered interrelated in the operations of a commercial bank. This information will initially be disclosed for the year ended December 31, 1998 with comparative interim disclosures beginning with the first quarter of 1999. 28 (2) Acquisitions During the first quarter of 1997, BOK Financial completed the acquisitions of Park Cities Bancshares, Inc. and its subsidiary, First National Bank of Park Cities, Dallas, Texas (collectively "Park Cities") and First Texcorp, Inc. and its subsidiary First Texas Bank, Dallas, Texas (collectively "First Texas"). On February 12, 1997, BOK Financial issued notes totaling $10.9 million and $40 million in cash to acquire all outstanding common shares of Park Cities and on March 4, 1997, BOK Financial paid $39.3 million to acquire all outstanding common shares of First Texas. Both of these acuisitions were accounted for by the purchase method of accounting. Allocation of the purchase price to the net assets acquired were as follows (in thousands): Park Cities First Texas ------------- ------------ Cash and cash equivalents: $ 59,417 $ 32,164 Securities 102,505 45,967 Loans 79,124 58,714 Less allowance for loan losses (1,081) (1,444) ------------- ------------ Loans, net 78,043 57,270 Premises and equipment 3,357 1,784 Core deposit premium 6,544 4,565 Other assets 4,864 4,518 ------------- ------------ Total assets acquired 254,730 146,268 Deposits: Noninterest bearing 67,275 56,441 Interest bearing 158,352 62,664 ------------- ------------ Total deposits 225,627 119,105 Borrowed funds 290 333 Other liabilities 955 1,838 ------------- ------------ Net assets acquired 27,858 24,992 Less: Purchase price 50,855 39,263 ------------- ------------ Goodwill $ 22,997 $ 14,271 ========================== Since these acquisitions occurred early in 1997, the pro forma statement of earnings for 1997 would not have been materially different from the 1997 Consolidated Statement of Earnings. The following unaudited Condensed Consolidated Pro Forma Statement of Earnings for BOK Financial presents the effects on income had both of the above acquisitions described above occurred at the beginning of 1996. Condensed Consolidated Pro Forma Statements of Earnings for the Year ended December 31, 1996 (In Thousands, Except Per share Date) (Unaudited) Net interest revenue $139,819 Provision for loan losses 4,352 - ------------------------------------------------ ------------ Net interest revenue after provision for loan 135,467 losses Other operating revenue 108,050 Other operating expense 173,025 - ------------------------------------------------ ------------ Income before taxes 70,492 Federal and state income tax 15,909 - ------------------------------------------------ ------------ Net income $ 54,583 ============================================================= Earnings per share: Basic net income $ 2.43 Diluted net income 2.20 - ------------------------------------------------ ------------ Average shares used in computation: Basic 21,808,828 Diluted 24,792,653 - -------------------------------------------------------------- Since 1991, BOK Financial acquired deposits insured by the Savings and Loan Insurance Fund ("SAIF") totaling approximately $843 million. In conjunction with these acquisitions, core deposit intangible assets which represent the future earnings potential of these funds, were recorded. In determining the value of these core deposit intangible assets, assumptions were made regarding the returns which were expected to be earned over the costs which would be incurred, including interest expense, processing costs and deposit insurance premiums. During 1995, the FDIC made a change in deposit insurance premiums which significantly decreased the value of deposits insured by SAIF. The premium assessed on deposits insured by the Bank Insurance Fund ("BIF") was reduced to three basis points (.03%) while the premium assessed on SAIF insured deposits remained at 23 basis points (.23%). Legislation to resolve this difference had been expected from Congress at December 31, 1995. However, at the end of the first quarter of 1996, the expected legislation had been removed from the agenda and the resolution of the differential between rates assessed on SAIF insured deposits compared to BIF insured deposits was uncertain. This uncertainty, in addition to heightened competitive pressures caused the spreads between the actual returns and costs to decrease. These conditions caused the value of these core deposit intangible assets to be impaired and a write down of $3.8 million was recognized in the second quarter of 1996. 29 (3) SALE OF ASSETS TO RELATED PARTY During April 1991, BOk sold to BOK Financial's principal shareholder, George B. Kaiser ("Kaiser"), and related business entities certain loans, repossessed real estate and the rights to future recoveries on certain charge-offs. Recoveries collected by BOk and paid to Kaiser were $829 thousand, $3.3 million and $1.4 million for 1997, 1996 and 1995, respectively. (4) SECURITIES INVESTMENT SECURITIES The amortized cost and fair values of investment securities are as follows (in thousands): December 31, ---------------------------------------------------------------------------------------------- 1997 1996 ---------------------------------------------- ----------------------------------------------- Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized ----------------------- ------------------------ Cost Value Gain Loss Cost Value Gain Loss ---------------------------------------------------------------------------------------------- U.S. Treasury $ 850 $ 845 $ - $ (5) $ 1,000 $ 992 $ 2 $ (10) Municipal and other tax exempt 164,379 164,873 1,453 (959) 134,150 134,705 1,571 (1,016) Mortgage-backed U.S. agency securities 46,849 47,374 555 (30) 62,282 62,876 832 (238) Other debt securities 1,033 1,033 - - 976 976 - - ---------------------------------------------------------------------------------------------- Total $213,111 $214,125 $2,008 $(994) $198,408 $199,549 $2,405 $(1,264) =============================================================================================================================
The amortized cost and fair values of investment securities at December 31, 1997, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity ------------ ------------- -------------- ------------- ------------- ------------ U.S. Treasuries: Amortized cost $ 250 $ 600 $ - $ - $ 850 1.16 Fair value 249 596 - - 845 Nominal yield 5.28% 5.19% 5.22% Municipal and other tax exempt: Amortized cost 15,558 99,282 45,046 4,493 164,379 4.04 Fair value 15,480 99,264 45,329 4,800 164,873 Nominal yield(1) 6.64% 7.11% 7.60% 9.74% 7.27% Other debt securities: Amortized cost 433 - 600 - 1,033 3.28 Fair value 433 - 600 - 1,033 Nominal yield(1) 4.78% 6.31% 5.67% ------------ ------------- -------------- ------------- ------------- ------------ Total fixed maturity securities: Amortized cost $16,241 $99,882 $45,646 $4,493 $166,262 4.02 Fair value 16,162 99,860 45,929 4,800 166,751 Nominal yield 6.57% 7.10% 7.58% 9.74% 7.25% ==================================================== Mortgage-backed securities: Amortized cost 46,849 -(2) Fair value 47,374 Nominal yield(3) 7.20% -------------- Total investment securities: Amortized cost 213,111 Fair value 214,125 Nominal yield 7.24% ============= (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 2.8 years based upon current prepayment assumptions. (3) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchasedate. Actual yields earned may differ significantly based upon actual prepayments.
30 AVAILABLE FOR SALE SECURITIES The amortized cost and fair value of available-for-sale securities are as follows (in thousands): December 31, ----------------------------------------------------------------------------------------------- 1997 1996 ---------------------------------------------- ------------------------------------------------ Amortized Fair Gross Unrealized Amortized Fair Gross Unrealized ---------------------- ----------------------- Cost Value Gain Loss Cost Value Gain Loss ---------------------------------------------- ------------------------------------------------ U.S. Treasury $ 277,618 $ 278,402 $ 989 $ (205) $ 200,505 $ 201,091 $ 1,218 $ (632) Municipal and other tax exempt 107,196 108,720 1,949 (425) 160,813 161,358 2,047 (1,502) Mortgage-backed securities: U. S. agencies 1,210,322 1,215,867 7,315 (1,770) 985,219 979,117 3,552 (9,654) Other 2,183 2,185 2 - 3,288 3,961 687 (14) - ------------------------------------------------------------------------------- ------------------------------------------------ Total mortgage-backed securities 1,212,505 1,218,052 7,317 (1,770) 988,507 983,078 4,239 (9,668) - ------------------------------------------------------------------------------- ------------------------------------------------ Other debt securities 4,480 4,498 18 - 178 178 - - Equity securities and mutual 130,196 139,739 10,164 (621) 106,655 113,417 6,762 - funds - ------------------------------------------------------------------------------- ------------------------------------------------ Total $1,731,995 $1,749,411 $20,437 $(3,021) $1,456,658 $1,459,122 $14,266 $(11,802) ================================================================================================================================
The amortized cost and fair values of available-for-sale securities at December 31, 1997, by contractual maturity, are as shown in the following table (dollars in thousands): Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity ------------- ------------- ------------- ------------- -------------- ------------ U.S. Treasuries: Amortized cost $163,160 $114,458 $ - $ - $ 277,618 .99 Fair value 163,370 115,032 - - 278,402 Nominal yield 5.85% 6.04% 5.93% Municipal and other tax exempt: Amortized cost 8,078 61,377 28,195 9,546 107,196 4.71 Fair value 7,939 61,838 28,860 10,083 108,720 Nominal yield(1) 6.14% 7.35% 8.14% 9.54% 7.66% Other debt securities: Amortized cost 3,245 677 155 403 4,480 2.01 Fair value 3,245 677 160 416 4,498 Nominal yield 5.77% 6.00% 7.77% 7.97% 6.04% ------------- ------------- ------------- ------------- -------------- ------------ Total fixed maturity securities: Amortized cost $174,483 $176,512 $28,350 $ 9,949 $ 389,294 2.03 Fair value 174,554 177,547 29,020 10,499 391,620 Nominal yield 5.86% 6.50% 8.14% 9.48% 6.41% ==================================================== Mortgage-backed securities: Amortized cost 1,212,505 -(2) Fair value 1,218,052 Nominal yield(4) 6.51% -------------- Equity securities and mutual funds: Amortized cost 130,196 -(3) Fair value 139,739 Nominal yield 6.82% -------------- Total available-for-sale securities: Amortized cost $1,731,995 Fair value 1,749,411 Nominal yield 6.51% =============== (1) Calculated on a taxable equivalent basis using a 39% effective tax rate. (2) The average expected lives of mortgage-backed securities were 2.8 years based upon current prepayment assumptions. (3) Primarily common stock and preferred stock of U.S. Government agencies with no stated maturity. (4) The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments.
31 Sales of available-for-sale securities resulted in gains and losses as follows (in thousands): 1997 1996 1995 --------- --------- --------- Proceeds $1,026,464 $484,436 $134,109 Gross realized gains 3,159 328 1,246 Gross realized losses 4,488 2,935 72 Related federal and state income tax expense (270) (574) 270 (benefit) ---------------------------- --------- --------- --------- Effective December 20, 1995, BOK Financial adopted the provisions of a Financial Accounting Standards Board special report on Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities," which affects the securities portfolio. This report permitted a one-time opportunity to sell or transfer securities from the investment category to the available-for-sale or trading categories without tainting the remaining portfolio. BOK Financial transferred-mortgage-backed and municipal securities with a total amortized cost of $788.5 million and a net unrealized loss of $4.0 million from the investment category to available for sale in response to the more restrictive interpretation of FAS 115 included in this special report. Securities with amortized costs of $1.2 billion and $1.0 billion at December 31, 1997 and 1996, respectively, were pledged to secure securities repurchase agreements, public and trust funds on deposit and for other purposes as required by law. (5) LOANS Significant components of the loan portfolio are as follows (in thousands): December 31, ----------------------------------------------------------------------------------------------- 1997 1996 ----------------------------------------------------------------------------------------------- Fixed Variable Non- Fixed Variable Non- Rate Rate accrual Total Rate Rate accrual Total ----------------------------------------------------------------------------------------------- Commercial $204,641 $1,282,042 $12,717 $1,499,400 $184,950 $1,042,933 $13,494 $1,241,377 Commercial real estate 153,611 321,230 2,960 477,801 147,909 277,804 2,313 428,026 Residential mortgage 192,208 224,490 2,441 419,139 138,228 248,097 2,495 388,820 Residential mortgage - held 78,669 - - 78,669 95,332 - - 95,332 for sale Consumer 168,896 120,539 649 290,084 181,972 58,520 533 241,025 - ------------------------------------------------------------------------------------------------------------------------------ Total $798,025 $1,948,301 $18,767 $2,765,093 $748,391 $1,627,354 $18,835 $2,394,580 ============================================================================================================================== Foregone interest on nonaccrual loans $ 2,882 $ 2,975 - ------------------------------------------------------------------------------------------------------------------------------
The majority of the commercial and consumer loan portfolios and approximately 74% of the residential mortgage loan portfolio (excluding loans held for sale) are loans to businesses and individuals in Oklahoma. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the commercial loan classification, loans to energy-related businesses total $332.8 million, or 12% of total loans. Other notable segments include wholesale/ retail, $242.2 million; manufacturing, $201.9 million; agriculture, $151.5 million; and services, $465.3 million, which include nursing homes of $36.4 million, hotels of $110.5 million and healthcare of $37.4. Commercial real estate loans are primarily secured by properties located in the Tulsa or Oklahoma City, Oklahoma metropolitan areas. The major components of these properties are multifamily residences, $100.4 million; construction and land development, $102.8 million; retail facilities, $91.3 million; and office buildings, $95.1 million. 32 Included in loans at December 31 are loans to executive officers, directors or principal shareholders of BOK Financial, as defined in Regulation S-X of the Securities and Exchange Commission. Such loans have been made on substantially the same terms as those prevailing at the time for loans to other customers in comparable transactions. Information relating to loans to executive officers, directors or principal shareholders is summarized as follows (in thousands): 1997 1996 ------------ ------------ Beginning balance $53,476 $45,404 Advances 30,934 10,968 Payments (17,749) (1,925) Adjustments (995) (971) - ---------------------------------- ------------ ------------ Ending balance $65,666 $53,476 ============================================================ Adjustments are primarily due to certain individuals being included for the first time or no longer being included as an executive officer or director of BOK Financial. The activity in the reserve for loan losses is summarized as follows (in thousands): 1997 1996 1995 -------- --------- -------- Beginning balance $45,148 $38,287 $38,271 Provision for loan losses 9,026 4,267 231 Loans charged off (9,203) (6,510) (3,988) Recoveries 5,605 9,104 3,773 Addition due to acquisitions 2,525 - - - -------------------------------- -------- --------- -------- Ending balance $53,101 $45,148 $38,287 ============================================================ At December 31, 1997 and 1996, respectively, the recorded investment in loans that are considered to be impaired under FAS 114 was $15.8 million and $17.4 million (all of which were on a nonaccrual basis). Included in this amount at December 31, 1997, is $2.5 million of impaired loans for which the related allowance for credit losses is $851 thousand and $13.3 million that did not have a related allowance for credit losses. At December 31, 1996, this amount included $2.3 million of impaired loans for which the related allowance for credit loss was $1.2 million and $15.1 million that did not have a related allowance for credit losses. The average recorded investments in impaired loans during the years ended December 31, 1997 and 1996 were approximately $18.5 million and $22.3 million, respectively. Interest income recognized on impaired loans during 1997 and 1996 was not significant. (6) PREMISES AND EQUIPMENT Premises and equipment at December 31 are summarized as follows (in thousands): December 31, -------------------------- 1997 1996 ------------- ------------ Land $ 11,820 $ 7,812 Buildings and improvements 42,443 30,792 Furniture and equipment 45,904 32,080 - ---------------------------------- ------------- ------------ Subtotal 100,167 70,684 - ---------------------------------- ------------- ------------ Less accumulated depreciation and amortization 34,689 23,205 - ---------------------------------- ------------- ------------ Total $65,478 $47,479 ============================================================= Depreciation and amortization of premises and equipment were $7.8 million, $6.9 million and $5.6 million for the years ended December 31, 1997, 1996 and 1995, respectively. (7) MORTGAGE BANKING ACTIVITIES BOK Financial engages in mortgage-banking activities through the BOK Mortgage Division of BOk. Residential mortgage loans held for sale totaled $78.7 million and $95.3 million and outstanding mortgage loan commitments totaled $164.2 million and $148.2 million, respectively, at December 31, 1997 and 1996. Mortgage loan commitments are generally outstanding for 60 to 90 days and are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially hedged through the use of mortgage-backed securities forward sales contracts. These contracts set the price for loans which will be delivered in the next 60 to 90 days. At December 31, 1997, forward sales contracts totaled $121.6 million. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on forward sales contracts. At December 31, 1997, BOk owned the rights to service 92,002 mortgage loans with outstanding principal balances of $7.0 billion, including $216 million serviced for BOk, and held related funds for investors and borrowers of $99.5 million. The weighted average interest rate and remaining term was 7.71% and 285 months, respectively. Mortgage loans sold with recourse totaled $7.4 million at December 31, 1997. At December 31, 1996, BOk owned the rights to service mortgage loans with outstanding principal balances of $5.9 billion and held related funds for investors and borrowers of $77.2 million. 33 Activity in capitalized mortgage servicing rights and related valuation allowance during 1997, 1996 and 1995 are as follows (in thousands): Capitalized Mortgage Servicing Rights Valuation ---------------------------------------- Purchased Originated Total Allowance Net ------------------------------------------------------------------- Balance at January 1, 1995 $46,681 $ - $ 46,681 $ - $ 46,681 Additions 10,387 1,783 12,170 - 12,170 Amortization expense (7,536) (142) (7,678) - (7,678) Provision for impairment - - - (539) (539) ---------------------------------------------------------------------------------------------------- Balance at December 31, 1995 49,532 1,641 51,173 (539) 50,634 Additions 16,874 3,984 20,858 - 20,858 Amortization expense (9,150) (437) (9,587) - (9,587) Provision for impairment - - - (361) (361) ---------------------------------------------------------------------------------------------------- Balance at December 31, 1996 57,256 5,188 62,444 (900) 61,544 Additions 33,238 6,013 39,251 - 39,251 Amortization expense (11,533) (1,272) (12,805) - (12,805) Provision for impairment - - - (4,100) (4,100) ---------------------------------------------------------------------------------------------------- Balance at December 31, 1997 $78,961 $ 9,929 $ 88,890 $(5,000) $ 83,890 ==================================================================================================== Estimated fair value of mortgage servicing rights at: December 31, 1995(1) $66,528 $ 1,954 $ 68,482 $ 68,482 December 31, 1996(1) $75,660 $ 8,576 $ 84,236 $ 84,236 December 31, 1997(1) $86,335 $14,022 $100,357 $100,357 ---------------------------------------------------------------------------------------------------- 1 Excludes approximately, $16 million, $18 million, and $19 million, respectively, of loan servicing rights on mortgage loans originated prior to the adoption of FAS 122.
Fair value is determined by discounting the projected net cash flows. Significant assumptions are: DISCOUNT RATE - Risk adjusted spread over U.S. Treasury rates for similar remaining terms, ranging from 10.18% to 10.36%. PREPAYMENT RATE - Industry consensus prepayment estimates ranging from 8.88% to 20.04% from anindependent reporting source based upon interest rate, original term and loan type. LOAN SERVICING COSTS - $50 per conventional loan and $60 per government insured loan. (8) DEPOSITS Interest expense on deposits is summarized as follows (in thousands): 1997 1996 1995 ---------------------------------- Transaction deposits $ 33,091 $ 28,336 $25,276 Savings 2,367 2,464 2,957 Time: Certificates of deposits under 41,699 44,531 38,552 $100,000 Certificates of deposits $100,000 33,607 31,728 20,265 and over Other time deposits 11,278 11,007 10,689 ------------------------------------------------------------ Total time 86,584 87,266 69,506 ------------------------------------------------------------ Total $122,042 $118,066 $97,739 ============================================================ The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 1997 and 1996 were $709.6 million and $560.0 million, respectively. Time deposits expected to mature in less than one year are $859.6 million, in one to five years are $749.7 million, and in over five years are $6.6 million. Interest expense on time deposits during 1997 and 1996 was reduced by net income from interest rate swaps of $.9 million and $1.4 million, respectively. 34 (9) Other Borrowings Information relating to other borrowings is summarized as follows (dollars in thousands): Daily average Rate at Maximum Period-End --------------------------- end of outstanding at Balance Balance Rate year any month-end ------------------------------------------------------------------- 1997: Funds purchased and repurchase agreements $ 631,815 $ 703,496 5.53% 5.83% $ 822,109 Other 542,443 449,348 6.23 4.50 548,355 - ------------------------------------------------------------ Total $ 1,174,258 $ 1,152,844 5.80 5.22 1,287,295 - --------------------------------------------------------------------------------------------------- 1996: Funds purchased and repurchase agreements $ 669,176 $ 558,940 5.49% 5.91% $ 669,176 Other 277,128 235,775 6.08 6.00 354,712 - ------------------------------------------------------------ Total $ 946,304 $ 794,715 5.67 5.94 946,304 =================================================================================================== 1995: Funds purchased and repurchase agreements $ 697,497 $ 894,322 6.03% 5.75% $ 1,052,369 Other 250,309 129,458 6.27 6.03 250,309 - ------------------------------------------------------------ Total $ 947,806 $ 1,023,780 6.06 5.82 1,135,168 ===================================================================================================
Other borrowings at December 31, 1997 included $342.3 million in advances from the Federal Home Loan Bank. These advances, which are used for funding purposes, consist of term funds bearing interest from 5.66% - 7.80%. Of these term funds, $222.9 million mature in 1998, $24.0 million mature in 1999, $17.6 million mature in 2000, $20.9 million mature in 2001, $18.8 million mature in 2002, and $38.1 million mature thereafter. In accordance with policies of the Federal Home Loan Bank, BOk has granted a blanket pledge of eligible assets (generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family loans and multifamily loans) as collateral for these advances. The credit available to BOk at December 31, 1997 pursuant to the Federal Home Loan Bank's collateral policies is $683 million. BOK Financial had lines of credit available from commercial banks at December 31, 1997 of $50 million, with $22 million outstanding, which bear interest based on LIBOR and are unsecured. Interest is paid monthly with principal due no later than October 1998. BOKF issued a $150 million subordinated debenture in 1997 at a discounted cost of 7.2%, which had a balance at December 31, 1997 of $148.4 million and will mature in 2007. Interest expense on the subordinated debenture was reduced by net income from interest rate swaps of $338 thousand during 1997. Funds purchased generally mature within one to 90 days from the transaction date. At December 31, 1997, securities sold under agreements to repurchase totaled $440.9 million with related accrued interest payable of $549 thousand. Additional information relating to repurchase agreements at December 31, 1997 is as follows (dollars in thousands): Carrying Market Repurchase Average Security Sold/Maturity Value Value Liability(1) Rate - -------------------------------------------------------------------------------- U.S. Treasury Securities: Overnight $ 20,130 $ 20,286 $ 12,832 5.24% U.S. Agency Securities: Overnight 186,025 187,012 164,438 5.12 Term of up to 30 days 42,020 42,261 29,068 6.13 Term of 30 to 90 days 269,239 271,574 235,111 6.08 - ------------------------------------------------------------------------ Total Agency Securities 497,284 500,847 428,617 5.71 - ------------------------------------------------------------------------ Total $ 517,414 $ 521,133 $ 441,449 5.70 ======================================================================== (1) BOK Financial maintains control over the securities underlying overnight repurchase agreements and generally transfers control over securities underlying longer term dealer repurchase agreements to the respective counterparty. On March 4, 1997, BOK Financial issued a $20.0 million subordinated debenture to Kaiser and repaid it on August 13, 1997. The interest rate was fixed at LIBOR. 35 (10) FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands): December 31, 1997 1996 ---------------------------- Deferred tax liabilities: Pension contributions in excess of book expense $ 2,500 $ 3,000 Securities valuation adjustments 10,100 3,700 Mortgage servicing 7,000 4,900 Tax installment sale 900 1,100 Other 2,100 1,800 --------------------------------------------------------------- Total deferred tax liabilities 22,600 14,500 --------------------------------------------------------------- Deferred tax assets: Loan loss reserve 20,000 17,500 Valuation adjustments 9,000 13,900 Book expense in excess of tax 4,900 4,000 Other 3,300 4,400 --------------------------------------------------------------- Total deferred tax assets 37,200 39,800 Valuation allowance for deferred tax assets - - --------------------------------------------------------------- Net deferred tax assets 37,200 39,800 --------------------------------------------------------------- Deferred tax assets in excess of deferred tax liabilities $14,600 $25,300 =============================================================== The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): 1997 1996 1995 ----------------------------------- Current: Federal $ 9,631 $16,623 $14,707 State 1,333 2,399 2,273 ------------------------------------------------------------ Total current 10,964 19,022 16,980 ------------------------------------------------------------ Deferred: Federal 4,667 (3,380) (1,871) State 851 (313) (341) ------------------------------------------------------------ Total deferred 5,518 (3,693) (2,212) ------------------------------------------------------------ Total income tax $16,482 $15,329 $14,768 ============================================================ The significant components of the deferred provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands): 1997 1996 1995 ---------------------------- Deferred tax expense (benefit) excluding components listed below $5,518 $ 2,507 $ 2,753 Change in valuation allowance - (6,200) (6,065) Built in loss carryforward utilized - - 1,100 ------------------------------------------------------------ Total deferred provision $5,518 $(3,693) $(2,212) ============================================================ The reconciliations of income attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense are as follows (dollars in thousands): 1997 1996 1995 ---------------------------------- Amount: Federal statutory tax $28,387 $24,310 $22,391 Tax exempt revenue (4,219) (3,958) (3,747) Effect of state income taxes, net of federal benefit 2,184 2,086 1,932 Goodwill amortization 2,267 1,411 1,065 Loss carryforward, benefit recognized - - (1,100) Utilization of tax (774) (1,488) (1,000) credits Reduction of tax (9,000) - - reserve Portion of reduction in valuation allowance impacting tax expense - (6,200) (4,965) Other, net (2,363) (832) 192 ------------------------------------------------------------ Total $16,482 $15,329 $14,768 ============================================================ 1997 1996 1995 ---------------------------------- Percent of pretax income: Federal statutory rate 35% 35% 35% Tax-exempt revenue (5) (6) (6) Effect of state income taxes, net of federal benefit 3 3 3 Goodwill amortization 3 2 2 Loss carryforward, benefit recognized - - (2) Utilization of tax (1) (2) (2) credits Reduction of tax (11) - - reserve Portion of reduction in valuation allowance impacting tax expense - (9) (8) Other, net (4) (1) 1 ------------------------------------------------------------ Total 20% 22% 23% ============================================================ BOK Financial is currently under an audit by the Internal Revenue Service for 1994. The ultimate outcome of this audit cannot be determined with any certainty at this time. However, management expects no material adverse impact on the financial statements. As of December 31, 1997, the Internal Revenue Service closed its examination of BOk and BOK Financial for 1992 and 1993, respectively. As a result of the outcome of these examinations, BOK Financial realized a $9 million tax reserve that was no longer needed, which was credited against current federal income tax expense in 1997. 36 (11) Employee Benefits BOK Financial sponsors a defined benefit Pension Plan for all employees who satisfy certain age and service requirements. The following tables present the Pension Plan's funded status and amounts recognized for the period indicated (dollars in thousands): December 31, 1997 1996 --------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of 1997 - $11,580; 1996 - $8,653 $(13,313) $(11,331) - --------------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date (13,313) (11,331) Plan assets at fair value 17,102 13,261 - --------------------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 3,789 1,930 Unrecognized prior service cost 860 920 Unrecognized net loss 1,567 2,698 - --------------------------------------------------------------------------------------------- Prepaid pension asset $ 6,216 $ 5,548 ============================================================================================= Discount rate 7.00% 7.50% - --------------------------------------------------------------------------------------------- Compensation increase rate 5.25% 5.25% - ---------------------------------------------------------------------------------------------
1997 1996 1995 ---------------------------------------- Net pension cost included the following expense (income): Service cost $1,772 $ 1,803 $1,333 Interest cost 812 678 582 Deferred gain on assets 1,386 585 584 Actual return on plan assets (2,776) (1,757) (1,506) Other, net 231 203 135 - ------------------------------------------------------------------------ Net periodic pension cost $1,425 $ 1,512 $1,128 ======================================================================== Expected return on assets 10.00% 10.00% 9.50% - ------------------------------------------------------------------------
Assets of the Pension Plan consist primarily of shares in cash management funds, common stock and bond funds, and guaranteed investment contract funds. Benefits are based on the employee's age and length of service. Employee contributions to the Thrift Plan, a defined contribution plan, are matched by BOK Financial up to 4% of base compensation, based upon years of service. Participants may direct the investment of their accounts in a variety of options, including BOK Financial Common Stock. Employer contributions vest over five years. Expenses incurred by BOK Financial for the Thrift Plan totaled $1.4 million, $1.2 million and $1.5 million for 1997, 1996 and 1995, respectively. BOK Financial sponsors a defined benefit post-retirement employee medical plan which pays 50 percent of annual medical insurance premiums for retirees who meet certain age and service requirements. Assets consist primarily of shares in a cash management fund. Liability for the post-retirement plan is limited to current retirees and certain employees currently age 60 or older. The following tables present the plan's funded status and amounts recognized for the periods indicated (dollars in thousands): 1997 1996 --------------------- Accumulated post-retirement benefit obligation $(3,532) $(2,840) Fair value of plan assets 675 665 - ------------------------------------------------------------ Fund status (2,857) (2,175) Unrecognized transition asset (200) (232) Unrecognized net loss 1,179 418 - ------------------------------------------------------------ Accrued post-retirement benefit $(1,878) $(1,989) ============================================================ Discount rate 7.00 7.50% - ------------------------------------------------------------ Medical inflation rate 8.00% 9.00% to 5.00% to 5.00% - ------------------------------------------------------------ 1997 1996 --------------------- Net post-retirement benefits cost includes: Service cost $ 4 $ 13 Interest cost 202 177 Actual return on plan assets (13) (15) Deferred loss on assets (49) (48) Amortization of unrecognized transition obligation (32) (32) Other, net 10 - - ------------------------------------------------------------ Net post-retirement benefits cost $122 $ 95 ============================================================ Expected return on assets 10.00% 10.00% - ------------------------------------------------------------ A 1% increase in the assumed medical inflation rate would increase the accumulated post-retirement benefit obligation by approximately $250 thousand and would increase post-retirement benefit cost by $14 thousand. Under various performance incentive plans, participating employees may be granted awards based on defined formulas or other criteria. Earnings were charged $10.3 million in 1997, $7.5 million in 1996 and $5.3 million in 1995, for such awards. 37 (12) EXECUTIVE BENEFIT PLANS The Board of Directors of BOK Financial has approved various stock option plans. The number of options awarded and the employees to receive the options are determined by the Chairman of the Board and the President, subject to approval of the Board of Directors or a committee thereof. Options awarded under these plans are subject to vesting requirements. Generally, one-seventh of the options awarded vest annually and expire three years after vesting. The following table presents options outstanding during 1996 and 1997 under these plans: Weighted- Average Exercise Number Price -------------------------- Options outstanding at December 31, 1995 963,560 $18.29 Options awarded 254,737 23.14 Options exercised (42,634) 13.36 Options forfeited (52,508) 18.83 Options expired (199) 12.94 ------------------------------------------------------------ Options outstanding at December 31, 1996 1,122,956 $19.55 Options awarded 310,904 38.59 Options exercised (112,063) 17.98 Options forfeited (45,998) 20.97 Options expired (136) 18.91 ------------------------------------------------------------ Options outstanding at December 31, 1997 1,275,663 $24.28 ============================================================ Options vested at December 31, 1997 317,400 $18.72 ------------------------------------------------------------ The following table summarizes information concerning currently outstanding and vested options: Options Outstanding Options Vested - ------------------------------------------------- ------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life(years) Price Vested Price - ------------------------------------------------- -------------------- $ 12.94 124,097 2.92 $12.94 66,975 $12.94 19.22 - 23.14 843,495 4.61 20.72 250,425 20.26 38.59 308,071 6.92 38.59 - - Under APB 25 no compensation expense is recognized at the date of grant since the exercise price of BOK Financial's employee stock option equals the market price of the underlying stock on the date of grant. FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires disclosure of pro forma information regarding net income and earnings per share as if BOK Financial accounted for employee stock options granted subsequent to December 31, 1994 under the fair value method of the Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 1997 1996 1995 -------- --------- --------- Average risk-free interest 5.72% 6.10% 6.04% rate Dividend yield None None None Volatility factors .200 .190 .190 Weighted-average expected life 7 years 8 years 8 years The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because BOK Financial's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The following table represents the required pro forma disclosures for options granted subsequent to December 31, 1994: 1997(1) 1996(1) 1995(1) -------- --------- --------- Pro forma net income $63,986 $53,748 $49,196 Pro forma earnings per share: Basic $2.86 $2.40 $2.19 Diluted 2.56 2.17 1.99 (1) Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 2003. 38 (13) COMMITMENTS AND CONTINGENT LIABILITIES In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not be material in the aggregate. BOk has been sued in the United States District Court for the Northern District of Oklahoma by the holder of a mortgage serviced by BOk Mortgage. The plaintiff alleges that BOk required the mortgagor to maintain an escrow balance in excess of the amount permitted by the mortgage. The plaintiff seeks to have the action certified as a class action. The plaintiff alleges breach of contract, breach of fiduciary duty, and violation of the Racketeer Influenced and Corrupt Organizations Act and seeks treble damages. Management has been advised that, in the opinion of its counsel, BOk has valid defenses to the plaintiff's claims and any damages the plaintiff class may have suffered would be immaterial in amount. BOk is obligated under a long-term lease for its bank premises located in downtown Tulsa. The lease term, which began November 1, 1976, is for fifty-seven years with options to terminate at the end of the thirty-seventh and forty-seventh years. Annual base rent is $3.1 million. BOk subleases portions of its space for annual rents of $406 thousand each year through 2000. Net rent expense on this lease was $2.7 million in 1997, $2.7 million in 1996 and $2.6 million in 1995. Total rent expense for BOK Financial was $7.7 million in 1997, $6.9 million in 1996 and $6.7 million in 1995. At December 31, 1997, the future minimum lease payments for equipment and premises under operating leases were as follows: $8.0 million in 1998, $7.8 million in 1999, $7.7 million in 2000, $7.3 million in 2001, $6.7 million in 2002 and a total of $105.3 million thereafter. BOk and The Williams Companies, Inc. guaranteed 30 percent and 70 percent, respectively, of the $18.7 million debt, which matures May 15, 2007, and operating deficit of two parking facilities operated by the Tulsa Parking Authority. Total expense related to this guarantee was $226 thousand in 1997, zero in 1996 and $100 thousand in 1995. The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were approximately $78.8 million for 1997 and $70.8 million for 1996. (14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK BOK Financial is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to manage interest rate risk. Those financial instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in BOK Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the notional amount of those instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 1997, outstanding commitments totaled $1.4 billion. Since some of the commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Since the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. At December 31, 1997, outstanding standby letters of credit totaled $99.6 million. Commercial letters of credit are used to facilitate customer trade transactions with the drafts being drawn when the underlying transaction is consummated. At December 31, 1997, outstanding commercial letters of credit totaled $6.0 million. BOK Financial uses interest rate swaps, a form of off-balance-sheet derivative product, in managing its interest rate risk. These swaps are used primarily to more closely match the interest paid on certain long-term, fixed rate certificates of deposit and subordinated debenture with earning assets. BOK Financial agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed-upon notional amount. At December 31, 1997, the notional amount of BOK Financial's interest rate swaps totaled $219.2 million with related credit exposure, represented by the fair value of the contracts, of $6.6 million. During 1997 and 1996, income from the swaps exceeded costs by $1.2 million and $1.4 million, respectively, which reduced interest expense. Scheduled repricing periods for the swaps are as follows (in thousands): 31-90 91-365 Over days days 1 year Total -------------------------------------------- Pay floating $(130,000) $(55,000) $ - $(185,000) Receive fixed - 63,000 122,000 185,000 Pay fixed - - (34,160) (34,160) Receive floating 34,160 - - 34,160 - ------------------------------------------------------------ Total $ (95,840) $ 8,000 $87,840 $ - ============================================================ The expiration dates of the swap contracts are designed to match the estimated maturity dates of the underlying liability and matures as follows: $63,000 in 1998, $22,000 in 1999, $7,660 in 2002, $16,500 in 2006 and $110,000 in 2007. BOK Financial utilized securities forward sales contracts associated with its mortgage banking activities as described in Note 7. 39 (15) SHAREHOLDERS' EQUITY PREFERRED STOCK One billion shares of preferred stock with a par value of $0.00005 per share are authorized. A single series of 250,000,000 shares designated as Series A Preferred Stock ("Series A Preferred Stock") is currently issued and outstanding. The Series A Preferred Stock has no voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock for each 86 shares of Series A Preferred Stock at the option of the holder. Dividends are cumulative at an annual rate of ten percent of the $0.06 per share liquidation preference value when declared and are payable in cash. Aggregate liquidation preference is $15.0 million. During 1997, 1996 and 1995, 53,615 shares, 69,672 shares and 69,959 shares respectively, of BOK Financial common stock were issued in payment of dividends on the Series A Preferred Stock in lieu of cash by mutual agreement of BOK Financial and the holders of the Series A Preferred Stock. Kaiser owns substantially all Series A Preferred Stock. These shares were valued at $1.5 million in 1997, 1996 and 1995, based on average market price, as defined, for a 65 business day period preceding declaration. During 1995, 102 nonvoting units in an entity owned by BOk were issued to various officers of BOk. These units are eligible for an annual, cumulative distribution of $8 per unit and have a preferred value upon liquidation of $100 per unit. Common Stock Common stock consists of 2.5 billion authorized shares, $0.00006 par value. Holders of common shares are entitled to one vote per share at the election of the Board of Directors and on any question arising at any shareholders' meeting and to receive dividends when and as declared. No common stock dividends can be paid unless all accrued dividends on the Series A Preferred Stock have been paid. The present policy of BOK Financial is to retain earnings for capital and future growth, and management has no current plans to recommend payment of cash dividends on common stock. Additionally, regulations restrict the ability of national banks and bank holding companies to pay dividends. During 1997, 1996 and 1995, 3% dividends payable in shares of BOK Financial common stock were declared and paid. The shares issued were valued at $27.4 million, $16.5 million and $12.8 million, respectively, based on the average closing bid/ask prices on the day preceding declaration. SUBSIDIARY BANKS The amounts of dividends which BOK Financial's subsidiary banks can declare and the amounts of loans the subsidiary banks can extend to affiliates are limited by various federal and state banking regulations. Generally, dividends declared during a calendar year are limited to net profits, as defined, for the year plus retained profits for the preceding two years. The amounts of dividends are further restricted by minimum capital requirements. Pursuant to the most restrictive of the regulations at December 31, 1997, BOK Financial's subsidiary banks could declare dividends up to $46.8 million without prior regulatory approval. The subsidiary banks declared and paid dividends of $69.8 million in 1997, $31 million in 1997, and none in 1995. Loans to a single affiliate may not exceed 10.0% and loans to all affiliates may not exceed 20.0% of unimpaired capital and surplus, as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 1997 and 1996, these loans totaled $28.8 million and $12.4 million, respectively. Total loan commitments to affiliates at December 31, 1997 were $50.0 million. REGULATORY CAPITAL Financial institutions are considered to be "well capitalized" pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 if their Leverage, Tier 1 and Total Capital ratios are at least 5%, 6% and 10%, respectively. As shown below, BOK Financial's and all banking subsidiaries capital ratios exceed the regulatory definition of well capitalized. As defined by regulations, Tier 1 capital consists primarily of common stockholders' equity less certain intangible assets. Total capital consists primarily of Tier 1 capital plus preferred stock, subordinated debt and reserves for loan losses, subject to certain limitations. December 31, -------------------------------------- 1997 1996 -------------------------------------- Amount Ratio Amount Ratio -------------------------------------- (Dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $552,872 14.54% $369,007 11.74% BOk 464,996 13.35 322,658 10.46 BOA 10,632 16.43 10,004 13.97 First Texas Bank(1) 24,759 32.47 First National Bank of Park Cities(1) 25,016 23.04 Tier I Capital (to Risk Weighted Assets): Consolidated $356,928 9.39% $330,220 10.49% BOk 280,920 8.06 284,025 9.21 BOA 9,820 15.18 9,108 12.72 First Texas Bank(1) 23,797 31.21 First National Bank of Park Cities(1) 23,661 21.79 Tier I Capital (to Average Assets): Consolidated $356,928 6.81% $330,220 7.46% BOk 280,920 5.90 284,025 6.52 BOA 9,820 11.51 9,108 9.75 First Texas Bank(1) 23,797 16.12 First National Bank of Park Cities(1) 23,661 9.76 (1) First Texas Bank and first National Bank of Park Cities were acquired in 1997, see Note 2. 40 (16) EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (dollars in thousands except share data): 1997 1996 1995 -------------------------------------------- Numerator Net income $ 64,625 $ 54,127 $ 49,205 Preferred stock dividends (1,500) (1,500) (1,500) - ------------------------------------------------------------------------------------------------------------ Numerator for basic earnings per share - income available to common stockholders 63,125 52,627 47,705 - ------------------------------------------------------------------------------------------------------------ Effect of dilutive securities: Preferred stock dividends 1,500 1,500 1,500 - ------------------------------------------------------------------------------------------------------------ Numerator for diluted earnings per share - income available to common stockholders after assumed conversion $ 64,625 $ 54,127 $ 49,205 - ------------------------------------------------------------------------------------------------------------ Denominator: Denominator for basic earnings per share -weighted average 21,860,260 21,808,828 21,787,884 shares Effect of dilutive securities: Employee stock options 263,572 85,639 56,815 Convertible preferred stock 2,898,186 2,898,186 2,898,186 - ------------------------------------------------------------------------------------------------------------ Dilutive potential common shares 3,161,758 2,983,825 2,955,001 ============================================================================================================ Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 25,022,018 24,792,653 24,742,885 ============================================================================================================ Basic earnings per share $2.89 $2.41 $2.19 ============================================================================================================ Diluted earnings per share $2.58 $2.18 $1.99 ============================================================================================================
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 1997 and 1996 (dollars in thousands): Range of Average Estimated Carrying Contractual Repricing Discount Fair Value Yields (in years) Rate Value ------------------------------------------------------------------- 1997: Cash and cash equivalents $ 389,326 - - - $ 389,326 Securities 1,967,521 - - - 1,968,535 Loans: Commercial 1,499,400 4.28 - 15.97% 0.4 7.52 - 10.28% 1,489,902 Commercial real estate 477,801 5.78 - 12.93 1.1 9.15 - 10.00 472,610 Residential mortgage 419,139 3.81 - 14.87 1.6 7.15 - 7.73 425,185 Residential mortgage - held for sale 78,669 - - - 78,669 Consumer 290,084 5.00 - 17.90 1.2 7.75 - 13.50 289,681 - ------------------------------------------------------------------------------------------------------------ Total loans 2,765,093 2,756,047 Reserve for loan losses (53,101) - - ------------------------------------------------------------------------------------------------------------ Net loans 2,711,992 - - - 2,756,047 Deposits with no stated maturity 2,112,217 - - - 2,112,217 Time deposits 1,615,862 2.71 - 9.81 0.4 4.65 - 5.98 1,606,668 Other borrowings 1,025,902 4.66 - 6.87 0.5 5.25 - 8.50 1,029,773 Subordinated debt 148,356 7.13 6.1 6.49 154,101 - ------------------------------------------------------------------------------------------------------------ 1996: Cash and cash equivalents $ 367,551 - - - $ 367,551 Securities 1,663,984 - - - 1,665,125 Loans: Commercial 1,241,377 4.28 -15.21% 0.5 7.28 - 9.15% 1,231,924 Commercial real estate 428,026 6.34 -13.43 1.0 8.90 - 9.75 423,395 Residential mortgage 388,820 3.81 -14.87 1.8 7.78 - 7.86 241,813 Residential mortgage - held for sale 95,332 - - - 95,332 Consumer 241,025 5.00 -18.15 1.7 7.64 -13.25 387,569 - ------------------------------------------------------------------------------------------------------------ Total loans 2,394,580 2,380,033 Reserve for loan losses (45,148) - - ------------------------------------------------------------------------------------------------------------ Net loans 2,349,432 2,380,033 Deposits with no stated maturity 1,748,418 - - - 1,748,418 Time deposits 1,508,337 2.03- 9.85 0.7 5.25- 6.14 1,509,380 Other borrowings 946,304 3.77- 9.28 0.5 5.00- 8.25 946,279 - ------------------------------------------------------------------------------------------------------------
41 The following methods and assumptions were used in estimating the fair value of these financial instruments: CASH AND CASH EQUIVALENTS The book value reported in the consolidated balance sheet for cash and short-term instruments approximates those assets' fair values. SECURITIES The fair values of securities are based on quoted market prices or dealer quotes, when available. If quotes are not available, fair values are based on quoted prices of comparable instruments. LOANS The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates currently being offered for loans with similar remaining terms to maturity and credit risk, adjusted for the impact of interest rate floors and ceilings. The fair values of classified loans were estimated to approximate their carrying values less loan loss reserves allocated to these loans of $10.6 million and $9.9 million at December 31, 1997 and 1996, respectively. The fair values of residential mortgage loans held for sale are based upon quoted market prices of such loans sold in securitization transactions, including related unfunded loan commitments and hedging transactions. DEPOSITS The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions. FAS 107 defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these deposits. Accordingly, the positive effect of such deposits is not included in this table. OTHER BORROWINGS AND SUBORDINATED DEBENTURE The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments. OFF-BALANCE-SHEET INSTRUMENTS The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of these off-balance-sheet instruments were not significant at December 31, 1997 and 1996. Residential mortgage loan commitments are included in determining the fair value of the mortgage loans held for sale. The fair values of interest rate swaps are based on pricing models using current assumptions to arrive at replacement cost. The estimated fair value of interest rate swaps were $6.6 million and $1.6 million at December 31, 1997 and 1996, respectively. 42 (18) PARENT COMPANY ONLY FINANCIAL STATEMENTS Summarized financial information for BOK Financial - Parent Company Only follows: Balance Sheets (In Thousands) December 31, ---------------------------- 1997 1996 ---------------------------- Assets Cash and cash equivalents $ 627 $ 461 Securities - available for sale 30,682 33,155 Investment in subsidiaries 437,553 328,511 Other assets 1,747 1,591 - -------------------------------------------------------------------------------- Total assets $470,609 $363,718 ================================================================================ Liabilities and Shareholders' Equity Short-term borrowings $ 32,887 $ - Other liabilities 2,245 3,752 - -------------------------------------------------------------------------------- Total liabilities 35,132 3,752 - -------------------------------------------------------------------------------- Preferred stock 23 23 Common stock 1 1 Capital surplus 208,327 176,093 Retained earnings 218,629 182,892 Treasury stock (2,190) (428) Unrealized net gain on securities available for sale 10,691 1,472 Notes receivable (4) (87) - -------------------------------------------------------------------------------- Total shareholders' equity 435,477 359,966 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $470,609 $ 363,718 ================================================================================ Statements of Earnings (In Thousands) 1997 1996 1995 --------------------------------------- Dividends, interest and fees received from $70,803 $31,202 $ 1,460 subsidiaries Other operating revenue 2,612 532 1,241 - -------------------------------------------------------------------------------------------- Total revenue 73,415 31,734 2,701 - -------------------------------------------------------------------------------------------- Interest expense 3,566 819 273 Personnel expense 293 7 407 Professional fees and services 172 177 212 Contribution of stock to BOk Charitable Foundation 3,638 - - Other operating expense 106 236 250 - -------------------------------------------------------------------------------------------- Total expense 7,775 1,239 1,142 - -------------------------------------------------------------------------------------------- Income before taxes and equity in undistributed income of subsidiaries 65,640 30,495 1,559 Federal and state income tax expense (credit) (3,657) (4,116) 1,043 - -------------------------------------------------------------------------------------------- Income before equity in undistributed income of 69,297 34,611 516 subsidiaries Equity in undistributed income (loss) of subsidiaries (4,672) 19,516 48,689 - -------------------------------------------------------------------------------------------- Net income $64,625 $54,127 $49,205 ============================================================================================
43 Statements of Cash Flows (In Thousands) 1997 1996 1995 -------------------------------------------- Cash flows from operating activities: Net income $ 64,625 $54,127 $49,205 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income (loss) of 4,672 (19,516) (48,689) subsidiaries Gain on sale of available-for-sale securities (1,226) - (1,213) Contribution of stock to BOk Charitable Foundation 3,638 - - Change in other assets (156) 170 (144) Change in other liabilities (3,610) (3,552) 1,403 - ------------------------------------------------------------------------------------------------- Net cash provided by operating activities 67,943 31,229 562 - ------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of available-for-sale 12,157 - 13,287 securities Purchases of available-for-sale securities (10,000) (22,826) (15,641) Investment in subsidiaries (104,488) (6,029) (3,155) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (102,331) (28,855) (5,509) - ------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase (decrease) in short-term borrowings 32,887 (2,500) 2,000 Issuance of preferred, common and treasury stock, net 1,584 311 331 Dividends on preferred stock - (3) - Payments on notes receivable 83 67 131 - ------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 34,554 (2,125) 2,462 - ------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 166 249 (2,485) Cash and cash equivalents at beginning of period 461 212 2,697 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $627 $ 461 $ 212 ================================================================================================= Payment of dividends in common stock $ 28,948 $17,956 $14,346 - ------------------------------------------------------------------------------------------------- Cash paid for interest $ 3,395 $ 827 $ 265 - -------------------------------------------------------------------------------------------------
44 BOK FINANCIAL CORPORATION ANNUAL FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) 1997 -------------------------------------------- Average Revenue/ Yield/ Balance Expense1 Rate -------------------------------------------- Assets Taxable securities $1,560,535 $ 97,416 6.24% Tax-exempt securities 344,112 26,137 7.60 - ------------------------------------------------------------------------------------------------- Total securities 1,904,647 123,553 6.49 - ------------------------------------------------------------------------------------------------- Trading securities 4,785 287 6.00 Funds sold and resell agreements 52,911 2,992 5.65 Loans(2) 2,598,718 227,283 8.75 Less reserve for loan losses 50,091 - - - ------------------------------------------------------------------------------------------------- Loans, net of reserve 2,548,627 227,283 8.92 - ------------------------------------------------------------------------------------------------- Total earning assets 4,510,970 354,115 7.85 - ------------------------------------------------------------------------------------------------- Cash and other assets 579,575 - ------------------------------------------------------------------------------------------------- Total assets $5,090,545 ================================================================================================= Liabilities and Shareholders' Equity Transaction deposits $1,048,060 $ 33,091 3.16% Savings deposits 106,811 2,367 2.22 Time deposits 1,564,236 86,584 5.54 - ------------------------------------------------------------------------------------------------- Total interest-bearing deposits 2,719,107 122,042 4.49 - ------------------------------------------------------------------------------------------------- Other borrowings 1,088,470 62,740 5.76 Subordinated debenture 64,374 4,166 6.47 - ------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 3,871,951 188,948 4.88 - ------------------------------------------------------------------------------------------------- Demand deposits 752,768 Other liabilities 72,122 Shareholders' equity 393,704 - ------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $5,090,545 ==================================================================== Tax-equivalent Net Interest Revenue $165,167 2.97% Tax-equivalent Net Interest Revenue to Earning Assets 3.66 Tax-equivalent adjustment(1) 9,567 - ------------------------------------------------------------------------------------------------- Net Interest Revenue 155,600 Provision for loan losses 9,026 Other operating revenue 129,699 Other operating expense 195,166 - ------------------------------------------------------------------------------------------------- Income before taxes 81,107 Federal and state income tax 16,482 - ------------------------------------------------------------------------------------------------- Net Income $ 64,625 ================================================================================================= Earnings Per Average Common Share Equivalent: Net Income Basic $2.89 - ------------------------------------------------------------------------------------------------- Diluted 2.58 - ------------------------------------------------------------------------------------------------- (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income.
45 1996 1995 - ---------------------------------------------------------------------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate - ------------------------------------------ -------------------------------------------- $1,285,333 $ 77,588 6.04% $1,354,949 $ 83,076 6.13% 305,000 22,801 7.48 253,969 19,113 7.53 - ---------------------------------------------------------------------------------------------- 1,590,333 100,389 6.31 1,608,918 102,189 6.35 - ---------------------------------------------------------------------------------------------- 5,096 340 6.67 3,672 242 6.59 29,134 1,630 5.59 16,509 996 6.03 2,252,216 196,538 8.73 2,012,574 179,052 8.90 42,074 - - 38,318 - ---------------------------------------------------------------------------------------------- 2,210,142 196,538 8.89 1,974,256 179,052 9.07 - ---------------------------------------------------------------------------------------------- 3,834,705 298,897 7.79 3,603,355 282,479 7.84 - ---------------------------------------------------------------------------------------------- 467,722 442,834 - ---------------------------------------------------------------------------------------------- $4,302,427 $4,046,189 ============================================================================================== $ 848,365 $ 28,336 3.34% $ 758,594 $ 25,276 3.33% 101,273 2,464 2.43 118,664 2,957 2.49 1,555,073 87,266 5.61 1,229,769 69,506 5.65 - ---------------------------------------------------------------------------------------------- 2,504,711 118,066 4.71 2,107,027 97,739 4.64 - ---------------------------------------------------------------------------------------------- 794,715 45,027 5.67 1,023,780 62,086 6.06 - - - 5,797 352 6.07 - ---------------------------------------------------------------------------------------------- 3,299,426 163,093 4.94 3,136,604 160,177 5.11 - ---------------------------------------------------------------------------------------------- 621,069 574,865 59,678 62,361 322,254 272,359 - ---------------------------------------------------------------------------------------------- $4,302,427 $4,046,189 ============================================================================================== $135,804 2.85% $122,302 2.73% 3.54 3.39 8,365 7,038 - ---------------------------------------------------------------------------------------------- 127,439 115,264 4,267 231 105,312 91,146 159,028 142,206 - ---------------------------------------------------------------------------------------------- 69,456 63,973 15,329 14,768 - ---------------------------------------------------------------------------------------------- $ 54,127 $ 49,205 ============================================================================================== $ 2.41 $ 2.19 - ---------------------------------------------------------------------------------------------- 2.18 1.99 - ----------------------------------------------------------------------------------------------
46 BOK FINANCIAL CORPORATION Quarterly Financial Summary - Unaudited Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data) Three Months Ended ------------------------------------------------------------------ December 31, 1997 September 30, 1997 -------------------------------- ------------------------------ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate ------------------------------------------------------------------ Assets Taxable securities $1,562,445 $24,408 6.20% $1,560,418 $24,354 6.19% Tax-exempt securities 331,793 6,666 7.97 360,461 6,764 7.44 ----------------------------------------------------------------------------------------------------------------------------- Total securities 1,894,238 31,074 6.51 1,920,879 31,118 6.43 ----------------------------------------------------------------------------------------------------------------------------- Trading securities 6,203 93 5.95 3,583 53 5.87 Funds sold and resell agreements 53,964 724 5.32 49,645 740 5.91 Loans(2) 2,764,436 60,924 8.74 2,676,237 59,063 8.76 Less reserve for loan losses 53,180 51,165 ----------------------------------------------------------------------------------------------------------------------------- Loans, net of reserve 2,711,256 60,924 8.92 2,625,072 59,063 8.93 ----------------------------------------------------------------------------------------------------------------------------- Total earning assets 4,665,661 92,815 7.89 4,599,179 90,974 7.85 ----------------------------------------------------------------------------------------------------------------------------- Cash and other assets 618,039 590,260 ----------------------------------------------------------------------------------------------------------------------------- Total assets $5,283,700 $5,189,439 ============================================================================================================================= Liabilities and Shareholders' Equity Transaction deposits $1,102,144 $ 8,466 3.05% $1,067,895 $ 8,290 3.08% Savings deposits 106,207 596 2.23 108,104 603 2.21 Time deposits 1,582,538 22,037 5.52 1,533,191 21,489 5.56 ----------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 2,790,889 31,099 4.42 2,709,190 30,382 4.45 ----------------------------------------------------------------------------------------------------------------------------- Other borrowings 1,050,545 15,169 5.73 1,159,005 17,203 5.89 Subordinated debenture 148,334 2,439 6.52 81,395 1,305 6.36 ----------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 3,989,768 48,707 4.84 3,949,590 48,890 4.91 ----------------------------------------------------------------------------------------------------------------------------- Demand deposits 783,508 761,578 Other liabilities 80,763 75,732 Shareholders' equity 429,661 402,539 ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $5,283,700 $5,189,439 ============================================================================================================================= Tax-equivalent Net Interest Revenue1 $44,108 3.05% $42,084 2.94% Tax-equivalent Net Interest Revenue1 to Earning Assets 3.75 3.63 Tax-equivalent adjustment1 2,396 2,426 ----------------------------------------------------------------------------------------------------------------------------- Net Interest Revenue 41,712 39,658 Provision for loan losses 3,500 3,000 Other operating revenue 33,521 34,315 Other operating expense 61,277 46,720 ----------------------------------------------------------------------------------------------------------------------------- Income before taxes 10,456 24,253 Federal and state income tax (benefit) (6,362) 7,857 ----------------------------------------------------------------------------------------------------------------------------- Net Income $16,818 $16,396 ============================================================================================================================= Earnings Per Average Common Share Equivalent: Net Income Basic $ .75 $ .73 ----------------------------------------------------------------------------------------------------------------------------- Diluted .67 .65 ----------------------------------------------------------------------------------------------------------------------------- (1) Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. (2) The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income.
47 Three Months Ended - ------------------------------------------------------------------------------------------------------- June 30, 1997 March 31, 1997 December 31, 1996 - ------------------------------- -------------------------------- -------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate - ------------------------------------------------------------------------------------------------------- $1,634,264 $25,793 6.33% $1,484,137 $22,861 6.25% $1,326,104 $20,042 6.01% 344,558 6,572 7.65 339,542 6,135 7.33 330,195 6,129 7.38 - ------------------------------------------------------------------------------------------------------- 1,978,822 32,365 6.56 1,823,679 28,996 6.45 1,656,299 26,171 6.29 - ------------------------------------------------------------------------------------------------------- 5,552 83 6.00 3,790 58 6.21 3,870 72 7.40 57,072 817 5.74 50,967 711 5.66 24,949 356 5.68 2,535,264 55,850 8.84 2,414,234 51,446 8.64 2,329,981 50,414 8.61 49,164 - - 46,771 - - 45,455 - - - ------------------------------------------------------------------------------------------------------- 2,486,100 55,850 9.01 2,367,463 51,446 8.81 2,284,526 50,414 8.78 - ------------------------------------------------------------------------------------------------------- 4,527,546 89,115 7.89 4,245,899 81,211 7.76 3,969,644 77,013 7.72 - ------------------------------------------------------------------------------------------------------- 576,578 532,386 475,824 - ------------------------------------------------------------------------------------------------------- $5,104,124 $4,778,285 $4,445,468 ======================================================================================================= $1,032,622 $ 8,348 3.24% $ 988,110 $ 7,987 3.28% $ 891,053 $ 7,678 3.43% 109,349 604 2.22 103,542 564 2.21 96,609 595 2.45 1,576,211 21,625 5.50 1,565,153 21,433 5.55 1,533,447 21,582 5.60 - ------------------------------------------------------------------------------------------------------- 2,718,182 30,577 4.51 2,656,805 29,984 4.58 2,521,109 29,855 4.71 - ------------------------------------------------------------------------------------------------------- 1,151,971 16,700 5.81 990,944 13,668 5.59 887,502 12,707 5.70 20,000 326 6.54 6,000 96 6.40 - - - - ------------------------------------------------------------------------------------------------------- 3,890,153 47,603 4.91 3,653,749 43,748 4.86 3,408,611 42,562 4.97 - ------------------------------------------------------------------------------------------------------- 776,405 688,440 633,441 63,664 68,159 60,023 373,902 367,937 343,393 - ------------------------------------------------------------------------------------------------------- $5,104,124 $4,778,285 $4,445,468 ======================================================================================================= $41,512 2.98 $37,463 2.90% $34,451 2.75% 3.68 3.58 3.45 2,344 2,401 2,207 - ------------------------------------------------------------------------------------------------------- 39,168 35,062 32,244 1,500 1,026 357 31,411 30,452 27,534 45,443 41,726 38,315 - ------------------------------------------------------------------------------------------------------- 23,636 22,762 21,106 7,572 7,415 6,540 - ------------------------------------------------------------------------------------------------------- $16,064 $15,347 $14,566 ======================================================================================================= $ .72 $ .69 $ .65 - ------------------------------------------------------------------------------------------------------- .64 .62 .59 - -------------------------------------------------------------------------------------------------------
48 BOK Financial Corporation 1996 Annual Report Appendix A ================================================================================ Net Income Graph I For Year Ended December 31, 1997 (Dollars in Thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Net Income $64,625 $54,127 $49,205 $45,065 $37,472 ================================================================================ Earnings Per Share Graph II For Year Ended December 31, 1997 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Earnings per share $2.58 $2.18 $1.99 $1.81 $1.60 ================================================================================ Non Interest Revenue Graph III For Year Ended December 31, 1997 (Dollars in Thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Mortgage banking revenue $32,235 $26,236 $20,336 $15,868 $12,564 Deposit fees and service charge 28,651 24,104 21,152 20,698 20,825 Trust fees and service charges 24,062 21,638 19,363 17,117 16,824 Other 44,751 33,334 30,295 20,681 26,397 ================================================================================ Loans Graph IV December 31, 1997 (Dollars in Thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Commercial $1,499,400 $1,241,377 $1,086,579 $903,293 $822,569 Real estate 975,609 912,178 850,766 709,557 690,414 Consumer 290,084 241,025 257,023 231,203 165,572 ================================================================================ Real Estate Loans Graph V December 31, 1997 (Dollars in Thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Commercial real estate $375,001 $360,200 $332,024 $285,281 $230,482 Single family residential 419,139 388,820 395,941 343,969 227,799 Construction & land development 102,800 67,826 50,389 39,398 42,347 Loans held for sale 78,669 95,332 72,412 40,909 189,786 ================================================================================ Funding Graph VI December 31, 1997 (Dollars in Thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Deposits $3,728,079 $3,256,755 $2,937,709 $2,629,574 $2,610,927 Borrowed funds 1,025,902 946,304 947,806 974,334 263,557 Capital & subord- inated debt 583,833 359,966 301,565 236,902 213,943 ================================================================================ 49 DIRECTORS BOK FINANCIAL CORPORATION W. Wayne Allen(1) Chairman and CEO Phillips Petroleum Co. Keith E. Bailey(1) Chairman, President and CEO Williams James E. Barnes Chairman and CEO MAPCO Inc. Sharon J. Bell Managing Partner Rogers and Bell Glenn A. Cox1 Retired President and COO Phillips Petroleum Company Nancy J. Davies(1) Community Leader Dr. Robert H. Donaldson(1) Trustees Professor of Political Science University of Tulsa William E. Durrett Chairman, President and CEO American Fidelity Corp. James O. Goodwin(1) CEO The Oklahoma Eagle Publishing Co. D. Joseph Graham(2) Vice President and CFO Kaiser-Francis Oil Co. V. Burns Hargis(1) Vice Chairman BOk Financial Corp. and Bank of Oklahoma, N.A. Eugene A. Harris(2) Executive Vice President BOk Financial Corp. and Bank of Oklahoma, N.A. E. Carey Joullian, IV(1) President Mustang Fuel Corporation George B. Kaiser Chairman of the Board BOk Financial Corp. and Bank of Oklahoma, N.A. Robert J. LaFortune Personal Investments Philip C. Lauinger, Jr. Chairman Lauinger Publishing Company David R. Lopez(1) President - Oklahoma Southwestern Bell Telephone Co. Stanley A. Lybarger(1) President and CEO BOk Financial Corp. and Bank of Oklahoma, N.A. John L. Massey(4) Chairman of the Board Durant Bank and Trust Co. Frank A. McPherson(1) Retired Chairman and CEO Kerr-McGee Oil Corporation Steven E. Moore(4) Chairman, President and CEO OGE Energy Corp. J. Larry Nichols(1) CEO and President Devon Energy Corporation Robert L. Parker, Sr. Chairman Parker Drilling Company James W. Pielsticker(1) President Arrow Trucking Co. E.C. Richards(1) SVP of Operations Sooner Pipe and Supply Corp. James A. Robinson Personal Investments L. Francis Rooney, III(1) Chairman and CEO Manhattan Construction Company Wayne D. Stone(4) Chairman, President and CEO Bank of Arkansas, N.A. David J. Tippeconnic(4) President and CEO Citgo Petroleum Corporation Tom E. Turner(4) Chairman and CEO Bank of Texas, N.A. James A. White(2) Executive Vice President and CFO BOk Financial Corp. and Bank of Oklahoma, N.A. Robert L. Zemanek(3) President, Energy Delivery Central and South West Services, Inc. 1 Director of BOk Financial Corp. and Bank of Oklahoma, N.A. 2 Director of Bank of Oklahoma, N.A. 3 Director of BOk Financial Corp. and Bank of Texas, N.A. 4 Advisory pending election at shareholders meeting April 28 50 BANK OF TEXAS, N.A. C. Thomas Abbott(2) Vice Chairman Bank of Texas, N.A. Charles A. Angel(2) Vice Chairman Bank of Texas, N.A. C. Fred Ball(3) President Bank of Texas, N.A. C. Huston Bell(2) President The Vantage Companies Edward O. Boshell, Jr. (3) Partner Columbia General Investments, LP Ben R. Briggs(3) Owner, Ben R. Briggs R. Neal Bright(3) Managing Partner Bright and Bright CPA's Dudley Chambers(3) Partner, Jackson & Walker, L.L.P. Edward F. Doran, Sr.(3) President Doran Chevrolet, Inc. James J. Ellis(3) Partner Ellis/Rosier Associates R. William Gribble, Jr. (2) President Gribble Oil Corporation J. T. Hairston, Jr. (3) Retired President Cullum Companies Jerry Lastelick(3) Attorney Lastelick, Anderson and Arneson Stanley A. Lybarger(3) President and CEO BOK Financial Corp. Donald J. Malouf (2) Partner Malouf Lynch Jackson Kessler and Collins Attorneys Jon L. Mosle, Jr. (3) Director, SW Securities, Westwood Trust, Aquilla Gas Pipe Line and Wiser Oil Michael A. McBee(3) Owner McBee Operating Co. Mrs. Rozene Pride1 Investor Cecca Productions, Inc. William E. Stahnke(3) Vice Chairman Bank of Texas, N.A. James G. Storey(2) Retired EVP and Auditor FNB Park Cities Mrs. Jere W. Thompson(3) Civic Leader Tom E. Turner(3) Chairman and CEO Bank of Texas, N.A. John C. Vogt(2) District Manager International Supply Co. James A. White(1) Executive Vice President and CFO BOK Financial Corp. Robert L. Zemanek(3) President, Energy Delivery Central and South West Services, Inc. 1 Park Cities Bancshares, Inc. 2 Bank of Texas, N.A. 3 Park Cities Bancshares, Inc/Bank of Texas, N.A. BANK OF ARKANSAS, N.A. George C. Faucette, Jr. Coldwell Banker Faucette Real Estate Gerald Jones President Jones Olds-GMC-Buick, Inc. Norman W. Smith Executive Vice President Bank of Oklahoma, N.A. Wayne D. Stone Chairman, President and CEO Bank of Arkansas, N.A. Jerry D. Sweetser Sweetser Properties, Inc. 51 - -------------------------------------------------------------------------------- OPERATING SUBSIDIARIES - -------------------------------------------------------------------------------- BANK OF ARKANSAS, N.A. Fayetteville 3500 N. College (501)973-2660 BANK OF OKLAHOMA, N.A. Oklahoma City Bank of Oklahoma Plaza Robinson at Robert. S. Kerr (405)272-2000 Tulsa Bank of Oklahoma Tower (918)588-6000 BANK OF TEXAS, N.A. Dallas 5956 Sherry Lane, Ste. 1800 (214)987-8880 6215 Hillcrest Avenue (214)525-5000 - -------------------------------------------------------------------------------- Other Operating Subsidiaries - -------------------------------------------------------------------------------- BANK OF OKLAHOMA, TRUST DIVISION Oklahoma City Commerce Center 9520 N. May (405) 936-3700 Tulsa Bank of Oklahoma Tower One Williams Center, 10th Floor (918) 588-6437 BOSC, INC 3045 S. Harvard, Tulsa (918) 746-5720 SOUTHWEST TRUST COMPANY Commerce Center 9520 N. May, 2nd Floor (405) 936-3970 BANK OF TEXAS, TRUST DIVISION Dallas 5956 Sherry Lane, Ste. 1800 (214) 987-8800 Sherman 2009 Independence Dr. (903) 813-5100 BOK MORTGAGE Lawton 2602 W. Gore Blvd. (580) 250-0070 Oklahoma City 5015 N. Pennsylvania (405) 879-8700 Tulsa Copper Oaks 7060 S. Yale, Suite 100 (918) 488-7140 Pine and Lewis 1604 N. Lewis (918) 588-8608 Owasso 413 E. 2nd Ave. (918) 588-8650 BANK OF ARKANSAS MORTGAGE GROUP Bentonville 1706 S.E. Walton Blvd., Ste. B (501) 271-6800 Fayetteville 1130 Millsap Road (501) 973-2600 Siloam Springs 1270 Hwy 412 West, Unit J (501) 549-3675 - -------------------------------------------------------------------------------- Major Customer Service Offices - -------------------------------------------------------------------------------- BUSINESS BANKING CENTERS Dallas 2650 Royal Lane (972) 443-2800 Oklahoma City Commerce Center 9520 N. May (405) 936-3700 Tulsa Brookside Banking Center 3237 S. Peoria (918) 746-7400 CONSUMER BANKING Oklahoma City Bank of Oklahoma Plaza Robinson at Robert. S. Kerr (405) 272-2000 Tulsa Bank of Oklahoma Tower (918) 588-6000 CORPORATE BANKING Albuquerque 4263 Montgomery NE, Ste 210 (505) 884-2000 Dallas 5956 Sherry Lane, Ste. 1800 (214) 987-8880 Fayetteville 3500 N. College (501) 973-2660 Oklahoma City Bank of Oklahoma Plaza Robinson at Robert S. Kerr (405) 272-2000 Tulsa Bank of Oklahoma Tower (918) 588-6000 BANCOKLAHOMA INVESTMENT CENTER Tulsa Ranch Acres 3045 S. Harvard, Suite 101 (918) 746-5770 Investment Center Financial Consultants are located in all Consumer, Community and Private Financial Services locations statewide. PRIVATE FINANCIAL SERVICES Bartlesville 3815 S.E. Frank Phillips Blvd. (918) 335-5349 Dallas 6701 Preston Road (214) 525-7600 6215 Hillcrest Avenue (214) 525-5000 Enid 2308 N. Van Buren (580) 548-8523 Oklahoma City Commerce Center 9520 N. May, 2nd Floor (405) 936-3900 Tulsa Midtown 2021 S. Lewis, Suite 200 (918) 748-7244 Downtown 320 S. Boston (918) 588-6214 Brookside 3237 S. Peoria (918) 746-7487 61st & Yale 6036 S. Yale (918) 493-5210 52 EXECUTIVE OFFICERS George B. Kaiser Chairman of the Board Stanley A. Lybarger President, Chief Executive Officer V. Burns Hargis Vice Chairman Eugene A. Harris Executive Vice President Commercial Banking James A. White Executive Vice President Chief Financial Officer Frederic Dorwart Secretary Lowell E. Faulkenberry Senior Vice President Director, Risk Management John C. Morrow Senior Vice President Controller, Financial Accounting BANK OF OKLAHOMA, N.A. Mark W. Funke President, Oklahoma City H. James Holloman Executive Vice President Trust Division David L. Laughlin President BOk Mortgage Norman W. Smith Executive Vice President Consumer Banking Charles D. Williamson Executive Vice President Capital Markets BANK OF TEXAS, N.A. Tom E. Turner Chairman and CEO Charles T. Abbott President, Vice Chairman Charles A. Angel, Jr. Vice Chairman William E. Stahnke Vice Chairman C. Fred Ball, Jr. President Steven D. Poole President, Trust BANK OF ARKANSAS, N.A. Wayne D. Stone Chairman, President and CEO 53 SHAREHOLDER INFORMATION BOK Financial is a bank holding company providing financial and related services to individuals and businesses. It is primarily engaged in commercial and consumer banking through its two banking subsidiaries. In conducting their businesses, the banks receive deposits, make loans, provide trust, investment and corporate services, operate the TransFund interchange of automated teller machines and generally engage in all aspects of commercial and consumer banking. CORPORATE HEADQUARTERS Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 (918) 588-6000 INDEPENDENT AUDITORS Ernst & Young LLP Bank of Oklahoma Tower Tulsa, Oklahoma 74172 (918) 560-3600 LEGAL COUNSEL Frederic Dorwart Lawyers Old City Hall 124 E. Fourth St. Tulsa, Oklahoma 74103-5010 (918) 583-9922 COMMON SHARES: Traded Over the Counter, NASDAQ Symbol: BOKF MARKET MAKERS: Herzog, Heine, Geduld, Inc. Smith Barney Southwest Securities, Inc. TRANSFER AGENT AND REGISTRAR The Bank of New York (800) 524-4458 Address Shareholders Inquiries to: Shareholder Relations Department-11E P.O. Box 11258 Church Street Station New York, NY 10286 E-Mail Address: Shareowner-svcs@Email.bony.com Send Certificates for Transfer and Address Changes to: Receive and Deliver Department - 11W P.O. Box 11002 Church Street Station New York, NY 10286 Copies of BOK Financial Corporation's Annual Report to Shareholders, Form 10-K to the Securities and Exchange Commission and other public financial information are available without charge upon written request. Analysts, shareholders and other investors seeking financial information about BOK Financial Corporation are invited to contact James A. White, Executive Vice President & Chief Financial Officer, (918) 588-6752. News media and others seeking general information should contact Becky J. Frank, Vice President, Public Relations manager, (918) 588-6831. BANK OF ARKANSAS, N.A. P.O. Box 1407, Fayetteville, AR 72703 (501) 973-2660 BANK OF OKLAHOMA, N.A. Bank of Oklahoma Tower P.O. Box 2300, Tulsa, OK 74192 (918) 588-6000 Bank of Oklahoma Plaza P.O. Box 24128, Oklahoma City, OK 73124 (405) 272-2000 BANK OF TEXAS, N.A. formerly First National Bank of Park Cities, First Texas Bank and Alliance Trust Company 6215 Hillcrest Avenue, Dallas, TX 75205 (214) 525-5000 (C)1998 BOK Financial Corporation EX-21 3 SUBSIDIARIES OF THE REGISTRANT BOK FINANCIAL CORPORATION EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT BANKING SUBSIDIARIES -------------------- Bank of Oklahoma, National Association Bank of Arkansas, National Association First National Bank of Park Cities First Texas Bank OTHER SUBSIDIARIES OF BOK FINANCIAL CORPORATION ----------------------------------------------- Alliance Securities Corporation BOK Capital Services Corporation BOK Plaza Associates, LLC KCI Leasing Partners I, an Oklahoma Limited Partnership KCI Leasing Partners II, an Oklahoma Limited Partnership KCI Leasing Partners III, an Oklahoma Limited Partnership Park Cities Bancshares, Inc. Park Cities Corporation Sabre 1996 Partnership, an Oklahoma Limited Partnership SUBSIDIARIES OF BANK OF OKLAHOMA, N.A. -------------------------------------- Affiliated BancServices, Inc. Affiliated Financial Holding Company Affiliated Financial Insurance Agency, Inc. Affiliated Financial Life Insurance Company Alliance Trust Company, National Association BancOklahoma Agri-Service Corp. BancOklahoma Mortgage Corp. BOK Delaware, Inc. BOK Real Estate Trust BOSC, Inc. CVV Management, Inc. CVV Partnership, an Oklahoma General Partnership Cottonwood Valley Ventures, Inc. FGBSA Securities Brokerage (Oklahoma), Inc. Investment Concepts, Inc. Pacesetter Leasing Company Southwest Trust Company Steven L. Smith Corp. 115 E. Fifth Corp. All subsidiaries are incorporated in Oklahoma, with the exception of Bank of Oklahoma, National Association, which is chartered by the United States of America; Affiliated Financial Life Insurance Company, which is incorporated in Arizona; First National Bank of Park Cities, First Texas Bank, Alliance Trust Company and FGBSA Securities Brokerage (Oklahoma), Inc., which are incorporated in Texas; Brookside Bancshares, BOK Delaware, Inc. and BOK Real Estate Trust, which are incorporated in Delaware; and Bank of Arkansas, N.A., which is incorporated in Arkansas. EX-23 4 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated January 27, 1998, with respect to the consolidated financial statements of BOK Financial Corporation incorporated by reference in the annual report (Form 10-K) for the year ended December 31, 1997, in the following registration statements: Registration Statement (Form S-8, No. 33-44121) pertaining to the Reoffer Prospectus of the Bank of Oklahoma Master Thrift Plan and Trust Agreement. Registration Statement (Form S-8, No. 33-44122) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1991 Special Stock Option Plan. Registration Statement (Form S-8, No. 33-55312) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1992 Stock Option Plan. Registration Statement (Form S-8, No. 33-70102) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1993 Stock Option Plan. Registration Statement (Form S-8, No. 33-79834) pertaining to the Reoffer Prospectus of the BOK Financial Corporation 1994 Stock Option Plan. Registration Statement (Form S-8, No. 33-79836) pertaining to the Reoffer Prospectus of the BOK Financial Corporation Directors' Stock Compensation Plan. Registration Statement (Form S-8, No. 33-32642) pertaining to the Reoffer Prospectus of BOK Financial Corporation 1997 Stock Option Plan. /s/ Ernst & Young LLP Tulsa, Oklahoma March 23, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the BOK Financial Corporation's 10-K for the period ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1997 DEC-31-1997 371,321 0 18,005 4,999 1,749,411 213,111 214,125 2,765,093 53,101 5,399,642 3,728,079 906,458 61,828 267,800 0 23 1 435,453 5,399,642 227,044 114,225 2,992 344,548 122,042 188,948 155,600 9,026 (1,329) 195,166 81,107 64,625 0 0 64,625 2.89 2.58 3.66 18,767 17,971 207 57,000 45,148 9,203 5,605 53,101 53,101 0 14,081
EX-27.1 6 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 9-MOS 6-MOS 3-MOS YEAR DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996 SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996 340,635 373,433 342,913 322,791 100 100 100 0 37,850 78,432 76,387 44,760 2,555 5,974 3,887 6,454 1,719,554 1,713,075 1,787,637 1,459,122 214,703 202,716 202,750 198,408 214,980 202,272 202,325 199,549 2,769,998 2,629,243 2,499,613 2,394,580 52,393 49,871 48,517 45,148 5,378,152 5,292,170 5,184,512 4,620,700 3,592,106 3,546,309 3,598,698 3,256,755 1,133,515 467,748 1,025,367 843,604 85,585 69,106 66,118 57,675 150,708 799,547 123,153 102,700 0 0 0 0 23 23 23 23 1 1 1 1 416,214 389,436 371,176 359,942 5,378,152 5,292,170 5,184,512 4,620,700 166,222 107,199 51,355 196,309 85,446 56,714 26,686 92,253 2,461 1,528 769 1,630 254,129 165,582 78,810 290,532 90,943 60,561 29,984 118,066 140,241 91,352 43,748 163,093 113,888 74,230 35,062 127,439 5,526 2,526 1,026 4,267 871 62 262 (2,607) 133,889 87,169 41,726 159,028 70,651 46,398 22,762 69,456 70,651 46,398 15,347 54,127 0 0 0 0 0 0 0 0 47,807 31,411 15,347 54,127 2.14 1.40 .69 2.41 1.91 1.26 .62 2.18 3.63 3.63 3.58 3.54 23,182 23,694 20,254 18,835 20,551 17,976 17,838 18,816 0 0 0 0 64,049 62,220 45,519 40,000 45,148 48,517 45,148 38,287 5,177 1,422 1,240 6,510 4,371 1,276 1,058 9,104 52,393 49,871 48,517 45,148 52,393 49,871 48,517 45,148 0 0 0 0 0 0 0 9,225
-----END PRIVACY-ENHANCED MESSAGE-----