-----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, Iwgh2qdHwIS1RINYbIGTSJhmCCdmz1BeK1z8aB5UQ8Kx6gSBgv6feTvWFpJDeaDi 158pihvsBIIeYkTa6d3h6g== 0000930661-96-001657.txt : 19961120 0000930661-96-001657.hdr.sgml : 19961120 ACCESSION NUMBER: 0000930661-96-001657 CONFORMED SUBMISSION TYPE: 10-K CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19961118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOK FINANCIAL CORP ET AL CENTRAL INDEX KEY: 0000875357 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 731373454 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19341 FILM NUMBER: 00000000 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 FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1996 ====================================================================== 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, 1995 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: $90,716,315 as of February 29, 1996. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 20,435,826 shares of common stock ($.00006 par value) as of February 29, 1996. 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, 1995 (designated portions only) Part II - Annual Report to Shareholders For Fiscal Year Ended December 31, 1995 (designated portions only) Part III - Proxy Statement for Annual Meeting of Shareholders scheduled for April 30, 1996 (designated portions only) Part IV - Annual Report to Shareholders For Fiscal Year Ended December 31, 1995 (designated portions only) ================================================================================ BOK FINANCIAL CORPORATION FORM 10-K ANNUAL REPORT INDEX
ITEM PAGE - ---- ---- PART I 1. Business 2 2. Properties 7 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 7 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 6. Selected Financial Data 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 8. Financial Statements and Supplementary Data 8 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III 10. Directors and Executive Officers of the Registrant 8 11. Executive Compensation 8 12. Security Ownership of Certain Beneficial Owners and Management 8 13. Certain Relationships and Related Transactions 8 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 9-13 Signatures 14
BOK FINANCIAL CORPORATION PART I ITEM 1 - BUSINESS GENERAL DEVELOPMENT OF BUSINESS BOK Financial Corporation ("BOK Financial") was incorporated under the laws of the State of Oklahoma on October 24, 1990. Active operations as a bank holding company commenced on June 7, 1991 with the acquisition of the preferred stock ("BOk Preferred Stock") of Bank of Oklahoma, National Association ("BOk") from the Federal Deposit Insurance Corporation ("FDIC") and the conversion of the BOk Preferred Stock into 99.99% of the common stock of BOk. BOK Financial is regulated by the Board of Governors of the Federal Reserve System pursuant to the Bank Holding Company Act of 1956, as amended ("BHCA"). BOK Financial operates primarily through BOk, BOk's subsidiaries and Citizens Bank of Northwest Arkansas, National Association ("CBNWA"). The existing and future activities of BOK Financial and its subsidiaries are limited by the BHCA, which prohibits a bank holding company from engaging in any business other than banking, managing or controlling banks, and furnishing and performing certain bank-related services and activities. 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 to BOK Financial Common Stock at $5.75 per share, and BOK Financial contributed the $10.0 million to BOk as additional capital. Per share amounts reflect a 1-for-100 reverse stock split effective December 17, 1991 ("reverse stock split"). Following a bidding process conducted by the Resolution Trust Corporation ("RTC"), BOK Financial, through the mortgage banking subsidiary of BOk, BancOklahoma Mortgage Corp. ("BOMC"), acquired on June 10, 1991 approximately $1.0 billion of mortgage servicing rights and certain other assets of Maxim Mortgage Corporation ("Maxim"). Maxim was formerly a subsidiary of Sooner Federal Savings and Loan Association, which had failed and had been placed under the control of the RTC. Also following a bidding process by the RTC, BOK Financial acquired on August 9, 1991 certain assets and assumed certain liabilities, primarily deposits, of eight branches of Continental Federal Savings and Loan Association of Oklahoma City, Oklahoma. BOK Financial assumed deposits of approximately $214.5 million and paid the RTC a premium of $4.1 million. Kaiser acquired an additional $20.0 million of BOK Financial's Common Stock at $5.75 per share (after effect of the reverse stock split), and BOK Financial contributed the $20.0 million to BOk to facilitate the purchase. On March 27, 1992, CBNWA acquired certain assets and assumed the deposits and certain obligations of two branches of the failed Home Federal Savings & Loan Association from the RTC for $1.1 million. On July 16, 1992, Bank of Oklahoma, N.A., South, an unconsolidated banking subsidiary, was merged into BOk. On November 13, 1992, BOK Financial purchased Southwest Trustcorp, Inc. and its subsidiary, The Trust Company of Oklahoma, Oklahoma City, in exchange for 400,000 shares of Common Stock valued at $4.6 million. On December 31, 1992, BOK Financial acquired certain assets and assumed $502.9 million of deposits and other liabilities of 19 branches of the Sooner Division of First Gibraltar Bank, FSB of Irving, Texas for a purchase price of $16.5 million. On May 7, 1993, BOK Financial issued 343,295 common shares valued at $6.9 million and paid $3.9 million to acquire Sand Springs Bancshares, Inc. and its subsidiary, Sand Springs State Bank. Also on May 7, 1993, BOK Financial issued 1,183,691 common shares to acquire Brookside Bancshares, Inc. and its subsidiary, Brookside State Bank, in a pooling-of-interests transaction. Financial information of BOK Financial for 1992 and 1991 has been restated to reflect this acquisition. On October 9, 1993, BOK Financial acquired certain assets and assumed the deposits and certain obligations of two branches of the failed Heartland Federal Savings & Loan Association from the FDIC for $5.1 million. On May 2, 1994, BOK Financial acquired Plaza National Bank, Bartlesville, Oklahoma for $11.7 million. On June 13, 1994, BOK Financial acquired Texas Commerce Trust Company - Sherman, National Association, Sherman, Texas, a national association limited to trust powers only, for $6.1 million. 2 BOK FINANCIAL CORPORATION 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. Developments relating to individual aspects of the business of BOK Financial are described under "Narrative Description of Business" on pages 3 and 4 of this report. Additional discussion of BOK Financial's activities during the current year is incorporated by reference to "Management's Assessment of Operations and Financial Condition" (pages 6-20) in BOK Financial's 1995 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 29) in BOK Financial's 1995 Annual Report to Shareholders. NARRATIVE DESCRIPTION OF BUSINESS BOK Financial is a bank holding company, and as such, its activities are limited by the BHCA to banking, certain bank-related services and activities, and managing or controlling banks. BOK Financial's banking and bank-related activities are primarily performed through BOk and CBNWA; nonbank subsidiary operations are not significant. As of December 31, 1995, BOK Financial and its subsidiaries had 1,842 full-time equivalent employees. Following is a description of the more significant services offered by BOK Financial and the competitive and regulatory environments in which it operates. SERVICES OFFERED COMMERCIAL BANKING SERVICES BOK Financial, through BOk and CBNWA, provides a wide range of financial services to commercial and industrial customers, including depository, lending and other financial services such as cash management 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 approximately 350 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, 1995, BOk had 62 banking locations, with 48 locations in the Tulsa and Oklahoma City areas. CBNWA had 4 locations in northwest Arkansas. Services offered include deposit accounts, installment loans, student loans, bank card accounts, personal lines of credit, debit cards, an automated 24-hour telephone loan application service and a 24-hour telephone branch. New products planned for 1996 include a telephone and personal computer based bill paying service. 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 549 locations across Oklahoma. INVESTMENT AND MONEY MARKET ACTIVITIES BOk provides securities brokerage, trading and underwriting services for corporations, governmental units, individual customers and correspondent banks. Securities include money market instruments, U.S. Government and municipal bonds, corporate stocks and bonds, and mutual funds. The public finance department provides financial advisory, private placement and term-financing services for governmental and corporate entities. 3 BOK FINANCIAL CORPORATION MORTGAGE BANKING BOMC, through its own locations as well as BOk's branch network, offers a full array of mortgage options from federally sponsored programs to "jumbo loans" on higher priced houses. BOMC is the largest originator of mortgage loans in Oklahoma and has a servicing portfolio of approximately $5.4 billion, including $253 million serviced for BOk. TRUST AND ASSET MANAGEMENT SERVICES BOk's trust subsidiaries (BancOklahoma Trust Company ("BOTC") in Oklahoma and Alliance Trust Company N.A. in Texas) offer a variety of services to both corporate and individual customers in Oklahoma and Texas. Individual financial trust services include personal trust management, administration of estates and management of individual investment and custodial accounts. For corporate clients, the services include management, administration and recordkeeping of pension plans, thrift plans, 401(k) plans and master trust plans, including a state-of-the-art system for employee benefit plan recordkeeping. BOk's trust division also serves as transfer agent and registrar for corporate securities, paying agent for municipalities and governmental agencies and indenture trustee of bond issues. BOTC serves as an investment advisor to the American Performance Funds, a family of proprietary mutual funds distributed by the Winsbury Company of Columbus, Ohio. At December 31, 1995, trust subsidiaries were responsible for approximately $7.6 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 346 banks located in Oklahoma, of which approximately 40 are located in the Tulsa County metropolitan surrounding area and approximately 58 are located in the Oklahoma County metropolitan surrounding area. BOK Financial is also in competition with other businesses engaged in extending credit or accepting deposits, such as major retail establishments, major brokerage houses, 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 25 locations in the Tulsa area and 23 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 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 11% of all deposits in Oklahoma financial institutions insured by the federal government. Based on the latest statistical data available (as of June 30, 1995), BOK Financial could acquire additional bank subsidiaries so long as the aggregate deposits of all Oklahoma subsidiaries do not exceed approximately $3.9 billion. Consolidated deposits of BOK Financial were $2.7 billion and $2.9 billion at June 30, and December 31, 1995, 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. Over the last few years, one national and two regional bank holding companies have entered the Oklahoma market which has resulted in the consolidation of the Oklahoma banking industry into fewer but larger banks. This concentration has significantly increased competition for both commercial and consumer customers as more organizations are providing a greater number of products and services to the customer. 4 BOK FINANCIAL CORPORATION On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal") was signed into law. In summary, commencing one year after passage, qualifying bank holding companies will be permitted to acquire banks in any state. As of June 1, 1997, qualifying banks may be able to engage in interstate branching by merging banks in different states. States may opt out of interstate branching by enacting specific legislation prior to June 1, 1997, in which case out-of-state banks would generally not be able to branch into that state, and banks headquartered in that state would not be permitted to branch into other states. States may also opt into interstate branching earlier than 1997 with specific legislation. The law imposes a 10% nationwide deposit cap and a 30% state cap; however, the states' authority is preserved to impose a lower, nondiscriminatory deposit cap (such as Oklahoma's 11% cap, discussed on page 4). Early opt in legislation must apply equally to all out-of-state banks and permit interstate merger transactions with all out-of-state banks. Legislation to opt in early has been passed by the Oklahoma House of Representatives and, as of this date, is expected to be considered by the Senate during 1996. If enacted, 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 materially adversely affect the business and prospects of BOK Financial, BOk and CBNWA. BOK FINANCIAL As a bank holding company, BOK Financial is subject to regulation under the BHCA and to supervision by the Board of Governors of the Federal Reserve System (the "Reserve Board"). Under the BHCA, BOK financial is required to file with the Reserve Board an annual report and such other additional information as the Reserve Board may require. The Reserve Board may also make examinations of BOK Financial and its subsidiaries. The BHCA requires the prior approval of the Reserve Board in any case where a bank holding company proposes to acquire control of more than five percent of the voting shares of any bank, unless it already controls a majority of such voting shares. Additionally, approval must also be obtained before a bank holding company may acquire all or substantially all of the assets of another bank or before it may merge or consolidate with another bank holding company. The BHCA further provides that the Reserve Board shall not approve any such acquisition, merger or consolidation that will substantially lessen competition, tend to create a monopoly or be in restraint of trade, unless it finds the anti- competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The BHCA presently prohibits the Reserve Board from approving an application from a bank holding company to acquire shares of a bank located outside the state in which the operations of the holding company's banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank whose shares are to be acquired is located, but Riegle-Neal permits interstate banking as of September 29, 1995, as discussed above in "Competition". The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than five percent of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company whose activities the Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Reserve Board weighs the Community Reinvestment Act activities of the bank holding company and the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of 5 BOK FINANCIAL CORPORATION 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 and its subsidiaries are further prohibited under the BHCA from engaging in certain tie-in arrangements in connection with the provision of any credit, property or services. Thus, a subsidiary of a bank holding company may not extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that (1) the customer obtain or provide some additional credit, property or services from or to the bank holding company or any subsidiary thereof or (2) the customer may not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to insure the soundness of credit extended. The Federal Deposit Insurance Corporation Improvement Act of 1991 established five capital rating tiers ranging from "well capitalized" to "critically undercapitalized". A financial institution is considered to be well capitalized if its Leverage, Tier 1 and Total Capital ratios are at 5%, 6% and 10%, respectively. Any institution experiencing significant growth or acquiring other institutions or branches is expected to maintain capital ratios above the well capitalized level. At December 31, 1995, BOK Financial's Leverage, Tier 1 and Total Capital ratios were 6.55%, 9.91% and 11.17%, respectively. BOK AND CBNWA BOk and CBNWA are national banking associations and are subject to the National Banking Act and other federal statutes governing national banks. Under federal law, the Office of the Comptroller of the Currency ("Comptroller") charters, regulates and serves as the primary regulator of national banks. In addition, the Comptroller must approve certain corporate or structural changes, including an increase or decrease in capitalization, payment of dividends, change of place of business, establishment of a branch and establishment of an operating subsidiary. The Comptroller performs its functions through national bank examiners who provide the Comptroller with information concerning the soundness of a national bank, the quality of management and directors, and compliance with applicable laws, rules and regulations. The National Banking Act authorizes the Comptroller to examine every national bank as often as necessary. Although the Comptroller has primary supervisory responsibility for national banks, such banks must also comply with Reserve Board rules and regulations as members of the Federal Reserve System. CBNWA is also subject to certain consumer-protection laws incorporated in the Arkansas Constitution, which, among other restrictions, limit the maximum interest rate on general loans to five percent above the Federal Reserve Discount Rate. The rate on consumer loans is five percent above the discount rate or seventeen percent, whichever is lower. BOk and CBNWA are insured by the FDIC and are required to pay certain fees and premiums to the FDIC. The FDIC 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 (subject to a minimum of $2,000 per year in the absence of any other assessments) and the critically undercapitalized banks paying up to 0.27% of deposits. Additionally, approximately 25% of BOK Financial's total deposits at December 31, 1995 were acquired through Oakar transactions and are insured through the Savings Association Insurance Fund ("SAIF"). While SAIF premiums currently range from 0.23% to 0.31% of SAIF deposits, depending on assigned risk category, legislation is pending which will require banks and savings associations to pay a one-time assessment on all SAIF-insured deposits. Estimates of the cost of this assessment range from 0.66% to 0.90%. The ultimate amount and timing of this assessment is subject to the Federal budget reconciliation process. Applicable federal statutes and regulations require national banks to meet certain leverage and risk-based capital requirements. At December 31, 1995, BOk's and CBNWA's leverage and risk-based capital ratios were well above the required minimum ratios. 6 BOK FINANCIAL CORPORATION GOVERNMENTAL POLICIES AND ECONOMIC FACTORS The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various regulatory authorities and, in particular, the credit policies of the Reserve Board. An important function of the Reserve Board is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Reserve Board to implement its objectives are: open market operations in U.S. Government securities; changes in the discount rate on bank borrowings; and changes in reserve requirements on bank deposits. The effect of such policies in the future on the business and earnings of BOK Financial and its subsidiaries cannot be predicted with certainty. The economy within the State of Oklahoma, BOK Financial's primary market, continues to show modest improvement. Certain economic indicators show creation of some 32,400 wage and salary jobs in 1995, the second year in a row in which Oklahoma has added in excess of 30,000 new jobs (primarily in services, retail trade and construction). Additionally, while business start-ups and residential construction for the year are slightly below 1994 levels, they rebounded in the latter half of 1995 to levels above a year ago. With Oklahoma's economy tied more closely with the national economy than in the past, however, a downturn in the national economy could have an adverse impact on BOK Financial's financial position and results of operations. ITEM 2 - PROPERTIES BOK Financial, through BOk, BOk's subsidiaries and CBNWA, owns improved real estate that was carried at $27.9 million, net of depreciation and amortization, as of December 31, 1995. BOK Financial conducts its operations through a total of 62 banking and four nonbanking locations in Oklahoma, four banking locations in Arkansas and two nonbanking locations in Texas as of December 31, 1995. 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 33 and 38, respectively) of BOK Financial's 1995 Annual Report to Shareholders provides further discussion related to properties and is incorporated herein by reference. ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended December 31, 1995. 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, 1995, common shareholders of record numbered 1,676 with 20,415,504 shares outstanding. During 1995, BOK Financial declared a 3% stock dividend in respect of its Common Stock payable in shares of Common Stock. The dividend was payable on November 27, 1995 to shareholders of record on November 17, 1995. BOK Financial's quarterly market information follows:
First Second Third Fourth ------------------------------------ 1995: Low $19.75 $20.25 $21.50 $19.00 High 22.25 22.75 25.25 24.50 1994: Low $20.50 $19.00 $19.00 $19.25 High 25.50 21.50 22.00 20.50
7 BOK FINANCIAL CORPORATION The information set forth under the captions "Table 1 - Consolidated Selected Financial Data" (page 5), "Table 5 - Selected Quarterly Financial Data" (page 11) and Note 15 of "Notes to Consolidated Financial Statements" (page 40) of BOK Financial's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information set forth under the caption "Table 1 - Consolidated Selected Financial Data" (page 5) of BOK Financial's 1995 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 6-20), "Annual Financial Summary - Unaudited" (pages 44-45) and "Quarterly Financial Summary - Unaudited" (pages 46-47) of BOK Financial's 1995 Annual Report to Shareholders is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The supplementary data regarding quarterly results of operations set forth under the caption "Table 5 - Selected Quarterly Financial Data" (page 11) of BOK Financial's 1995 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 1996 Annual Proxy Statement for its Annual Meeting of Shareholders scheduled for April 30, 1996 ("1996 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 1996 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 1996 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 1996 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, 32-33 and 35, respectively) of BOK Financial's 1995 Annual Report to Shareholders is incorporated herein by reference. 8 BOK FINANCIAL CORPORATION 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, 1995 are incorporated by reference in Parts I and II of this Annual Report on Form 10-K.
EXHIBIT 13 ---------- 1995 ANNUAL REPORT DESCRIPTION PAGE NUMBER ----------- ----------- Consolidated Selected Financial Data 5 Selected Quarterly Financial Data 11 Report of Management on Financial 21 Statements Report of Independent Auditors 21 Consolidated Statements of Earnings 22 Consolidated Balance Sheets 23 Consolidated Statements of Changes in 24-25 Shareholders' Equity Consolidated Statements of Cash Flows 26 Notes to Consolidated Financial 27-43 Statements Annual Financial Summary - Unaudited 44-45 Quarterly Financial Summary - Unaudited 46-47 Appendix A 49-50
(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. 9 BOK FINANCIAL CORPORATION 10.1 Amendment to Purchase and Sale Agreement effective March 29, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.2 of S-1 Registration Statement No. 33-90450 10.2 Letter agreement dated April 12, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.3 of S-1 Registration Statement No. 33-90450. 10.3 Second Amendment to Purchase and Sale Agreement effective April 15, 1991, among BOK Financial, Kaiser, and the FDIC, incorporated by reference to Exhibit 2.4 of S-1 Registration Statement No. 33-90450. 10.4 Employment agreements. 10.4(a) Employment Agreement between BOk and Stanley A. Lybarger, incorporated by reference to Exhibit 10.4(a) of Form 10-K for the fiscal year ended December 31, 1991. 10.5 Director indemnification agreement dated June 30, 1987, between BOk and Kaiser, incorporated by reference to Exhibit 10.5 of S-1 Registration Statement No. 33-90450. Substantially similar director indemnification agreements were executed between BOk and the following: Date of Agreement ----------------- James E. Barnes June 30, 1987 William H. Bell June 30, 1987 James S. Boese June 30, 1987 Dennis L. Brand June 30, 1987 Chester E. Cadieux June 30, 1987 William B. Cleary June 30, 1987 Glenn A. Cox June 30, 1987 William E. Durrett June 30, 1987 Leonard J. Eaton, Jr. June 30, 1987 William B. Fader December 5, 1990 Gregory J. Flanagan June 30, 1987 Jerry L. Goodman June 30, 1987 David A. Hentschel July 7, 1987 Philip N. Hughes July 8, 1987 Thomas J. Hughes, III June 30, 1987 William G. Kerr June 30, 1987 Philip C. Lauinger, Jr. June 30, 1987 Stanley A. Lybarger December 5, 1990 Patricia McGee Maino June 30, 1987 Robert L. Parker, Sr. June 30, 1987 James A. Robinson June 30, 1987 William P. Sweich June 30, 1987 10.6 Capitalization and Stock Purchase Agreement dated May 20, 1991, between BOK Financial and Kaiser, incorporated by reference to Exhibit 10.6 of S-1 Registration Statement No. 33-90450. 10.7 BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-44122. 10.7.1 BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-55312. 10.7.2 BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-70102. 10.7.3 BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79834. 10 BOK FINANCIAL CORPORATION 10.7.4 BOK Financial Corporation 1994 Stock Option Plan (Typographical Error Corrected January 16, 1995), incorporated by reference to Exhibit 10.7.4 of Form 10-K for the fiscal year ended December 31, 1994. 10.7.5 BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 4.0 of S-8 Registration Statement No. 33-79836. 10.7.6 Bank of Oklahoma Thrift Plan (Amended and Restated Effective as of January 1, 1995), incorporated by reference to Exhibit 10.7.6 of Form 10-K for the year ended December 31, 1994. 10.7.7 Trust Agreement for the Bank of Oklahoma Thrift Plan (December 30, 1994), incorporated by reference to Exhibit 10.7.7 of Form 10-K for the year ended December 31, 1994. 10.8 Lease Agreement between One Williams Center Co. and National Bank of Tulsa (predecessor to BOk) dated June 18, 1974, incorporated by reference to Exhibit 10.9 of S-1 Registration Statement No. 33-90450. 10.9 Lease Agreement between Security Capital Real Estate Fund and BOk dated January 1, 1988, incorporated by reference to Exhibit 10.10 of S-1 Registration Statement No. 33-90450. 10.10 Asset Purchase Agreement (OREO and other assets) between BOk and Phi-Lea-Em Corporation dated April 30, 1991, incorporated by reference to Exhibit 10.11 of S-1 Registration Statement No. 33-90450. 10.11 Asset Purchase Agreement (Tanker Assets) between BOk and Green River Exploration Company dated April 30, 1991, incorporated by reference to Exhibit 10.12 of S-1 Registration Statement No. 33-90450. 10.12 Asset Purchase Agreement (Recovery Rights) between BOk and Kaiser dated April 30, 1991, incorporated by reference to Exhibit 10.13 of S-1 Registration Statement No. 33-90450. 10.13 Purchase and Assumption Agreement dated August 7, 1992 among First Gibraltar Bank, FSB, Fourth Financial Corporation and BOk, as amended, incorporated by reference to Exhibit 10.14 of Form 10-K for the fiscal year ended December 31, 1992. 10.13.1 Allocation Agreement dated August 7, 1992 between BOk and Fourth Financial Corporation, incorporated by reference to Exhibit 10.14.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.14 Merger Agreement among BOK Financial, BOKF Merger Corporation Number Two, Brookside Bancshares, Inc., The Shareholders of Brookside Bancshares, Inc. and Brookside State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.15 of Form 10-K for the fiscal year ended December 31, 1992. 10.14.1 Agreement to Merge between BOk and Brookside State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.15.1 of Form 10-K for the fiscal year ended December 31, 1992. 10.15 Merger Agreement among BOK Financial, BOKF Merger Corporation Number Three, Sand Springs Bancshares, Inc., The Shareholders of Sand Springs Bancshares, Inc. and Sand Springs State Bank dated December 22, 1992, as amended, incorporated by reference to Exhibit 10.16 of Form 10-K for the fiscal year ended December 31, 1992. 10.15.1 Agreement to Merge between BOk and Sand Springs State Bank dated January 27, 1993, incorporated by reference to Exhibit 10.16.1 of Form 10-K for the fiscal year ended December 31, 1992. 11 BOK FINANCIAL CORPORATION 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. 11.0 Statement regarding the computation of per share earnings. 13.0 Annual Report to Shareholders for the fiscal year ended December 31, 1995. 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. 99.0 Additional Exhibits. 99.1 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44121 for Bank of Oklahoma Master Thrift Plan and Trust, incorporated by reference to Exhibit 99.1 of Form 10-K for the fiscal year ended December 31, 1993. 99.2 Undertakings incorporated by reference into S-8 Registration Statement No. 33-44122 for BOK Financial Corporation 1991 Special Stock Option Plan, incorporated by reference to Exhibit 99.2 of Form 10-K for the fiscal year ended December 31, 1993. 99.3 Undertakings incorporated by reference into S-8 Registration Statement No. 33-55312 for BOK Financial Corporation 1992 Stock Option Plan, incorporated by reference to Exhibit 99.3 of Form 10-K for the fiscal year ended December 31, 1993. 99.4 Undertakings incorporated by reference into S-8 Registration Statement No. 33-70102 for BOK Financial Corporation 1993 Stock Option Plan, incorporated by reference to Exhibit 99.4 of Form 10-K for the fiscal year ended December 31, 1993. 12 BOK FINANCIAL CORPORATION 99.5 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79834 for BOK Financial Corporation 1994 Stock Option Plan, incorporated by reference to Exhibit 99.5 of Form 10-K for the fiscal year ended December 31, 1994. 99.6 Undertakings incorporated by reference into S-8 Registration Statement No. 33-79836 for BOK Financial Corporation Directors' Stock Compensation Plan, incorporated by reference to Exhibit 99.6 of Form 10-K for the fiscal year ended December 31, 1994. (B) REPORTS ON FORM 8-K None. (C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K The exhibits listed in response to Item 14(A)(3) are filed as part of this report. (D) FINANCIAL STATEMENT SCHEDULES None. 13 BOK FINANCIAL CORPORATION 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 26, 1996 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 26, 1996, 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 - ----------------------------------- James A. White, Executive Vice President and Chief Financial Officer/Treasurer DIRECTORS - --------- /s/ Keith E. Bailey /s/ V. Burns Hargis - ----------------------------------- ---------------------------------- Keith E. Bailey, Director V. Burns Hargis, Director /s/ Thomas J. Hughes, III - ----------------------------------- ---------------------------------- James E. Barnes, Director Thomas J. Hughes, III, Director /s/ E. Carey Joullian, IV - ----------------------------------- ---------------------------------- Sharon J. Bell, Director E. Carey Joullian, IV, Director /s/ Larry W. Brummett /s/ Robert J. LaFortune - ----------------------------------- ---------------------------------- Larry W. Brummett, Director Robert J. LaFortune, Director /s/ William B. Cleary - ----------------------------------- ---------------------------------- William B. Cleary, Director Philip C. Lauinger, Jr., Director /s/ Glenn A. Cox - ----------------------------------- ---------------------------------- Glenn A. Cox, Director Robert L. Parker, Sr., Director /s/ Robert H. Donaldson /s/ James A. Robinson - ----------------------------------- ---------------------------------- Dr. Robert H. Donaldson, Director James A. Robinson, Director - ----------------------------------- ---------------------------------- William E. Durrett, Director L. Francis Rooney, III, Director /s/ James O. Goodwin /s/ Robert L. Zemanek - ----------------------------------- ---------------------------------- James O. Goodwin, Director Robert L. Zemanek, Director 14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 BOK FINANCIAL CORPORATION STATEMENT REGARDING THE COMPUTATION OF PER SHARE EARNINGS
1995 1994 1993 ------------- ------------ ------------ COMPUTATION OF PRIMARY EARNINGS PER SHARE: Primary Average Common Share Equivalents: Common shares 20,407,568 20,435,204 20,254,849 Stock options 87,682 81,042 93,324 - ------------------------------------------------------------------------------------------------------ Total primary average common share equivalents 20,495,250 20,516,246 20,348,173 - ------------------------------------------------------------------------------------------------------ Income before Preferred Stock dividends and cumulative effect of change in accounting for income taxes $49,205,000 $45,065,000 $37,902,000 Less stock dividends on Series A Preferred Stock 1,500,000 1,500,000 1,125,000 Less cash dividends on Citizens Holding Company Preferred Stock - 113,000 128,000 - ------------------------------------------------------------------------------------------------------ Income before cumulative effect of change in accounting for income taxes 47,705,000 43,452,000 36,649,000 Cumulative effect of change in accounting for income taxes - - 1,570,000 - ------------------------------------------------------------------------------------------------------ Net Income $47,705,000 $43,452,000 $38,219,000 - ------------------------------------------------------------------------------------------------------ Primary Earnings per Common Share Equivalent: Income before cumulative effect of change in accounting for income taxes $ 2.33 $ 2.12 $ 1.80 Cumulative effect of change in accounting for income taxes - - $ .08 - ------------------------------------------------------------------------------------------------------ Net Income $ 2.33 $ 2.12 $ 1.88 - ------------------------------------------------------------------------------------------------------ COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE: Fully Diluted Average Common Share Equivalents: Common shares 20,407,568 20,435,204 20,254,849 Stock options 94,180 81,293 134,324 Series A preferred stock 2,731,818 2,731,818 2,731,818 - ------------------------------------------------------------------------------------------------------ Total fully diluted average common share equivalents 23,233,566 23,248,315 23,120,991 - ------------------------------------------------------------------------------------------------------ Income before Preferred Stock dividends and cumulative effect of change in accounting for income taxes $49,205,000 $45,065,000 $37,902,000 Less cash dividends on Citizens Holding Company Preferred Stock - 113,000 128,000 - ------------------------------------------------------------------------------------------------------ Income before cumulative effect of change in accounting for income taxes $49,205,000 44,952,000 37,774,000 Cumulative effect of change in accounting for income taxes - - 1,570,000 - ------------------------------------------------------------------------------------------------------ Net Income $49,205,000 $44,952,000 $39,344,000 - ------------------------------------------------------------------------------------------------------ Fully Diluted Earnings per Common Share Equivalent: Income before cumulative effect of change in accounting for income taxes $ 2.12 $ 1.93 $ 1.63 Cumulative effect of change in accounting for income taxes - - $ .07 - ------------------------------------------------------------------------------------------------------ Net Income $ 2.12 $ 1.93 $ 1.70 - ------------------------------------------------------------------------------------------------------
COMMON STOCK On May 7, 1993, BOK Financial Corporation ("BOK Financial") issued 1,183,691 shares of the common stock of BOK Financial ("Common Stock") to acquire Brookside Bancshares, Inc. and its subsidiary Brookside State Bank, in a pooling-of-interests transaction. Common shares have been restated to reflect these shares as being outstanding for all periods presented. On November 14, 1994, BOK Financial issued 1,380,017 shares of Common Stock to merge with Citizens Holding Company and its subsidiaries, Citizens Bank of Muskogee and Citizens Bank of Northwest Arkansas in a pooling-of-interests transaction. Common shares have been restated to reflect these shares as being outstanding for all periods presented. During 1995, 1994 and 1993, 3% dividends payable in shares of BOK Financial common stock were declared and paid. Common shares have been restated to reflect these shares as being outstanding for all periods. STOCK OPTIONS BOK Financial has various stock option plans whereby each option awarded grants to the employee the right to purchase shares of Common Stock at the price set forth under the respective plan. Options awarded under these plans are subject to vesting requirements. Generally, one-seventh of the options vest annually and expire three years after vesting. Options were awarded under the 1994 Plan in 1994 and 1995, and an aggregate of 312,516 options may be awarded under the 1994 Plan in 1996. Cancelled options under the 1994 Plan may be reawarded. The common share equivalents of the Stock Option Plans were determined using the treasury stock method, whereby the proceeds from the exercise of the options would be used to purchase Common Stock at the quarterly average market price for primary average common share equivalents, and at the greater of the quarterly average market price or period-end market price for primary average common share equivalents. SERIES A PREFERRED STOCK The preferred stock is convertible, at the option of the holder, into one share Common Stock for each 92 shares of Series A Preferred Stock. BOK Financial may elect to convert all or part of the Series A Preferred Stock into Common Stock if BOK Financial shall fail to meet the published minimum risk-based capital ratios applicable to BOK Financial for a period of eight consecutive calendar quarters. During 1995, 1994 and 1993, 69,959 shares, 65,279 shares and 52,422 shares of Common Stock were issued, respectively, by mutual agreement with the holders and in lieu of cash, in payment of dividends on the Series A Preferred Stock. Common shares have been restated to reflect these shares as being outstanding for all periods. For the 1995, 1994 and 1993 calculations of primary earnings per share, net income has been reduced by the value of the Common Stock issued in payment of dividends. Prior to its merger with BOK Financial, Citizens Holding Company had nonvoting preferred stock, on which it paid $113 thousand and $128 thousand in cash dividends in 1994 and 1993, respectively. These preferred shares were redeemed in full and cancelled in conjunction with Citizens' merger with BOK Financial. For the 1994 and 1993 calculations of primary and fully diluted earnings per share, net income has been reduced by the payment of cash dividends. EX-13 3 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 BOK FINANCIAL CORPORATION EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS TABLE OF CONTENTS ----------------- Consolidated Selected Financial Data 5 Management's Assessment of Operations and Financial Condition 6 Selected Quarterly Financial Data 11 Report of Management on Financial Statements 21 Report of Independent Auditors 21 Consolidated Financial Statements 22 Notes to Consolidated Financial Statements 27 Annual Financial Summary 44 Quarterly Financial Summary 46 Appendix A 49
1995 Annual Report BOK FINANCIAL CORPORATION 1 Management Letter 5 Management's Assessment of Operations and Financial Condition 21 Report of Management on Financial Statements 21 Report of Independent Auditors 22 Consolidated Financial Statements 48 Shareholder and Corporate Information FINANCIAL HIGHLIGHTS (Dollars In Thousands)
1995 1994 1993/1/ -------------------------------------- FOR THE YEARS ENDED DECEMBER 31 Income before cumulative effect of changes in accounting for income taxes $ 49,205 $ 45,065 $ 37,902 Net income 49,205 45,065 39,472 Earnings per share: Primary 2.33 2.12 1.80/2/ Fully-diluted 2.12 1.93 1.63/2/ - ----------------------------------------------------------------------------------------------------- Return on average assets 1.22% 1.27% 1.27%/3/ Return on average equity 18.07 19.92 20.07/2/ AS OF DECEMBER 31 Loans, net of reserves $2,156,081 $1,805,782 $1,641,294 Assets 4,221,918 3,898,276 3,129,041 Deposits 2,937,709 2,629,574 2,610,927 Shareholders' equity 301,565 236,902 213,943 Nonperforming assets 42,066 31,881 23,452 - ----------------------------------------------------------------------------------------------------- Tier 1 capital ratio 9.91% 9.14% 9.07% Total capital ratio 11.17 11.19 11.49 Leverage ratio 6.55 5.64 5.76 Shareholders' equity to total assets 7.14 6.08 6.84 Reserve for loan losses to 99.02 137.76 233.92 nonperforming loans Reserve for loan losses to loans /3/ 1.80 2.12 2.50 - -----------------------------------------------------------------------------------------------------
/1/ Restated for poolings-of-interests which occurred in 1994 and 1993. /2/ Excludes the cumulative effect of change in accounting for income taxes in 1993. /3/ Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. TO OUR SHAREHOLDERS, CUSTOMERS, EMPLOYEES AND FRIENDS Your company continued to make progress in a number of areas during 1995. We are pleased to report on this performance, and discuss with you some of our plans for the future. Net income for the year was $49.2 million, or $2.12 per share. This is an increase of 9.5 percent over 1994 per share earnings. Assets increased 8.3 percent to $4.2 billion, led by loan growth of 19 percent--as year-end loans reached a new high at $2.2 billion. The growth in loans was widely based, across most commercial lines and throughout the consumer area. (Earnings per Share graph appears here. See appendix A, graph I.) Asset quality continued to be very good. Our proportion of down-graded loans relative to capital is near the lowest level reached in more than twenty years. Our net interest margin was under considerable pressure throughout 1995. During 1993 and 1994, the differential between medium-term rates and short-term funding costs--a major source of profitability in banking--had been much higher than normal. This "yield curve slope" flattened materially in 1995, causing our margin to narrow from 3.94 percent in 1994 to 3.39 percent in 1995. We expect this situation to improve during 1996, but do not foresee a return to the wide spreads that characterized the prior several years. The overall reduction in interest rates during the year did have the positive effect of causing a $97 million increase in the value of our securities portfolio. Growth in our funding sources for the past several years has been largely from acquisitions and so-called "borrowed funds" from stable sources such as the Federal Home Loan Bank and secured funding of specific transactions in the repurchase agreement market. During 1995, we launched an aggressive program to build deposits through innovative pricing and internal incentive plans. As a result of this effort, during the last six months of the year, total deposits increased $246 million, with much of the growth from time deposits, principally jumbo CD's. We anticipate this trend to continue in 1996, as we better match the growth of our loan and deposit portfolios. (Funding graph appears here. See appendix A, graph II.) We are especially pleased with progress in several of our business activities. As the result of acquisitions of servicing and growth in its originated servicing portfolio, BancOklahoma Mortgage's operating revenues grew 16.9 percent. TransFund, the state's leading ATM network, grew 16.3 percent. BancOklahoma Trust experienced a 13.1 percent increase in its revenue. We anticipate a continuation of higher-than-normal growth in our fee-based services during 1996. Nineteen ninety-six will be a year of opportunity and challenge. Continuing consolidation in banking provides a great opportunity to further increase our market share in Oklahoma and build a stronger presence in Arkansas and Texas. Our growth and profitability from these opportunities will be offset to some degree by several changes in expenses, including loan loss provision, deposit 1 insurance, taxes and mortgage servicing valuations. Loan growth over the past several years requires that we resume a provision for loan losses, in spite of high credit quality. During 1992-94, our acquisitions included approximately $740 million in thrift deposits. Federal legislation could assess banks which acquired thrift deposits as part of the restoration of reserves of the Savings Association Insurance Fund ("SAIF"). While the amount of any such "SAIF assessment" is highly conjectural, we could experience a charge during 1996 of some $5 million to $6 million, followed by a substantial reduction in ongoing expenses for deposit insurance. The sustained profitability we have experienced during the past several years has allowed us to exhaust the tax carryforwards accumulated during the 1980's and, as a result, we will now reflect a normal tax rate. Finally, the industry-wide adoption of an accounting standard which requires the recognition of servicing rights on certain originated mortgage loans also requires a quarterly assessment of the fair value of those rights in a manner which will increase earnings volatility. (Loans graph appears here. See appendix A, graph III.) Consumer Services (Commercial Loans graph appears here. See appendix A, graph IV.) In 1995, we introduced, with tremendous success, the 24-Hour ExpressBank. ExpressBank radically changed our telephone customer service unit into a 24-hour a day, 365 days a year sales center, offering the full range of deposit and loan services at the total control of the customer--making "bankers' hours" a phrase of the past for our customers. In 1996, we will further enhance convenience by introducing home-based personal computer banking. In 1995, we opened several additional offices in our Oklahoma consumer division. We also opened a fourth location in northwest Arkansas, enhancing our ability to deliver a full range of sophisticated banking services through a community banking presence in that market. We now have a network of 10 supermarket branches, bringing unrivaled convenience to our customers at a lower cost to us than through traditional freestanding branches. In1996, we plan to open one freestanding branch and three supermarket branches, and will continue to consolidate offices whose markets overlap. (Real Estate Loans graph appears here. See appendix A, graph V.) Community Banking The growth of our Community banking effort has been dramatic. This division's average loans for 1995 were up 20.1 percent, to a year-end high of $254 million. Our objective of delivering "large bank services with a community bank feel" is not an advertising phrase--it is a reality, and is paying dividends. We have been particularly impressed with our success in northwest Arkansas, where Citizens Bank, acquired in late 1994, is showing growth and is opening a dynamic market to us. 2 Specialty Lending Expertise We continue to build on our strategy of penetrating the Dallas middle- market energy business. Our loan commitments in this market doubled and now exceed $60 million. We anticipate additional growth in north Texas as additional independent oil and gas producers see the advantages of dealing with a responsive, knowledgeable and committed energy bank. Additionally, we started adding higher return business in a new subsidiary, BOK Capital Services, which is involved in mezzanine finance and "niche" equipment leasing. Financing commitments in this entity now total $25 million and we expect continued growth as we seek attractive opportunities. (Operating Revenue graph appears here. See appendix A, graph VI.) Board of Directors One of our consistent objectives has been to have the highest quality representation on our Board. In that vein, we were delighted to welcome several additions to our Board during 1995. FRANK A. MCPHERSON, Chairman of the Board and Chief Executive Officer of Kerr-McGee Corp., joined us in July, adding to our strong representation from the Oklahoma City area. NANCY J. DAVIES, a prominent community leader from Enid and a person who has distinguished herself by her contributions to higher education throughout Oklahoma, joined our Board in September. RALPH S. CUNNINGHAM, President and Chief Executive Officer of Citgo Petroleum Corp., joined the Board in October. Shortly after the end of 1995, W. WAYNE ALLEN, Chief Executive Officer of Phillips Petroleum, rejoined Bank of Oklahoma after completing his service on the Board of the Federal Reserve Bank of Kansas City, a position that required his resignation from our Board in December 1992. With these additions, we have further strengthened a Board of Directors which is clearly the strongest in the state. We are proud to include within our ranks the chief executive officers from Oklahoma's five largest companies, two of its major utilities, a number of highly successful entrepreneurs from a variety of industries, and prominent leaders in social, civic and community activities. 3 As Oklahoma's largest home-owned and operated bank, we will continue our mission to fuel the growth of our state's economy and improve the economic well- being of our citizens. As always. We welcome your comments and your suggestions. George B. Kaiser Stanley A. Lybarger Wayne D. Stone Chairman of the Board President and Chief President, Executive Officer Oklahoma City
Personal Note from George Kaiser Soon after my initial involvement in the management of Bank of Oklahoma, I determined that our President, Stan Lybarger, was eminently qualified to serve as CEO. He has the combination of strategic vision and "nuts and bolts" attention to detail that have allowed us to improve our market position and profitability over the past five years. Accordingly, during 1995, the Board of Directors asked Stan to assume the role of CEO as of January 1, 1996. As Board Chairman, I will continue to be actively involved in the Company, working with the Board and Stan in developing and applying our business strategies. 4
Table 1 Consolidated Selected Financial Data (Dollars In Thousands Except Share Data) BOK FINANCIAL BOk -------------------------------------------------------------------- ------------ Inception Jan.1-June 6 1995 1994 1993/2/ 1992/2/ through 1991 1991/1/,/2/ -------------------------------------------------------------------- ------------ SELECTED FINANCIAL DATA For the year: Interest revenue $ 275,441 $ 223,058 $ 181,354 $ 155,745 $ 106,121 $ 56,652 Interest expense 160,177 104,055 74,586 67,003 57,439 34,358 Net interest revenue 115,264 119,003 106,768 88,742 48,682 22,294 Provision for loan losses 231 195 3,376 5,555 4,005 1,500 Income before extraordinary item and cumulative effect of change in accounting principle 49,205 45,065 37,902 29,786 11,494 2,870 Net income 49,205 45,065 39,472 29,786 11,494 4,391 Period-end: Loans, net of reserve 2,156,081 1,805,782 1,641,294 1,445,144 1,207,759 Assets 4,221,918 3,898,276 3,129,041 2,965,331 2,372,360 Deposits 2,937,709 2,629,574 2,610,927 2,588,570 2,054,172 Subordinated debenture - 23,000 23,000 23,000 - Shareholders' equity 301,565 236,902 213,943 163,636 127,886 Nonperforming assets 42,066 31,881 23,452 37,600 49,866 PROFITABILITY STATISTICS Per share (based on average equivalent shares): Primary earnings: Income before cumulative effect of change in accounting for income taxes $ 2.33 $ 2.12 $ 1.80 $ 1.51 $ .99 Net income 2.33 2.12 1.88 1.51 .99 Fully diluted earnings: Income before cumulative effect of change in accounting for income taxes 2.12 1.93 1.63 1.33 .88 Net income 2.12 1.93 1.70 1.33 .88 Percentages (based on daily averages): Return on average assets/4/ 1.22% 1.27% 1.27% 1.29% .86% Return on average shareholders' equity/4/ 18.07 19.92 20.07 20.76 15.82 Average shareholders' equity to average assets 6.77 6.37 6.31 6.21 5.41 COMMON STOCK PERFORMANCE AND EXISTING SHAREHOLDER STATISTICS Per Share: Book value: Common shareholders' equity $ 14.02 $ 10.93 $ 9.60 $ 7.36 $ 5.67 Market price: December 31 Bid 19.50 20.00 24.75 21.50 13.00 Market range - High bid 23.50 25.00 25.50 21.50 18.75 - Low bid 18.50 19.00 17.50 8.00 6.25 Other statistics: Common shareholders at December 31 1,676 1,748 1,924 2,077 1,919 SELECTED BALANCE SHEET STATISTICS Period-end: Tier 1 capital ratio 9.91% 9.14% 9.07% 8.14% 8.02% Total capital ratio 11.17 11.19 11.49 10.73 9.46 Leverage ratio 6.55 5.64 5.76 5.84 5.33 Reserve for loan losses to nonperforming loans 99.02 137.76 233.92 132.76 107.76 Reserve for loan losses to loans/3/ 1.80 2.12 2.50 2.50 3.23 MISCELLANEOUS (AT DECEMBER 31) Number of employees (FTE) 1,842 1,801 1,741 1,557 1,426 Number of banking locations 66 63 55 54 34 Number of TransFund locations 549 520 614 495 465 Mortgage loan servicing portfolio $5,363,175 $5,080,859 $3,483,993 $2,125,071 $1,916,981 - ------------------------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK Financial. /2/ Restated for poolings-of-interests which occurred in 1994 and 1993. /3/ Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. /4/ Excludes the cumulative effect of change in accounting for income taxes in 1993. 5 Management's Assessment of Operations and Financial Condition BOK Financial Corporation ("BOK Financial") is a bank holding company which offers full service banking in Oklahoma and Northwest Arkansas and trust services in North Texas. BOK Financial's principal subsidiaries are Bank of Oklahoma, N.A. ("BOk") and Citizens Bank of Northwest Arkansas, N.A. ("CBNWA"). Statement of Earnings Analysis Summary of Performance BOK Financial recorded net income of $49.2 million for 1995 compared to $45.1 million for 1994. Fully diluted earnings per common share were $2.12 for 1995 and $1.93 for 1994. Returns on average assets and average equity were 1.22% and 18.07%, respectively, for 1995 compared to 1.27% and 19.92%, respectively, for 1994. The increase in net income for 1995 was due to a $16.8 million increase in other operating revenue, partially offset by a $8.7 million increase in operating expenses. Additionally, net interest revenue decreased $3.7 million from 1994. Net income for the fourth quarter of 1995 was $12.7 million or $0.54 per fully diluted common share compared to $11.7 million or $0.50 per fully diluted common share for the same quarter in 1994. The primary sources of increased quarterly earnings are consistent with the full year: increased other operating revenue partially offset by increased operating expenses and decreased net interest revenue. BOK Financial's net income for 1993 was $39.5 million. In 1993, returns on average assets and average equity were 1.27% and 20.07%, respectively, and fully diluted earnings per share were $1.63, excluding the cumulative effect of a change in accounting for income taxes. Net Interest Revenue Net interest revenue, on a tax-equivalent basis, totaled $122.3 million in 1995 compared to $125.1 million in 1994. This reduction in net interest revenue was due to a decreased net interest margin partially offset by increased average earning assets. Increased market interest rates, which affect BOK Financial's interest expense more quickly than its interest revenue, caused a $14.6 million decrease in 1995's net interest revenue. Average earning assets increased $426 million, with loans having increased $294 million and securities having increased $159 million. This increase in earning assets was funded principally by $302 million increase in borrowed funds. The net effect of this increase in average earning assets was additional net interest revenue of $11.8 million. The effects of the changes in principal volumes and interest rates on net interest revenue by asset and liability type are presented in Table 2 on the following page. 6
Table 2 Volume/Rate Analysis (In Thousands) 1995/1994 1994/1993 ---------------------------------------- -------------------------------- Change Due To/1/ Change Due To/1/ ------------------------- ------------------------ Change Volume Yield/Rate Change Volume Yield/Rate ---------------------------------------- -------------------------------- Tax-equivalent interest revenue: Securities $13,663 $ 9,907 $ 3,756 $23,157 $22,077 $ 1,080 Trading securities 16 (10) 26 (17) (39) 22 Loans 40,637 24,922 15,715 21,330 12,847 8,483 Funds sold (1,012) (1,413) 401 215 (299) 514 - ------------------------------------------------------------------------------------------------------------------------------------ Total 53,304 33,406 19,898 44,685 34,586 10,099 - ------------------------------------------------------------------------------------------------------------------------------------ Interest expense: Transaction deposits 1,197 (151) 1,348 831 1,023 (192) Money market deposits 2,017 (1,485) 3,502 (20) (663) 643 Savings deposits (565) (383) (182) 287 247 40 Time deposits 23,949 7,809 16,140 4,799 382 4,417 Borrowed funds 30,552 16,842 13,710 23,572 17,591 5,981 Subordinated debenture (1,028) (1,038) 10 - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total 56,122 21,594 34,528 29,469 18,580 10,889 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-equivalent net interest revenue (2,818) $11,812 $(14,630) 15,216 $16,006 $ (790) Change in tax-equivalent adjustment (921) 2,981 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest revenue $(3,739) $12,235 - ------------------------------------------------------------------------------------------------------------------------------------ 4th Qtr 1995/4th Qtr 1994 ------------------------------------------- Change Due To/1/ --------------------------- Change Volume Yield/Rate ------------------------------------------- Tax-equivalent interest revenue: Securities $ 161 $ 263 $ (102) Trading securities 35 2 33 Loans 8,983 6,920 2,063 Funds sold 9 (4) 13 - ----------------------------------------------------------------------------------------------------- Total 9,188 7,181 2,007 - ----------------------------------------------------------------------------------------------------- Interest expense: Transaction deposits 87 (103) 190 Money market deposits 608 (173) 781 Savings deposits (288) (190) (98) Time deposits 6,463 3,383 3,080 Borrowed funds 2,683 1,621 1,062 Subordinated debenture (346) (346) - - ----------------------------------------------------------------------------------------------------- Total 9,207 4,192 5,015 - ----------------------------------------------------------------------------------------------------- Tax-equivalent net interest revenue (19) $ 2,989 $ (3,008) Change in tax-equivalent adjustment 17 - ----------------------------------------------------------------------------------------------------- Net interest revenue $ (2) - -----------------------------------------------------------------------------------------------------
/1/ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis. Net interest margin, the ratio of net interest revenue to average earning assets, decreased from 3.94% in 1994 to 3.39% in 1995. This decrease was due primarily to the repricing of interest-bearing liabilities, deposits and borrowed funds, to higher rates which prevailed throughout 1995. BOK Financial's interest-bearing liabilities react to changes in interest rates more quickly than its earning assets. In periods of rising interest rates, net interest margin and ultimately net interest revenue may decline. Periods of falling interest rates may have the opposite effect. Management employs various strategies to control this interest rate risk. These strategies are discussed more fully in the subsequent section "Interest Rate Sensitivity and Liquidity". Tax equivalent net interest revenue for the fourth quarter of 1995 was $31.2 million, unchanged from the fourth quarter of 1994. The increase in interest revenue, due to increased average earning assets, was offset by an increase in interest expense due to higher interest rates paid on average interest-bearing liabilities. Net interest revenue on a tax-equivalent basis for 1994 increased $15.2 million from 1993's total of $109.9 million. This increase was due to a $517 million increase in average earning assets. During 1994, management initiated a strategy to more fully utilize BOK Financial's capital by borrowing funds to purchase securities. 7 Other Operating Revenue Other operating revenue, which consists primarily of fee income on products and services, increased $12.5 million or 16.4%, excluding securities gains and losses and a $1.2 million gain on the sale of one branch in 1995. Service fees on deposits were $21.2 million for 1995, a $454 thousand or 2.2% increase over 1994. Competitive pressures have restricted the ability to increase these fees. However, fees generated by the TransFund ATM network and bankcards increased $986 thousand or 16.3% and $708 thousand or 29.1%, respectively, due to a higher volume of activity in 1995. Other operating revenue for the fourth quarter of 1995 was $24.0 million compared to $20.1 million in 1994. The increase was due primarily to an increase in mortgage banking revenue and trust fees.
Table 3 Other Operating Revenue (In Thousands) BOK FINANCIAL BOk ----------------------------------------------------------- --------------- Inception Jan.1-June 6 1995 1994 1993 1992/2/ through 1991/1/ 1991 ----------------------------------------------------------- --------------- Brokerage and trading revenue $ 6,046 $ 5,517 $ 7,107 $ 3,827 $ 1,171 $ 415 TransFund network revenue 7,025 6,039 5,811 5,163 2,963 2,025 Securities gains (losses), net 1,174 (1,868) 1,896 136 685 114 Trust fees and commissions 19,363 17,117 16,824 15,007 7,672 5,896 Service charges and fees on deposit accounts 21,152 20,698 20,825 17,704 9,467 4,984 Mortgage banking revenue 20,336 15,868 12,564 11,895 6,458 1,728 Other revenue 16,050 10,993 11,583 9,511 5,794 3,226 - --------------------------------------------------------------------------------------------------------------------------------- Total $91,146 $74,364 $76,610 $63,243 $34,210 $18,388 - ---------------------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK Financial. Other operating revenue totaled $74.4 million in 1994 compared to $76.6 million in 1993. Excluding gains and losses on securities transactions, other operating revenue increased $1.5 million or 2.0% due primarily to increased mortgage banking revenue, partially offset by lower brokerage and trading revenue. The increase in mortgage banking revenue was due to increased loan servicing while the decrease in brokerage and trading revenue was due to concerns over interest rates and higher loan demand among the traditional users of these products limiting activities during 1994. 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 BOK Financial's industry segment, commercial banking, 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 below. Trust BOK Financial provides a wide range of trust services through its subsidiaries, BancOklahoma Trust Company in Oklahoma and Alliance Trust Company, N.A. in Texas. At December 31, 1995, trust assets with an aggregate market value of approximately $7.6 billion were subject to various fiduciary arrangements, compared to $6.0 billion at December 31, 1994. Approximately $1.0 billion of this increase was due to new business, while the remainder was due primarily to market value increases. A summary of both direct and internally allocated revenues and expenses from trust operations are (in thousands):
1995 1994 1993 ----------------------------- Total revenue $21,723 $18,609 $18,044 Personnel expense 8,930 7,936 7,666 Other expense 5,325 4,332 4,993 - ------------------------------------------------------- Total expense 14,255 12,268 12,659 - ------------------------------------------------------- Operating profit $ 7,468 $ 6,341 $ 5,385 - -------------------------------------------------------
8 Mortgage Banking Activities BOK Financial engages in mortgage banking activities through its subsidiary, BancOklahoma Mortgage Corp. ("BOMC"). 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 included net losses of $1.5 million in 1995 compared to net losses of $2.4 million in 1994. The decrease in net losses is primarily due to the adoption of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"). FAS 122 requires that the fair value of servicing rights related to loans originated for sale in the secondary market be capitalized as a separate asset. Previously, only purchased mortgage loan servicing rights could be capitalized. Excluding the effect of FAS 122, net losses on originating and marketing activities increased due to continued competitive pressures on loan pricing and fees. Total mortgage loan production for 1995 was $533 million compared to $517 million in 1994. Commitments to originate mortgage loans subject BOK Financial to both credit risk and interest rate risk. Credit risk is managed through underwriting policies and procedures, and interest rate risk is partially hedged through forward sales contracts. Consolidated mortgage loan servicing revenue for 1995 was $21.9 million, a $3.6 million or 20.0% increase over 1994. This increase was the result of a full year's fees on servicing rights purchased during 1994. BOMC owned the rights to service mortgage loans totaling $5.4 billion at December 31, 1995, including $253 million serviced for BOk, compared to $5.1 billion at December 31, 1994. In addition to the capitalization of servicing rights on originated mortgage loans, FAS 122 requires that a valuation allowance be provided for the difference between the amortized historical cost and fair value of all capitalized mortgage servicing rights stratified by predominant risk characteristics. BOK Financial's policy prior to the adoption of FAS 122 was to directly write down capitalized mortgage loan servicing rights whenever the undiscounted amount of net cash flows was less than the total amortized historical cost on a portfolio basis. The adoption of FAS 122 will result in more volatile earnings as the fair value of mortgage servicing rights react to changes in interest rates. A summary of both direct and internally allocated revenue and expenses from mortgage banking activities are (in thousands):
1995 1994 1993 ------------------------------- Servicing revenue $21,452 $17,473 $10,442 Origination and secondary marketing revenue, net 1,251 863 6,777 Other revenue 2,813 2,369 2,399 - ----------------------------------------------------------------------- Total revenue 25,516 20,705 19,618 - ----------------------------------------------------------------------- Personnel expense 4,148 3,498 3,085 Amortization of mortgage servicing rights 8,667 7,468 5,755 Other expense 11,184 8,929/1/ 6,099 - ----------------------------------------------------------------------- Total expense 23,999 19,895 14,939 - ----------------------------------------------------------------------- Operating profit $ 1,517 $ 810 $ 4,679 - -----------------------------------------------------------------------
/1/ Excludes charges of $5.2 million for losses on certain purchased mortgage loans. See Other Operating Expense discussion. Other Operating Expense Other operating expense totaled $142.2 million for 1995 compared to $133.5 million for 1994, an increase of $8.7 million or 6.5%. Operating expense for 1994 included a $5.2 million loss on certain mortgage loans purchased from Lenders Mortgage Services, Inc. ("Lenders"). Excluding this loss and net gains on sales of repossessed assets, operating expenses increased $12.5 million or 9.4%. Personnel expense increased $4.2 million or 6.6% compared to 1994 due to higher compensation costs. Approximately $747 thousand of this increase was due to personnel expense at banks purchased in 1994 and $704 thousand was due to higher incentive compensation which varies with revenue produced. The remainder of the increase was primarily due to additional staffing in support of expanded products and services. 9 Net occupancy, equipment and data processing expense for 1995 increased $3.7 million or 15.7% compared to 1994. Data processing expenses increased $1.8 million due to a higher volume of transactions processed while occupancy and equipment expenses increased due to a full year's expenses on 1994 acquisitions and a full year's depreciation on investments in upgraded technology. Mortgage banking costs increased $1.8 million or 16.4% compared to 1994 due primarily to a $1.1 million increase in the amortization of capitalized mortgage servicing rights. Additionally, expenses related to the servicing of government guaranteed loans increased $863 thousand. FDIC and other insurance decreased $2.0 million or 31.0% compared to 1994 due to a lowering of premiums on deposit insurance from 23 basis points (.23% of deposits) in 1994 to 3 basis points in mid-1995. These premiums are applicable to deposits insured by the FDIC's Bank Insurance Fund. At December 31, 1995, BOKF had deposits totaling $739 million which are insured by the FDIC's Savings Association Insurance Fund ("SAIF"). These deposits represent earlier acquisitions of thrift deposits. Premiums on SAIF insured deposits remained at 23 basis points for 1995. Legislation is pending in Congress which will require banks and savings associations to pay a one-time assessment on all SAIF-insured deposits. Estimates of the cost of this assessment range from 66 basis points to 90 basis points. The ultimate amount and timing of this assessment is subject to the Federal budget reconciliation process. Management will accrue for any resulting assessment once it becomes reasonably estimable.
Table 4 Other Operating Expense (In Thousands) BOK FINANCIAL BOk ---------------------------------------------------------------------------------------- --------------- Inception Jan.1-June 6 1995 1994 1993 1992 through 1991/1/ 1991 ---------------------------------------------------------------------------------------- --------------- Personnel expense $ 67,298 $ 63,111 $ 60,891 $ 51,053 $28,865 $16,099 Business promotion 6,039 6,213 5,535 3,584 2,596 1,152 Professional fees and services 5,898 4,664 5,385 3,657 3,166 2,009 Net occupancy, equipment and data processing expense 27,324 23,619 25,161 19,248 11,728 7,081 FDIC and other insurance 4,406 6,386 6,171 5,313 3,060 1,926 Printing, postage and supplies 6,340 5,415 4,876 4,678 2,904 1,398 Net (gains) losses and operating expenses on repossessed assets (3,098) (4,575) (2,792) (125) 1,512 1,418 Amortization of intangible assets 5,992 5,597 4,133 2,840 544 218 Mortgage banking costs 12,529 10,764 7,590 6,142 2,058 719 Other expense 9,478 12,281 8,911 8,892 4,822 2,664 - ------------------------------------------------------------------------------------------------------------------------------------ Total $142,206 $133,475 $125,861 $105,282 $61,255 $34,684 - ------------------------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK Financial. Other operating expense for the fourth quarter of 1995 totaled $36.9 million, compared to $35.0 million in the fourth quarter of 1994. This increase is due to the same factors which caused the full year increase in other operating expenses, higher personnel and occupancy, equipment and data processing expenses, partially offset by lower FDIC insurance expense. The efficiency ratio, the ratio of other operating expenses, including net gains on real estate sales, to tax-equivalent net interest revenue and other operating revenue, excluding securities gains and losses, increased to 68.5% during 1995 compared to 66.0% in 1994. This increase reflects the decline in net interest revenue during 1995 and the growth in operating expenses in support of new or expanded operating revenue sources. Management expects the efficiency ratio to improve in 1996 due to improvements in both net interest revenue and other operating revenue and due to containment of the increase in operating expenses. Other operating expenses for 1994 increased $7.6 million from 1993 due primarily to a $5.2 million loss on the lenders mortgage loans and higher costs associated with 1994 and 1993 acquisitions of other financial institutions and mortgage loan servicing rights. 10 Income Taxes Income tax expense was $14.8 million, $14.6 million and $16.2 million for 1995, 1994 and 1993, respectively, representing 23%, 25% and 30%, respectively, of estimated book taxable income. Tax expense currently payable totaled $17.0 million in 1995, compared to $13.7 million in 1994 and $13.1 million in 1993. The difference between tax expense currently payable and total tax expense represents taxes which may not be paid until future periods. The decrease in income tax expense as a percent of estimated book taxable income reflects the recognition of certain deferred tax assets which previously had been limited. Management expects to recognize additional deferred tax assets in 1996 as limitations expire. See Note 10 to the Consolidated Financial Statements for a detailed discussion.
Table 5 Selected Quarterly Financial Data (In Thousands Except Per Share Data) FOURTH THIRD SECOND FIRST ------------------------------------------------- 1995 ------------------------------------------------- Interest revenue $70,579 $69,686 $69,228 $ 65,948 Interest expense 41,132 40,631 40,869 37,545 - --------------------------------------------------------------------------------------------------------------- Net interest revenue 29,447 29,055 28,359 28,403 Provision for loan losses 176 15 40 - - --------------------------------------------------------------------------------------------------------------- Net interest revenue after provision 29,271 29,040 28,319 28,403 for loan losses Other operating revenue 23,951 22,237 21,631 22,153 Securities gains, net - 948 226 - Other operating expense 36,852 35,682 34,567 35,105 - --------------------------------------------------------------------------------------------------------------- Income before taxes 16,370 16,543 15,609 15,451 Income taxes 3,707 4,050 3,527 3,484 - --------------------------------------------------------------------------------------------------------------- Net income $12,663 $12,493 $12,082 $ 11,967 - --------------------------------------------------------------------------------------------------------------- Earnings Per Share: Primary $.60 $.59 $.57 $.57 - --------------------------------------------------------------------------------------------------------------- Fully Diluted .54 .54 .52 .52 - --------------------------------------------------------------------------------------------------------------- Average Shares: Primary 20,506 20,523 20,489 20,471 - --------------------------------------------------------------------------------------------------------------- Fully Diluted 23,237 23,255 23,228 23,205 - --------------------------------------------------------------------------------------------------------------- 1994 ------------------------------------------------- Interest revenue $61,374 $56,785 $54,516 $ 50,383 Interest expense 31,925 26,933 24,494 20,703 - --------------------------------------------------------------------------------------------------------------- Net interest revenue 29,449 29,852 30,022 29,680 Provision for loan losses 135 - 35 25 - --------------------------------------------------------------------------------------------------------------- Net interest revenue after provision 29,314 29,852 29,987 29,655 for loan losses Other operating revenue 20,072 18,952 17,767 19,441 Securities gains (losses), net - (104) (1,766) 2 Other operating expense 35,022 33,218 30,630 34,605 - --------------------------------------------------------------------------------------------------------------- Income before taxes 14,364 15,482 15,358 14,493 Income taxes 2,626 4,092 4,079 3,835 - --------------------------------------------------------------------------------------------------------------- Net income $11,738 $11,390 $11,279 $10,658 - --------------------------------------------------------------------------------------------------------------- Earnings Per Share: Primary $.55 $.54 $.53 $.50 - --------------------------------------------------------------------------------------------------------------- Fully Diluted .50 .49 .48 .46 - --------------------------------------------------------------------------------------------------------------- Average Shares: Primary 20,506 20,519 20,507 20,531 - --------------------------------------------------------------------------------------------------------------- Fully Diluted 23,238 23,244 23,239 23,263 - ---------------------------------------------------------------------------------------------------------------
11 BOK FINANCIAL CORPORATION Balance Sheet Analysis 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. Table 6 presents the book values and fair values of BOK financial's securities portfolio at December 31, 1995, 1994 and 1993. Additional information regarding the securities portfolio is presented in Note 4 to the Consolidated Financial Statements. The amortized cost of BOK Financial's total securities portfolio decreased $66 million during 1995. Increased loan demand and inadequate spreads between securities and funding sources with similar maturities precluded any significant additional securities investments. The interest rate environment which caused the previously discussed decrease in net interest revenue also caused the aggregate unrealized loss in BOK Financial's securities portfolio to decrease by $97 million. 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" ("FAS 115"), which affects the securities portfolio. This report permitted a one-time reclassification of securities. BOK Financial reclassified $789 million of mortgage-backed and municipal securities to available for sale in response to the more restrictive interpretations of FAS 115 included in this special report. Net gains on securities sales during 1995 were primarily the result of transactions in equity securities of another financial institution. These transactions were designed to take advantage of increased activity in this market segment.
Table 6 Securities (In Thousands) DECEMBER 31, 1995 1994 1993 --------------------------------------------------------------------- BOOK FAIR Book Fair Book Fair VALUE VALUE Value Value Value Value --------------------------------------------------------------------- Investment: U.S. Treasury $ 716 $ 721 $ 1,224 $ 1,211 $ 10,898 $ 11,110 Municipal and other tax-exempt 95,907 97,628 244,411 231,338 151,749 152,635 Mortgage-backed securities: U.S. agencies 78,832 79,777 694,086 637,586 308,338 309,668 Other - - 9,825 9,625 26,891 26,672 - ---------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 78,832 79,777 703,911 647,211 335,229 336,340 - ---------------------------------------------------------------------------------------------------------- Other debt securities 3,666 3,660 7,781 7,451 9,752 9,815 Equity securities and mutual funds - - - - 12 12 - ---------------------------------------------------------------------------------------------------------- Total $ 179,121 $ 181,786 $957,327 $887,211 $507,640 $509,912 - ---------------------------------------------------------------------------------------------------------- AMORTIZED FAIR Amortized Fair Amortized Fair COST VALUE Cost Value Cost Value --------------------------------------------------------------------- Available for sale: U.S. Treasury $ 221,201 $ 222,478 $261,544 $255,347 $236,526 $239,452 Municipal and other tax-exempt 165,709 166,855 - - 5,609 5,959 Mortgage-backed securities: U.S. agencies 941,020 934,433 374,078 352,169 179,366 179,678 Other 8,154 8,011 - - - - - ---------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 949,174 942,444 374,078 352,169 179,366 179,678 - ---------------------------------------------------------------------------------------------------------- Other debt securities 250 98 - - - - Equity securities and mutual funds 34,145 34,786 22,726 22,726 16,306 16,306 - ---------------------------------------------------------------------------------------------------------- Total $1,370,479 $1,366,661 $658,348 $630,242 $437,807 $441,395 - ----------------------------------------------------------------------------------------------------------
12 Loans During 1995, loans increased $350 million or 19%, continuing an upward trend in loan volumes which began in the second quarter of 1991. This increase was the result of continued strength in the Oklahoma economy and management's efforts to capitalize on this strength. Commercial real estate loans increased $128 million or 27%, and commercial loans increased $115 million or 15%. The composition of the loan portfolio remained relatively constant during 1995 as the year's growth was distributed across most segments of the portfolio. Commercial loans totaled $861 million or 39% of the portfolio, compared to 40% in 1994. Commercial real estate loans totaled $599 million or 27% at December 31, 1995. Substantially all of the commercial and consumer loans, and approximately 74% of the residential mortgage loans (excluding loans held for sale), are to businesses and individuals in Oklahoma or Northwest Arkansas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Notable segments within the commercial loan portfolio are presented in Table 7. Commercial real estate loans are secured primarily by properties located in the Tulsa or Oklahoma City, Oklahoma metropolitan areas. The major portions of these properties are multifamily residences, $139 million; retail facilities, $65 million; office buildings, $43 million; hotels, $41 million; and medical/nursing facilities, $39 million.
Table 7 LOANS (In Thousands) DECEMBER 31, ---------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------------------------------------------------------------------- Commercial: Energy $ 159,887 $ 162,767 $ 161,273 $ 137,619 $ 103,679 Manufacturing 136,701 106,104 99,464 89,015 55,870 Wholesale/retail 143,941 95,021 81,207 88,537 84,037 Agriculture 86,733 82,527 69,315 61,186 62,204 Loans for purchasing or carrying 7,963 9,718 13,249 27,975 24,753 securities Other commercial and industrial 325,839 289,929 268,028 276,672 254,330 Commercial real estate: Construction and land development 148,217 106,692 93,310 81,022 107,016 Other real estate loans 450,385 363,600 293,122 292,768 228,116 Residential mortgage: Secured by 1-4 family residential 436,816 373,389 254,505 213,201 168,151 properties Residential mortgages held for sale 72,412 40,909 189,786 78,970 60,438 Consumer 225,474 213,397 155,296 133,279 97,516 - --------------------------------------------------------------------------------------------------------------------- Total $2,194,368 $1,844,053 $1,678,555 $1,480,244 $1,246,110 - ---------------------------------------------------------------------------------------------------------------------
13 BOK FINANCIAL CORPORATION 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 creditworthiness 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, 1995, loans totaling $42 million were assigned to the substandard risk category, and loans totaling $40 million were assigned to the special mention category. These are compared to $36 million and $55 million, respectively, at December 31, 1994.
Table 8 Loan Maturity and Interest Rate Sensitivity on December 31, 1995 (In Thousands) Remaining Maturities of Selected Loans -------------------------------------------- Total Within 1 Year 1-5 Years After 5 Years ----------------------------------------------------------------- Loan maturity: Commercial $ 861,064 $478,581 $332,677 $ 49,806 Commercial real estate 598,602 88,295 371,026 139,281 - ----------------------------------------------------------------------------------------------------------------- Total $1,459,666 $566,876 $703,703 $189,087 - ----------------------------------------------------------------------------------------------------------------- Interest rate sensitivity for selected loans with: Predetermined interest rates $ 302,012 $ 51,863 $154,630 $ 95,519 Floating or adjustable interest rates 1,157,654 515,013 549,073 93,568 - ----------------------------------------------------------------------------------------------------------------- Total $1,459,666 $566,876 $703,703 $189,087 - -----------------------------------------------------------------------------------------------------------------
14 Summary of Loan Loss Experience The reserve for loan losses, which is available to absorb losses inherent in the loan portfolio, totaled $38 million at December 31, 1995 and 1994. The reserve was 1.80% and 2.12% of total loans, excluding loans held for sale, at December 31, 1995 and 1994, respectively. Losses on loans held for sale, principally residential mortgage loans accumulated for placement in securitized pools, are charged to earnings through adjustment in carrying value to the lower of cost or market value in accordance with accounting standards applicable to mortgage banking. Table 9 presents statistical information regarding the reserve for loan losses for the past five years.
Table 9 Summary of Loan Loss Experience (Dollars In Thousands) BOK Financial BOk ------------------------------------------------------------------------------- Inception January 1 - 1995 1994 1993 1992 through 1991/1/ June 6, 1991 ------------------------------------------------------------------------------- Beginning balance $38,271 $37,261 $35,100 $38,351 $ 2,162 $44,003 Loans charged-off: Commercial 753 1,112 4,089 6,174 1,218 2,404 Commercial real estate 171 227 1,195 4,223 3,245 2,994 Residential mortgage 190 553 548 495 427 2,077 Consumer 2,874 1,345 690 639 539 220 - ----------------------------------------------------------------------------------------------------------------------- Total 3,988 3,237 6,522 11,531 5,429 7,695 - ----------------------------------------------------------------------------------------------------------------------- Recoveries of loans previously charged-off: Commercial 1,579 1,366 2,204 616 563 2,203 Commercial real estate 987 972 828 823 271 150 Residential mortgage 373 157 151 175 22 67 Consumer 834 602 482 447 304 225 - ----------------------------------------------------------------------------------------------------------------------- Total 3,773 3,097 3,665 2,061 1,160 2,645 - ----------------------------------------------------------------------------------------------------------------------- Net loans charged-off 215 140 2,857 9,470 4,269 5,050 Provision for loan losses 231 195 3,376 5,555 4,005 1,500 Purchase accounting adjustment relating to change of control of BOk - - - - - (4,000) Additions due to acquisitions - 955 1,642 664 36,453 - - ----------------------------------------------------------------------------------------------------------------------- Ending balance $38,287 $38,271 $37,261 $35,100 $38,351 $36,453 - ----------------------------------------------------------------------------------------------------------------------- Reserve to loans outstanding at year-end/2/ 1.80% 2.12% 2.50% 2.50% 3.23% Net loan losses to average loans/3/ .01 .01 .18 .71 .86 Provision for loan losses to average loans/3/ .01 .01 .22 .41 .51 Charge-off coverage/3,4/ 229.93X 323.29x 15.00x 3.74x 2.30x Recoveries to gross charge-offs/3/ 94.61% 95.68% 56.19% 17.87% 28.99% Reserve as a multiple of net charge-offs/3/ 178.08X 273.36x 13.04x 3.71x 4.12x - ----------------------------------------------------------------------------------------------------------------------- PROBLEM LOANS - ----------------------------------------------------------------------------------------------------------------------- Loans past due (90 days) $ 9,379 $ 7,667 $ 5,482 $ 1,379 $ 1,802 Nonaccrual 29,288 20,114 9,124 23,611 31,886 Renegotiated - - 1,323 1,448 1,901 - ----------------------------------------------------------------------------------------------------------------------- Total $38,667 $27,781 $15,929 $26,438 $35,589 - ----------------------------------------------------------------------------------------------------------------------- Foregone interest on nonaccrual loans $ 2,928 $ 1,392 $ 1,238 $ 2,163 $ 1,797 $ 1,378 - -----------------------------------------------------------------------------------------------------------------------
/1/ Includes the accounts of BOk for seven months since its acquisition by BOK Financial. /2/ Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. /3/ For 1991, combines the Jan. 1 - June 6 period with the June 7 - Dec. 31 period. /4/ Net income plus provision for loan losses as a multiple of net charge-offs. 15 BOK FINANCIAL CORPORATION 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 $0.2 million for 1995 and 1994, and $3.4 million for 1993. Management believes that the reserve for loan losses was adequate for each period presented based upon all relevant factors. It is expected that continued growth in the loan portfolio and moderation of economic activity will require an increase in the reserve for loan losses during 1996. Table 10 presents management's allocation of the year-end reserve for loan losses for the past five years. The changes in the various allocations reflect the changing composition of the loan portfolio and the changing economic environment in BOK Financial's market area. In addition to reserves allocated to specific loans or categories of loans, reserves are maintained for other relevant factors such as national and local economic conditions and the nature and volume of the loan portfolio.
Table 10 Loan Loss Reserve Allocation (Dollars in Thousands) December 31, ----------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------------------------------- % OF % of % of % of % of RESERVE LOANS Reserve Loans/1/ Reserve Loans/1/ Reserve Loans/1/ Reserve Loans/1/ ----------------------------------------------------------------------------------------------------- Loan Category: Commercial $25,646 40.58 $23,633 41.38 $20,344 46.52 $19,784 48.60 $14,277 49.33 Commercial real estate 3,774 28.21 2,524 26.08 2,755 25.96 5,876 26.68 8,009 28.27 Residential mortgage 638 20.59 556 20.71 620 17.09 352 15.21 803 14.18 Consumer 2,556 10.62 3,436 11.83 1,795 10.43 892 9.51 354 8.22 Nonspecific allocation 5,673 - 8,122 - 11,747 - 8,196 - 14,908 - - ------------------------------------------------------------------------------------------------------------------------------------ Total $38,287 100.0 $38,271 100.00 $37,261 100.00 $35,100 100.00 $38,351 100.00 - ------------------------------------------------------------------------------------------------------------------------------------
/1/ Excludes residential mortgage loans held for sale which are carried at the lower of aggregate cost or market value. 16 Nonperforming Assets Nonperforming assets increased to $42 million at December 31, 1995 compared to $32 million at December 31, 1994. The increase is due in part to loans of approximately $3 million to one borrower being classified as nonaccruing. Although this borrower continues to make periodic payments, management has classified these loans as nonaccruing due to the borrower's continued operating losses and uncertain cash flow projections. Additionally, a nonperforming note was purchased during the year for $4 million. Management believes that this note is well secured by real property and other assets and will ultimately result in a recovery. However, this note will be classified as nonaccruing until any recovery is realized. Information regarding nonperforming assets is presented in Table 11. Nonperforming loans include nonaccrual loans, loans 90 days or more past due and renegotiated loans. Loans 90 days or more past due at December 31, 1995 included $6.8 million of residential mortgage loans guaranteed by agencies of the U.S. Government. These loans were purchased from various investors to minimize operating costs. The reserve for loan losses as a percent of nonperforming loans decreased to 99% at December 31, 1995, compared to 138% at December 31, 1994 and 234% at December 31, 1993, due to the increase in nonperforming assets previously discussed. See Note 1 to the Consolidated Financial Statements for additional information.
Table 11 Nonperforming Assets (Dollars in Thousands) DECEMBER 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 -------------------------------------------------------------- Nonperforming loans Nonaccrual loans: Commercial $14,646 $11,238 $ 2,383 $10,677 $11,822 Commercial real estate 10,621 5,273 4,854 10,209 17,595 Residential mortgage 2,794 2,916 1,788 2,391 1,956 Consumer 1,227 687 99 334 513 - ------------------------------------------------------------------------------------------------------ Total nonaccrual loans 29,288 20,114 9,124 23,611 31,886 Loans past due (90 days)/1/ 9,379 7,667 5,482 1,379 1,802 Renegotiated loans - - 1,323 1,448 1,901 - ------------------------------------------------------------------------------------------------------ Total nonperforming loans 38,667 27,781 15,929 26,438 35,589 - ------------------------------------------------------------------------------------------------------ Other nonperforming assets: Commercial real estate 3,023 3,245 5,915 8,086 11,903 Other 376 855 1,608 3,076 2,374 - ------------------------------------------------------------------------------------------------------ Total other nonperforming assets 3,399 4,100 7,523 11,162 14,277 - ------------------------------------------------------------------------------------------------------ Total nonperforming assets $42,066 $31,881 $23,452 $37,600 $49,866 - ------------------------------------------------------------------------------------------------------ Ratios: Reserve for loan losses to nonperforming loans 99.02% 137.76% 233.92% 132.76% 107.76% Nonperforming loans to period-end loans/2/ 1.82 1.54 1.07 1.89 3.00 - ------------------------------------------------------------------------------------------------------ /1/ Includes residential mortgages guaranteed by agencies of the U.S. Government. $ 6,754 $ 6,549 $ 3,546 - - /2/ Excludes residential mortgage loans held for sale.
17 BOK FINANCIAL CORPORATION Funding Deposits Deposits represent the primary source of funds which support BOK financial's earning assets. Average deposits for 1995 increased $128 million or 5% from 1994. Year-end deposits increased $308 million or 12% from the previous year-end. This increase in year-end deposits was primarily due to certificates of deposit and public funds of $100 thousand or more which increased $213 million across all maturity ranges. Additionally, smaller denomination certificates of deposits and demand deposit accounts increased $89 million and $28 million, respectively. Table 12 Maturity of Domestic CDs and Public Funds in Amounts of $100,000 or More (In Thousands)
December 31, -------------------------------------------------------- 1995 1994 -------------------------------------------------------- Months to maturity: 3 or less $171,763 $113,436 Over 3 through 6 210,495 96,638 Over 6 through 12 56,397 32,004 Over 12 47,531 31,173 - ------------------------------------------------------------------------------------------- Total $486,186 $273,251 - -------------------------------------------------------------------------------------------
Borrowings Borrowings decreased $50 million during 1995, including the redemption of a $23 million subordinated debenture, and represented 22% of total fundings at December 31, 1995 compared to 26% at December 31, 1994. The decrease in borrowings was offset by growth in deposits and capital. See Note 9 to the Consolidated Financial Statements for additional information. Capital Equity capital of BOK Financial was $302 million and $237 million at December 31, 1995 and 1994, respectively. The $65 million increase resulted primarily from 1995 earnings and a decrease in unrealized losses on available for sale securities. Financial institutions are considered to be "well capitalized" pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 if their Leverage, Tier 1 and Total Capital ratios are at least 5%, 6% and 10%, respectively. As shown in Table 13, BOK Financial's capital ratios exceed the regulatory definition of well capitalized. The capital ratios for BOk and CBNWA are substantially the same as BOK Financial's ratios. As defined by regulations, Tier 1 capital consists primarily of common shareholders' 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. Table 13 Capital Ratios
December 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 -------------------------------------------------------------- Average shareholders' equity to average assets 6.77% 6.37% 6.31% 6.21% 5.41% Risk-based capital: Tier 1 capital 9.91 9.14 9.07 8.14 8.02 Total capital 11.17 11.19 11.49 10.73 9.46 Leverage 6.55 5.64 5.76 5.84 5.33 - ------------------------------------------------------------------------------------------------------
18 Interest Rate Sensitivity and Liquidity BOK Financial's asset/liability management policy addresses several complementary goals: assuring adequate liquidity, maintaining an appropriate balance between interest sensititve assets and liabilities, and maximizing net interest revenue. The responsibility for attaining these goals rests with the Asset/Liability Committee. Interest rate sensitivity, the risk associated with changes in interest rates, is of primary importance within the banking industry. Management has established strategies and procedures to protect net interest revenue against significant changes in interest rates. Generally, these strategies are designed to achieve an acceptable level of net interest revenue based upon management's projections of future changes in interest rates. Table 14 presents the interest rate sensitivity of earning assets and interest-bearing liabilities at December 31, 1995. This table indicates that changes in interest rates will have a greater impact on earning assets than on interest-bearing liabilities in the first 30 days after the change, then for the remainder of the year, a greater impact on interest-bearing liabilities than on earning assets. However, assets and liabilities with similar contractual repricing characteristics may not reprice at the same time or to the same degree. As a result, the interest rate sensitivity gap analysis is not necessary the best indicator of the impact of changes in interest rates on net interest revenue. Management simulates the potential effect of changes in interest rates through computer modeling which incorporates both the current gap position and the expected magnitude of the repricing of specific types of assets and liabilities. This modeling is performed assuming expected interest rates over the next twelve months based on both a "most likely" rate scenario and a "shock test" rate scenario assuming a 200 basis point increase over the next twelve months. An independent source is used to determine the most likely interest rates for the next year. At December 31, 1995, this modeling indicated that under the most likely interest rate forecast for 1996, anticipated growth in net interest revenue would be limited to 3% for 1995 net interest revenue and under the shock test scenario, net interest revenue would decline 1% to 2%. In addition to simulation modeling of the effects of changes in interest rates on BOK Financial's projected net interest revenue, management models the interest rate sensitivity of the securities portfolio. This modeling indicated that the fair value of the available for sale securities portfolio, less deferred income taxes, would decrease by approximately 3.2% for a 200 basis point increase in market interest rates. These simulations are based on numerous assumptions regarding the timing and extent of repricing characteristics. Actual results may differ significantly. Investment and available for sale securities totaling approximately $480 million are projected to mature in the next two years, based upon current prepayment assumptions for mortgage-backed securities. Extension testing performed on the securities portfolio indicates that the timing of projected cash flows is not significantly extended by rising interest rates. BOK Financial uses interest rate swaps, a form of off-balance-sheet derivative product, in managing its interest rate sensitivity. These swaps are used to more closely match the interest paid on certain long-term, fixed rate certificates of deposit with earning assets. Swaps allow BOK Financial to offer these deposits to its customers without altering the desired repricing characteristics. BOK financial accrues and periodically receives a fixed amount from the counterparties to these swaps and accrues and periodically makes a variable payment to the counterparties. During 1995, income from these swaps exceeded costs by $868 thousand. 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
Table 14 Intereste Rate Sensitivity Analysis at December 31, 1995 (In Thousands) 1-30 31-90 91-365 1-5 Over Days Days Days Years 5 Years Total ------------------------------------------------------------------------------- Earning assets: Securities $ 154,879 $ 64,672 $ 211,635 $ 860,613 $253,983 $1,545,782 Trading securities 7,777 - - - - 7,777 Loans, net 1,336,047 69,427 274,315 323,211 153,081 2,156,081 Funds sold and resell agreements 8,440 - - - - 8,440 - ------------------------------------------------------------------------------------------------------------- Total earning assets 1,507,143 134,099 485,950 1,183,824 407,064 3,718,080 - ------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Interest-bearing deposits 380,229 274,563 800,253 830,420 1,110 2,286,575 Other borrowings 485,594 416,290 546 45,376 - 947,806 - ------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 865,823 690,853 800,799 875,796 1,110 3,234,381 - ------------------------------------------------------------------------------------------------------------- Asset-liability gap 641,320 (556,754) (314,849) 308,028 405,954 483,699 Interest rate swaps (receive fixed) - (45,000) (40,000) 85,000 - - - ------------------------------------------------------------------------------------------------------------- Interest rate sensitivity gap $ 641,320 $(601,754) $(354,849) $ 393,028 $405,954 $ 483,699 - ------------------------------------------------------------------------------------------------------------- Cumulative interest rate sensitivity gap $ 641,320 $ 39,566 $(315,283) $ 77,745 $483,699 $ - - -------------------------------------------------------------------------------------------------------------
The best measure of liquidity is the ability to obtain funds to meet cash requirements. Liquidity is achieved through maturities of earning assets, securities available for sale and loans held for sale. On the liability side, liquidity depends on the availability of deposits and short-term borrowings in both the local and national markets. BOK Financial obtains 70% of its funding through deposits and 7% through equity. In addition to funding sources available to its banking subsidiaries, BOK Financial has established a $15 million line of credit with another financial institution. Cash provided by operations in 1995 totaled $23 million, or $56 million excluding the increase in mortgage loans held for sale. This compares to cash provided by operations of $206 million, or $59 million excluding the decrease in mortgage loans held for sale in 1994. Investing activities used $301 million, primarily for net loan fundings of $358 million. This was partially offset by net securities sales and collections of $65 million. Financing activities provided $281 million during 1995. Certificates of deposit provided $318 million which was partially offset by decreases in borrowed funds and the repayment of a subordinated note. This increase in deposits, which reverses a trend begun in 1992, is the result of innovative pricing and internal incentive plans. 20 Report of Management on Financial Statements Management is responsible for the consolidated financial statements which have been prepared in accordance with generally accepted accounting principles. In management's opinion, the consolidated financial statements present fairly the financial conditions, results of operations and cash flows of BOK Financial and its subsidiaries at the dates and for the periods indicated. BOK Financial and its subsidiaries maintain a system of internal accounting controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization, and are recorded as necessary to maintain accountability for assets and to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, a corporate code of conduct, an internal audit program and standards for the hiring and training of qualified personnel. The Board of Directors of BOK Financial maintains an Audit Committee consisting of outside directors that meet periodically with management and BOK Financial's internal and independent auditors. The Committee considers the audit and non-audit services to be performed by the independent auditors, makes arrangements for the internal and independent audits and recommends BOK Financial's selection of independent auditors. The Committee also reviews the results of the internal and independent audits, considers and approves certain of BOK Financial's accounting principles and practices, and reviews various shareholder reports and other reports and filings. Ernst & Young LLP, certified public accountants, have been engaged to audit the consolidated financial statements of BOK Financial and its subsidiaries. Their audit is conducted in accordance with generally accepted auditing standards and their report on BOK Financial's consolidated financial statements is set forth below. Report of Independent Auditors We have audited the accompanying consolidated balance sheets of BOK Financial Corporation and subsidiaries at December 31, 1995 and 1994, 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, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements of BOK Financial Corporation and subsidiaries referred to above present fairly, in all material respects, the consolidated financial position of BOK Financial Corporation at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As described in Note 1, BOK Financial Corporation changed its method of accounting for mortgage servicing rights. Ernst & Young LLP Tulsa, Oklahoma January 29, 1996 21 BOK FINANCIAL CORPORATION Consolidated Statements of Earnings (In Thousands Except Share Data)
1995 1994 1993 /1/ ----------------------------------------- INTEREST REVENUE Loans $179,052 $ 138,415 $ 117,085 Taxable securities 83,076 73,157 57,490 Tax-exempt securities 12,075 9,252 4,743 - ------------------------------------------------------------------------------- Total securities 95,151 82,409 62,233 - ------------------------------------------------------------------------------- Trading securities 242 226 243 Funds sold and resell agreements 996 2,008 1,793 - ------------------------------------------------------------------------------- Total interest revenue 275,441 223,058 181,354 - ------------------------------------------------------------------------------- INTEREST EXPENSE Deposits 97,739 71,141 65,244 Borrowed funds 62,086 31,534 7,962 Subordinated debenture 352 1,380 1,380 - ------------------------------------------------------------------------------- Total interest expense 160,177 104,055 74,586 - ------------------------------------------------------------------------------- NET INTEREST REVENUE 115,264 119,003 106,768 PROVISION FOR LOAN LOSSES 231 195 3,376 - ------------------------------------------------------------------------------- NET INTEREST REVENUE AFTER PROVISION FOR LOAN LOSSES 115,033 118,808 103,392 - ------------------------------------------------------------------------------- OTHER OPERATING REVENUE Brokerage and trading revenue 6,046 5,517 7,107 TransFund network revenue 7,025 6,039 5,811 Securities gains (losses), net 1,174 (1,868) 1,896 Trust fees and commissions 19,363 17,117 16,824 Service charges and fees on deposit accounts 21,152 20,698 20,825 Mortgage banking revenue 20,336 15,868 12,564 Other revenue 16,050 10,993 11,583 - ------------------------------------------------------------------------------- Total other operating revenue 91,146 74,364 76,610 - ------------------------------------------------------------------------------- OTHER OPERATING EXPENSE Personnel expense 67,298 63,111 60,891 Business promotion 6,039 6,213 5,535 Professional fees and services 5,898 4,664 5,385 Net occupancy, equipment and data processing expense 27,324 23,619 25,161 FDIC and other insurance 4,406 6,386 6,171 Printing, postage and supplies 6,340 5,415 4,876 Net gains and operating expenses on repossessed assets (3,098) (4,575) (2,792) Amortization on intangible assets 5,992 5,597 4,133 Mortgage banking costs 12,529 10,764 7,590 Other expense 9,478 12,281 8,911 - ------------------------------------------------------------------------------- Total other operating expense 142,206 133,475 125,861 - ------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 63,973 59,697 54,141 Federal and state income tax 14,768 14,632 16,239 - ------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 49,205 45,065 37,902 Cumulative effect of change in accounting for income taxes - - 1,570 - ------------------------------------------------------------------------------- NET INCOME $49,205 $ 45,065 $ 39,472 - ------------------------------------------------------------------------------- EARNINGS PER SHARE: Primary: Income before cumulative effect of change in accounting for income taxes $ 2.33 $ 2.12 $ 1.80 Cumulative effect of change in accounting for income taxes - - .08 - ------------------------------------------------------------------------------- Net Income $ 2.33 $ 2.12 $ 1.88 - ------------------------------------------------------------------------------- Fully Diluted: Income before cumulative effect of change in accounting for income taxes $ 2.12 $ 1.93 $ 1.63 Cumulative effect of change in accounting for income taxes - - .07 - ------------------------------------------------------------------------------- Net Income $ 2.12 $ 1.93 $ 1.70 - ------------------------------------------------------------------------------- AVERAGE SHARES USED IN COMPUTATION: Primary 20,495,250 20,516,246 20,348,173 Fully Diluted 23,233,566 23,248,315 23,120,991 - -------------------------------------------------------------------------------
/1/ Restated for poolings-of-interest which occurred in 1994 and 1993. See accompanying notes to consolidated financial statements. 22 Consolidated Balance Sheets (In Thousands Except Share Data)
December 31, ----------------------------- 1995 1994 ----------------------------- ASSETS Cash and due from banks $ 303,499 $ 255,594 Funds sold and resell agreements 8,440 53,505 Trading securities 7,777 2,535 Securities: Available for sale 1,366,661 630,242 Investment (fair value: 1995-$181,786; 1994-$887,211) 179,121 957,327 - --------------------------------------------------------------------- Total securities 1,545,782 1,587,569 - --------------------------------------------------------------------- Loans 2,194,368 1,844,053 Less reserve for loan losses 38,287 38,271 - --------------------------------------------------------------------- Net loans 2,156,081 1,805,782 - --------------------------------------------------------------------- Premises and equipment, net 47,673 43,170 Accrued revenue receivable 41,121 41,402 Excess cost over fair value of net assets acquired and core deposit premiums (net of accumulated amortization: 1995-$21,526; 1994-$15,533) 37,134 43,846 Mortgage servicing rights 50,634 46,681 Real estate and other repossessed assets 3,399 4,100 Other assets 20,378 14,092 - --------------------------------------------------------------------- Total assets $4,221,918 $3,898,276 - --------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing demand deposits $ 651,134 $ 622,930 Interest-bearing deposits: Transaction 411,861 403,976 Money market 369,344 370,073 Savings 104,726 132,968 Time 1,400,644 1,099,627 - --------------------------------------------------------------------- Total deposits 2,937,709 2,629,574 - --------------------------------------------------------------------- Funds purchased and repurchase agreements 697,497 743,248 Other borrowings 250,309 231,086 Accrued interest, taxes and expense 25,107 17,256 Other liabilities 9,731 17,210 Subordinated debenture - 23,000 - --------------------------------------------------------------------- Total liabilities 3,920,353 3,661,374 - --------------------------------------------------------------------- Shareholders' equity: Preferred stock 23 13 Common stock ($.00006 par value; 2,500,000,000 shares authorized; issued and outstanding: 1995 - 20,415,504; 1994 - 19,734,649) 1 1 Capital surplus 157,395 142,718 Retained earnings 146,727 111,878 Unrealized net loss on securities available for sale (2,427) (17,423) Notes receivable from exercise of stock options (154) (285) - --------------------------------------------------------------------- Total shareholders' equity 301,565 236,902 - --------------------------------------------------------------------- Total liabilities and shareholders' equity $4,221,918 $3,898,276 - ---------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 23 BOK FINANCIAL CORPORATION Consolidated Statements of Changes in Shareholders' Equity (In Thousands)
----------------------------------------------------------- Preferred Stock Common Stock -------------------------- ------------------------ Shares Amount Shares Amount ----------------------------------------------------------- January 1, 1993\2\ 250,065 $1,305 18,502 $ 1 Net income - - - - Issuance of common stock - - 344 - Issuance of common stock to Thrift Plan - - 49 - Exercise of stock options - - 9 - Payments on stock options notes - - - - receivable Cash dividends paid on preferred stock - - - - Dividends paid in shares of common stock: Preferred stock - - 52 - Common stock - - 515 - Sale of treasury stock - - - - Unrealized net gain on securities - - - - available for sale ----------------------------------------------------------- December 31, 1993\2\ 250,065 1,305 19,471 1 Net income - - - - Issuance of common stock - - 7 - Issuance of common stock to Thrift Plan - - 17 - Exercise of stock options - - 10 - Payments on stock options notes - - - - receivable Cash dividends paid on preferred stock - - - - Dividends paid in shares of common stock: Preferred stock - - 65 - Common stock - - 535 - Payment to dissenting shareholders - - (71) - Cancellation of treasury stock - - (299) - Repurchase of preferred stock (65) (1,292) - - Sale of treasury stock - - - - Unrealized net loss on securities - - - - available for sale ---------------------------------------------------------- December 31, 1994 250,000 13 19,735 1 Net income - - - - Director retainer shares - - 8 - Issuance of common stock to Thrift Plan - - 3 - Exercise of stock options - - 6 - Payments on stock options notes - - - - receivable Issuance of preferred stock 102 10 - - Dividends paid in shares of common stock: Preferred stock - - 70 - Common stock - - 594 - Unrealized net gain on securities - - - - available for sale ---------------------------------------------------------- December 31, 1995 250,102 $ 23 20,416 $ 1 - -------------------------------------------------------------------------------------------------------------------
/1/ Notes receivable from exercise of stock options. /2/ Restated for pooling-of-interests which occurred in 1994 and 1993. See accompanying notes to consolidated financial statements. 24
- ------------------------------------------------------------------------------------------------------------------------ Capital Retained Treasury Stock Unrealized Notes ------------------------- Surplus Earnings Shares Amount Gain (Loss) Receivable\1\ Total - ------------------------------------------------------------------------------------------------------------------------------ $109,654 $ 55,103 309 $(1,733) $ - $ (694) $163,636 - - 39,472 - - - - 39,472 6,866 - - - - - 6,866 1,069 - - - - - 1,069 196 - - - - (39) 157 - - - - - 397 397 - (128) - - - - (128) 1,125 (1,125) - - - - - 12,618 (12,618) - - - - - - - - 3 - - 3 - - - - 2,471 - 2,471 - ------------------------------------------------------------------------------------------------------------------------------ 131,528 80,704 309 (1,730) 2,471 (336) 213,943 - 45,065 - - - - 45,065 95 - - - - - 95 381 - - - - (42) 339 167 - - - - - 167 - - - - - 93 93 - (113) - - - - (113) 1,500 (1,500) - - - - - 12,264 (12,278) - - - - (14) (1,707) - - - - - (1,707) (1,510) - (299) 1,510 - - - - - - - - - (1,292) - - (10) 220 - - 220 - - - - (19,894) - (19,894) - ------------------------------------------------------------------------------------------------------------------------------ 142,718 111,878 - - (17,423) (285) 236,902 - 49,205 - - - - 49,205 157 - - - - - 157 70 - - - - - 70 104 - - - - - 104 - - - - - 131 131 - - - - - - 10 1,500 (1,500) - - - - - 12,846 (12,856) - - - - (10) - - - - 14,996 - 14,996 - ------------------------------------------------------------------------------------------------------------------------------ $157,395 $146,727 - $ - $ (2,427) $ (154) $301,565 - ------------------------------------------------------------------------------------------------------------------------------
25 BOK FINANCIAL CORPORATION Consolidated Statements of Cash Flows (In Thousands)
1995 1994 1993\1\ ------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 49,205 $ 45,065 $ 39,472 Adjustments to reconcile net income to net cash provided (used) by operating activities: Cumulative effect of change in accounting for income taxes - - (1,570) Noncash Thrift Plan contribution - 257 - Provisions for loan and repossessed real estate losses 231 195 3,436 Depreciation and amortization 19,612 16,931 13,925 Net amortization of securities discounts and premiums 1,929 6,848 7,845 Net gain on sale of assets (4,742) (626) (11,278) Mortgage loans originated for resale (519,392) (514,635) (779,749) Proceeds from sale of mortgage loans held for resale 486,347 661,146 673,619 (Increase) decrease in trading securities (5,242) 235 (1,807) (Increase) decrease in accrued revenue receivable 277 (8,895) (287) Increase in other assets (6,099) (2,875) (14,368) Increase (decrease) in accrued interest, taxes and expense (1,376) 9,534 (2,676) Increase (decrease) in other liabilities 2,275 (7,249) 1,257 - ----------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 23,025 205,931 (72,181) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of available for sale securities 134,109 82,088 268,433 Proceeds from maturities of investment securities 17,242 167,082 686,601 Proceeds from maturities of available for sale securities 193,855 155,351 247,674 Purchases of investment securities (29,566) (606,682) (1,095,675) Purchases of available for sale securities (250,320) (436,644) - Loans originated or acquired net of principal collected (357,736) (275,366) (85,808) Proceeds from sales of assets 43,426 49,052 47,265 Purchases of assets (32,900) (29,158) (7,294) Cash and cash equivalents of subsidiaries & branches acquired and sold, net (19,371) (12,014) 73,435 - ----------------------------------------------------------------------------------------------------- Net cash used by investing activities (301,261) (906,291) (134,631) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand deposits, transaction deposits, money market deposits, and savings accounts 12,042 (86,295) (9,250) Net increase (decrease) in certificates of deposit 318,100 (22,540) (109,980) Net increase (decrease) in other borrowings (26,528) 733,450 80,642 Repayment of subordinated debenture (23,000) - - Issuance of preferred, common and treasury stock, net 331 520 1,207 Repurchase of preferred stock - (1,292) - Payments to dissenting shareholders - (1,707) - Dividends on preferred stock - (113) (128) Payments on notes receivable 131 93 397 - ----------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 281,076 622,116 (37,382) - ----------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 2,840 (78,244) 25,068 - ----------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 309,099 387,343 362,275 - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 311,939 $ 309,099 $ 387,343 - ----------------------------------------------------------------------------------------------------- CASH PAID FOR INTEREST $ 157,398 $ 98,677 $ 79,309 - ----------------------------------------------------------------------------------------------------- CASH PAID FOR TAXES 10,954 9,609 12,694 - ----------------------------------------------------------------------------------------------------- NET LOANS TRANSFERRED TO REPOSSESSED 2,159 942 3,227 REAL ESTATE - ----------------------------------------------------------------------------------------------------- NET ASSETS ACQUIRED FOR STOCK - - 6,866 - ----------------------------------------------------------------------------------------------------- PAYMENT OF DIVIDENDS IN COMMON STOCK 14,346 13,764 13,743 - -----------------------------------------------------------------------------------------------------
/1/ Restated for poolings-of-interest which occurred in 1994 and 1993. See accompanying notes to consolidated financial statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Significant Accounting Policies BASIS OF PRESENTATION The Consolidated Financial Statements of BOK Financial Corporation ("BOK Financial") have been prepared in conformity with generally accepted accounting principles, including general practices of the banking industry. The consolidated financial statements include the accounts of BOK Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its subsidiaries ("BOk") and Citizens Bank of Northwest Arkansas, N.A. Certain prior year amounts have been reclassified to conform to current year classifications. NATURE OF OPERATIONS BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers, other financial institutions and consumers throughout Oklahoma, Northwest Arkansas and North Texas. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust. USE OF ESTIMATES Preparation of BOK Financial's financial statements requires management to make estimates of future economic activities, including interest rates, loan collectibility and prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates. ACQUISITIONS Assets and liabilities acquired by purchase are recorded at fair values on the acquisition dates. Intangible assets are amortized using straight-line and accelerated methods over the estimated benefit periods. These periods range from 7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The 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 the collection of principal or interest is 90 days or more past due or when, in the opinion of management, full collection of principal or interest is uncertain. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccrual status. Payments on nonaccrual loans are applied to principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loan origination and commitment fees, and direct loan origination costs when significant, are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on related forward sales contracts. RESERVE FOR LOAN LOSSES The reserve for loan losses is maintained at a level that, in the opinion of management, is adequate to absorb losses inherent in the loan portfolio. The adequacy of the reserve for loan losses is determined by management based upon evaluation of the individual credits in the loan portfolio, historical credit losses, anticipated economic conditions in BOK Financial's primary market areas and other relevant factors. Beginning in 1994, BOK Financial adopted Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" 27 ("FAS 114"). The allowance for credit losses related to loans that are identified for evaluation in accordance with FAS 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. 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. 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, in the opinion of management, full collection of the loan is not probable. 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 estimated useful lives of the assets or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. MORTGAGE SERVICING RIGHTS BOK Financial adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"), during 1995. FAS 122 requires, among other things, that capitalized mortgage servicing rights be carried at the lower of cost less accumulated amortization of fair value. Amortization is determined in proportion to the projected cash flows over the estimated lives of the servicing portfolios. The actual cash flows are dependent upon the prepayment of the mortgage loans and may differ significantly from the estimates. Fair value is determined by discounting the estimated cash flows of servicing revenue, less projected servicing costs, using a risk-adjusted spread over U.S. Treasury rates, which is the assumed market rate for these instruments. Prepayment assumptions are based on industry consensus provided by independent reporting sources. Changes in current interest rates may significantly affect these assumptions by changing loan refinancing activity. Fair value for each servicing portfolio acquired prior to the adoption of FAS 122 is based upon a single weighted average interest rate and remaining life for that portfolio. Fair value for each servicing portfolio acquired and for servicing rights originated since the adoption of FAS 122 is based upon an interest rate stratification for each portfolio. Separate prepayment assumptions are then used to project net cash flows by interest rate strata within each portfolio. A valuation allowance is provided when the amortized cost of each portfolio or each interest rate strata exceeds the calculated fair value. FAS 122 also requires that originated mortgage servicing rights be recognized when either mortgage loans are originated pursuant to an existing plan for sale or, if no such plan exists, when the mortgage loans are sold. Substantially all fixed rate mortgage loans originated by BOK Financial are sold under existing commitments. The fair value of the originated servicing rights is determined at closing based upon current market rates. INTEREST RATE SWAPS AND FORWARD COMMITMENTS BOk uses interest rate swaps and forward sales contracts as part of its interest rate risk management strategy. Interest rate swaps are used to modify the interest expense of certain long-term, fixed rate certificates of deposit. Amounts payable to or receivable from the counterparties are reported in interest expense using the accrual method. In the event of the early redemption of hedged certificates of deposit, any realized or unrealized gain or loss from the swaps would be recognized in income coincident with the redemption. Forward sales contracts are used to hedge existing and anticipated loans in conjunction with mortgage banking activities. The fair value of these instruments is included in determining the adjustment of the loan held for sale portfolio to the lower of cost or market. Gains or losses on closed contracts are recognized when the underlying assets are disposed. The cost of terminating these contracts prior to their expiration dates is expensed when incurred. FEDERAL AND STATE INCOME TAXES BOK Financial adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), during 1993. Under FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statements 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 previously paid taxes, estimated future taxable income and other factors. EMPLOYEE BENEFIT PLANS BOk 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 expenses 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. 28 BOK Financial adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS 112"), effective January 1, 1994. FAS 112 did not significantly affect the consolidated financial position or net income of BOK Financial. EXECUTIVE BENEFIT PLANS BOK Financial accounts for its stock option plans under the provisions of APB 25, "Accounting for Stock Issued to Employees", and intends to continue to do so. FIDUCIARY SERVICES Fees and commissions on approximately $7.6 billion of assets managed by BOK Financial under various fiduciary arrangements are recognized on the accrual method. EARNINGS PER SHARE Primary earnings per share are computed by dividing net income less the value of preferred stock dividends (including dividends paid in common shares) by the weighted average number of common shares and common share equivalents outstanding. The effect of stock options issued by BOK Financial, which are considered common share equivalents, on the average number of common shares outstanding is determined by the treasury stock method. Fully diluted earnings per share include the maximum dilutive effect of the conversion of preferred stock at a ratio of one common share per 92 preferred shares. The average number of shares outstanding has been restated for the effects of the poolings-of-interests and stock dividends. (2) Acquisitions On May 7, 1993, BOK Financial issued 1,183,691 common shares to merge with Brookside Bancshares, Inc., and its subsidiary, Brookside State Bank, in a pooling-of-interests. On November 14, 1994, BOK Financial issued 1,380,017 common shares to merge with Citizen Holding Company and its subsidiaries, Citizens Bank of Muskogee and Citizens Bank of Northwest Arkansas, in a pooling-of-interests. On May 7, 1993, BOK Financial issued 343,295 common shares valued at $6.9 million and paid $3.9 million to acquire Sands Springs Bancshares, Inc., and its subsidiary, Sand Springs State Bank. On October 9, 1993, certain assets were acquired and the deposits and certain obligations of two branches of the failed Heartland Federal Savings & Loan Association were assumed from the FDIC for $5.1 million. BOk paid $11.7 million, on May 2, 1994, to acquire Plaza National Bank, Bartlesville, Oklahoma; paid $6.1 million, on June 13, 1994, for Texas Commerce Trust Company-Sherman National Association, a national association limited to trust powers only; and paid $8.2 million, on October 7, 1994, to acquire Northwest Bank of Enid, Enid, Oklahoma. The allocation of the purchase prices to the assets acquired and liabilities assumed in the preceding acquisition is as follows (in thousands):
AGGREGATE ACQUISITIONS -------------------------- 1994 1993 -------------------------- Cash and cash equivalents $ 14,019 $ 77,315 Securities 40,508 21,896 Loans: Commercial 27,674 22,660 Commercial real estate 16,300 - Residential mortgage 17,160 1,178 Consumer 18,484 20,444 Allowance for loan losses (955) (1,642) - ------------------------------------------------------- Total loans 78,663 42,640 - ------------------------------------------------------- Premises and equipment 2,027 1,510 Core deposit premiums 839 1,397 Other assets 2,780 1,564 - ------------------------------------------------------- Total assets acquired 138,836 146,322 - ------------------------------------------------------- Deposits: Noninterest bearing 18,098 11,715 Interest bearing 109,384 130,143 - ------------------------------------------------------- Total deposits 127,482 141,858 - ------------------------------------------------------- Borrowed funds 327 1,923 Other liabilities 545 385 - ------------------------------------------------------- Total liabilities assumed 128,354 144,166 - ------------------------------------------------------- Net assets acquired (10,482) (2,156) Purchase price 26,033 10,746 - ------------------------------------------------------- Goodwill $ 15,551 $ 8,590 - -------------------------------------------------------
(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 $1.4 million, $2.4 million and $4.0 million for 1995, 1994 and 1993, respectively. 29 (4) Securities INVESTMENT SECURITIES The book and fair values of investment securities are as follows (in thousands):
December 31, ----------------------------------------------------------------------------- 1995 1994 ----------------------------------------------------------------------------- Book Fair Gross Unrealized Book Fair Gross Unrealized ------------------ ------------------ Value Value Gain Loss Value Value Gain Loss ---------------------------------------------------------------------------------- U.S. Treasury $ 716 $ 721 $ 5 $ - $ 1,224 $ 1,211 $ 1 $ (14) Municipal and other tax exempt 95,907 97,628 2,099 (378) 244,411 231,338 306 (13,379) Mortgage-backed securities: U. S. agencies 78,832 79,777 1,089 (144) 694,086 637,586 150 (56,650) Other - - - - 9,825 9,625 - (200) - -------------------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 78,832 79,777 1,089 (144) 703,911 647,211 150 (56,850) - -------------------------------------------------------------------------------------------------------------------- Other debt securities 3,666 3,660 3 (9) 7,781 7,451 3 (333) - -------------------------------------------------------------------------------------------------------------------- Total $179,121 $181,786 $3,196 $(531) $957,327 $887,211 $460 $(70,576) - --------------------------------------------------------------------------------------------------------------------
The book and fair values of investment securities at December 31, 1995, by contractual maturity, are as shown in the following table (dollars in thousands):
Weighted Less than One to Five to Over Average One Year Five Years Ten Years Ten Years Total Maturity --------------------------------------------------------------------------- U.S. Treasuries: Book value $ 214 $ 502 $ - $ - $ 716 1.63 Fair value 216 505 - - 721 Nominal yield 5.73% 5.94% 5.88% Municipal and other tax exempt: Book value 5,928 46,247 38,393 5,339 95,907 4.95 Fair value 5,926 46,664 39,361 5,677 97,628 Nominal yield \1\ 7.30 7.23 7.78 9.50 7.58 Other debt securities: Book value 3,454 99 113 - 3,666 0.58 Fair value 3,448 99 113 - 3,660 Nominal yield \1\ 4.94 5.00 4.50 - 4.93 --------------------------------------------------------------------------- Total fixed maturity securities: Book value $9,596 $46,848 $38,506 $5,339 $100,289 Fair value 9,590 47,268 39,474 5,677 102,009 Nominal yield 6.42% 7.21% 7.77% 9.50% 7.47% ------------------------------------------------- Mortgage-backed securities: Book value 78,832 -\2\ Fair value 79,777 Nominal yield \3\ 7.27% ----------- Total investment securities: Book value $179,121 Fair value 181,786 Nominal yield 7.38% -----------
\1\ Calculated on a taxable equivalent basis using a 39% effective tax rate. \2\ The average expected lives of mortgage-backed securities were 3.8 years based upon current prepayment assumptions. \3\ The nominal yield on mortgage-backed securities is based upon prepayment assumptions at the purchase date. Actual yields earned may differ significantly based upon actual prepayments. 30 AVAILABLE FOR SALE SECURITIES The amortized cost and fair value of available for sale securities are as follows (in thousands):
December 31, ------------------------------------------------------------------------------------------- 1995 1994 ------------------------------------------------------------------------------------------- Book Fair Gross Unrealized Book Fair Gross Unrealized -------------------- -------------------------- Value Value Gain Loss Value Value Gain Loss ------------------------------------------------------------------------------------------- U.S. Treasury $ 221,201 $ 222,478 $1,552 $ (275) $261,544 $255,347 $75 $ (6,272) Municipal and other tax exempt 165,709 166,855 2,532 (1,386) - - - - Mortgage-backed securities: U. S. agencies 941,020 934,433 3,842 (10,429) 374,078 352,169 - (21,909) Other 8,154 8,011 1 (144) - - - - - ------------------------------------------------------------------------------------------------------------------------------- Total mortgage-backed securities 949,174 942,444 3,843 (10,573) 374,078 352,169 - (21,909) - ------------------------------------------------------------------------------------------------------------------------------- Other debt securities 250 98 2 (154) - - - - Equity securities and mutual funds 34,145 34,786 641 - 22,726 22,726 - - - ------------------------------------------------------------------------------------------------------------------------------- Total $1,370,479 $1,366,661 $8,570 $(12,388) $658,348 $630,242 $75 $(28,181) - -------------------------------------------------------------------------------------------------------------------------------
The amortized cost and fair values of available for sale securities at December 31, 1995, 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 $133,809 $ 87,392 $ - $ - $ 221,201 0.96 Fair value 133,877 88,601 - - 222,478 Nominal yield 6.09% 6.09% - - 6.09% Municipal and other tax exempt: Amortized cost 4,173 60,885 87,820 12,831 165,709 6.02 Fair value 4,169 60,543 88,518 13,625 166,855 Nominal yield/1/ 7.08 6.72 7.70 9.16 7.44 Other debt securities: Amortized cost 250 - - - 250 0.42 Fair value 98 - - - 98 Nominal yield 8.12 - - - 8.12 ------------------------------------------------------------------------ Total fixed maturity securities: Amortized cost $138,232 $148,277 $87,820 $12,831 $ 387,160 Fair value 138,144 149,144 88,518 13,625 389,431 Nominal yield 6.12% 6.35% 7.70% 9.16% 6.67% ------------------------------------------------------------------------ Mortgage-backed securities: Amortized cost 949,174 -\2\ Fair value 942,444 Nominal yield/4/ 6.03% ------------- Equity securities and mutual funds: Amortized cost 34,145 -\3\ Fair value 34,786 Nominal yield 4.98% ------------- Total available for sale securities: Amortized cost $1,370,479 Fair value 1,366,661 Nominal yield 6.18% -------------
\1\ Calculated on a taxable equivalent basis using a 39% effective tax rate. \2\ The average expected lives of mortgage-backed securities were 3.7 years based upon current prepayment assumptions. \3\ Consists primarily of Federal Reserve Bank and Federal Home Loan Bank stock 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):
1995 1994 1993 -------------------------------- Proceeds $134,109 $82,088 $268,433 Gross realized gains 1,246 159 2,199 Gross realized losses 72 2,027 303 Related federal and state income tax expense (benefit) 270 (467) 569 - ------------------------------------------------------------------------
Effective December 20, 1995, BOK Financial adopted the provisions of a Financial Accounting Standards Board special report on Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities", which affects the securities portfolio. This report permitted a one-time opportunity to sell or transfer securities from the investment category to the available for sale or trading categories without tainting the remaining portfolio. BOK Financial transferred-mortgage- backed and municipal securities with a total amortized cost of $788.5 million and a net unrealized loss of $4.0 million from the investment category to available for sale in response to the more restrictive interpretation of FAS 115 included in this special report. Effective November 14, 1994, certain securities obtained through the acquisition of Citizens Holding Company were transferred from the held to maturity portfolio to available for sale. The transfer served to structure the acquired portfolio in accordance with BOK Financial's existing investment strategy. The securities transferred had a total amortized cost of $6.7 million and a net unrealized loss of $184 thousand as of the date of transfer. Securities with amortized costs of $986.5 million and $1.2 billion at December 31, 1995 and 1994, 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, --------------------------------------------------------------------------------------- 1995 1994 --------------------------------------------------------------------------------------- Fixed Variable Non Fixed Variable Non Rate Rate Accrual Total Rate Rate Accrual Total --------------------------------------------------------------------------------------- Commercial $ 81,250 $ 765,168 $14,646 $ 861,064 $174,431 $ 560,397 $11,238 $ 746,066 Commercial real estate 215,750 372,231 10,621 598,602 158,206 306,813 5,273 470,292 Residential mortgage 149,783 284,239 2,794 436,816 195,311 175,162 2,916 373,389 Residential mortgage - held for sale 72,412 - - 72,412 26,314 14,595 - 40,909 Consumer 180,489 43,758 1,227 225,474 191,619 21,091 687 213,397 - ------------------------------------------------------------------------------------------------------------------------------ Total $699,684 $1,465,396 $29,288 $2,194,368 $745,881 $1,078,058 $20,114 $1,844,053 - ------------------------------------------------------------------------------------------------------------------------------ Foregone interest on nonaccrual loans $ 2,928 $ 1,392
Substantially all 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 or Northwest Arkansas. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. Within the commercial loan classification, loans to energy-related businesses total $159.9 million, or 7% of total loans. Other notable segments include wholesale/retail, $143.9 million; manufacturing, $136.7 million; and agriculture, $86.7 million. Commercial real estate loans are primarily secured by properties located in the Tulsa or Oklahoma City, Oklahoma metropolitan areas. The major portions of these properties are multifamily residences, $139.3 million; retail facilities, $65.1 million; office buildings, $43.0 million; hotels, $41.4 million; and medical/nursing facilities, $38.7 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):
1995 1994 --------------------- Beginning balance $28,385 $22,767 Advances 21,185 12,038 Payments (3,458) (3,816) Adjustments (708) (2,604) - ------------------------------------------------------------- Ending balance $45,404 $28,385 - -------------------------------------------------------------
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):
1995 1994 1993 -------------------------------- Beginning balance $38,271 $37,261 $35,100 Provision for loan losses 231 195 3,376 Loans charged off (3,988) (3,237) (6,522) Recoveries 3,773 3,097 3,665 Addition due to acquisitions - 955 1,642 - ------------------------------------------------------------------------ Ending balance $38,287 $38,271 $37,261 - ------------------------------------------------------------------------
At December 31, 1995, the recorded investment in loans that are considered to be impaired under FAS 114 was $28.1 million (all of which were on a nonaccrual basis). Included in this amount is $12.5 million of impaired loans for which the related allowance for credit losses is $4.8 million. The average recorded investments in impaired loans during the years ended December 31, 1995 and 1994 were approximately $22.2 million and $13.4 million, respectively. Interest income recognized on impaired loans during 1995 and 1994 was not significant. (6) PREMISES AND EQUIPMENT Premises and equipment at December 31 are summarized as follows (in thousands):
DECEMBER 31, --------------------- 1995 1994 --------------------- Land $ 8,543 $ 8,553 Buildings and improvements 28,083 26,072 Furniture and equipment 27,352 19,577 - ------------------------------------------------------------- Subtotal 63,978 54,202 - ------------------------------------------------------------- Less accumulated depreciation and amortization 16,305 11,032 - ------------------------------------------------------------- Total $ 47,673 $ 43,170 - -------------------------------------------------------------
Depreciation and amortization of premises and equipment were $5.6 million, $4.2 million and $3.5 million for the years ended December 31, 1995, 1994 and 1993, respectively. (7) MORTGAGE BANKING ACTIVITIES BOK Financial engages in mortgage-banking activities through its subsidiary, BancOklahoma Mortgage Corp. ("BOMC"). Residential mortgage loans held for sale totaled $72.4 million and $40.9 million and outstanding mortgage loan commitments totaled $125.4 million and $102.0 million, respectively, at December 31, 1995 and 1994. 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, 1995, forward sales contracts totaled $118.1 million. Mortgage loans held for sale are carried at the lower of aggregate cost or market value, including estimated losses on unfunded commitments and gains or losses on forward sales contracts. At December 31, 1995, BOMC owned the rights to service 76,074 mortgage loans with outstanding principal balances of $5.4 billion, including $253 million serviced for BOk, and held related funds for investors and borrowers of $76.6 million. The weighted average interest rate and remaining term was 7.74% and 288 months, respectively. Mortgage loans sold with recourse totaled $11.3 million at December 31, 1995. At December 31, 1994, BOMC owned the rights to service mortgage loans with outstanding principal balances of $5.1 billion and held related funds for investors and borrowers of $53.4 million. 33 Activity in capitalized mortgage servicing rights and related valuation allowance during 1995 is as follows:
Capitalized Mortgage Servicing Rights Valuation ------------------------------------------ Purchased Originated Total Allowance Net ------------------------------------------------------------------------- Beginning balance $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) ----------------------------------------------------------------------------------------------------- Ending balance $49,532 $1,641 $51,173 (539) $50,634 ----------------------------------------------------------------------------------------------------- Estimated fair value of mortgage servicing rights/1/ $66,528 $1,954 $68,482 $ - $68,482 -----------------------------------------------------------------------------------------------------
/1/ Excludes approximately $18.9 million 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 10.17% to 10.41%. Prepayment rate - Industry consensus prepayment estimates ranging from 7.3% to - --------------- 21.4% from an independent reporting source based upon interest rate, original term and loan type. Loan servicing costs - $50 per conventional loan and $60 per government insured - -------------------- loan. During the first quarter of 1994, management discovered that Lenders Mortgage Services, Inc. ("Lenders"), an originator of loans from which BOMC purchased mortgage loans, had not paid off existing mortgages on certain refinancing loans purchased by BOMC, primarily in 1994. Involuntary proceedings have been commenced against Lenders under Chapter 7 of the U.S. Bankruptcy Code and a Trustee has been appointed. Lenders will not be able to perform under the repurchase provision of the loan purchase agreement. Management intends to pursue recoveries from various other parties; however, any such recoveries are uncertain at this time. Pretax charges of $5.2 million were recognized in 1994 based upon management's evaluation of information currently available. (8) DEPOSITS Interest expense on deposits is summarized as follows (in thousands)
1995 1994 1993 -------------------------- Transaction deposits $10,881 $ 9,684 $ 8,853 Money market 14,395 12,378 12,398 Savings 2,957 3,522 3,235 Time: Under $100,000 38,552 27,603 24,681 $100,000 and over 20,265 10,471 9,525 Other 10,689 7,483 6,552 - -------------------------------------------------- Total time 69,506 45,557 40,758 - -------------------------------------------------- Total $97,739 $71,141 $65,244 - --------------------------------------------------
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 1995 and 1994 were $486.2 million and $273.3 million, respectively. Interest expense on time deposits during 1995 and 1994 was reduced by net income from interest rate swaps of $868 thousand and $344 thousand, respectively. 34 (9) OTHER BORROWINGS Information relating to other borrowings is summarized as follows (dollars in thousands):
Rate at Maximum Period-End Daily average end of outstanding at ------------------- Balance Balance Rate year any month-end ------------------------------------------------------------------ 1995: FUNDS PURCHASED AND REPURCHASE AGREEMENTS $697,497 $ 894,322 6.03% 5.75% $1,052,369 OTHER 250,309 129,458 6.27 6.03 250,309 - ------------------------------------------------------------------ TOTAL $947,806 $1,023,780 6.06 5.82 1,135,168 - ---------------------------------------------------------------------------------------------------------- 1994: Funds purchased and repurchase agreements $743,248 $ 605,640 4.46% 5.87% $ 779,789 Other 231,086 98,555 4.61 6.39 237,665 - ------------------------------------------------------------------ Total $974,334 $ 704,195 4.48 5.99 974,334 - ---------------------------------------------------------------------------------------------------------- 1993: Funds purchased and repurchase agreements $201,294 $ 205,430 3.09% 3.14% $ 321,972 Other 39,263 41,788 3.90 3.33 114,538 - ------------------------------------------------------------------ Total $240,557 $ 247,218 3.22 3.17 361,039 - ----------------------------------------------------------------------------------------------------------
Other borrowings at December 31, 1995 included $228.8 million in uncollateralized advances from the Federal Home Loan Bank. These advances are used for funding and consist of $34.0 million in overnight funds bearing interest of 6.15%, and $194.8 million in term funds bearing interest from 6.08%- 7.50%. Of the term funds, $150 million mature within 60 days, $4.5 million mature in 1998, $22.9 million mature in 2000, $15.5 million mature in 2002 and $1.9 million mature in 2005. In addition, other borrowings include $2.5 million in advances on a line of credit from a commercial bank which bear interest based on LIBOR and are unsecured. At December 31, 1995, the interest rates were 6.45%- 6.64%, and $12.5 million of the line remained unused. Interest is paid monthly with principal due no later than May 4, 1996. Funds purchased generally mature within one to 90 days from the transaction date. At December 31, 1995, securities sold under agreement to repurchase totaled $631.9 million with related accrued interest payable of $2.3 million. Additional information relating to repurchase agreements at December 31, 1995 is as follows (dollars in thousands):
Carrying Market Repurchase Average Security Sold/Maturity Value Value Liability Rate - --------------------------------------------------------------------- U.S. Treasury Securities: Overnight $ 32,007 $ 32,277 $ 7,663 5.29% Term of 30 to 91 days 58,373 58,554 54,191 5.74 - ------------------------------------------------------------- Total Treasury Securities 90,380 90,831 61,854 5.68 - ------------------------------------------------------------- U.S. Agency Securities Overnight 136,863 135,684 101,523 5.33 Term of up to 30 days 1,826 1,795 111 5.00 Term of 30 to 90 days 503,149 498,722 470,684 5.75 - ------------------------------------------------------------- Total Agency Securities 641,838 636,201 572,318 5.68 - ------------------------------------------------------------- Total $732,218 $727,032 $634,172 5.68 - -------------------------------------------------------------
On April 3, 1995, BOK Financial repaid the $23 million subordinated debenture issued on December 31, 1992 to Kaiser. The subordinated debenture was scheduled to mature on April 1, 1999 and to bear an interest rate of nine percent after March 31, 1995. 35 (10) FEDERAL AND STATE INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, 1995 1994 -------------------------- Deferred tax liabilities: Pension contributions in excess of book expense $ 2,400 $ 2,100 Other 3,900 2,300 - ------------------------------------------------------------------ Total deferred tax liabilities 6,300 4,400 - ------------------------------------------------------------------ Deferred tax assets: Loan loss reserve 15,000 14,900 Valuation adjustments 13,800 25,700 Book expense in excess of tax 3,900 3,600 Built-in loss carryforwards - 1,100 Other 3,500 1,900 - ------------------------------------------------------------------ Total deferred tax assets 36,200 47,200 Valuation allowance for deferred tax assets 28,900 34,500 - ------------------------------------------------------------------ Net deferred tax assets 7,300 12,700 - ------------------------------------------------------------------ Deferred tax assets in excess of deferred tax liabilities $ 1,000 $ 8,300 - ------------------------------------------------------------------
At December 31, 1995 BOK Financial had consolidated recognized built-in loss carryforwards for income tax purposes of approximately $1.1 million which expire in the year 2010. The acquisition of BOk by BOK Financial on June 7, 1991 resulted in a change of ownership, which significantly limits the utilization of built-in and net operating loss carryforwards. In addition, BOk's former parent company underwent restructuring transactions during 1986 and 1989. Due to the complex nature of those transactions and the limited IRS regulations and rulings in this area, uncertainties remain as to the ability of BOK Financial to ultimately realize the benefits of these losses. Consequently, and due to the expiration periods and the timing of the anticipated reversal of built-in losses, a valuation allowance has been recorded. The five year period, during which the utilization of currently recognized built-in loses has been limited, will expire in 1996. Consequently, management anticipates reducing its valuation allowance by an amount up to $7.7 million during the second quarter of 1996. The significant components of the provision for income taxes attributable to continuing operations for BOK Financial are shown below (in thousands).
1995 1994 1993 ------------------------------- Current: Federal $14,707 $11,367 $10,808 State 2,273 2,332 2,262 - ------------------------------------------------------------ Total current 16,980 13,699 13,070 - ------------------------------------------------------------ Deferred: Federal (1,871) 789 2,802 State (341) 144 367 - ------------------------------------------------------------ Total deferred (2,212) 933 3,169 - ------------------------------------------------------------ Total income tax $14,768 $14,632 $16,239 - ------------------------------------------------------------
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):
1995 1994 1993 -------------------------------- Amount: Federal statutory tax $22,391 $20,894 $18,949 Tax exempt revenue (3,747) (2,948) (1,558) Effect of state income taxes, net of federal benefit 1,932 2,145 2,005 Loss carryforward, benefit recognized (6,065) (5,345) (3,265) Utilization of tax credits (1,000) (1,422) (399) Other, net 1,257 1,308 507 - ----------------------------------------------------------------- Total $14,768 $14,632 $16,239 - ----------------------------------------------------------------- Percent of pretax income: Federal statutory rate 35% 35% 35% Tax-exempt revenue (6) (5) (3) Effect of state income taxes, net of federal benefit 3 4 4 Loss carryforward, benefit recognized (9) (9) (6) Utilization of tax credits (2) (2) (1) Other, net 2 2 1 - ---------------------------------------------------------------- Total 23% 25% 30% - ----------------------------------------------------------------
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, 1995 1994 ----------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of 1995-$7,970; 1994-$6,420 $(10,142) $(7,758) ---------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date (10,142) (7,758) Plan assets at fair value 11,554 8,022 ----------------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 1,412 264 Unrecognized prior service cost 979 1,038 Unrecognized net loss 3,669 2,931 ---------------------------------------------------------------------------------------- Accrued pension asset $ 6,060 $ 4,233 ---------------------------------------------------------------------------------------- Discount rate 7.00% 8.00% ---------------------------------------------------------------------------------------- Compensation increase rate 5.25% 5.25% ---------------------------------------------------------------------------------------- 1995 1994 1993 ---------------------------------- Net pension cost included the following expense (income): Service cost $ 1,333 $ 1,144 $ 797 Interest cost 582 402 372 Deferred gain (loss) on assets 584 (678) (139) Actual (return) loss on plan assets (1,506) 86 (456) Other, net 135 10 10 -------------------------------------------------------------------------------------------------- Net periodic pension cost $ 1,128 $ 964 $ 584 -------------------------------------------------------------------------------------------------- Expected return on assets 9.50% 9.00% 10.00% --------------------------------------------------------------------------------------------------
Assets of the Pension Plan consist primarily of shares in cash management funds, common stock and bond funds, and guaranteed investment contract funds. Benefits are based on the employee's age and length of service. Employee contributions to the thrift Plan, a defined contribution plan, are matched by BOK Financial up to 4 percent of base compensation, based upon years of service. Participants may direct the investment of their accounts in a variety of options, including BOK Financial Common Stock. Employer contributions vest over five years. Expenses incurred by BOK Financial for the thrift Plan totaled $1.5 million, $1.2 million and $928 thousand for 1995, 1994 and 1993, 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. On January 1, 1993, BOK Financial adopted Statement of Financial Accounting Standards No. 106, "Accounting for Post-retirement Benefits" ("FAS 106"). In conjunction with the adoption of FAS 106, liability for the post-retirement plan was 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):
1995 1994 -------------------------- Accumulated post-retirement benefit obligation $(2,696) $(2,218) Fair value of plan assets 693 591 - ------------------------------------------------------------------- Fund status (2,003) (1,627) Unrecognized transition asset (264) (296) Unrecognized net (gain) loss 173 (296) - ------------------------------------------------------------------- Acrued post-retirement benefit $(2,094) $(2,219) - ------------------------------------------------------------------- Discount rate 7.00% 8.00% - ------------------------------------------------------------------- Medical inflation rate 10.00% to 5.00% 10.00% to 5.00% - ------------------------------------------------------------------- 1995 1994 ------------------------ Net post-retirement benefits cost includes: Service cost fair value of plan assets $ 14 $ 10 Interest cost 166 173 Actual return on plan assets (26) (18) Deferred gain (loss) on assets 6 (29) Amortization of unrecognized transition obligation (32) (32) - ------------------------------------------------------------------------- Net post-retirement benefits cost $ 128 $ 104 - ------------------------------------------------------------------------- Expected return on assets 9.50% 9.00% - -------------------------------------------------------------------------
37 A 1% increase in the assumed medical inflation rate would increase the accumulated post-retirement benefit obligation by approximately $189 thousand and would increase post-retirement benefit cost by $19 thousand. Under various performance incentive plans, participating employees may be granted awards based on defined formulas or other criteria. Earnings were charged $5.3 million in 1995, $5.0 million in 1994 and $6.1 million in 1993 for such awards. (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 determine by the Chairman of the Board and the President, subject to approval of the Board of Directors or a committee thereof. Options awarded under these plans are subject to vesting requirements. Generally, one-seventh of the options awarded vest annually and expire three years after vesting. Under the 1994 Plan, 268,958 options were awarded in 1994, 234,125 options were awarded in 1995 and an aggregate of 312,516 options may be awarded in 1996. Cancelled options under the 1994 Plan may be reawarded. The following table presents options outstanding at December 31, 1995 under these plans:
1994 Plan 1993 Plan 1992 Plan --------------------------------------------------------------- Number Price Number Price Number Price --------------------------------------------------------------- Options awarded 503,083 $20.39-23.00 261,881 $22.01 268,167 $13.73 Options exercised - - - - (16,371) 13.73 Options cancelled (15,599) 20.39 (41,848) 22.01 (51,066) 13.73 - ------------------------------------------------------------------------------------- Options outstanding: Vested 36,896 20.39 63,403 22.01 51,474 13.73 Nonvested 450,588 20.39-23.00 156,630 22.01 149,256 13.73 - -------------------------------------------------------------------------------------
(13) COMMITMENTS AND CONTINGENT LIABILITIES In the ordinary course of business, BOK Financial and its subsidiaries are subject to legal actions and complaints. Management believes, based upon the opinion of counsel, that the actions and liability or loss, if any, resulting from the final outcomes of the proceedings, will not be material in the aggregate. BOk is obligated under a long-term lease for its bank premises located in downtown Tulsa. The lease term, which began November 1, 1976, is for fifty-seven years with options to terminate at the end of the thirty-seventh and forty- seventh years. Annual base rent is $3.1 million. BOk subleases portions of its space for annual rents of $392 thousand each year through 2000. Net rent expense on this lease was $2.6 million in 1995, $2.1 million in 1994 and $2.4 million in 1993. Total rent expense for BOK Financial was $6.7 million in 1995, $6.0 million in 1994 and $6.0 million in 1993. At December 31, 1995, the future minimum lease payments for equipment and premises under operating leases were as follows: $6.4 million in 1996, $5.8 million in 1997, $5.6 million in 1998, $5.5 million in 1999, $5.1 million in 2000 and a total of $110.7 million thereafter. BOk and The Williams Companies, Inc. guaranteed 30 percent and 70 percent, respectively, of the $19.5 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 $100 thousand in 1995, $0 in 1994 and $180 thousand in 1993. The Federal Reserve Bank requires member banks to maintain certain minimum average cash balances. These balances were approximately $86.0 million for 1995 and $79.3 million for 1994. At December 31, 1995, BOK financial had deposits totaling $739 million which are insured by the FDIC's Savings Association Insurance Fund ("SAIF"). These deposits represent earlier acquisitions either from savings associations or government agencies representing failed savings associations. Premiums on SAIF insured deposits remained at 23 basis points for 1995. Legislation is pending in Congress which will require banks and savings associations to pay a one-time assessment on all SAIF-insured deposits. Estimates of the cost of this assessment range from 66 basis points to 90 basis points. The ultimate amount and timing of this assessment is subject to the Federal budget reconciliation process. Management will accrue for any resulting assessment once it becomes reasonably estimable. 38 (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, 1995, outstanding commitments totaled $691.6 million. Since some of the commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Since the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. At December 31, 1995, outstanding standby letters of credit totaled $95.4 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, 1995, outstanding commercial letters of credit totaled $6.4 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 to more closely match the interest paid on certain long-term, fixed rate certificates of deposit with earning assets. BOK Financial agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed-upon notional amount. At December 31, 1995, the notional amount of BOK Financial's interest rate swaps totaled $85.2 million with related credit exposure, represented by the fair value of the contracts, of $4.5 million. During 1995 and 1994, income from the swaps exceeded costs by $868 thousand and $344 thousand, respectively, which reduced interest expense on deposits. Scheduled repricing periods for the swaps are as follows (in thousands):
31-90 91-365 Over days days 1 year Total ------------------------------------------ Pay floating $(45,000) $(40,000) $ - $(85,000) Receive fixed - - 85,000 85,000 Pay fixed 179 - - 179 Receive floating (179) - - (179) - ------------------------------------------------------------- Total $(45,000) $(40,000) $85,000 $ - - -------------------------------------------------------------
Swap contracts with notional amounts of $179 thousand, $63.0 million and $22.0 million expire in 1996, 1998 and 1999, respectively. The expiration dates of the swap contracts are designed to match the estimated maturity dates of the hedged certificates of deposit. BOK Financial utilized securities forward sales contracts associated with its mortgage banking activities as described in Note 7. 39 (15) SHAREHOLDERS' EQUITY PREFERRED STOCK One billion shares of preferred stock with a par value of $0.00005 per share are authorized. A single series of 250,000,000 shares designated as Series A Preferred Stock ("Series A Preferred Stock") is currently issued and outstanding. The Series A Preferred Stock has no voting rights except as otherwise provided by Oklahoma corporate law and may be converted into one share of Common Stock for each 92 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 1995, 1994 and 1993, 69,959 shares, 65,279 shares and 52,422 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 1995 and 1994, and $1.1 million in 1993, based on average market price, as defined, for a 65 business day period preceding declaration. Prior to its merger with BOK Financial, Citizens had 100,000 shares authorized and 64,607 shares outstanding of nonvoting preferred stock with a par value and liquidating preference of $20 per share and annual cumulative dividends of $2 per share. These shares were redeemed in full and cancelled in conjunction with Citizens' merger with BOK Financial. 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 1995, 1994 and 1993, 3% dividends payable in shares of BOK Financial common stock were declared and paid. The shares issued were valued at $12.8 million, $12.3 million and $12.6 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, 1995, BOK Financial's subsidiary banks could declare dividends up to $29.7 million without prior regulatory approval. The subsidiary banks declared and paid no dividends in 1995 or 1994, and $12.2 million in 1993. Loans to a single affiliate may not exceed 10.0 percent and loans to all affiliates may not exceed 20.0 percent of unimpaired capital and surplus, as defined. Additionally, loans to affiliates must be fully secured. As of December 31, 1995 and 1994, these loans totaled $4.6 million and $2.3 million, respectively. 40 (16) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying values and estimated fair values of financial instruments as of December 31, 1995 and 1994 (dollars in thousands):
Range of Average Estimated Carrying Contractual Repricing Discount Fair Value Yields (in years) Rate Value ------------------------------------------------------------------------ 1995: Cash and cash equivalents $ 311,939 - - - $ 311,939 Securities 1,553,559 - - - 1,556,224 Loans: Commercial 861,064 4.50-16.22% 0.5 7.29- 9.40% 849,460 Commercial real estate 598,602 6.08-14.70 1.3 9.35-10.07 588,175 Residential mortgage 436,816 3.75-14.87 1.6 7.24- 7.40 439,304 Residential mortgage - held for sale 72,412 - - - 72,412 Consumer 225,474 5.00-18.90 1.7 7.81-13.50 224,861 - ---------------------------------------------------------------------------------------------------------------- Total loans 2,194,368 2,174,212 Reserve for loan losses (38,287) - - ---------------------------------------------------------------------------------------------------------------- Net loans 2,156,081 2,174,212 Deposits with no stated maturity 1,537,065 - - - 1,537,065 Time deposits 1,400,644 2.62-10.00 0.7 4.93- 5.73 1,405,765 Other borrowings 947,806 - - - 949,184 - ---------------------------------------------------------------------------------------------------------------- 1994: Cash and cash equivalents $ 309,099 - - - $ 309,099 Securities 1,590,104 - - - 1,519,988 Loans: Commercial 746,066 4.75-18.00% 1.0 6.60-10.50% 736,163 Commercial real estate 470,292 6.65-14.19 0.7 9.50-10.00 468,004 Residential mortgage 373,389 3.50-14.87 1.2 6.50- 9.50 363,213 Residential mortgage-held for sale 40,909 - - - 40,909 Consumer 213,397 3.50-21.00 1.6 8.95-13.95 212,834 - ---------------------------------------------------------------------------------------------------------------- Total loans 1,844,053 1,821,123 Reserve for loan losses (38,271) - - ---------------------------------------------------------------------------------------------------------------- Net loans 1,805,782 1,821,123 Deposits with no stated maturity 1,529,947 - - - 1,529,947 Time deposits 1,099,627 2.00-12.17 0.8 2.90- 7.30 1,086,626 Other borrowings 974,334 - - - 973,831 Subordinated debenture 23,000 6.00 0.3 6.00 23,000 - ----------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used in estimating the fair value of these financial instruments: CASH AND CASH EQUIVALENTS The book value reported in the consolidated balance sheet for cash and short- term instruments approximates those assets' fair values. SECURITIES The fair values of securities are based on quoted market prices or dealer quotes, when available. If quotes are not available, fair values are based on quoted prices of comparable instruments. LOANS The fair value of loans, excluding loans held for sale, are based on discounted cash flow analyses using interest rates currently being offered for loans with similar remaining terms to maturity and credit risk, adjusted for the impact of interest rate floors and ceilings. The fair values of classified loans were estimated to approximate their carrying values less loan loss reserves allocated to these loans of $12.7 million and $11.1 million at December 31, 1995 and 1994, 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. 41 DEPOSITS The fair values of time deposits are based on discounted cash flow analyses using interest rates currently being offered on similar transactions. FAS 107 defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, transaction deposits, money market deposits and savings accounts, to equal the amount payable on demand. Although market premiums paid reflect an additional value for these low cost deposits, FAS 107 prohibits adjusting fair value for the expected benefit of these deposits. Accordingly, the positive effect of such deposits is not included in this table. OTHER BORROWINGS AND SUBORDINATED DEBENTURE The fair values of these instruments are based upon discounted cash flow analyses using interest rates currently being offered on similar instruments. OFF-BALANCE-SHEET INSTRUMENTS The fair values of commercial loan commitments and letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair values of interest rate swaps are based on pricing models using current assumptions to arrive at replacement cost. The fair values of these off-balance-sheet instruments were not significant at December 31, 1995 and 1994. Residential mortgage loan commitments are included in determining the fair value of the mortgage loans held for sale. (17) PARENT COMPANY ONLY FINANCIAL STATEMENTS Summarized financial information for BOK Financial-Parent Company Only follows:
Balance Sheets (In Thousands) DECEMBER 31, ------------------------ 1995 1994 ------------------------ ASSETS Cash and cash equivalents $ 212 $ 2,697 Securities - available for sale 4,208 - Investment in subsidiaries 302,199 235,751 Other assets 1,761 1,617 ---------------------------------------------------------------- Total assets $ 308,380 $240,065 ---------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings $ 2,500 $ 500 Other liabilities 4,315 2,663 ---------------------------------------------------------------- Total liabilities 6,815 3,163 ---------------------------------------------------------------- Preferred stock 23 13 Common stock 1 1 Capital surplus 157,395 142,718 Retained earnings 146,727 111,878 Unrealized net loss on securities available for sale (2,427) (17,423) Notes receivable (154) (285) ---------------------------------------------------------------- Total shareholders' equity 301,565 236,902 ---------------------------------------------------------------- Total liabilities and shareholders' $ 308,380 $240,065 equity ----------------------------------------------------------------
42
STATEMENTS OF EARNINGS (IN THOUSANDS) 1995 1994 1993 ---------------------------------- Dividends, interest and fees received from subsidiaries $ 1,460 $ 458 $ 12,337 Other operating revenue 1,241 73 56 - ------------------------------------------------------------------------------ Total revenue 2,701 531 12,393 - ------------------------------------------------------------------------------ Interest expense 273 4 - Personal expense 407 350 304 Professional fees and services 212 373 153 Other operating expense 250 477 191 - ------------------------------------------------------------------------------ Total expense 1,142 1,204 648 - ------------------------------------------------------------------------------ Income (loss) before taxes, equity in undistributed income of subsidiaries and cumulative effect of change in accounting for income taxes 1,559 (673) 11,745 Federal and state income tax expense (credit) 1,043 (103) (1,769) - ------------------------------------------------------------------------------ Income (loss) before equity in undistributed income of subsidiaries and cumulative effect of change in accounting for income taxes 516 (570) 13,514 Equity in undistributed income of subsidiaries 48,689 45,635 24,388 - ------------------------------------------------------------------------------ Income before cumulative effect of change in accounting for income taxes 49,205 45,065 37,902 Cumulative effect of change in accounting for income taxes - - 1,570 - ------------------------------------------------------------------------------ Net income $ 49,205 $ 45,065 $ 39,472 - ------------------------------------------------------------------------------ STATEMENTS OF CASH FLOWS (IN THOUSANDS) 1995 1994 1993 ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 49,205 $ 45,065 $ 39,472 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (48,689) (45,635) (24,388) Cumulative effect of change in accounting for income taxes - - (1,570) Noncash compensation expense - 257 45 Gain on sale of available for sale securities (1,213) - - Change in other assets (144) 1,537 (498) Change in other liabilities 1,403 2,460 (986) - ------------------------------------------------------------------------------ Net cash provided by operating activities 562 3,684 12,075 - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of available for sale securities 13,287 - - Purchases of available for sale securities (15,641) - - Payment to purchase subsidiaries - - (3,880) Investment in subsidiaries (3,155) (3,000) (5,900) - ------------------------------------------------------------------------------ Net cash used in investing activities (5,509) (3,000) (9,780) - ------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term bnorrowings 2,000 500 - Issuance of preferred, common and treasury stock, net 331 520 1,207 Payments to dissenting shareholders - (1,707) - Repurchase of preferred stock - (1,292) - Dividends on preferred stock - (113) (128) Payments on notes receivable 131 93 397 - ------------------------------------------------------------------------------ Net cash provided (used) by financing activities 2,462 (1,999) 1,476 - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (2,485) (1,315) 3,771 Cash and cash equivalents at beginning of period 2,697 4,012 241 - ------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 212 $ 2,697 $ 4,012 - ------------------------------------------------------------------------------ NET ASSETS ACQUIRED FOR STOCK $ - $ - $ 6,866 - ------------------------------------------------------------------------------ PAYMENT OF DIVIDENDS IN COMMON STOCK 14,346 13,764 13,743 - ------------------------------------------------------------------------------
43 BOK FINANCIAL CORPORATION ANNUAL FINANCIAL SUMMARY - UNAUDITED
Consolidated Daily Average Balances, Average Yields and Rates (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 ---------------------------------------- Average Revenue/ Yield/ Balance Expense/1/ Rate ---------------------------------------- ASSETS Taxable securities $1,354,949 $ 83,076 6.13% Tax-exempt securities 253,969 19,113 7.53 - -------------------------------------------------------------------------------- Total securities 1,608,918 102,189 6.35 - -------------------------------------------------------------------------------- Trading securities 3,672 242 6.59 Funds sold and resell agreements 16,509 996 6.03 Loans/2/ 2,012,574 179,052 8.90 Less reserve for loan losses 38,318 - -------------------------------------------------------------------------------- Loans, net of reserve 1,974,256 179,052 9.07 - -------------------------------------------------------------------------------- Total earning assets 3,603,355 282,479 7.84 - -------------------------------------------------------------------------------- Cash and other assets 420,634 - -------------------------------------------------------------------------------- Total assets $4,023,989 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 389,411 10,881 2.79 Money market deposits 369,183 14,395 3.90 Savings deposits 118,664 2,957 2.49 Time deposits 1,229,769 69,506 5.65 - -------------------------------------------------------------------------------- Total interest-bearing deposits 2,107,027 97,739 4.64 - -------------------------------------------------------------------------------- Other borrowings 1,023,780 62,086 6.06 Subordinated debenture 5,797 352 6.07 - -------------------------------------------------------------------------------- Total interest-bearing liabilities 3,136,604 160,177 5.11 - -------------------------------------------------------------------------------- Demand deposits 574,865 Other liabilities 40,161 Shareholders' equity 272,359 - -------------------------------------------------------------------------------- Total liabilities and shareholders'equity $4,023,989 - -------------------------------------------------------------------------------- TAX-EQUIVALENT NET INTEREST REVENUE 122,302 2.73 TAX-EQUIVALENT NET INTEREST REVENUE TO EARNING ASSETS 3.39 Tax-equivalent adjustment/1/ 7,038 - -------------------------------------------------------------------------------- NET INTEREST REVENUE 115,264 Provision for loan losses 231 Other operating revenue 91,146 Other operating expense 142,206 - -------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR 63,973 INCOME TAXES Federal and state income tax 14,768 - -------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF 49,205 CHANGE IN ACCOUNTING FOR INCOME TAXES Cumulative effect of change in - accounting for income taxes - -------------------------------------------------------------------------------- NET INCOME $ 49,205 - -------------------------------------------------------------------------------- EARNINGS PER AVERAGE COMMON SHARE EQUIVALENT: Income before cumulative effect of change in accounting for income taxes Primary $ 2.33 - -------------------------------------------------------------------------------- Fully diluted 2.12 - -------------------------------------------------------------------------------- Net Income Primary 2.33 - -------------------------------------------------------------------------------- Fully diluted 2.12 - ------------------------------------------------------------------------------ --
/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. 44
1994 1993 - ----------------------------------------------------------------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense/1/ Rate Balance Expense/1/ Rate - ---------------------------------------------- ---------------------------------- $1,249,791 $ 73,157 5.85% $ 986,349 $ 57,490 5.83% 200,099 15,369 7.68 99,420 7,879 7.92 - ----------------------------------------------------------------------------------------- 1,449,890 88,526 6.11 1,085,769 65,369 6.02 - ----------------------------------------------------------------------------------------- 3,836 226 5.89 4,517 243 5.38 42,897 2,008 4.68 50,137 1,793 3.58 1,718,508 138,415 8.05 1,557,433 117,085 7.52 37,997 38,084 - ----------------------------------------------------------------------------------------- 1,680,511 138,415 8.24 1,519,349 117,085 7.71 - ----------------------------------------------------------------------------------------- 3,177,134 229,175 7.21 2,659,772 184,490 6.94 - ----------------------------------------------------------------------------------------- 374,239 333,436 - ----------------------------------------------------------------------------------------- $3,551,373 $2,993,208 - ----------------------------------------------------------------------------------------- $ 395,188 9,684 2.45 $ 353,895 8,853 2.50 412,233 12,378 3.00 434,876 12,398 2.85 133,609 3,522 2.64 124,208 3,235 2.60 1,072,011 45,557 4.25 1,062,561 40,758 3.84 - ----------------------------------------------------------------------------------------- 2,013,041 71,141 3.53 1,975,540 65,244 3.30 - ----------------------------------------------------------------------------------------- 704,195 31,534 4.48 247,218 7,962 3.22 23,000 1,380 6.00 23,000 1,380 6.00 - ----------------------------------------------------------------------------------------- 2,740,236 104,055 3.80 2,245,758 74,586 3.32 - ----------------------------------------------------------------------------------------- 541,144 522,136 43,792 36,468 226,201 188,846 - ----------------------------------------------------------------------------------------- $3,551,373 $2,993,208 - ----------------------------------------------------------------------------------------- 125,120 3.41 109,904 3.62 3.94 4.13 6,117 3,136 - ----------------------------------------------------------------------------------------- 119,003 106,768 195 3,376 74,364 76,610 133,475 125,861 - ----------------------------------------------------------------------------------------- 59,697 54,141 14,632 16,239 - ----------------------------------------------------------------------------------------- 45,065 37,902 - 1,570 - ----------------------------------------------------------------------------------------- $ 45,065 $ 39,472 - ----------------------------------------------------------------------------------------- $2.12 $1.80 1.93 1.63 - ----------------------------------------------------------------------------------------- 2.12 1.88 - ----------------------------------------------------------------------------------------- 1.93 1.70 - -----------------------------------------------------------------------------------------
45 QUARTERLY FINANCIAL SUMMARY - UNAUDITED Consolidated Daily Average Balances, Average Yields and Rates (Dollars in Thousands Except Per Share Data)
For Three Months Ended ------------------------------------------------------------------------- December 31, 1995 September 30, 1995 ----------------------------------- -------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense/1/ Rate Balance Expense/1/ Rate ------------------------------------------------------------------------- ASSETS Taxable securities $1,285,158 $19,337 5.97% $1,336,474 $20,243 6.01% Tax-exempt securities 256,599 4,824 7.46 255,688 4,798 7.44 - -------------------------------------------------------------------------------------------------------------------------------- Total securities 1,541,757 24,161 6.22 1,592,162 25,041 6.24 - -------------------------------------------------------------------------------------------------------------------------------- Trading securities 3,787 72 7.54 3,323 51 6.09 Funds sold and resell agreements 19,197 288 5.95 9,826 149 6.02 Loans/2/ 2,145,558 47,838 8.85 2,073,088 46,216 8.84 Less reserve for loan losses 38,378 38,372 - -------------------------------------------------------------------------------------------------------------------------------- Loans, net of reserve 2,107,180 47,838 9.01 2,034,716 46,216 9.01 - -------------------------------------------------------------------------------------------------------------------------------- Total earning assets 3,671,921 72,359 7.82 3,640,027 71,457 7.79 - -------------------------------------------------------------------------------------------------------------------------------- Cash and other assets 431,982 418,656 - -------------------------------------------------------------------------------------------------------------------------------- Total assets $4,103,903 $4,058,683 - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Transaction deposits $ 385,302 2,714 2.79 $ 387,039 2,713 2.78 Money market deposits 374,618 3,891 4.12 378,298 3,802 3.99 Savings deposits 106,633 654 2.43 115,312 710 2.44 Time deposits 1,338,106 19,416 5.76 1,208,924 17,454 5.73 - -------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 2,204,659 26,675 4.80 2,089,573 24,679 4.69 - -------------------------------------------------------------------------------------------------------------------------------- Other borrowings 973,914 14,457 5.89 1,060,864 15,952 5.97 Subordinated debenture - - - - - - - -------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 3,178,573 41,132 5.13 3,150,437 40,631 5.12 - -------------------------------------------------------------------------------------------------------------------------------- Demand deposits 584,748 586,340 Other liabilities 43,465 39,746 Shareholders' equity 297,117 282,160 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $4,103,903 $4,058,683 - -------------------------------------------------------------------------------------------------------------------------------- TAX-EQUIVALENT NET INTEREST REVENUE/1/ 31,227 2.69 30,826 2.67 TAX-EQUIVALENT NET INTEREST REVENUE/1/ TO EARNING ASSETS 3.37 3.36 Tax-equivalent adjustment/1/ 1,780 1,771 - -------------------------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE 29,447 29,055 Provision for loan losses 176 15 Other operating revenue 23,951 23,185 Other operating expense 36,852 35,682 - -------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES 16,370 16,543 Federal and state income tax 3,707 4,050 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME $12,663 $12,493 - -------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER AVERAGE COMMON SHARE EQUIVALENT: NET INCOME Primary .60 .59 - -------------------------------------------------------------------------------------------------------------------------------- Fully diluted .54 .54 - --------------------------------------------------------------------------------------------------------------------------------
/1/ Tax equivalent at the statutory federal and state rates for the periods presented. The taxable equivalent adjustments shown are for comparative purposes. / 2/ The loan averages included loans on which the accrual of interest has been discontinued and are stated net of unearned income. 46
For Three Months Ended - ---------------------------------------------------------------------------------------------------------------- June 30, 1995 March 31, 1995 December 31, 1994 - -------------------------------- ------------------------------------ ---------------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense/1/ Rate Balance Expense/1/ Rate Balance Expense/1/ Rate - ---------------------------------------------------------------------------------------------------------------- $1,425,922 $21,905 6.16% $1,373,411 $21,591 6.38% $1,290,165 $19,485 5.99% 253,770 4,799 7.59 249,725 4,692 7.62 234,875 4,515 7.63 - ---------------------------------------------------------------------------------------------------------------- 1,679,692 26,704 6.38 1,623,136 26,283 6.57 1,525,040 24,000 6.24 - ---------------------------------------------------------------------------------------------------------------- 4,565 72 6.33 3,010 47 6.33 2,379 37 6.17 13,670 213 6.25 23,463 346 5.98 19,466 279 5.69 1,958,467 43,999 9.01 1,869,484 40,999 8.89 1,827,779 38,855 8.43 38,218 38,302 38,477 - ---------------------------------------------------------------------------------------------------------------- 1,920,249 43,999 9.19 1,831,182 40,999 9.08 1,789,302 38,855 8.62 - ---------------------------------------------------------------------------------------------------------------- 3,618,176 70,988 7.87 3,480,791 67,675 7.88 3,336,187 63,171 7.51 - ---------------------------------------------------------------------------------------------------------------- 424,687 406,957 407,916 - ---------------------------------------------------------------------------------------------------------------- $4,042,863 $3,887,748 $3,744,103 - ---------------------------------------------------------------------------------------------------------------- $ 393,141 2,739 2.79 $ 392,266 2,715 2.81 $ 400,393 2,627 2.60 362,817 3,515 3.89 360,745 3,187 3.58 393,074 3,283 3.31 123,169 738 2.40 129,834 855 2.67 135,765 942 2.75 1,193,816 16,997 5.71 1,176,686 15,639 5.39 1,082,683 12,953 4.75 - ---------------------------------------------------------------------------------------------------------------- 2,072,943 23,989 4.64 2,059,531 22,396 4.41 2,011,915 19,805 3.91 - ---------------------------------------------------------------------------------------------------------------- 1,090,359 16,868 6.21 969,528 14,808 6.19 860,298 11,774 5.43 506 12 9.00 23,000 341 6.00 23,000 346 6.00 - ---------------------------------------------------------------------------------------------------------------- 3,163,808 40,869 5.18 3,052,059 37,545 4.99 2,895,213 31,925 4.37 - ---------------------------------------------------------------------------------------------------------------- 576,761 551,114 566,149 38,269 39,118 44,766 264,025 245,457 237,975 - ---------------------------------------------------------------------------------------------------------------- $4,042,863 $3,887,748 $3,744,103 - ---------------------------------------------------------------------------------------------------------------- 30,119 2.69 30,130 2.89 31,246 3.14 3.34 3.51 3.72 1,760 1,727 1,797 - ---------------------------------------------------------------------------------------------------------------- 28,359 28,403 29,449 40 - 135 21,857 22,153 20,072 34,567 35,105 35,022 - ---------------------------------------------------------------------------------------------------------------- 15,609 15,451 14,364 3,527 3,484 2,626 - ---------------------------------------------------------------------------------------------------------------- $12,082 $11,967 $11,738 - ---------------------------------------------------------------------------------------------------------------- .57 .57 .55 - ---------------------------------------------------------------------------------------------------------------- .52 .52 .50 - ----------------------------------------------------------------------------------------------------------------
47 BOK FINANCIAL CORPORATION 1995 ANNUAL REPORT APPENDIX A
========================================================================================== Earnings Per Share Graph I For Year Ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Fully diluted earnings per share $2.12 $1.93 $1.70 $1.33 $0.88 ========================================================================================== Funding Graph II For Year Ended December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Deposits $2,937,709 2,629,574 2,610,927 2,588,570 2,054,172 Borrowed Funds 947,806 974,334 240,557 157,992 155,523 Capital and subordinated debt 301,565 259,902 236,943 185,331 127,873 Other 34,838 34,466 40,614 33,438 34,792 ---------- ---------- ---------- ---------- ---------- Total Funding $4,221,918 $3,898,276 $3,129,041 $2,965,331 $2,372,360 ========== ========== ========== ========== ========== ========================================================================================== Loans Graph III For Year Ended December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Commercial $ 861,064 $ 746,066 $ 692,536 $ 681,004 $ 584,873 Real Estate 1,107,830 884,590 830,723 665,961 563,721 Consumer 225,474 213,397 155,296 133,279 97,516 ---------- ---------- ---------- ---------- ---------- $2,194,368 $1,844,053 $1,678,555 $1,480,244 $1,246,110 ========== ========== ========== ========== ========== ==========================================================================================
========================================================================================== Commercial Loans Graph IV For Year Ended December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Energy $159,887 $162,767 $161,273 $137,619 $103,679 Wholesale/retail 143,941 95,021 81,207 88,537 84,037 Agriculture 86,733 82,527 69,315 61,186 62,204 Manufacturing 136,701 106,104 99,464 89,015 55,870 Other 333,802 299,647 281,277 304,647 279,083 -------- -------- -------- -------- -------- $861,064 $746,066 $692,536 $681,004 $584,873 ======== ======== ======== ======== ======== ========================================================================================== Real Estate Loans Graph V For Year Ended December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Commercial Real Estate $ 450,385 $363,600 $293,122 $292,768 $228,116 Single Family Residential 436,816 373,389 254,505 213,201 168,151 Construction & Land Development 148,217 106,692 93,310 81,022 107,016 Loans Held for Sale 72,412 40,909 189,786 78,970 60,438 ---------- -------- -------- -------- -------- $1,107,830 $884,590 $830,723 $665,961 $563,721 ========== ======== ======== ======== ======== ========================================================================================== Other Operating Revenue Graph VI For Year Ended December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Deposit fees & service charges $21,152 $20,698 $20,825 $17,704 $14,451 Trust fees and commissions 19,363 17,117 16,824 15,007 13,568 Mortgage banking revenue 20,336 15,868 12,564 11,895 8,186 Other 30,295 20,681 26,397 18,637 16,393 ------- ------- ------- ------- ------- Total Operating Revenue $91,146 $74,364 $76,610 $63,243 $52,598 ======= ======= ======= ======= ======= ==========================================================================================
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 LEGAL COUNSEL Bank of Oklahoma Tower Frederic Dorwart, Lawyers P.O. Box 2300 Old City Hall Tulsa, Oklahoma 74192 124 E. Fourth St. (918) 588-6000 Tulsa, Oklahoma 74103-5010 (918) 583-9922 TRANSFER AGENT AND REGISTRAR Bank of Oklahoma, N.A. COMMON SHARES: Traded Over the Counter, Stock Transfer Department NASDAQ Symbol: BOKF P.O. Box 2300 Tulsa, Oklahoma 74192 MARKET MAKERS: Herzog, Heine, Geduld, Inc. INDEPENDENT AUDITORS: Pauli and Company Ernst & Young LLP Southwest Securities, Inc. Bank of Oklahoma Tower Sanders Morris Mundy, Inc. Tulsa, Oklahoma 74172 (918) 560-3600 Copies of BOK Financial Corporation's Annual Report to Shareholders, Quarterly Reports and Form 10-K to the Securities and Exchange Commission are available without charge upon written request. Analysts, shareholders and other investors seeking financial information about BOK Financial Corporation are invited to contact James A. White, Executive Vice President & Chief Financial Officer, (918) 588-6752. News media and others seeking general information should contact Becky J. Frank, Vice President, Public Relations manager, (918) 588-6831. 48 DIRECTORS BOK Financial Corporation - -------------------------------------------------------------------------------- GEORGE B. KAISER GLENN A. COX ROBERT J. LAFORTUNE Chairman of the Board Retired President and COO Personal Investments Bank of Oklahoma, N.A. Phillips Petroleum Company STANLEY A. LYBARGER DR. ROBERT H. DONALDSON PHILIP C. LAUINGER, JR. President and CEO President, The University of Tulsa Chairman Bank of Oklahoma, N.A. Lauinger Publishing Company KEITH E. BAILEY WILLIAM E. DURRETT ROBERT L. PARKER, SR. Chairman, President and CEO Chairman, President and CEO Chairman, Parker Drilling Company The Williams Companies American Fidelity Corp. JAMES E. BARNES JAMES O. GOODWIN JAMES A. ROBINSON Chairman and CEO, MAPCO, Inc. CEO Personal Investments The Oklahoma Eagle Publishing Co. SHARON J. BELL V. BURNS HARGIS L. FRANCIS ROONEY, III Managing Partner, Rogers and Bell Attorney, McAfee & Taft Chairman and CEO Manhattan Construction Company LARRY W. BRUMMETT THOMAS J. HUGHES, III ROBERT L. ZEMANEK Chairman, President and CEO, President and CEO President and CEO ONEOK Inc. Hughes Lumber Company Public Service Co. of Oklahoma WILLIAM B. CLEARY E. CAREY JOULLIAN, IV Manager, Cleary Exploration L.L.C. President, Mustang Fuel Corporation
Bank of Oklahoma, N.A. - -------------------------------------------------------------------------------- GEORGE B. KAISER RALPH S. CUNNINGHAM THOMAS J. HUGHES, III Chairman of the Board President and CEO, Citgo Petroleum President and CEO Bank of Oklahoma, N.A. Hughes Lumber Company STANLEY A. LYBARGER NANCY T. DAVIES E. CAREY JOULLIAN, IV President and CEO Community Leader President, Mustang Fuel Corporation Bank of Oklahoma, N.A. W. WAYNE ALLEN DR. ROBERT H. DONALDSON FRANK A. MCPHERSON Chairman and CEO President, The University of Tulsa Chairman and CEO Phillips Petroleum Co. Kerr-McGee Oil Corporation KEITH E. BAILEY JAMES O. GOODWIN L. FRANCIS ROONEY, III Chairman, President and CEO CEO Chairman and CEO The Williams Companies The Oklahoma Eagle Publishing Co. Manhattan Construction Company LARRY W. BRUMMETT D. JOSEPH GRAHAM JAMES A. WHITE Chairman, President and CEO, Vice President and CFO Executive Vice President and CFO ONEOK Inc. Kaiser-Francis Oil Co. Bank of Oklahoma, N.A. WILLIAM B. CLEARY V. BURNS HARGIS ROBERT L. ZEMANEK Manager, Cleary Exploration L.L.C. Attorney, McAfee & Taft President and CEO Public Service Co. of Oklahoma GLENN A. COX EUGENE A. HARRIS Retired President and COO Executive Vice President Phillips Petroleum Company Bank of Oklahoma, N.A.
49 OPERATING SUBSIDIARIES
Bank of Oklahoma, N.A. Citizens Bank of Northwest Arkansas, N.A. - ---------------------------------------------------- ----------------------------------------- TULSA OKLAHOMA CITY FAYETTEVILLE - ----- ------------- ------------ BANK OF OKLAHOMA TOWER BANK OF OKLAHOMA PLAZA 3500 N. College One Williams Center Robinson at Robt. S. Kerr (501) 521-8000 (918) 588-6000 (405) 272-2450
Subsidiaries of Bank of Oklahoma, N.A. - --------------------------------------------------------------------------------
BANCOKLAHOMA TRUST COMPANY BANCOKLAHOMA MORTGAGE CORP. TULSA OKLAHOMA CITY TULSA SAND SPRINGS - ----- ------------- ----- ------------ BANK OF OKLAHOMA TOWER 6307 WATERFORD BLVD. COPPER OAKS 401 E. Broadway One Williams Center, 10th Floor (405) 879-8100 7060 S. Yale (918) 241-8000 (918) 588-6437 (918) 488-7140 ALLIANCE TRUST COMPANY BANK OF OKLAHOMA PLAZA PINE AND LEWIS OKLAHOMA CITY ------------- 2009 Independence Dr. 201 Robert S. Kerr, 4th Floor 1604 N. Lewis 5015 N. Pennsylvania Sherman, Texas (405) 272-2459 595-3000 (405) 879-8700 (903) 813-5100 4825 LBJ Freeway, Suite 632 SOUTHWEST TRUST COMPANY OWASSO ------ Dallas, Texas 6307 Waterford Blvd. 413 E. 2nd Ave. (214) 490-8591 Oklahoma City (918) 588-8650 (405) 879-8100 BOSC, INC 3045 S. Harvard Tulsa (918) 746-5720
Major Customer Service Offices - --------------------------------------------------------------------------------
BUSINESS BANKING CENTERS PRIVATE FINANCIAL SERVICES TULSA OAKLAHOMA CITY TULSA OKLAHOMA CITY - ----- --------------- ----------------- -------------- BROOKSIDE BANKING CENTER NORTHWEST BANKING CENTER MIDTOWN AT LEWIS CENTER NORTHWEST BANKING CENTER 3237 S. Peoria 3535 N.W. 58th, 2nd Floor 2021 S. Lewis, 3535 N. W. 58th (918) 746-7400 (405) 951-5400 (918) 748-7283 (405) 272-2215 COMMERCIAL DOWNTOWN AT WATERFORD METROPOLITAN, NATIONAL, ENERGY & REAL ESTATE OFFICES 320 BOSTON CENTER 6307 Waterford Blvd., Ste. 100 320 S. Boston (405) 879-8100 (918) 588-6214 TULSA OKLAHOMA CITY ENID - ----- ------------- ---- BANK OF OKLAHOMA TOWER BANK OF OKLAHOMA PLAZA BROOKSIDE BUSINESS CENTER 2308 N. Van Buren 1 Williams Center Robinson at Robt. S. Kerr 3237 S. Peoria (405) 548-8523 (918) 588-6000 (405) 272-2000 (918) 743-7418 CONSUMER BANKING 61ST & YALE Opening Spring 1996 TULSA OKLAHOMA CITY BARTLESVILLE - ----- ------------- ------------- BANK OF OKLAHOMA TOWER BANK OF OKLAHOMA PLAZA 3815 S.E. Frank Phillips Blvd. 1 Williams Center Robinson at Robt. S. Kerr (918) 335-5316 (918) 588-6010 (405) 272-2548 BANCOKLAHOMA INVESTMENT CENTER TULSA - ----- RANCH ACRES Investment Center Financial 3045 S. Harvard, Suite 101 Consultants are located in all (918) 746-5770 Consumer, Community and Private Financial Services locations statewide.
50 BANK OF OKLAHOMA, N.A. LOCATIONS
Oklahoma City Area Locations Tulsa Area Locations - ---------------------------------------------------- -------------------------------------------------------------- OKLAHOMA CITY PLAZA VILLAGE TULSA DOWNTOWN CITY PLAZA 201 Robt S. Kerr 9300 N. Pennsylvania BANKING CENTER 5330 E. 31st One Williams Center DOWNTOWN EXPRESS BANK WINDSOR HILLS DOWNTOWN AUTOBANK LEWIS CENTER 4th & Robinson 2601 N. Meridian 2nd & Denver 2021 S. Lewis ALBERTSON'S, BRITTON & MAY DEL CITY 320 BOSTON CENTER PINE & LEWIS 4324 S. E. 44th 320 S. Boston ALBERTSON'S, MACARTHUR EDMOND, BROADWAY 31ST & GARNETT RANCH ACRES AND NW EXPRESSWAY 1515 S. Broadway 3045 S. Harvard CANDLEWOOD MIDWEST CITY 61ST & YALE - SOUTHROADS 6517 N.W. Expressway 1500 S. Midwest Blvd. Opening Spring 1996 4901 E. 41st NICHOLS HILLS AUTOBANK MIDWEST CITY, AIR DEPOT 71ST & SHERIDAN SOUTHWEST TULSA 7600 N. Western 1201 S. Air Depot Blvd. 4544 S. 33rd W. Ave. NORTHWEST BANKING CENTER ALBERTSON'S, I-35 & 101ST & SHERIDAN BIXBY 3535 N. W. 58th ROBINSON, NORMAN 11709 S. Memorial PENN TOWER NORMAN-MIDTOWN ALBERTSON'S, 51ST & HARVARD BROKEN ARROW, ALBERTSON'S, 50 Penn Place 707 W. Main 101ST & ELM QUAIL CREEK NORMAN-WEST ALBERTSON'S, 51ST & MEMORIAL BROKEN ARROW, ASPEN CREEK 11300 N. May Ave. 3550 W. Main 2100 W. Houston SOUTH OKC YUKON ALBERTSON'S, 71ST & GARNETT BROKEN ARROW, 7701 S. Western 1100 S. Garth Brooks Blvd. ELM & KENOSHA 903 W. Kenosha ALBERTSON'S, 81ST & YALE SAND SPRINGS 401 E. Broadway ALBERTSON'S, 101ST & MEMORIAL BROOKSIDE 3237 S. Peoria
Community Locations - -------------------------------------------------------------------------------- BARTLESVILLE GROVE MCALESTER NEWKIRK - ------------ ----- --------- ------- MAIN BANK 201 S. Main One E. Choctaw 110 S. Main 3815 S. E. Frank Phillips Blvd. ENID MUSKOGEE PONCA CITY ---- -------- ---------- DOWNTOWN NORTHWEST DOWNTOWN 2005 N. 14th St. 5th & Keeler 2308 N. Van Buren 325 W. Broadway WASHINGTON PARK MALL SOUTH EASTSIDE 132 Washington Park Mall 2021 W. Owen K. Garriott 2520 Chandler Rd. BOK IN WAL-MART EUFAULA WESTSIDE ------- 4000 Green Country Road 219 S. Main 300 N. 32nd St.
CITIZENS BANK OF NORTHWEST ARKANSAS, N.A. LOCATIONS
FAYETTEVILLE - MAIN BANK FAYETTEVILLE - EASTSIDE FAYETTEVILLE - DOWNTOWN ROGERS - ------------ ------------ ------------ 3500 N. College 2025 N. Crossover Road 11 N. College 2000 W. Walnut
51 EXECUTIVE OFFICERS GEORGE B. KAISER* MARK W. FUNKE Community Banking BancOklahoma Mortgage Corp. Chairman of the Board Executive Vice President ----------------- -------------------------- Chief Operating Officer JOHN W. ANDERSON DAVID L. LAUGHLIN Oklahoma City President, Bartlesville President STANLEY A. LYBARGER* EUGENE A. HARRIS DOUGLAS W. DIXON BancOklahoma Trust Company President, Executive Vice President President, Grove -------------------------- Chief Executive Officer Commercial Banking H. JAMES HOLLOMAN President WAYNE D. STONE* JOHN J. MAINTZ DAVID P. JONES Alliance Trust Company, N.A. President, Bank of Oklahoma Senior Vice President President, Muskogee ---------------------------- Oklahoma City Regional Office Credit Administration JAMES W. BARNES President JAMES E. WHITE* H. JAMES HOLLOMAN J. BLAKE MOFFATT PHILIP S. MCKINZIE Executive Vice President Executive Vice President President, Sands Springs Executive Vice President Chief Financial Officer Trust Division Sherman, Texas FREDERIC DORWART* NORMAN W. SMITH J. MICHAEL STUART Secretary Executive Vice President President, Enid Consumer Banking ----------- LOWELL E. FAULKENBERRY* GREGORY K. SYMONS JOHN J. ROWNAK, JR. Senior Vice President Executive Vice President President and Chief Auditor Services Executive Officer Citizens Bank of Northwest Arkansas, N.A.** JOHN C. MORROW* CHARLES D. WILLIAMSON Senior Vice President Executive Vice President Controller, Financial Capital Markets Accounting Senior Vice Presidents JAMES W. BARNES JAMES R. DICKSON JAMES L. HUNTZINGER DAVID A. RALSTON Trust Division Trust Division Trust Division Commercial Real Estate BARRY L. BELL JAMES A. DIETZ RONALD E. LEFFLER JOHN M. ROBINSON BancOklahoma Mortgage Credit Administration Consumer Banking Commercial Banking Center STEVEN G. BRADSHAW WADE EDMUNDSON VANE T. LUCAS JOE L. RODANSKI Investment Center Special Industry Group Marketing Trust Division MICHAEL L. BRISTLE BARBARA L. EIKNER JAMES S. MARSHALL JOANN G. SCHAUB Bank Operations Bank Operations BancOklahoma Mortgage Trust Division ROBERT W. CARROLL ELLEN D. FLEMING MARC C. MAUN DAVID A. SHARPE Legal Trust Division Acquisitions Electronic Banking WILLIAM J. CLUNE DOUG FULLER PAUL D. MESMER CARL L. SHORTT, JR. Agriculture Commercial Banking Center Special Assets Trust Division CHARLES E. COTTER GARELD F. GILL STEPHEN E. NELL JAMES F. ULRICH Special Assets Information Services Controller Human Resources Management Accounting JAMES T. CRAWFORD II MARSHALL K. GRANT STEPHEN R. PATTISON NANCY E. UTTER Private Financial Services BancOklahoma Mortgage Corporate Banking Consumer Credit Administration TERRY L. CROLL LAWRENCE B. HALKA PATRICK E. PIPER JERRY M. WILLIAMS Treasury Services Trust Division Consumer Banking Trust Division BRETT A. DEAN RICHARD C. HAUGLAND H. MATT WILSON Capital Markets Muskogee Commercial Banking
* BOK Financial and Bank of Oklahoma, N.A. officers ** wholly-owned subsidiary of BOK Financial 52 BANK OF OKLAHOMA, N.A. Bank of Oklahoma Tower P.O. Box 2300 Tulsa, OK 74192 (918) 588-6000 CITIZENS BANK of Northwest Arkansas, N.A. P.O. Box 1407 Fayetteville, AR 72703 (501) 521-8086 EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 BOK FINANCIAL CORPORATION EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT BANKING SUBSIDIARIES -------------------- Bank of Oklahoma, National Association Citizens Bank of Northwest Arkansas, National Association OTHER SUBSIDIARIES OF BOK FINANCIAL CORPORATION ----------------------------------------------- BOKF Merger Corporation Number Three BOKF Merger Corporation Number Four Brookside Bancshares, Inc. BOK Capital Services Corp. (formerly BOKF Leasing Corp.) KCI Leasing Partners I, an Oklahoma Limited Partnership KCI Leasing Partners II, an Oklahoma Limited Partnership SUBSIDIARIES OF --------------- BANK OF OKLAHOMA, N.A. AND CITIZENS BANK OF NORTHWEST ARKANSAS, N.A. -------------------------------------------------------------------- Affiliated BancServices, Inc. Affiliated Financial Holding Company Affiliated Financial Insurance Agency, Inc. Affiliated Financial Life Insurance Company Alliance Trust Company, National Association Banco Leasing Company BancOklahoma Agri-Service Corp. BancOklahoma Mortgage Corp. BOSC, Inc. BancOklahoma Trust Company Big Bear, Inc. BOK Delaware, Inc. BOK DPC Asset Holding Company BOK Real Estate Trust BOK Second DPC Asset Holding Company Citizens Mortgage Group, Inc. FGBSA Securities Brokerage (Oklahoma), Inc. Investment Concepts, Inc. Pacesetter Leasing Company Southwest Trust Company Southwest Trustcorp., Inc. Steven L. Smith Corp. 115 E. Fifth Corp. All subsidiaries are incorporated in Oklahoma, with the exception of Bank of Oklahoma, National Association, which is chartered by the United States of America; Affiliated Financial Life Insurance Company, which is incorporated in Arizona; Alliance Trust Company and FGBSA Securities Brokerage (Oklahoma), Inc., which are incorporated in Texas; Brookside Bancshares, BOK Delaware, Inc. and BOK Real Estate Trust, which are incorporated in Delaware; and Citizens Bank of Northwest Arkansas, N.A. and Big Bear, Inc., which are incorporated in Arkansas. BOK FINANCIAL CORPORATION EXHIBIT 23.0 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated January 29, 1996, with respect to the consolidated financial statements of BOK Financial Corporation and subsidiaries incorporated by reference in the annual report (Form 10-K) for the year ended December 31, 1995, 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. Ernst & Young LLP Tulsa, Oklahoma March 26, 1996 -----END PRIVACY-ENHANCED MESSAGE-----