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