<PAGE> 1
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
BOK FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
OKLAHOMA 6021 73-1373454
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
BANK OF OKLAHOMA TOWER
BOSTON AVENUE AT SECOND STREET
TULSA, OKLAHOMA 74172
(918) 588-6000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JAMES A. WHITE
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
BOK FINANCIAL CORPORATION
BANK OF OKLAHOMA TOWER
BOSTON AVENUE AT SECOND STREET
TULSA, OKLAHOMA 74172
(918) 588-6416
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
---------------
TAMARA R. WAGMAN JULIA K. COWLES
FREDERIC DORWART, LAWYERS DAVIS POLK & WARDWELL
OLD CITY HALL 450 LEXINGTON AVENUE
124 EAST FOURTH STREET NEW YORK, NY 10017
TULSA, OKLAHOMA 74103 (212) 450-4000
(918) 583-9922
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) BE REGISTERED PER SHARE OFFERING PRICE(2) REGISTRATION FEE(2)
- ------------------------------ ------------- --------- -------------- -------------------
<S> <C> <C> <C> <C>
COMMON STOCK................. 5,000,000 $ 23.0875 $ 115,437,500 $ 32,091.62
</TABLE>
(1) PURSUANT TO RULE 429, THE PROSPECTUS FILED HEREWITH WILL BE USED TO OFFER
SHARES OF COMMON STOCK PREVIOUSLY REGISTERED ON REGISTRATION STATEMENT
NO. 333-82267.
(2) CALCULATED PURSUANT TO RULE 457(c) OF THE RULES AND REGULATIONS UNDER THE
SECURITIES ACT OF 1933.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
EXPLANATORY NOTE
This prospectus relates to an offering of shares to be conducted in the
United States and Canada (the "U.S. Offering") and in a concurrent offering
outside the United States and Canada (the "International Offering"). The
complete form of prospectus relating to the U.S. Offering (the "U.S.
Prospectus"), immediately follows this explanatory note. The form of prospectus
relating to the International Offering (the "International Prospectus") will be
identical in all respects to the U.S. Prospectus, except that the International
Prospectus will contain a different front cover page. The form of the U.S.
Prospectus included herein is followed by the front cover page of the
International Prospectus. The International Prospectus front cover page is
labeled "Alternate Page for International Prospectus."
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND THE SELLING SHAREHOLDER IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS Issued August , 1999 (Subject to Completion)
SHARES
[BOK FINANCIAL CORPORATION LOGO]
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK OF BOK FINANCIAL CORPORATION THAT ARE BEING
OFFERED FOR SALE, BOK FINANCIAL CORPORATION IS OFFERING SHARES AND THE
SHAREHOLDERS LISTED IN THIS PROSPECTUS ARE OFFERING SHARES.
MR. GEORGE B. KAISER, BOK FINANCIAL'S PRINCIPAL STOCKHOLDER,
CURRENTLY BENEFICIALLY OWNS 74.1% OF OUR COMMON STOCK
AND WILL OWN % AFTER THE OFFERING.
------------------------
OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"BOKF". ON AUGUST 5, 1999, THE LAST REPORTED SALE PRICE OF OUR COMMON STOCK
WAS $23.375 PER SHARE.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS BOK FINANCIAL SHAREHOLDERS
-------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
BOK Financial Corporation has granted the underwriters the right to purchase up
to an additional shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
KEEFE BRUYETTE & WOODS, INC.
SALOMON SMITH BARNEY
STEPHENS INC.
August , 1999
<PAGE> 3
TABLE OF CONTENTS
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Page
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<S> <C>
PROSPECTUS SUMMARY....................................... 1
RISK FACTORS............................................. 8
USE OF PROCEEDS.......................................... 13
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY.......... 13
CAPITALIZATION........................................... 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING
DATA..................................................... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 16
BUSINESS................................................. 37
MANAGEMENT............................................... 54
PRINCIPAL AND SELLING SHAREHOLDERS....................... 58
DESCRIPTION OF CAPITAL STOCK............................. 60
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK......................... 61
UNDERWRITERS............................................. 63
LEGAL MATTERS............................................ 65
EXPERTS.................................................. 66
WHERE YOU CAN FIND MORE INFORMATION...................... 67
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in, or incorporated by
reference into, this prospectus. We have not authorized anyone to provide you
with information different from that contained in this prospectus. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale of
the common stock. In this prospectus, "we," "us" or "our" refer to BOK Financial
Corporation.
This prospectus contains certain references to and information for banks
that are comparable to us. As used in this prospectus, references to comparable
banks refer to the banks (other than BOK Financial) constituting the Morgan
Stanley Mid-Cap Bank Index. The Morgan Stanley Mid-Cap Bank Index comprises 20
mid-size commercial banks (including BOK Financial) with market capitalizations
ranging in size from approximately $1.1 billion to $8.2 billion as of August 5,
1999.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference includes
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the
forward-looking statements can be identified by the use of forward-looking
words such as "believes," "contemplates," "expects," "may," "will," "should,"
"seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or
the negative of those words or other comparable terminology. Forward-looking
statements involve inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from those in the
forward-looking statements. These factors include fluctuations in interest
rates, inflation, government regulations, and economic conditions and
competition in the geographic and business areas in which we conduct our
operations. For a discussion of factors that could cause actual results to
differ, please see the discussion under "Risk Factors" contained in this
prospectus and in other information contained in our publicly available SEC
filings.
-i-
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary with the more detailed information
about us and our financial statements, including the notes to those financial
statements, included in this prospectus and in the documents incorporated by
reference in this prospectus.
BOK Financial Corporation is the largest bank holding company headquartered
in the State of Oklahoma. We conduct business primarily in Oklahoma and
selected markets in neighboring states. We provide a broad array of financial
products and services to major corporations, middle-market companies, small
businesses, retail customers and other entities, including:
o corporate, small business and consumer lending;
o deposit taking;
o corporate treasury services and cash management;
o mortgage lending and servicing;
o trust and asset management services;
o automated teller machine network services; and
o capital markets services.
We have the number one deposit market share in Oklahoma and a leading
market position in nine of the 11 Oklahoma counties in which we operate. As of
March 31, 1999, approximately 76% of our assets were managed in Tulsa and in
Oklahoma City and 8% in the Dallas/Fort Worth area, with additional assets
managed in other Oklahoma markets, Fayetteville, Arkansas and Albuquerque, New
Mexico. We are the largest originator of mortgage loans in Oklahoma, serve as
the state's leading fiduciary and own the state's largest ATM/EFT network and
supermarket banking network.
As of March 31, 1999, we had:
o assets of $7.0 billion;
o loans of $3.6 billion;
o deposits of $4.3 billion; and
o shareholders' equity of $519.2 million.
For 1998, we had net income of $74.7 million, and for the three months ended
March 31, 1999, we had net income of $19.8 million.
BUSINESS SEGMENTS
Our operations are divided into four primary segments and Other Financial
Services. As a percentage of our total revenue for the first quarter of 1999,
Corporate Banking represents 27%, Consumer Banking represents 18%, Mortgage
Banking represents 11%, Trust Services represents 13%, Other Financial Services
represents 24% and other revenue, primarily from asset and liability
management, represents the remaining 7%.
CORPORATE BANKING DIVISION:
o offers commercial and industrial loans, real estate financing,
commercial mortgage loans, specialized industry loans, trade finance and
letters of credit, lease financing, selected capital markets products
and highly specialized treasury and cash management products;
o is the market leader in Oklahoma and has a significant presence in its
largest counties; and
- 1 -
<PAGE> 5
o had average loans of $2.3 billion and average deposits of $621 million
in the first quarter of 1999.
CONSUMER BANKING DIVISION:
o provides a full line of deposit, loan and fee-based banking products to
retail and small-business customers;
o is the deposit market share leader in Oklahoma and, through our
subsidiaries, has the fourth largest deposit market share in Albuquerque
and fifth largest in the State of New Mexico; and
o had average loans of $300 million and average deposits of $1.7 billion
in the first quarter of 1999.
MORTGAGE BANKING DIVISION:
o originates, purchases, sells and services individual residential
mortgage loans;
o is the largest mortgage originator in Oklahoma;
o services a $7.1 billion mortgage portfolio; and
o had mortgage loan originations of $850 million in 1998 and $198 million
in the first quarter of 1999.
TRUST SERVICES DIVISION:
o provides institutional, investment and retirement products, including
401(k) plans, mutual fund products, cash management and trust services
to affluent individuals, businesses, non-profit organizations and
government entities; and
o is currently responsible for approximately $15 billion in assets.
OTHER FINANCIAL SERVICES:
Other Financial Services comprises:
o TRANSFUND. This division provides merchants and financial institutions
with a full line of ATM, debit/credit card and merchant payment
processing products.
o BOSC, INC. This subsidiary specializes in the execution of securities
transactions as well as public and municipal finance activities and is
responsible for retail sales and brokerage activity.
o BANK OF TEXAS. This subsidiary provides corporate and consumer banking
and other financial services in the Dallas/Fort Worth metropolitan area,
focusing on middle-market banking.
o BANK OF ALBUQUERQUE. This subsidiary serves as the hub for expanding our
consumer and commercial banking and fiduciary service operations in New
Mexico.
o BANK OF ARKANSAS. This subsidiary provides corporate and consumer
banking, public finance, capital markets services and other financial
services in northwest Arkansas.
As a percentage of our first quarter of 1999 revenue, TransFund represents
6%, BOSC, Inc. represents 4%, Bank of Texas represents 7%, Bank of Albuquerque
represents 6%, and Bank of Arkansas represents 1%.
- 2 -
<PAGE> 6
PRIMARY MARKETS
Our primary markets have recently experienced impressive growth and
diversification:
o OKLAHOMA. Oklahoma's gross state product has grown from $37 billion in
1980 to $79 billion in 1998. Its economy has become significantly more
diversified, with the percentage of its gross state product derived from
the energy industry decreasing from 17.8% in 1980 to 5.3% in 1997.
o TEXAS. Our Texas operations are concentrated in the Dallas/Fort Worth
metropolitan area, the ninth largest Consolidated Metropolitan
Statistical Area in the United States. This market has experienced over
17% population growth and over 31% household income growth from 1990
through 1998.
o NEW MEXICO. Our New Mexico operations are concentrated in the
Albuquerque metropolitan area, which has experienced over 15% population
growth and over 38% household income growth from 1990 through 1998.
o ARKANSAS. Our Arkansas operations are focused in two counties in the
northwest region. From 1990 through 1998, these counties have
experienced over 29% population growth and over 36% household income
growth.
These growth rates significantly surpass U.S. historical growth levels,
which have been 8.3% in population growth and 27.3% in household income growth
from 1990 through 1998.
COMPETITIVE ADVANTAGES
Our primary competitive advantages include:
o STRONG FINANCIAL PERFORMANCE AND CAPITAL POSITION. We have consistently
achieved financial performance and growth superior to that of comparable
banks. Highlights of our recent financial performance include:
-- 19.8% compounded annual revenue growth from 1995 through 1998;
-- 22.5% compounded annual fee-based revenue growth from 1995 through
1998;
-- 14.5% compounded annual diluted earnings per share growth from 1995
through 1998; and
-- 1998 tangible ROA of 1.46% and tangible ROE of 17.8%, compared to
medians of 1.42% and 16.8%, respectively, for comparable banks.
We have achieved this growth and profitability while maintaining solid
reserve and capital levels.
o STRONG PRESENCE IN ATTRACTIVE AND GROWING MARKETS. We are the largest
locally-owned and managed bank in Oklahoma and have the number one
deposit market share in the state. Recent acquisitions have also
provided us with significant market share in new regional markets,
including Dallas/Fort Worth and Albuquerque. We rank among the top five
banks in deposit market share in nine of the 11 Oklahoma counties in
which we operate.
o EXCEPTIONAL LOCAL MARKET KNOWLEDGE AND CUSTOMER SERVICE. We have grown
our market share by emphasizing our reputation for in-depth local market
knowledge and strong customer service. In addition to having significant
expertise in many specialized industries, our commercial lending
officers have an average of seven years of service at BOK Financial and
approximately 13 years of overall industry experience. In each of our
markets, we identify our operations using a local name and provide local
management with the necessary decision-making authority to provide a
quick response to customer requests. We believe that our local market
knowledge and commitment, specialized industry expertise and strong
customer service were important factors leading to the growth of our
deposit market share in Oklahoma from 8.3% in 1995 to 10.4% in 1998.
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<PAGE> 7
o DIVERSIFIED, FEE-BASED PRODUCT OFFERING. In the first quarter of 1999,
our fee-based revenue represented over 46% of total revenue, which
compares favorably to the median of 29% for comparable banks. We offer
our customers a full line of products and services comparable to those
provided by many larger, super-regional or national banks. These
products include: treasury and cash management, selected capital markets
services, mortgage loan related services, brokerage, trust services,
asset management and certain trade finance products. Many of these
products and services provide us with fee-based revenue as opposed to
interest income. As a result, we enjoy this above average proportion of
diverse, predictable fee-based revenue.
o EXPERIENCED AND HIGHLY INCENTIVIZED MANAGEMENT TEAM. Our senior
management team has an average of 26 years of experience in financial
services. Our chairman, Mr. George B. Kaiser, has been Chairman of the
Board and majority owner since 1991. Our CEO, Mr. Stanley A. Lybarger,
has been with BOK Financial for 25 years. In addition, our management
compensation system is highly oriented toward employee retention and
generation of long-term appreciation in equity ownership. Mr. Kaiser
owns 74.1% of our diluted shares. In 1998, approximately 11% of our
full-time employees participated in at least one of our stock option
programs, and depending upon their tenure, members of our senior
management team can expect to have almost 40% of their compensation
derived from stock options.
o CONSISTENT UNDERWRITING APPROACH AND SUPERIOR CREDIT QUALITY. Our
conservative credit culture and consistent and prudent underwriting
approach have produced excellent credit quality. Our conservative
underwriting approach emphasizes local market knowledge and experience,
standardized credit evaluation criteria and an efficient and timely loan
approval process without sacrificing credit quality. As of March 31,
1999, our nonperforming assets to total loans and foreclosed assets
ratio was 0.55%, compared to a median of 0.57% for comparable banks.
BUSINESS STRATEGY
Our business strategy is to:
o FURTHER ENHANCE OUR LEADERSHIP POSITION IN THE OKLAHOMA MARKET. We have
the number one deposit market share in the state and are among the five
largest banks in terms of deposits in nine of the 11 Oklahoma counties
in which we operate. We intend to strengthen this leadership position by
pursuing several initiatives that leverage our Oklahoma market strengths.
These initiatives include acquiring customers through targeted sales to
desirable customer segments, developing new product and technological
innovations and continuing our high levels of customer service.
o CAPITALIZE ON THE VOID CREATED BY MERGERS OF LEADING LOCAL BANKS INTO
LARGE NATIONAL BANKS. We intend to continue our expansion by developing
business with middle market companies that are no longer being served
adequately by local banks due to consolidation in the banking industry.
We believe that we offer middle market companies a full range of
services typically provided by large banks, coupled with the customer
service typically offered by smaller local banks. In addition to an
increased emphasis on developing relationships with these customers, we
are employing a carefully designed acquisition strategy which targets
small to medium-size banks located in growing communities with large
numbers of mid-sized businesses and upper-income customer bases. We
believe that these banks afford us the platform from which to develop a
middle market lending presence that capitalizes on the void resulting
from a reduction in the number of banking firms which primarily target
those customers. Our recent acquisitions in the Dallas and Albuquerque
markets are examples of this strategy.
o CONTINUE TO GROW OUR FEE-BASED REVENUE. We believe that our ratio of
approximately 46% of fee-based revenue to total revenue in the first
quarter of 1999 represents one of the highest percentages of fee-based
revenue of any bank in the country. However, we intend to continue
growing our fee-based revenue contribution by executing a series of
ongoing initiatives in our nationally competitive, niche fee-generating
businesses, including Trust Services, Mortgage Banking, TransFund and
BOSC, Inc., our securities brokerage subsidiary.
o IMPROVE OUR OPERATING EXPENSE MANAGEMENT AND EFFICIENCY RATIO. Our focus
in prior years has been to build share in our home markets by taking
advantage of disruptions from ongoing bank consolidations, while
continuing to expand and develop our Texas franchise. While continued
opportunities exist, we also have identified opportunities to improve
our operating efficiency. To capitalize on these opportunities, we have
developed and are pursuing a number of expense-reduction strategies
including:
-- personnel expense reduction;
-- continued evaluation of outsourcing opportunities;
-- consolidation of operational facilities; and
-- revenue enhancement through differential pricing and improved float
management.
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<PAGE> 8
RECENT DEVELOPMENTS
We recently acquired three banks located in the Dallas/Fort Worth area for
approximately $76 million in cash and an additional bank in Oklahoma for
approximately 2.4 million shares of our common stock (approximately $60
million).
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AS OF MARCH 31, 1999
--------------------------------
CLOSING TOTAL TOTAL TOTAL
DATE NAME PLACE OF OPERATION ASSETS LOANS DEPOSITS
---- ---- ------------------ ------ ----- --------
(in millions)
<S> <C> <C> <C> <C> <C>
6/30/99 First National Bank & Trust Muskogee, Oklahoma $ 245.4 $90.6 $ 227.3
Company of Muskogee
5/14/99 Canyon Creek National Bank Richardson and McKinney, 104.8 56.8 97.2
Texas
6/4/99 Mid-Cities National Bank Tarrant County, Texas 78.6 42.8 72.1
6/16/99 Swiss Avenue State Bank Dallas, Texas 227.2 49.0 182.6
</TABLE>
The three acquisitions in the Dallas/Fort Worth metropolitan area increased our
total assets in this area to approximately $977 million from $566 million at
March 31, 1999. They also have increased our deposits in the area from $404
million to $756 million, giving us an approximate 1.2% share in this $53.9
billion deposit market.
---------------
Our principal executive offices are located at Bank of Oklahoma Tower,
Boston Avenue at Second Street, Tulsa, Oklahoma, 74172, and our telephone
number is (918) 588-6000.
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<PAGE> 9
THE OFFERING
The following summarizes the offering of our common stock. We are presenting
the information as if the underwriters did not exercise the over-allotment
option.
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Common stock offered by:
BOK Financial.............................. shares
George B. Kaiser........................... shares
Other selling shareholders................. shares
----------
Total.............................. shares
==========
Over-allotment option........................ shares
Common stock offered in:
U.S. offering.............................. shares
International offering..................... shares
----------
Total.............................. shares
==========
Common stock to be outstanding after
this offering............................... shares based on shares
outstanding as of , 1999. This does not
include shares of common stock issuable
upon the exercise of stock options granted
under our stock incentive plans, of which
options to purchase shares are currently
outstanding but not exercisable and
options to purchase shares are currently
outstanding and exercisable, and shares of
common stock immediately issuable upon
conversion of preferred stock.
Use of proceeds.............................. We will not receive any of the proceeds
from the sale of the shares by the selling
shareholders. We expect to use the net
proceeds from the sale of common stock to be
issued by us to fund future acquisitions and
for general corporate purposes.
Dividend policy.............................. Our present policy is to retain earnings
for capital and future growth, and management
has no current plans to recommend payment of
cash dividends on our common stock. Since 1996,
we have declared an annual dividend on our common
stock, payable in shares of our common stock, at
a rate of 3%.
Nasdaq National Market symbol................ BOKF
Risk Factors................................. You should carefully consider all of the
information in this prospectus and the
accompanying prospectus supplement including the
discussion of risks beginning on page 8 of this
prospectus.
</TABLE>
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<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial and other data as of December 31, 1997
and 1998 and or for the periods ended December 31, 1996, 1997 and 1998 are
calculated from our audited consolidated financial statements included in this
prospectus. The summary consolidated financial and other data as of December 31,
1996 are calculated from our audited consolidated financial statements
incorporated by reference into this prospectus. The summary consolidated
financial and other data as of and for the periods ended March 31, 1998 and
March 31, 1999 are calculated from our unaudited consolidated financial
statements incorporated by reference in to this prospectus.
You should read the following data with the more detailed information
contained in "Selected Consolidated Financial and Operating Data" included in
this prospectus and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
Year Ended December 31, 1998, and Quarterly Report on Form 10-Q for the Three
Months Ended March 31, 1999, each of which is incorporated by reference into
this prospectus and with our consolidated financial statements and notes to the
consolidated financial statements included in and incorporated by reference into
this prospectus.
See "Selected Consolidated Financial Data" for information regarding
assumptions and definitions used in the presentation of our financial data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
(dollars in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Taxable-equivalent net interest revenue ........ $ 135,804 $ 165,167 $ 191,545 $ 44,366 $ 52,231
Provision for loan loss ........................ 4,267 9,026 14,451 2,470 3,370
Other operating revenue ........................ 105,312 129,699 172,819 40,787 46,865
Other operating expense ........................ 159,028 195,166 228,655 57,193 63,593
----------- ----------- ----------- ----------- -----------
Income before taxes ............................ 77,821 90,674 121,258 25,490 32,133
Income tax ..................................... 23,694 26,049 46,542 9,177 12,316
----------- ----------- ----------- ----------- -----------
Net income ..................................... $ 54,127 $ 64,625 $ 74,716 $ 16,313 $ 19,817
=========== =========== =========== =========== ===========
PER COMMON SHARE:
Net income--basic .............................. $ 1.17 $ 1.40 $ 1.62 $ 0.35 $ 0.43
Net income--diluted ............................ 1.06 1.25 1.44 0.31 0.38
Book value--diluted (end of period) ............ 7.98 9.68 11.09 9.73 11.34
BALANCE SHEET DATA (END OF PERIOD):
Assets ......................................... $ 4,620,700 $ 5,399,642 $ 6,809,348 $ 5,632,667 $ 7,044,000
Loans .......................................... 2,394,580 2,765,093 3,551,941 2,836,296 3,591,398
Deposits ....................................... 3,256,755 3,728,079 4,379,230 4,019,374 4,342,935
Shareholders' equity ........................... 359,966 435,477 505,114 448,635 519,207
OTHER DATA:
Return on average assets ....................... 1.26% 1.27% 1.31% 1.19% 1.19%
Tangible return on average assets .............. 1.43 1.42 1.46 1.34 1.36
Return on average shareholders' equity ......... 16.80 16.41 15.99 14.89 15.75
Tangible return on average shareholders'
equity ....................................... 19.03 18.42 17.79 16.78 18.05
Net interest margin ............................ 3.54 3.66 3.72 3.65 3.57
Efficiency ratio ............................... 67.84 67.49 62.89 67.23 65.48
Tangible efficiency ratio ...................... 64.01 64.50 60.31 64.53 62.21
Tier 1 capital ratio ........................... 10.49 9.39 7.80 9.47 8.06
Total capital ratio ............................ 11.74 14.54 11.96 14.47 12.15
Leverage ratio ................................. 7.46 6.81 6.57 6.81 6.31
Tangible shareholders' equity ratio ............ 7.22 6.90 6.09 6.88 6.12
</TABLE>
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<PAGE> 11
RISK FACTORS
You should carefully consider the following risks as well as the other
information included or incorporated by reference in this prospectus before
purchasing the common stock.
ADVERSE REGIONAL ECONOMIC DEVELOPMENTS COULD NEGATIVELY AFFECT OUR BUSINESS
A substantial majority of our loans are generated in Oklahoma and other
markets in the southwest region, with approximately 95% of 1998 earnings
derived from Bank of Oklahoma. As a result, poor economic conditions in
Oklahoma or other markets in the southwest region may cause us to incur losses
associated with higher default rates and decreased collateral values in our
loan portfolio. In the mid-to-late 1980s, Oklahoma and other parts of the
region underwent an economic downturn that resulted in increases in the level
of delinquencies and losses for us and many of the other financial institutions
operating in the state. If another economic downturn were to occur, we would
expect our level of problem assets to increase accordingly. A regional economic
downturn could also adversely affect revenue from brokerage and trading
activities, mortgage loan originations and other sources of fee-based revenue.
ADVERSE ECONOMIC FACTORS AFFECTING PARTICULAR INDUSTRIES COULD HAVE A NEGATIVE
EFFECT ON OUR CUSTOMERS AND THEIR ABILITY TO MAKE PAYMENTS TO US
Certain industry-specific economic factors also affect us. For example, as
of year-end 1998, 4.4% of our total loan portfolio was to borrowers in the
agricultural industry and 13.2% of our total loan portfolio was to borrowers in
the energy industry, both of which industries are historically cyclical. Low
commodity prices may adversely affect those industries and, consequently, may
affect our business negatively; prices for certain commodities are currently
low. In addition, as of year-end, 1998, 20.9% of our total loan portfolio is
from commercial real estate loans, and a portion of our recent growth has been
fueled by the general real estate recovery in Oklahoma. Accordingly, a
commensurate downturn in the real estate industry in Oklahoma could also have
an adverse effect on our operations.
FLUCTUATIONS IN INTEREST RATES COULD ADVERSELY AFFECT OUR BUSINESS
Our business is highly sensitive to:
o the monetary policies implemented by the Federal Reserve Board, including
the discount rate on bank borrowings and changes in reserve requirements,
which affect our ability to make loans and the interest rates we may
charge;
o changes in prevailing interest rates, due to the dependency of our banks
on interest income; and
o open market operations in U.S. Government securities.
Significant increases in market interest rates, or the perception that an
increase may occur, could adversely affect both our ability to originate new
loans and our ability to grow. Conversely, a decrease in interest rates could
result in an acceleration in the prepayment of loans, including loans underlying
our holdings of mortgage-backed securities and termination of our mortgage
servicing rights. In recognition of the significant risk of loss on our
capitalized mortgage servicing rights in a declining interest rate environment,
we have undertaken a program to hedge this exposure through use of futures
contracts, call options and put options. In addition, changes in market interest
rates, changes in the relationships between short-term and long-term market
interest rates or changes in the relationships between different interest rate
indices, could affect the interest rates charged on interest-earning assets
differently than the interest rates paid on interest-bearing liabilities. This
difference could result in an increase in interest expense relative to interest
income. Our strategy of borrowing funds in the capital markets to supplement
deposit growth subjects us to additional interest rate and liquidity risk. An
increase in market interest rates also could adversely affect the ability of our
floating-rate borrowers to meet their higher payment obligations. If this
occurred, it could cause an increase in nonperforming assets and net
charge-offs, which could adversely affect our business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--Market
Risk," Quarterly Report on Form 10-Q for the Three Months Ended March 31, 1999,
for a discussion of our management of interest rate risk.
OUR SUBSTANTIAL HOLDINGS OF MORTGAGE-BACKED SECURITIES AND MORTGAGE SERVICING
RIGHTS COULD ADVERSELY AFFECT OUR BUSINESS
We have invested a substantial amount of our holdings in mortgage-backed
securities, which are investment interests in pools of mortgages.
Mortgage-backed securities are highly sensitive to changes in interest rates.
We mitigate this risk
- 8 -
<PAGE> 12
somewhat by investing principally in shorter duration, adjustable rate mortgage
products which are less sensitive to changes in interest rates. Nonetheless, a
significant decrease in interest rates could lead mortgage holders to refinance
the mortgages constituting the pool backing the securities, subjecting us to a
risk of prepayment and decreased return on investment due to subsequent
reinvestment at lower interest rates.
In addition, as part of our mortgage banking business, we have acquired
substantial holdings of mortgage servicing rights. The value of these rights is
also very sensitive to changes in interest rates. Falling interest rates tend to
increase loan prepayments, which may lead to cancellation of the related
servicing rights. Our investments and dealings in mortgage-related products
increases the risk that a decrease in interest rates could adversely affect our
business. We attempt to manage this risk by maintaining an active hedging
program for our mortgage servicing rights. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Market Risk,"
Quarterly Report on Form 10-Q for the Three Months Ended March 31, 1999, for a
discussion of our hedging program.
SUBSTANTIAL COMPETITION COULD ADVERSELY AFFECT US
Banking is a competitive business. We compete actively for loan, deposit and
other financial services business in Oklahoma, as well as in our other markets.
Our competitors include a large number of small and large local and national
banks, savings and loan associations, credit unions, trust companies,
broker-dealers and underwriters, as well as many financial and nonfinancial
firms that offer services similar to ours. Recently, large national financial
institutions, such as Bank One and BankAmerica, have entered the Oklahoma
market. These institutions have substantial capital, technology and marketing
resources. Such large financial institutions may have greater access to capital
at a lower cost than we do, which may adversely affect our ability to compete
effectively. In addition, there have been a number of recent mergers involving
financial institutions located in Oklahoma and our other markets. There have
historically been significant limitations in Oklahoma on the ability of existing
banks to establish branches. On June 30, 1999, legislation restricting the
ability of state thrifts to branch expired. As a consequence, after June 30,
1999, banks will have an unlimited ability to establish branches in Oklahoma.
Accordingly, we may face increased competition from both merged banks and new
entrants to our markets.
We have recently expanded into markets outside of Oklahoma, where we
compete with a large number of financial institutions that have an established
customer base and greater market share than we do. We may not be able to
compete successfully in these markets outside of Oklahoma.
With respect to some of our services, we compete with non-bank companies
that are not subject to regulation. The absence of regulatory requirements may
give non-banks a competitive advantage.
POSSIBLE DISRUPTION OF BUSINESS DUE TO THE YEAR 2000 PROBLEM
The Year 2000 problem results from an inability of computer systems to
accurately recognize dates on and after the year 2000. The Year 2000 problem is
a broad business issue that extends beyond computer failures to possible
failures of entire infrastructures, such as telecommunications and data
networks, building facilities and security systems and systems of other
institutions, including governmental agencies, to settle transactions.
We and our service providers are having to modify or replace significant
portions of computer software and hardware to ensure that our systems will
function correctly in the year 2000 and thereafter. As part of our
comprehensive Year 2000 compliance program, we have identified all of the major
application and processing systems and have sought external and internal
resources to replace and test the systems. We are testing purchased software,
internally developed systems and systems supported by external parties as part
of the program. We are evaluating customers and vendors that have significant
relationships with us to determine whether they are adequately preparing for
the year 2000. In addition, we are developing contingency plans to reduce the
impact of some potential events that may occur. These plans will include a
definition of and a plan to address the most reasonably likely, worst case
scenario. We cannot guarantee, however, that the systems of vendors or
customers with whom we do business will be Year 2000 compliant on a timely
basis or that contingency plans will shield operations from failures that may
occur.
The Year 2000 problem poses the following principal risks to our business:
o disruption of our business due to our failure to achieve Year 2000
readiness;
o disruption of our business due to failure of third parties to achieve
Year 2000 readiness; and
- 9 -
<PAGE> 13
o disruption in our funding and repayment operations due to failure of fund
providers and obligors to achieve Year 2000 readiness.
We are funding the cost of the Year 2000 project by normal operating cash
flow. Our estimated total cost could change further as analysis continues.
Because of the range of possible issues and the large number of variables
involved, however, we cannot definitively quantify the potential costs. For
example, our remediation efforts or the efforts of third parties may be
unsuccessful. Any failure of such remediation efforts could result in a loss of
business, damage to our reputation or legal liability. Consequently, such
failures could have a material adverse effect on our business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Considerations," Quarterly Report on Form 10-Q for the Three Months Ended
March 31, 1999, for a discussion of our Year 2000 compliance strategy.
YEAR 2000 LIQUIDITY NEEDS
We may experience additional liquidity needs in connection with increased
deposit withdrawals due to customer concerns over the Year 2000 issue. Although
we have developed a contingency funding plan to prepare for this potential
liquidity need, there can be no assurance that such steps will be adequate. As
a result, significant customer withdrawals in advance or immediately following
January 1, 2000 could have a material adverse effect on our results of
operations or financial condition.
RISKS ASSOCIATED WITH ACQUISITIONS
In order to grow our business, we have recently acquired, and expect to
acquire, other bank and nonbank businesses and assets from time to time.
Accordingly, we expect to face risks commonly encountered in making
acquisitions, including:
o possible loss of key personnel of our acquired businesses;
o difficulties assimilating the personnel and operations of our acquired
businesses;
o possible disruption of our ongoing business and additional burdens on our
management team;
o difficulties in maintaining uniform standards, controls, procedures and
policies;
o possible regulatory and other impediments associated with making
acquisitions; and
o possible unexpected increased costs related to acquisitions.
We cannot be certain that we will realize the anticipated benefits from our
acquisitions or that we will be able to integrate the acquired businesses
successfully. If we fail to integrate acquired businesses successfully, this
could have a material adverse effect on our business.
ADVERSE FACTORS COULD IMPACT OUR ABILITY TO IMPLEMENT OUR OPERATING STRATEGY
Although we have developed an operating strategy which we expect to result
in continuing improved financial performance, we cannot assure you that we will
be successful in fulfilling this strategy or that this operating strategy will
be successful. Achieving success is dependent upon a number of factors, many of
which are beyond our direct control. Factors that may adversely affect our
ability to implement our operating strategy include:
o deterioration of our asset quality;
o inability to reduce our noninterest expenses;
o inability to increase noninterest income;
o deterioration in general economic conditions, especially in our core
markets;
o decreases in net interest margins;
o increases in competition; and
o adverse regulatory developments.
- 10 -
<PAGE> 14
In particular, we cannot assure you that we will be able to achieve our
plan to reduce expenses and improve our efficiency ratio. This plan is based
on estimates of cost savings and revenue enhancements attributable to various
planned initiatives, and actual results may vary from our estimates. In
particular, our plan is based on current conditions and does not take into
effect future cost increases that may result from acquisitions, internal
growth, wage and price increases or other factors.
ADVERSE EFFECTS OF BANKING REGULATIONS OR CHANGES IN BANKING REGULATIONS COULD
ADVERSELY AFFECT US
We and our subsidiaries are extensively regulated under both federal and
state law. In particular, we are subject to the Bank Holding Company Act of
1956 and the National Bank Act. These regulations are primarily for the benefit
and protection of our customers and not for the benefit of our investors. In
the past, our business has been materially affected by these regulations. For
example, regulations limit our business to banking and related businesses, and
they limit the location of our branches and offices, as well as the amount of
deposits that we can own in a particular state. These regulations may limit our
ability to grow and expand into new markets and businesses.
Additionally, under the Community Reinvestment Act, we are required to
provide services in traditionally underserved areas. Our ability to make
acquisitions and engage in new business may be limited by these requirements.
In addition, the Federal Deposit Insurance Act of 1991 requires us to
maintain specified capital ratios. Any failure to maintain required capital
ratios would limit the growth potential of our business.
Under a long-standing policy of the Board of Governors of the Federal
Reserve System, a bank holding company is expected to act as a source of
financial strength for its subsidiary banks. As a result of that policy, we may
be required to commit financial and other resources to our subsidiary banks in
circumstances where we might not otherwise do so.
The trend toward extensive regulation is likely to continue in the future.
Laws, regulations or policies currently affecting us and our subsidiaries may
change at any time. Regulatory authorities may also change their interpretation
of these statutes and regulations. Therefore, our business may be adversely
affected by any future changes in laws, regulations, policies or
interpretations.
STATUTORY RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS AND DEBTS
OF OUR SUBSIDIARIES COULD LIMIT AMOUNTS OUR SUBSIDIARIES MAY PAY TO US
We are a bank holding company, and a substantial portion of our cash flow
typically comes from dividends that our bank and nonbank subsidiaries pay to
us. Various statutory provisions restrict the amount of dividends our
subsidiaries can pay to us without regulatory approval. In addition, if any of
our subsidiaries liquidates, that subsidiary's creditors will be entitled to
receive distributions from the assets of that subsidiary to satisfy their
claims against it before we, as a holder of an equity interest in the
subsidiary, will be entitled to receive any of the assets of the subsidiary.
If, however, we are a creditor of the subsidiary with recognized claims against
it, we will be in the same position as other creditors.
RISKS ASSOCIATED WITH LOW LIQUIDITY
A relatively small fraction of our outstanding common stock is actively
traded. Although this registration may increase the liquidity of our common
stock, we cannot be sure it will eliminate risks associated with low liquidity.
The risks of low liquidity include increased volatility of the price of our
shares. Low liquidity may also limit holders of our common stock in their
ability to sell or transfer our shares at the price, time and quantity desired.
OUR PRINCIPAL SHAREHOLDER CONTROLS A MAJORITY OF OUR SHARES
Mr. George B. Kaiser owns a majority of the outstanding shares of our common
stock. Mr. Kaiser will continue to be able to elect all of our directors and
effectively to control the vote on all matters submitted to a vote of our common
shareholders.
Mr. Kaiser's ability to prevent an unsolicited bid for BOK Financial or any
other change in control could have an adverse effect on the market price for our
common stock. A substantial majority of our directors are not officers or
employees of BOK Financial or any of its affiliates. However, because of Mr.
Kaiser's control over the election of our directors, he could change the
composition of our Board of Directors so that it would not have a majority of
outside directors.
- 11 -
<PAGE> 15
POSSIBLE FUTURE SALES OF SHARES BY OUR PRINCIPAL SHAREHOLDER COULD ADVERSELY
AFFECT THE MARKET PRICE OF OUR COMMON STOCK
Although Mr. Kaiser intends to maintain at least a majority ownership in
BOK Financial, he may sell shares of our common stock in compliance with the
federal securities laws at any time, or from time to time. The federal
securities laws will be the only restrictions on Mr. Kaiser's ability to sell.
Because of his current control of us, Mr. Kaiser could sell large amounts of
his shares of our common stock by causing us to file a registration statement
that would allow him to sell shares more easily. In addition, Mr. Kaiser could
sell his shares of our common stock without registration under Rule 144 of the
Securities Act. Although we can make no predictions as to the effect, if any,
that such sales would have on the market price of our common stock, sales of
substantial amounts of our common stock, or the perception that such sales
could occur, would adversely affect market prices. If Mr. Kaiser sells or
transfers his shares of our common stock as a block, another person or entity
could become our controlling shareholder.
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<PAGE> 16
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock to be issued by us will be approximately $ at an assumed public
offering price of $ per share and after deducting estimated offering
expenses of $ and underwriting discounts and commissions payable by us. If
the underwriters' over-allotment option is exercised in full, we estimate that
such proceeds will be approximately $ .
We will not receive any of the proceeds from the sale of the shares by the
selling shareholders. We expect to use the net proceeds from the sale of common
stock to be issued by us to fund future acquisitions and for general corporate
purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is quoted on the Nasdaq National Market under the symbol
"BOKF." The following table sets forth the high and low closing sale prices for
our common stock for the periods indicated, as reported by the Nasdaq National
Market. The share prices have been adjusted to reflect a two-for-one stock
split in the form of a 100% stock dividend paid on February 22, 1999, but not
for the annual 3% stock dividends paid in 1996, 1997 and 1998.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE
-------------------------
HIGH LOW
---------- -----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First quarter.......................... $ 15 3/16 $ 12 23/32
Second quarter......................... 17 1/32 13 9/16
Third quarter.......................... 19 5/16 15 7/16
Fourth quarter......................... 22 3/8 17 7/16
YEAR ENDED DECEMBER 31, 1998
First quarter.......................... 24 7/8 18 3/32
Second quarter......................... 24 15/16 22 1/32
Third quarter.......................... 23 29/32 19 19/32
Fourth quarter......................... 24 1/16 20 3/4
YEAR ENDED DECEMBER 31, 1999
First quarter.......................... 25 15/16 22 1/16
Second quarter......................... 25 7/8 23 3/4
Third quarter (as of August 5)......... 25 1/2 22 3/8
</TABLE>
A recent reported last sale price for our common stock as reported on the
Nasdaq National Market is set forth on the cover page of this prospectus. As of
June 30, 1999, there were 1,225 holders of record of our common stock based on
number of accounts.
Our present policy is to retain earnings for capital and future growth, and
management has no current plans to recommend payment of cash dividends on our
common stock. Our policy is also to pay an annual dividend on our common stock
payable in shares of our common stock at a rate of 3%.
In each of 1996, 1997 and 1998, a 3% dividend payable in shares of our
common stock was declared and paid to holders of our common stock. In addition,
in 1996, 1997 and 1998, 139,344 shares, 107,230 shares and 68,765 shares,
respectively, of our common stock were issued in payment of dividends on our
Series A Preferred Stock in lieu of cash by mutual agreement of BOK Financial
and the holders of our Series A Preferred Stock.
CAPITALIZATION
The following table presents our short-term debt and total capitalization
on a consolidated basis at December 31, 1998. The "As Adjusted for the Offering"
column presents our capitalization at December 31, 1998, as if this offering had
already occurred. We have assumed that BOK Financial will sell shares of
its common stock at a price of $ , less underwriting discounts of % and
expenses of $ .
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------
AS ADJUSTED
FOR
ACTUAL THE OFFERING
---------- ------------
(dollars in thousands)
<S> <C> <C>
Short-term debt:
Funds purchased and repurchase agreements................. $1,039,533 $1,039,533
Other borrowings.......................................... 660,347 660,347
---------- ----------
Total short-term debt............................. $1,699,880 $1,699,880
========== ==========
Long-term debt:
Subordinated debentures................................... $ 146,921 $ 146,921
---------- ----------
Total long-term debt.............................. 146,921 146,921
Shareholders' equity:
Preferred stock........................................... 25 25
Common stock, $.00006 par value, 2,500,000,000 shares
authorized, 45,037,558 shares issued and outstanding,
shares as adjusted................................ 3
Capital surplus........................................... 233,022
Retained earnings......................................... 261,822 261,822
Treasury stock (23,792 shares at cost).................... (565) (565)
Accumulated other comprehensive income.................... 10,807 10,807
---------- ----------
Total shareholders' equity........................ 505,114
---------- ----------
Total capitalization......................... $ 652,035 $
========== ==========
Book value per share (diluted).............................. $ 11.09 $
Tier 1 capital ratio........................................ 7.80% %
Return on average shareholders' equity...................... 15.99
Tangible shareholders' equity ratio......................... 6.09
</TABLE>
- 13 -
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial and other data as of December 1997 and
December 1998 and for the years ended December 31, 1996, 1997 and 1998 are
derived from our audited consolidated financial statements that are included in
this prospectus. The selected consolidated financial and other data as of
December 31, 1994, 1995 and 1996 and for the years ended December 31, 1994 and
1995 are derived from our audited consolidated financial statements that are
incorporated in this prospectus by reference. The selected consolidated
financial and other data as of and for the quarter ended March 31, 1998 and 1999
are derived from our unaudited consolidated financial statements that are
incorporated in this prospectus by reference. You should read the following data
with the more detailed information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report
for the year ended December 31, 1998, and Quarterly Report on Form 10-Q for the
Three Months Ended March 31, 1999, each of which is incorporated in this
prospectus by reference, and with our consolidated financial statements and the
notes to the consolidated financial statements included in and incorporated in
this prospectus by reference.
You should read the following information with the data in the table on the
next page:
o Per share data has been restated to reflect the two-for-one stock split
in the form of a 100% stock dividend paid on February 22, 1999 and a 3%
stock dividend paid on November 25, 1998.
o We have presented net interest income and income before income taxes on a
taxable-equivalent basis using a combined federal and state statutory tax
rate of 38.9%.
o Other operating expense includes merger and integration expense, which
was $98,000 for 1996, $112,000 for 1997 and $2.0 million for 1998.
o Tangible return on average shareholders' equity is net income plus
intangible amortization net of income taxes divided by average
shareholders' equity.
o The efficiency ratio is noninterest expense not including foreclosed
asset expense or income, as a percentage of the sum of net interest
income (on a taxable-equivalent basis) and noninterest income.
o The tangible efficiency ratio is noninterest expense not including
foreclosed asset expense or income and expenses from intangible
assets, as a percentage of the sum of net interest income (on a
taxable-equivalent basis) and noninterest income.
o The Tier 1 leverage ratio is computed by dividing Tier 1 capital, which
is total shareholders' equity less net unrealized gains and losses on
securities available for sale and intangible assets, by average tangible
assets.
o The Tier 1 capital ratio is computed by dividing Tier 1 capital by risk
weighted period-end assets. Risk weighted period-end assets equal the
balance of the assets at risk less the portion of the allowance for
credit losses which exceeds 1.25% of the balance of the assets at risk.
The balance of the assets at risk is calculated by applying risk-weighted
percentages per regulatory guidelines to total assets and off-balance
sheet items.
o The tangible shareholders' equity ratio is tangible shareholders' equity
divided by tangible assets.
o The total capital ratio is total risk-based capital divided by total
risk-adjusted assets.
o The reserve for loan losses to loans is computed by dividing the reserve
for loan losses by total loans, excluding residential mortgage loans held
for sale which are carried at the lower of aggregate cost or market
value.
o The provision for loan losses to average total loans is computed by
dividing the annualized provision for loan losses by total average loans,
excluding average residential mortgage loans held for sale.
- 14 -
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ----------- ---------- ----------
(dollars in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Taxable-equivalent interest revenue .............. $ 229,175 $ 282,479 $ 298,897 $ 354,115 $ 395,880
Interest expense ................................. 104,055 160,177 163,093 188,948 204,335
---------- ---------- ----------- ---------- ----------
Taxable-equivalent net interest revenue .......... 125,120 122,302 135,804 165,167 191,545
Provision for loan losses ........................ 195 231 4,267 9,026 14,451
Other operating revenue .......................... 74,364 91,146 105,312 129,699 172,819
Other operating expense .......................... 133,475 142,206 159,028 195,166 228,665
---------- ---------- ----------- ---------- ----------
Income before income taxes ....................... 65,814 71,011 77,821 90,674 121,258
Income tax expense ............................... 20,749 21,806 23,694 26,049 46,542
---------- ---------- ----------- ---------- ----------
Net income ....................................... $ 45,065 $ 49,205 $ 54,127 $ 64,625 $ 74,716
========== ========== =========== ========== ==========
PER COMMON SHARE:
Net income-basic ................................. $ 0.96 $ 1.06 $ 1.17 $ 1.40 $ 1.62
Net income-diluted ............................... 0.88 0.96 1.06 1.25 1.44
Book value-diluted (end of period) ............... 5.22 6.67 7.98 9.68 11.09
Common shares outstanding (end of period) ........ 39,470 40,832 42,264 43,818 45,037
Weighted average common shares
outstanding-basic ................................ 45,032 44,971 45,014 45,120 45,118
Weighted average common shares
outstanding-diluted .............................. 51,110 51,058 51,161 51,634 51,790
BALANCE SHEET DATA (END OF PERIOD):
Assets ........................................... $3,927,276 $4,244,118 $ 4,620,700 $5,399,642 $6,809,348
Loans ............................................ 1,844,053 2,194,368 2,394,580 2,765,093 3,551,941
Intangible assets ................................ 43,846 37,134 28,276 67,796 95,935
Nonperforming assets ............................. 24,214 32,687 23,411 24,232 17,716
Deposits ......................................... 2,629,574 2,937,709 3,256,755 3,728,079 4,379,230
Subordinated debenture ........................... 23,000 -- -- 148,356 146,921
Shareholders' equity ............................. 236,902 301,565 359,966 435,477 505,114
BALANCE SHEET DATA (PERIOD AVERAGE):
Assets ........................................... $3,580,373 $4,046,189 $ 4,302,427 $5,090,545 $5,712,791
Loans ............................................ 1,718,508 2,012,574 2,252,216 2,598,718 2,978,438
Earning assets ................................... 3,177,134 3,603,355 3,834,705 4,510,970 5,064,001
Deposits ......................................... 2,554,185 2,681,892 3,125,780 3,471,875 3,878,801
Shareholder's equity ............................. 226,201 272,359 322,254 393,704 467,300
PROFITABILITY RATIOS:
Return on average assets ......................... 1.26 % 1.22 % 1.26 % 1.27 % 1.31 %
Tangible return on average assets ................ 1.38 1.34 1.43 1.42 1.46
Return on average shareholders' equity ........... 19.92 18.07 16.80 16.41 15.99
Tangible return on average
shareholders' equity ............................. 21.90 19.85 19.03 18.42 17.79
Net interest margin .............................. 3.94 3.39 3.54 3.66 3.72
Efficiency ratio ................................. 69.20 68.07 67.84 67.49 62.89
Tangible efficiency ratio ........................ 66.40 65.27 64.01 64.50 60.31
RISK-BASED CAPITAL RATIOS:
Tier 1 capital ratio ............................. 9.14 % 9.91 % 10.49 % 9.39 % 7.80 %
Total capital ratio .............................. 11.19 11.17 11.74 14.54 11.96
Leverage ratio ................................... 5.64 6.55 7.46 6.81 6.57
Return on average shareholders' equity ........... 19.92 18.07 16.80 16.41 15.99
CREDIT QUALITY RATIOS:
Reserve for loan losses to
nonperforming loans .............................. 190.27 % 130.73 % 239.70 % 279.86 % 495.05 %
Reserve for loan losses to loans ................. 2.12 1.80 1.96 1.98 1.88
Provision for loan losses to average
total loans ...................................... 0.01 0.01 0.19 0.35 0.50
Net loans charged off to average total loans ..... 0.01 0.01 (0.12) 0.14 0.09
Nonperforming assets to total loans and
foreclosed assets ................................ 1.31 1.49 0.98 0.87 0.50
Nonperforming assets to total assets ............. 0.62 0.77 0.51 0.45 0.26
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------------
1998 1999
---------- ----------
(unaudited)
(dollars in thousands,
except per share and ratio data)
<S> <C> <C>
RESULTS OF OPERATIONS:
Taxable-equivalent interest revenue .............. $ 95,074 $ 108,841
Interest expense ................................. 50,708 56,610
---------- ----------
Taxable-equivalent net interest revenue .......... 44,366 52,231
Provision for loan losses ........................ 2,470 3,370
Other operating revenue .......................... 40,787 46,865
Other operating expense .......................... 57,193 63,593
---------- ----------
Income before income taxes ....................... 25,490 32,133
Income tax expense ............................... 9,177 12,316
---------- ----------
Net income ....................................... $ 16,313 $ 19,817
========== ==========
PER COMMON SHARE:
Net income-basic ................................. $ 0.35 $ 0.43
Net income-diluted ............................... 0.31 0.38
Book value-diluted (end of period) ............... 9.73 11.34
Common shares outstanding (end of period) ........ 43,797 45,125
Weighted average common shares
outstanding-basic ................................ 45,229 45,096
Weighted average common shares
outstanding-diluted .............................. 51,934 51,747
BALANCE SHEET DATA (END OF PERIOD):
Assets ........................................... $5,632,667 $7,044,000
Loans ............................................ 2,836,296 3,591,398
Intangible assets ................................ 65,494 93,933
Nonperforming assets ............................. 24,181 19,827
Deposits ......................................... 4,019,374 4,342,935
Subordinated debenture ........................... 148,388 148,504
Shareholders' equity ............................. 448,635 519,207
BALANCE SHEET DATA (PERIOD AVERAGE):
Assets ........................................... $5,554,376 $6,750,179
Loans ............................................ 2,822,147 3,523,454
Earning assets ................................... 4,928,513 5,933,983
Deposits ......................................... 3,852,937 4,291,586
Shareholder's equity ............................. 444,246 510,279
PROFITABILITY RATIOS:
Return on average assets ......................... 1.19 % 1.19 %
Tangible return on average assets ................ 1.34 1.36
Return on average shareholders' equity ........... 14.89 15.75
Tangible return on average
shareholders' equity ............................. 16.78 18.05
Net interest margin .............................. 3.65 3.57
Efficiency ratio ................................. 67.23 65.48
Tangible efficiency ratio ........................ 64.53 62.21
RISK-BASED CAPITAL RATIOS:
Tier 1 capital ratio ............................. 9.47% 8.06 %
Total capital ratio .............................. 14.47 12.15
Leverage ratio ................................... 6.81 6.31
Return on average shareholders' equity ........... 14.89 15.75
CREDIT QUALITY RATIOS:
Reserve for loan losses to
nonperforming loans .............................. 291.46 % 452.85 %
Reserve for loan losses to loans ................. 2.02 1.94
Provision for loan losses to average
total loans ...................................... 0.36 0.39
Net loans charged off to average total loans ..... 0.10 0.04
Nonperforming assets to total loans and
foreclosed assets ................................ 0.85 0.55
Nonperforming assets to total assets ............. 0.43 0.28
</TABLE>
- 15 -
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and the results of our operations together with our financial
statements and the notes to those financial statements included in the
accompanying prospectus.
INTRODUCTION
We are a bank holding company that offers full service banking in Oklahoma,
north Texas, northwest Arkansas and New Mexico. Our principal subsidiaries are
Bank of Oklahoma, N.A., Bank of Texas, N.A., Bank of Albuquerque, N.A. and Bank
of Arkansas, N.A. Our other significant operating subsidiaries include BOK
Capital Services Corporation, which provides leasing and mezzanine financing,
and BOSC, Inc., which engages in retail and institutional securities sales and
municipal underwriting.
During the fourth quarter of 1998, we formed Bank of Albuquerque through
the acquisition of 17 branches with total deposits of $465 million. We have also
recently completed acquisitions of banks in Muskogee, Oklahoma and Dallas, Texas
which are expected to increase total assets by $656 million.
SUMMARY OF PERFORMANCE
We recorded net income of $74.7 million for 1998 compared to $64.6 million
for 1997. Diluted earnings per common share were $1.44 for 1998 compared to
$1.25 for 1997. Prior period per share data have been restated to reflect a 3%
stock dividend paid in November, 1998 and a two-for-one stock split in the form
of a 100% stock dividend paid on February 22, 1999. Returns on average assets
and average equity were 1.31% and 15.99%, respectively, for 1998 compared to
1.27% and 16.41%, respectively, for 1997.
The increase in net income for 1998 was due to increases of $26.7 million
or 17% in net interest revenue, $32.2 million or 25% in fees and commissions and
$10.7 million in gains on securities sales. These increases were partially
offset by increases of $33.5 million or 17% in operating expenses, $5.4 million
in provision for loan losses and $20.8 million in income taxes.
Net income for 1996 was $54.1 million or $1.06 per diluted common share.
Returns on average assets and equity were 1.26% and 16.80%, respectively.
TANGIBLE OPERATING RESULTS
Since inception, we have completed several acquisitions that were accounted
for under the purchase method of accounting. The purchase method results in the
recording of goodwill and other identifiable intangible assets that are
amortized as noncash charges in future years into operating expense. The
intangible assets that result from the purchase method of accounting are
deducted from shareholders' equity in the determination of regulatory capital.
Thus, the related tangible net income represents the regulatory capital
generated during the year and can be viewed as net income excluding intangible
amortization net of tax. While the definitions of "tangible" earnings may vary
by company, we believe this definition is appropriate, as it
- 16 -
<PAGE> 20
measures the per share growth of regulatory capital, which impacts the amounts
available for dividends and acquisitions. Operating results excluding the impact
of these intangible assets are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(DOLLARS IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net income................................... $ 54,127 $ 64,625 $ 74,716
After-tax impact of amortization of
intangible assets.......................... 7,209 7,911 8,406
---------- ---------- ----------
Tangible net income.......................... $ 61,336 $ 72,536 $ 83,122
========== ========== ==========
Tangible net income per diluted share........ $ 1.20 $ 1.41 $ 1.61
========== ========== ==========
Average tangible shareholders' equity........ $ 289,603 $ 327,719 $ 399,433
Return on tangible shareholders' equity...... 21.18% 22.13% 20.81%
========== ========== ==========
Average tangible assets...................... $4,269,774 $5,024,557 $5,644,924
Return on tangible assets.................... 1.44% 1.44% 1.47%
========== ========== ==========
</TABLE>
In the table above, shares and per share data have been restated to reflect
the two-for-one stock split in the form of a 100% stock dividend paid on
February 22, 1999. In addition, shares and per share data have been restated to
reflect the 3% stock dividend paid in November 1998.
BUSINESS SEGMENTS
We operate four primary segments--Corporate Banking, Consumer Banking,
Mortgage Banking and Trust Services--which in the aggregate account for more
than 75% of total revenue. In addition, Other Financial Services includes the
TransFund ATM system, BOSC, Inc., Bank of Texas, Bank of Albuquerque and Bank of
Arkansas.
CORPORATE BANKING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue................................ $ 70,727 $ 86,645 $ 102,355
Operating expense............................ 23,126 30,328 42,077
Net income................................... 29,276 34,636 36,884
Average assets............................... 1,449,637 1,819,834 2,171,023
Average equity............................... 164,214 210,407 255,108
Return on assets............................. 2.02% 1.90% 1.70%
Return on equity............................. 17.83 16.46 14.46
Efficiency ratio............................. 32.70 35.00 41.11
</TABLE>
The Corporate Banking Division provides loan and lease financing and
treasury and cash management services to businesses throughout Oklahoma and
seven surrounding states. In addition to serving the banking needs of
middle-market and larger customers, the Corporate Banking Division has
specialized groups which serve customers in the energy, agriculture, healthcare
and banking/finance industries. The Corporate Banking Division contributed 49%
of consolidated net income for 1998 and 54% of consolidated net income for 1997.
Total revenue for this division increased by 18% during 1998, primarily due to
increased loan volumes. However, operating expenses for this division grew by
39% during 1998 due to higher servicing and personnel costs. This caused a lower
return on average assets and equity for the division for 1998. Average assets
allocated to this division increased $351 million or 19% during 1998 due to
higher loan volumes.
- 17 -
<PAGE> 21
CONSUMER BANKING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue................................ $ 64,500 $ 65,083 $ 69,446
Operating expense............................ 49,911 50,879 52,395
Net income................................... 7,118 6,191 8,340
Average assets............................... 1,963,068 1,894,535 1,904,409
Average equity............................... 55,332 44,600 46,767
Return on assets............................. 0.36% 0.33% 0.44%
Return on equity............................. 12.86 13.88 17.83
Efficiency ratio............................. 77.38 78.18 75.45
</TABLE>
The Consumer Banking Division provides its customers with a full line of
deposit, loan and fee-based services through four major distribution channels:
traditional branches, supermarket branches, the 24-hour ExpressBank call center
and the Internet. Additionally, the division is a significant referral source
for the Bank of Oklahoma Mortgage Banking Division and BOSC's Retail Brokerage
Division. The Consumer Banking Division contributed 11% of consolidated net
income for 1998 and 10% of consolidated net income for 1997. Total revenue,
which consists primarily of intercompany credit for funds provided to other
divisions within our organization and fees generated by various services,
increased 7% during 1998. The increase in operating expenses for this same
period was limited to 3%. The result is an improvement in returns on average
assets and equity for the division and an improved efficiency ratio.
MORTGAGE BANKING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue.................................... $ 32,436 $ 39,307 $ 50,643
Operating expense................................ 27,750 33,204 41,863
Provision for impairment of mortgage servicing
rights......................................... 361 4,100 (2,290)
Net income....................................... 2,522 1,059 6,634
Average assets................................... 520,559 386,985 350,362
Average equity................................... 26,396 28,723 30,556
Return on assets................................. 0.48% 0.27% 1.89%
Return on equity................................. 9.55 3.69 21.71
Efficiency ratio................................. 85.55 84.47 82.66
</TABLE>
We engage in mortgage banking activities through the Mortgage Banking
Division. These activities include the origination, marketing and servicing of
mortgage loans. The Mortgage Banking Division contributed 9% to consolidated net
income in 1998, compared to 2% in 1997. Operating results for 1997 were
constrained by a provision of $4.1 million for possible impairment of mortgage
servicing rights. Operating results for 1998 benefited from a $2.3 million
reversal of the 1997 allowance for impaired mortgage servicing rights.
Total revenue from the Mortgage Banking Division increased $11.3 million or
29% during 1998. Origination and marketing activities resulted in net gains of
$8.3 million in 1998, compared to net gains of $1.5 million in 1997. This
improvement was the result of an increase in loan production due to lower
interest rates including a high level of refinancing activity. Total mortgage
loan production for 1998 increased $20 million to $850 million, compared to $830
million in 1997. Originations for 1997 included approximately $353 million in
correspondent originations. This activity was significantly lower in 1998, with
$24 million in correspondent originations. As of the end of 1998, the Mortgage
Banking Division had effectively eliminated correspondent originations.
- 18 -
<PAGE> 22
Commitments to originate mortgage loans create both credit and interest
rate risk. Credit risk is managed through underwriting policies and procedures,
and interest rate risk is partially hedged through forward sales contracts. All
fixed rate mortgage loans are generally sold in the secondary market pursuant to
forward sales contracts. All adjustable rate mortgage loans are sold to an
affiliate. The Mortgage Banking Division currently does not securitize pools of
mortgage loans either for sale or retention.
Mortgage loan servicing revenue for 1998 was $33.5 million, a $2.7 million
increase over 1997. Mortgage loans serviced by the Mortgage Banking Division
totaled $6.4 billion at December 31, 1998, compared to $7.0 billion at the end
of 1997. These amounts include loans serviced for Bank of Oklahoma of $130
million for 1998 and $216 million for 1997.
Capitalized mortgage servicing rights, which totaled $69.2 million at
December 31, 1998 and $83.9 million at December 31, 1997, represent mortgage
loans serviced for others carried at the lower of amortized cost, plus or minus
deferred hedging losses or gains, 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. A valuation allowance is provided for the excess of
the net carrying value of servicing rights over their fair values. In 1998, the
Mortgage Banking Division implemented a program that uses futures contracts and
call and put options to hedge against this risk. This program generated realized
gains of $22.7 million and unrealized gains of $518,000 that reduced the
carrying value of the mortgage servicing rights. The allowance for impairment of
mortgage servicing rights that had previously been provided was reversed in the
fourth quarter of 1998 due to the overall effect of the hedge program.
Additional discussion about the sensitivity of the mortgage servicing portfolio
to changes in interest rates is provided below under "-- Market Risk."
TRUST SERVICES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenue.................................... $ 33,520 $ 38,408 $ 48,007
Operating expense................................ 25,779 28,532 35,419
Net income....................................... 4,600 5,854 7,566
Average assets................................... 219,851 242,886 295,660
Average equity................................... 20,898 24,233 30,188
Return on assets................................. 2.09% 2.41% 2.56%
Return on equity................................. 22.01 24.16 25.06
Efficiency ratio................................. 76.91 74.29 73.78
</TABLE>
We provide a wide range of trust services, including institutional,
investment and retirement products and services to affluent individuals and
businesses, to not-for-profit organizations and to governmental agencies through
the Bank of Oklahoma Trust Services Division and Bank of Texas Trust Company.
Trust services are primarily provided to clients in Oklahoma, Texas, New Mexico
and Arkansas. Additionally, trust services include a nationally competitive
self-directed 401(k) program with client firms in Chicago, New York and Los
Angeles. At December 31, 1998, trust assets with an aggregate market value of
$14.4 billion were subject to various fiduciary arrangements, compared to $11.1
billion at December 31, 1997. Trust Services contributed 10% to consolidated net
income in 1998, compared to 9% in 1997. Revenue from Trust Services increased
$9.6 million or 25% during 1998. However, operating expenses increased $6.9
million or 24%, due primarily to a $4.7 million increase in personnel costs.
- 19 -
<PAGE> 23
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET INTEREST REVENUE
Net interest revenue, on a taxable-equivalent basis, totaled $191.5 million
for 1998, compared to $165.2 million in 1997. This increase in net interest
revenue was due to increases in both net interest margin and average earning
assets. Additionally, we recognized nonrecurring interest income in 1998 of $3.3
million from the collection of foregone interest. The yield on average earning
assets decreased to 7.75% in 1998, compared to 7.85% in 1997, due to a general
trend toward lower interest rates and increasingly competitive loan pricing.
This decline in yield was partially offset by an improvement in the mix of
earning assets. Loans, which generally have higher yields than other types of
earning assets, increased to 58% of earning assets in 1998 compared to 56% in
1997. The cost of interest-bearing liabilities decreased to 4.78% in 1998,
compared to 4.88% in 1997, due to lower market interest rates. Interest rate
swaps, which are used to hedge against interest rate risk on certain long-term
certificates of deposit and long-term subordinated debt, reduced interest
expense by $1.7 million in 1998, compared to $1.2 million in 1997.
Average earning assets increased $553 million, including a $380 million
increase in average loans. Over the same period, average interest-bearing
liabilities increased $399 million. The growth of average earning assets in
excess of average interest-bearing liabilities contributed $24.6 million to
1998's increase in net interest revenue.
The following table shows the changes in the components of net interest
income on a taxable-equivalent basis. The changes in net interest income between
periods have been reflected as attributable either to volume or yield/rate
changes. For purposes of this table, changes attributable to both volume and
yield/rate are allocated to both volume and yield/rate on an equal basis.
<TABLE>
<CAPTION>
1996/1997 1997/1998
------------------------------ ------------------------------
CHANGE DUE TO CHANGE DUE TO
-------------------- --------------------
CHANGE VOLUME YIELD/RATE CHANGE VOLUME YIELD/RATE
------- ------- ---------- ------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Taxable-equivalent interest
revenue:
Securities...................... $23,164 $19,843 $ 3,321 $ 9,975 $11,368 $(1,393)
Trading securities.............. (53) (20) (33) 759 856 (97)
Loans........................... 30,745 30,271 474 28,924 32,937 (4,013)
Funds sold and resell
agreements................... 1,362 1,337 25 (1,155) (1,226) 71
------- ------- ------- ------- ------- -------
Total................... 55,218 51,431 3,787 38,503 43,935 (5,432)
------- ------- ------- ------- ------- -------
Interest expense:
Transaction deposits............ 4,755 6,488 (1,733) 3,334 4,377 (1,043)
Savings deposits................ (97) 129 (226) 6 122 (116)
Time deposits................... (682) 511 (1,193) 4,639 6,093 (1,454)
Borrowed funds.................. 17,713 16,788 925 1,881 3,288 (1,407)
Subordinated debentures......... 4,166 4,166 -- 5,527 5,463 64
------- ------- ------- ------- ------- -------
Total................... 25,855 28,082 (2,227) 15,387 19,343 (3,956)
------- ------- ------- ------- ------- -------
Taxable-equivalent net interest
revenue......................... 29,363 $23,349 $ 6,014 23,116 $24,592 $(1,476)
======= ======= ======= =======
Nonrecurring foregone interest.... -- 3,262
Change in taxable-equivalent
adjustment...................... 1,202 (274)
------- -------
Net interest revenue.............. $28,161 $26,652
======= =======
</TABLE>
Net interest margin, the ratio of net interest revenue to average earning
assets, increased from 3.66% in 1997 to 3.72% in 1998. This increase was due
primarily to lower rates paid on deposits and borrowed funds. Since inception in
1990, we have followed a strategy of fully utilizing our capital resources by
borrowing funds in the capital markets to supplement deposit growth and to
invest in securities. Although this strategy
- 20 -
<PAGE> 24
frequently results in a net interest margin that falls below those normally seen
in the commercial banking industry, it provides positive net interest revenue.
We estimate that for 1998, this strategy resulted in a 59 basis point decrease
in net interest margin. However, this strategy contributed $8.4 million to net
interest revenue for the year. As more fully discussed below under "--Market
Risk", management employs various techniques to control, within established
parameters, the interest rate and liquidity risk inherent in this strategy. For
additional information with respect to the major components of net interest
income and net interest margin, see the table of consolidated daily average
balances, average yields and rates included in "Annual Financial
Summary--Unaudited" on page F-44 of this prospectus.
The financial services environment in our primary markets is highly
competitive due to a large number of commercial banks, thrifts, credit unions
and brokerage firms. Additionally, many customers have access to national and
regional financial institutions for many products and services. We expect that
we will continue to be able to successfully compete with these financial
institutions by delivering the products and services traditionally associated
with a large bank with the responsiveness of a smaller community bank.
OTHER OPERATING REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Brokerage and trading revenue............. $ 5,517 $ 6,046 $ 7,896 $ 9,556 $ 15,301
Transaction card revenue.................. 8,474 11,045 14,298 19,339 24,426
Trust fees and commissions................ 17,117 19,363 21,638 24,062 29,939
Service charges and fees on deposit
accounts................................ 20,698 21,152 24,104 28,651 32,187
Mortgage banking revenue.................. 15,868 20,336 26,234 32,235 41,733
Leasing revenue........................... -- 586 2,236 5,861 7,111
Other revenue............................. 8,299 9,512 10,769 10,013 11,237
------- ------- -------- -------- --------
Total fees and commissions...... $75,973 $88,040 $107,175 $129,717 $161,934
======= ======= ======== ======== ========
Gain on student loan sales................ 259 762 1,069 1,311 1,548
Gain (loss) on branch sales............... -- 1,170 (325) -- --
Gain (loss) on securities................. (1,868) 1,174 (2,607) (1,329) 9,337
------- ------- -------- -------- --------
Total other operating revenue... $74,364 $91,146 $105,312 $129,699 $172,819
======= ======= ======== ======== ========
</TABLE>
Other operating revenue, which consists primarily of fee-based revenue from
products and services, increased $43.1 million or 33% compared to 1997.
Excluding gains and losses on securities sales, other operating revenue
increased $32.5 million or 25%. Other operating revenue excluding securities
gains contributed 47% of our total revenue for 1998. Service fees on deposits
totaled $32.2 million, an increase of 12% over 1997, while revenue generated by
card-based transactions such as the TransFund ATM network, bankcards, and
related merchant deposits increased by 26% to $24.4 million. These increases are
generally due to a higher volume of transactions processed in 1998. Brokerage
and trading revenue increased $5.7 million or 60% during 1998 due to improved
market conditions and additional resources focused in this area.
Many of our fee-generating activities, such as brokerage and trading
activities, trust services and mortgage servicing, are indirectly affected by
changes in interest rates. Significant increases in interest rates may tend to
decrease the volume of trading activities, and may lower the value of trust
assets managed, which is the basis of certain fees, but would tend to decrease
the incidence of mortgage loan prepayments. Similarly, a decrease in economic
activity would decrease ATM, bankcard and related revenue.
While we expect continued growth in other operating revenue, the future
rate of increase could be affected by increased competition from national and
regional financial institutions and from market saturation. Continued growth may
require us to introduce new products or to enter new markets, which introduces
additional demands on capital and managerial resources.
- 21 -
<PAGE> 25
OTHER OPERATING EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Personnel expense....................... $ 63,111 $ 67,298 $ 71,945 $ 87,728 $105,995
Business promotion...................... 6,213 6,039 6,372 8,657 8,040
Contribution of stock to BOK Charitable
Foundation............................ -- -- -- 3,638 2,257
Professional fees and services.......... 4,664 5,898 5,406 6,769 9,657
Net occupancy, equipment and data
processing expense.................... 23,619 27,324 30,831 35,614 42,819
FDIC and other insurance................ 6,386 4,406 1,740 1,293 1,260
Special deposit insurance assessment.... -- -- 3,820 -- --
Printing, postage and supplies.......... 5,415 6,340 6,792 7,783 9,196
Net gains and operating expenses on
repossessed assets.................... (4,575) (3,098) (4,552) (3,849) (480)
Amortization of intangible assets....... 5,597 5,992 5,411 8,824 9,371
Write-off of core deposit intangible
assets related to SAIF-insured
deposits.............................. -- -- 3,821 -- --
Mortgage banking costs.................. 10,764 11,990 15,473 19,968 25,949
Provision for impairment of mortgage
servicing rights...................... -- 539 361 4,100 (2,290)
Other expense........................... 12,281 9,478 11,608 14,641 16,881
-------- -------- -------- -------- --------
Total......................... $133,475 $142,206 $159,028 $195,166 $228,655
======== ======== ======== ======== ========
</TABLE>
Other operating expense totaled $228.7 million for 1998 compared to $195.2
million in 1997, an increase of 17%.
Personnel expense increased $18.3 million or 21%. Regular compensation and
benefits (including overtime and temporary assistance) increased $15.3 million
or 19%. Staffing on a full-time equivalent ("FTE") basis increased by 238
employees or 11%. Average compensation per FTE increased 7%, including a 6%
increase in salaries and wages and an 11% increase in benefits. The transition
toward performance-based compensation continued during 1998. Incentive
compensation increased by $3.0 million, or 34% compared to 1997, due to growth
in revenue over predetermined targets and growth in the number of business units
covered by incentive plans.
Net occupancy, equipment and data processing expense for 1998 increased
$7.2 million or 20%. Net occupancy expense increased by $2.5 million due to a
$1.2 million decrease in rental income and a $1.3 million increase in expenses.
The decrease in rental income was primarily due to the conversion of our
ownership in our Oklahoma City headquarters building from a general interest to
a limited interest. The increase in occupancy expense was due primarily to a
$1.1 million increase in rent for Bank of Oklahoma.
Data processing expenses increased $4.1 million or 24%. Bankcard processing
charges increased $2.2 million due to a greater volume of transactions. Bank of
Albuquerque data processing charges were approximately $545,000, including an
estimated $350,000 for systems conversions and other start-up costs.
Mortgage banking costs increased $6.0 million or 30% compared to 1997.
Costs related to the origination and marketing of loans totaled $8.4 million, an
increase of $1.3 million from 1997. Loans originated in 1998, excluding
correspondent originations, totaled $850 million, an increase of 78% over 1997.
This reflects the refinancing of loans due to lower interest rates throughout
the year. Amortization of capitalized mortgage servicing increased to $17.5
million for 1998, compared to $12.8 million for 1997, due to accelerated loan
prepayments.
- 22 -
<PAGE> 26
INCOME TAXES
Income tax expense was $37.2 million in 1998, compared with $16.5 million
in 1997, representing 33% and 20%, respectively, of book taxable income. Tax
expense currently payable totaled $46.4 million in 1998 compared to $20.0
million in 1997. During 1998, Internal Revenue Service examinations for 1994 and
1995 were closed with no significant adjustments. During 1997, the Internal
Revenue Service closed its examination of Bank of Oklahoma and BOK Financial for
1992 and 1993, respectively. As a result of the outcome of these examinations,
we realized a $9.0 million tax allowance that was no longer needed. Income tax
expense for 1997 was 31% of pre-tax book income excluding the elimination of
this allowance.
SECURITIES PORTFOLIO
The table below presents the amortized costs and fair values of our
securities portfolio at December 31, 1996, 1997 and 1998. Additional information
regarding the securities portfolio is presented in Note 4 to the Consolidated
Financial Statements included in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment:
U.S. Treasury............... $ 1,000 $ 992 $ 850 $ 845 $ 600 $ 600
Municipal and other tax-
exempt................... 134,150 134,705 164,379 164,873 184,988 184,521
Mortgage-backed U.S. agency
securities............... 62,282 62,876 46,849 47,374 30,385 30,829
Other debt securities....... 976 976 1,033 1,033 11,804 11,804
---------- ---------- ---------- ---------- ---------- ----------
Total............... $ 198,408 $ 199,549 $ 213,111 $ 214,125 $ 222,777 $ 222,754
========== ========== ========== ========== ========== ==========
Available-for-sale:
U.S. Treasury............... $ 200,505 $ 201,091 $ 277,618 $ 278,402 $ 158,314 $ 158,945
Municipal and other tax-
exempt................... 160,813 161,358 107,196 108,720 86,647 87,526
Mortgage-backed securities:
U.S. agencies............ 985,219 979,117 1,210,322 1,215,867 1,813,036 1,823,230
Other.................... 3,288 3,961 2,183 2,185 1,772 1,762
---------- ---------- ---------- ---------- ---------- ----------
Total mortgage-
backed
securities........ 988,507 983,078 1,212,505 1,218,052 1,814,808 1,824,992
---------- ---------- ---------- ---------- ---------- ----------
Other debt securities....... 178 178 4,480 4,498 456 462
Equity securities and mutual
funds.................... 106,655 113,417 130,196 139,739 141,727 147,711
---------- ---------- ---------- ---------- ---------- ----------
Total............... $1,456,658 $1,459,122 $1,731,995 $1,749,411 $2,201,952 $2,219,636
========== ========== ========== ========== ========== ==========
</TABLE>
Securities are identified as either investment or available-for-sale based
upon various factors, including asset/liability management strategies, liquidity
and profitability objectives and regulatory requirements. Investment securities
are carried at cost, adjusted for amortization of premiums or accretion of
discounts. Amortization or accretion of mortgage-backed securities is
periodically adjusted for estimated prepayments. Available-for-sale securities
are those that may be sold prior to maturity based upon asset/liability
management decisions. Securities identified as available-for-sale are carried at
fair value. Unrealized gains or losses on available-for-sale securities, less
applicable deferred taxes, are recorded as accumulated other comprehensive
income in shareholders' equity.
- 23 -
<PAGE> 27
During 1998, we increased our securities portfolio by $485 million based on
amortized cost, including $220 million from investment of the proceeds of the
Bank of Albuquerque acquisition. Most notably, amortized cost of mortgage-backed
securities classified as available-for-sale increased $602 million and U.S.
Treasury securities decreased $119 million. These changes in the securities
portfolio were made in expectation of the lower interest rates in 1998.
LOANS
The following table shows loans outstanding by loan type.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial:
Energy......................... $ 213,301 $ 219,909 $ 289,011 $ 332,770 $ 467,259
Manufacturing.................. 113,140 142,650 144,228 201,918 240,633
Wholesale/retail............... 146,152 201,212 231,215 242,156 264,691
Agriculture.................... 89,791 103,165 125,097 151,525 155,103
Services....................... 211,713 276,500 324,737 465,317 615,285
Other commercial and
industrial.................. 129,196 143,143 127,089 105,714 198,385
---------- ---------- ---------- ---------- ----------
Total commercial....... 903,293 1,086,579 1,241,377 1,499,400 1,941,356
========== ========== ========== ========== ==========
Commercial real estate:
Construction and land
development................. 39,398 50,389 67,826 102,800 172,258
Multifamily.................... 106,197 141,494 147,814 100,422 178,217
Other real estate loans........ 179,084 190,530 212,386 274,579 393,578
---------- ---------- ---------- ---------- ----------
Total commercial real
estate............... 324,679 382,413 428,026 477,801 744,053
========== ========== ========== ========== ==========
Residential mortgage............. 343,969 395,941 388,820 419,139 482,097
Residential mortgage-held for
sale........................... 40,909 72,412 95,332 78,669 98,616
Consumer......................... 231,203 257,023 241,025 290,084 285,819
---------- ---------- ---------- ---------- ----------
Total.................. $1,844,053 $2,194,368 $2,394,580 $2,765,093 $3,551,941
========== ========== ========== ========== ==========
</TABLE>
Loans increased $787 million or 28% during 1998, including $144 million
from the branch acquisitions that formed the Bank of Albuquerque. Excluding this
acquisition, loans increased $643 million or 23%. Commercial loans increased by
$442 million or 29% over year-end 1997. This continues a trend of strong growth
in commercial loans. Commercial loans constituted 55% of total loans at December
31, 1998 compared to 54% at December 31, 1997. Energy loans increased by $134
million or 40% during 1998 and totaled $467 million or 13% of the loan portfolio
at year-end. Commercial loans to service entities increased by $150 million or
32% during 1998. Total commercial real estate loans grew by $266 million or 56%
during 1998. Multifamily loans and construction and land development loans,
which consist primarily of single family construction loans, increased by 77%
and 68%, respectively, during 1998.
While we continue to increase geographic diversification through expansion
in the Dallas, Texas and Albuquerque, New Mexico areas, geographic concentration
subjects the loan portfolio to the general economic conditions in Oklahoma.
Notable loan concentrations by the primary industry of the borrowers are
presented in the table above. Agriculture includes loans totaling $137 million
to the cattle industry, and services includes loans totaling $120 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, $154 million, and retail facilities,
$133 million.
- 24 -
<PAGE> 28
LOAN MATURITY AND INTEREST RATE SENSITIVITY ON DECEMBER 31, 1998
<TABLE>
<CAPTION>
REMAINING MATURITIES OF SELECTED LOANS
------------------------------------------
TOTAL WITHIN 1 YEAR 1-5 YEARS AFTER 5 YEARS
---------- ------------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan maturity:
Commercial............................... $1,941,356 $ 867,026 $ 793,158 $281,172
Commercial real estate................... 744,053 274,782 337,960 131,311
---------- ---------- ---------- --------
Total............................ $2,685,409 $1,141,808 $1,131,118 $412,483
========== ========== ========== ========
Interest rate sensitivity for selected
loans with:
Predetermined interest rates............. $ 533,287 $ 90,704 $ 302,749 $139,834
Floating or adjustable interest rates.... 2,152,122 1,051,104 828,369 272,649
---------- ---------- ---------- --------
Total............................ $2,685,409 $1,141,808 $1,131,118 $412,483
========== ========== ========== ========
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The reserve for loan losses, which is available to absorb losses inherent
in the loan portfolio, totaled $65 million at December 31, 1998, compared to $53
million at December 31, 1997. This represents 1.88% and 1.98% of total loans,
excluding loans held for sale, at December 31, 1998 and 1997, 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 the mortgage banking industry.
- 25 -
<PAGE> 29
The table below presents statistical information regarding the reserve for
loan losses for the past five years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance............................ $37,261 $38,271 $38,287 $45,148 $53,101
Loans charged off:
Commercial.............................. 1,112 753 2,318 3,343 3,175
Commercial real estate.................. 227 171 523 698 175
Residential mortgage.................... 553 190 237 409 151
Consumer................................ 1,345 2,874 3,432 4,753 3,977
------- ------- ------- ------- -------
Total.............................. 3,237 3,988 6,510 9,203 7,478
------- ------- ------- ------- -------
Recoveries of loans previously charged off:
Commercial.............................. 1,366 1,579 3,747 2,530 1,483
Commercial real estate.................. 972 987 4,113 957 1,398
Residential mortgage.................... 157 373 262 555 162
Consumer................................ 602 834 982 1,563 1,814
------- ------- ------- ------- -------
Total.............................. 3,097 3,773 9,104 5,605 4,857
------- ------- ------- ------- -------
Net loans charged off (recoveries)......... 140 215 (2,594) 3,598 2,621
Provision for loan losses.................. 195 231 4,267 9,026 14,451
Additions due to acquisitions.............. -- -- -- 2,525 --
------- ------- ------- ------- -------
Ending balance............................... $38,271 $38,287 $45,148 $53,101 $64,931
======= ======= ======= ======= =======
Reserve for loan losses to loans outstanding
at year-end(1)............................. 2.12% 1.80% 1.96% 1.98% 1.88%
Net charge-offs (recoveries) to average
loans...................................... .01 .01 (.12) .14 .09
Provision for loan losses to average loans... .01 .01 .19 .35 .50
Recoveries to gross charge-offs.............. 95.68% 94.61% 139.85% 60.90% 64.95%
Reserve as a multiple of net charge-offs
(recoveries)............................... 273.36x 178.08x (17.40)x 14.76x 24.77x
------- ------- ------- ------- -------
PROBLEM LOANS
Loans past due (90 days)..................... $ 1,118 $ 2,625 $ 9,639 $10,575 $ 9,414
Nonaccrual(2)................................ 20,114 29,288 18,835 18,767 13,116
Renegotiated................................. -- -- -- 207 --
------- ------- ------- ------- -------
Total.............................. $21,232 $31,913 $28,474 $29,549 $22,530
======= ======= ======= ======= =======
Foregone interest on nonaccrual loans(2)..... $ 1,392 $ 2,928 $ 2,975 $ 2,882 $ 2,173
======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
(2) Interest collected and recognized on nonaccrual loans was $3.3 million in
1998 and was immaterial in previous years disclosed.
The adequacy of the reserve for loan losses is assessed by management based
upon an ongoing quarterly evaluation of the probable estimated losses inherent
in the portfolio, and includes probable losses on both outstanding loans and
unused commitments to provide financing. A consistent methodology has been
developed that includes reserves assigned to specific criticized loans, general
reserves that are based upon a statistical migration analysis for each category
of loans and unallocated reserves that are based upon an analysis of current
economic conditions, loan concentrations, portfolio growth, and other relevant
factors. An independent Credit Administration department is responsible for
performing this evaluation for all of our subsidiaries to ensure that the
methodology is applied consistently.
All significant criticized loans are reviewed quarterly. Written
documentation of these reviews are prepared. Specific reserves for impairment
are determined in accordance with generally accepted accounting principles and
appropriate regulatory standards. At December 31, 1998, specific impairment
reserves totaled $1.4 million.
- 26 -
<PAGE> 30
The adequacy of general loan loss reserves is determined primarily through
an internally developed migration analysis model. Management uses an
eight-quarter aggregate accumulation of net loan losses as the basis for this
model. Greater emphasis is placed on net loan losses in the more recent periods.
This model is used to assign general loan loss reserves to commercial loans and
leases, residential mortgage loans and consumer loans. All loans, leases and
letters of credit are allocated a migration factor by this model. We can
override the general allocation only by utilizing a specific allocation that is
greater than the general allocation. General loan loss reserves assigned to
various categories of loans are presented in the table below.
We have assessed the risk of loan losses due to the impact of Year 2000
risks on our customers. A standard questionnaire was completed for a majority of
our commercial loan customers to assess the potential risk of Year 2000 on the
customer's operations and the status of customer actions to address these risks.
Customers were assigned to risk categories based upon the results of this
assessment and a range of potential losses was determined for each category. We
continue to monitor the status of customer preparation for Year 2000 and to
update the risk assessment.
A nonspecific allowance for loan losses is maintained for risks beyond
those factors specific to a particular loan or those identified by the migration
analysis. These factors include trends in general economic conditions in our
primary lending areas, duration of the business cycle, specific conditions in
industries where we have a concentration of loans, overall growth in the loan
portfolio, error potential in either the migration analysis model or in the
underlying data and other relevant factors. A range of potential losses is then
determined for each factor identified. At December 31, 1998, the loss potential
ranges for the more significant factors are:
- concentration of large loans--$2.1 million to $4.1 million;
- general economic conditions--$1.2 million to $2.4 million; and
- loan portfolio growth and expansion into new markets--$1.5 million to
$2.9 million.
A provision for loan losses is charged against earnings in amounts
necessary to maintain an adequate reserve for loan losses. These provisions
totaled $14.5 million for 1998, compared with $9.0 million for 1997. The
increased provision for 1998 reflected management's assessment of increased risk
of loan losses due primarily to continued growth in the loan portfolio,
geographic expansion of our market area to include Dallas, north Texas and New
Mexico, and current weaknesses in the energy and agriculture sectors.
LOAN LOSS RESERVE ALLOCATION
The following table presents the allocation of the reserve for loan losses.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1994 1995 1996 1997
--------------------- --------------------- --------------------- ----------
% of % of % of
Reserve(3) Loans(1) Reserve(3) Loans(1) Reserve(3) Loans(1) Reserve(3)
---------- -------- ---------- -------- ---------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loan category:
Commercial(2)...... $24,533 50.09% $26,446 51.21% $26,741 53.99% $34,981
Commercial real
estate........... 2,524 18.01 3,774 18.02 3,907 18.62 3,233
Residential
mortgage......... 556 19.08 638 18.66 1,651 16.91 1,778
Consumer........... 3,436 12.82 2,556 12.11 5,174 10.48 5,728
Nonspecific
allowance........ 7,222 -- 4,873 -- 7,675 -- 7,381
------- ------ ------- ------ ------- ------ -------
Total........ $38,271 100.00% $38,287 100.00% $45,148 100.00% $53,101
======= ====== ======= ====== ======= ====== =======
<CAPTION>
December 31,
--------------------------------
1997 1998
-------- ---------------------
% of % of
Loans(1) Reserve(3) Loans(1)
-------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C>
Loan category:
Commercial(2)...... 55.81% $37,545 56.22%
Commercial real
estate........... 17.79 7,945 21.55
Residential
mortgage......... 15.60 1,794 13.96
Consumer........... 10.80 6,678 8.27
Nonspecific
allowance........ -- 10,969 --
------ ------- ------
Total........ 100.00% $64,931 100.00%
====== ======= ======
</TABLE>
- ------------------
(1) Excludes residential mortgage loans held for sale which are carried at the
lower of aggregate cost or market value.
(2) Specific allocations for Year 2000 risks were $3.6 million in 1998 and $4.8
million in 1997; see "-- Year 2000 Considerations".
(3) Specific allocations for the loan concentration risks are included in the
appropriate category: Energy, Agriculture and Hotel/Motel.
- 27 -
<PAGE> 31
NONPERFORMING ASSETS
The following table presents an analysis of nonperforming assets.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1994(3) 1995(3) 1996(3) 1997(3) 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NONPERFORMING LOANS
Nonaccrual loans:
Commercial.............................. $11,238 $14,646 $13,494 $12,717 $ 8,386
Commercial real estate.................. 5,273 10,621 2,313 2,960 1,684
Residential mortgage.................... 2,916 2,794 2,495 2,441 1,928
Consumer................................ 687 1,227 533 649 1,118
------- ------- ------- ------- -------
Total nonaccrual loans............. 20,114 29,288 18,835 18,767 13,116
Renegotiated loans......................... -- -- -- 207 --
------- ------- ------- ------- -------
Total nonperforming loans.......... 20,114 29,288 18,835 18,974 13,116
Other nonperforming assets................. 4,100 3,399 4,576 5,258 4,600
------- ------- ------- ------- -------
Total nonperforming assets......... $24,214 $32,687 $23,411 $24,232 $17,716
======= ======= ======= ======= =======
RATIOS:
Reserve for loan losses to nonperforming
loans................................... 190.27% 130.73% 239.70% 279.86% 495.05%
Nonperforming loans to period-end
loans(2)................................ 1.12 1.38 .82 .71 .38
======= ======= ======= ======= =======
Loans past due (90 days)(1).................. $ 1,118 $ 2,625 $ 9,639 $10,575 $ 9,414
======= ======= ======= ======= =======
- ------------------
(1) Includes residential mortgages guaranteed
by agencies of the U.S. Government....... $ -- $ -- $ 4,755 $ 7,072 $ 8,122
Excludes residential mortgages
guaranteed by agencies of the U.S.
Government in foreclosure............... 6,549 6,754 9,177 7,396 6,953
(2) Excludes residential mortgage loans held
for sale.
(3) Nonperforming assets for prior years have
been restated to exclude loans past due 90
days to conform with current year
presentations.
</TABLE>
Nonperforming assets were $18 million at December 31, 1998 and $24 million
at December 31, 1997. Nonperforming loans include nonaccrual loans and
renegotiated loans. Nonaccrual commercial loans decreased during 1998 due to
significant improvement in one customer relationship. The total nonaccrual
principal balance on this relationship of $5.1 million at December 31, 1997 was
reduced by $4.0 million through cash collections during 1998. The remaining
unpaid principal was returned to accruing status. Additionally, interest income
of $1.3 million was collected and recognized in 1998.
The loan review process also identifies loans which possess more than the
normal amount of risk due to deterioration in the financial condition of the
borrower or the value of the collateral. Because the borrowers are performing in
accordance with the original terms of the loan agreements and no loss of
principal or interest is anticipated, such loans are not included in the
nonperforming assets totals. These loans are assigned to various risk categories
in order to focus management's attention on the loans with higher risk of loss.
At December 31, 1998, loans totaling $60 million were assigned to the
substandard risk category and loans totaling $31 million were assigned to the
special mention risk category, compared to $57 million and $68 million,
respectively, at December 31, 1997. The decrease in special mention loans was
primarily due to the pay-off of two loans that totaled $18.9 million and the
upgrading of two loans that totaled $13.1 million due to improved performance
and collateral value.
LEASING AND MEZZANINE FINANCING
We engage in lease and mezzanine financing through our subsidiary, BOK
Capital Services Corporation ("BCS"). These activities generally have a higher
return potential but have a higher risk of loss than those normally permissible
for banks. Most notably, at December 31, 1998, other assets included $28.8
million of
- 28 -
<PAGE> 32
natural gas compressors and other equipment that is 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 1998 increased $407 million compared to 1997,
including $33 million from acquisitions. Demand deposits, interest-bearing
transaction accounts and time deposits increased by $144 million, $128 million
and $99 million, respectively. The average cost of each category of
interest-bearing deposits has decreased during 1998 due to lower market interest
rates.
<TABLE>
<CAPTION>
AVERAGE BALANCES
-----------------------
1997 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Core deposits............................................ $2,422,803 $2,562,111
Public funds............................................. 330,757 383,902
Uninsured deposits....................................... 718,315 932,788
---------- ----------
Total.......................................... $3,471,875 $3,878,801
========== ==========
</TABLE>
As shown in the table above, average core deposits increased $139 million
to $2.6 billion. This represented 66% of total deposits in 1998, compared to 70%
for 1997. Concurrently, uninsured deposits increased to 24% of total deposits
for 1998, compared to 21% in 1997. Average uninsured deposits included
approximately $156 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.
We compete for deposits by offering a broad range of products and services
to our customers. While this includes offering competitive interest rates and
fees, the primary means of competing for deposits is convenience and service to
the customers. We offer banking convenience to our customers though 64 branches,
including 26 branches with extended hours in local supermarkets and a 24-hour
ExpressBank call center. During 1998, we opened three supermarket branches and
introduced an Internet home banking service. We plan to open four new
supermarket branches in 1999 to further enhance customer convenience. Our
acquisition of 17 branches in New Mexico, including 15 in Albuquerque, provided
a significant new source of deposits and entrance into this market.
MATURITY OF DOMESTIC CDS AND PUBLIC FUNDS IN AMOUNTS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Months to maturity:
3 or fewer.............................................. $336,003 $464,996
Over 3 through 6........................................ 203,268 97,256
Over 6 through 12....................................... 96,273 94,322
Over 12................................................. 74,074 68,056
-------- --------
Total........................................... $709,618 $724,630
======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net interest revenue, on a taxable-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.
- 29 -
<PAGE> 33
Interest rate swaps 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 and $293 million from borrowed funds. The growth in average
earnings assets in excess of the growth in average interest-bearing liabilities
contributed $23.3 million to the increase in net interest income in 1997.
Net interest margin increased from 3.54% in 1996 to 3.66% in 1997, 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 in the first quarter of 1997.
Other operating revenue for 1997 increased $24.4 million or 23% compared to
1996. Service fees on deposits totaled $28.7 million, an increase of 19% over
1996, while revenue generated by card-based transactions such as the TransFund
ATM network, bankcards and related merchant deposits increased by 35% to $19.3
million. These increases were 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.
Other operating expense totaled $195.2 million for 1997, compared to $159.0
million in 1996, an increase of 23%. Notable large or nonrecurring expenses
affected the 1997 increase. These items included $12.7 million from Bank of
Texas acquisitions (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, a 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 $660,000 for consulting assistance on recommendations for revenue
enhancement and expense control opportunities. Excluding these items from 1997
and excluding nonrecurring charges related to the Savings and Loan Insurance
Fund of $7.6 million from 1996, "core" operating expenses, excluding OREO gains,
increased $21.0 million, or 13.5%.
Personnel expense, excluding acquisitions, increased $10.5 million or
14.6%. Regular compensation, including overtime, increased $6.7 million or
13.3%. Staffing on a FTE basis increased by 101 employees or 4.8% while average
compensation per FTE increased 9.3%. These changes reflect the addition of
several senior-level positions in both the lending and operations area as well
as additional support staff. 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 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. Net occupancy expense decreased $856,000
due primarily to a $2.0 million increase in rental income at our main offices in
Oklahoma City. Data processing expenses increased $3.8 million or 31.4%, due to
a higher volume of transactions processed.
Mortgage banking costs increased $8.2 million or 52% 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. Additionally, expenses related to the origination and servicing of
government guaranteed loans increased $1.3 million due to a larger volume of
transactions. The efficiency ratio remained unchanged from 1996 at 64.0%.
Income tax expense was $16.5 million for 1997, compared with $15.3 million
for 1996, representing 20% and 22%, respectively, of book taxable income. Tax
expense currently payable totaled $20.0 million in 1997 compared to $19.0
million in 1996. During 1996, the limitation on the use of certain built-in
losses and net operating loss carryforwards from the acquisition of Bank of
Oklahoma by BOK Financial in 1991 expired. As
- 30 -
<PAGE> 34
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.
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 Bank of Texas, loans
increased $219 million or 9.1%. This increase was the result of continued
strength in the Oklahoma economy and of our efforts to capitalize on the
disruptions in banking relationships caused by bank mergers. Commercial loans
increased by $207 million or 16.7%, excluding acquisitions, over year-end 1996.
This continues a trend of strong growth in commercial loans. Commercial loans
constituted 54% of total loans at December 31, 1997, compared to 52% at December
31, 1996. Energy loans totaled $333 million or 12% of the loan portfolio at
year-end.
The reserve for loan losses totaled $53 million at December 31, 1997,
compared to $45 million at December 31, 1996. These amounts represented 1.98%
and 1.96% of total loans, excluding loans held for sale, at December 31, 1997
and 1996, respectively. Provision for loan losses totaled $9.0 million for 1997,
compared to $4.3 million for 1996. 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 criticized assets, geographic
expansion of our market area to include Dallas, north Texas and New Mexico and
an expectation that economic activities will moderate in our primary market
areas. Nonperforming assets, excluding loans past due 90 days, were $24 million
at December 31, 1997 and $23 million at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
We use several borrowing sources to supplement deposits as a source of
funds to support asset growth. These sources primarily include federal funds
purchased and securities repurchase agreements, advances from the Federal Home
Loan Bank and borrowings from lines of credit through commercial banks. Average
borrowed funds increased $58 million or 5% over 1997 and represented 20% of all
funds for 1998 compared to 21% for 1997. By year-end 1998, borrowed funds
increased to 25% of all funds due to additional borrowings to support the
formation and initial capitalization of Bank of Albuquerque. Interest rates and
maturity dates for the various sources of funds are matched with specific types
of assets in the asset/liability management process.
During the fourth quarter of 1998, we filed a shelf registration statement
with the Securities and Exchange Commission for the issuance of up to $250
million of senior debt securities. These securities will be direct, unsecured
obligations of BOK Financial and are not insured by the Federal Deposit
Insurance Corporation or guaranteed by any governmental agency. Payment of
principal and interest is dependent upon dividends paid to us by our banking
subsidiaries. Such dividends are limited by regulations of the Comptroller of
the Currency. We expect to issue debt securities pursuant to this shelf
registration during 1999.
We increased our lines of credit with two commercial banks to a total of
$100 million in conjunction with the formation and initial capitalization of
Bank of Albuquerque. The total outstanding balance on these lines was $92
million at December 31, 1998. We have committed to reduce the combined amount of
these lines to no more than $50 million in the second half of 1999.
We issued $150 million of 10-year subordinated notes, discounted to a cost
of 7.2%, during 1997. These notes are unsecured obligations of Bank of Oklahoma,
are not insured by the FDIC or any other government agency and are not
guaranteed by us. Standard & Poor's 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 us to repay
existing debt, including a $20 million subordinated debenture due to an
affiliate of George B. Kaiser, our principal shareholder. We retained the
remaining proceeds to fund asset growth. Interest rate swaps with a notional
amount of $100 million are used to change the cost of these notes from fixed
rate to variable rate. We receive a fixed weighted-average rate of 6.77% on
these swaps and pay the one-month London InterBank Offering Rate ("LIBOR"). See
Note 9 to our Consolidated Financial Statements for additional information.
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<PAGE> 35
Our equity capital averaged $467 million and $394 million for 1998 and
1997, respectively. The $73 million increase resulted from 1998 earnings and a
$9 million increase in unrealized gains on available-for-sale securities. During
1998, we repurchased approximately 386,000 shares of our common stock for $9.1
million under a previously announced stock repurchase program. This program
terminated on December 31, 1998.
We have identified capital and funding needs of approximately $105 million
for anticipated growth in 1999. These include potential acquisitions and the
previously noted repayment of bank debt. Resources available to meet these needs
include dividends from our banking subsidiaries and the possible issuance of
senior subordinated debt. Timing and extent of future growth plans will be
evaluated based upon available resources.
MARKET RISK
Market risk is a broad term for the risk of economic loss due to adverse
changes in the fair value of a financial instrument. These changes may be the
result of various factors, including interest rates, foreign exchange rates,
commodity prices or equity prices. In addition, the financial instruments
subject to market risk can be classified either as held for trading or held for
purposes other than trading.
We are subject to market risk primarily through the effect of changes in
interest rates on both our portfolio of assets held for purposes other than
trading and trading assets. The effect of other changes, such as foreign
exchange rates, commodity prices or equity prices, do not pose material market
risk to us. The responsibility for managing market risk rests with the
Asset/Liability Committee, which operates under policy guidelines established by
the Board of Directors. The negative acceptable variation in net earnings and
economic value of equity due to a 200 basis point increase or decrease in
interest rates is generally limited by these guidelines to +/- 10%. These
guidelines also establish maximum levels for short-term borrowings, short-term
assets and public and brokered deposits and establish minimum levels for
unpledged assets, among other things. Compliance with these guidelines is
reviewed monthly.
INTEREST RATE RISK MANAGEMENT (OTHER THAN TRADING)
We perform a sensitivity analysis to identify more dynamic interest rate
risk exposures, including embedded option positions, on net interest revenue,
net income and economic value of equity. A simulation model is used to estimate
the effect of changes in interest rates over the next 12 months based on three
interest rate scenarios. These are a "most likely" rate scenario and two "shock
test" scenarios, the first assuming a sustained parallel 200 basis point
increase and the second a sustained parallel 200 basis point decrease in
interest rates. An independent source is used to determine the most likely
interest rates for the next year. Our primary interest rate exposures include
the Federal Reserve Bank's discount rate, which affects short-term borrowings,
the prime lending rate and LIBOR, which are the basis for much of the
variable-rate loan pricing, the 30-year mortgage rate, which directly affects
the prepayment speeds for mortgage-backed securities and mortgage servicing
rights and the ten-year U.S. Treasury rate, which affects the value of the
mortgage servicing hedges. Derivative financial instruments and other financial
instruments used for purposes other than trading are included in this
simulation. In addition, sensitivity of fee-based revenue 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. In addition, changes
in prepayment behavior of holders of mortgage-backed securities, residential
mortgage loans and mortgage servicing rights 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
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<PAGE> 36
factored into the simulation model. At December 31, 1998 and 1997, this modeling
indicated interest rate sensitivity as follows:
Interest Rate Sensitivity
<TABLE>
<CAPTION>
200 BP INCREASE 200 BP DECREASE MOST LIKELY
------------------- ------------------- ------------------
1997 1998 1997 1998 1997 1998
------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Anticipated impact over the
next twelve months:
Net interest revenue....... $ 2,801 $ 2,314 $ (1,880) $(3,932) $ 814 $(1,013)
Percent of total... 1.5% 1.1% (1.0)% (1.9)% 0.4% (0.5)%
------- -------- -------- ------- ------- -------
Net income................. $ 4,844 $ 1,847 $(23,706) $(4,114) $ 492 $ (41)
Percent of total... 6.7% 2.0% (32.7)% (4.5)% 0.7% 0.0%
------- -------- -------- ------- ------- -------
Economic value of equity... $20,264 $(79,092) $ 7,780 $ 3,763 $(2,719) $10,096
Percent of total... 3.0% (10.1)% 1.1% 0.5% (0.4)% 1.3%
------- -------- -------- ------- ------- -------
</TABLE>
The estimated effect of changes in interest rates on net interest revenue
or net income is not projected to be significant within the +/-200 basis point
range of assumptions. However, this modeling indicated that under the 200 basis
point increase scenario, our economic value of equity would decrease by $79.1
million due primarily to the effect of rising interest rates on the value of the
securities portfolio.
Throughout 1997 and into the first quarter of 1998, we recognized that we
had a significant risk of loss on our capitalized mortgage servicing rights in a
declining interest rate environment. During the second quarter of 1998, a
program to hedge this exposure through the use of futures contracts, call
options and put options was developed. These derivatives are based upon ten-year
U.S. Treasury securities. The changes in value of these derivatives have a
highly correlated, inverse relation to changes in value of the mortgage
servicing rights. The interest rate sensitivity of the mortgage servicing
portfolio and the related hedge is modeled over a range of + / -50 basis points.
At December 31, 1998, the pre-tax results of this modeling are as follows:
Mortgage Servicing Interest Rate Sensitivity
<TABLE>
<CAPTION>
50 BP INCREASE 50 BP DECREASE
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Anticipated change in:
Mortgage servicing rights........................... $11,886 $(15,680)
Hedging instruments................................. (11,567) 11,960
------- --------
Net......................................... $ 319 $ (3,720)
======= ========
</TABLE>
The simulations used to manage market risk are based on numerous
assumptions regarding the effect of changes in interest rates on the timing and
extent of repricing characteristics, future cash flows and customer behavior.
These assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest revenue, net income or economic value of equity
or precisely predict the impact of higher or lower interest rates on net
interest revenue, net income or economic value of equity. Actual results will
differ from simulated results due to timing, magnitude and frequency of interest
rate changes and changes in market conditions and management strategies, among
other factors.
We use interest rate swaps, an off-balance sheet derivative product, in
managing our interest rate sensitivity. These products are generally used to
more closely match interest paid on certain long-term certificates of deposit
and subordinated debt with earning assets. During 1998, income from these swaps
exceeded the cost of the swaps by $1.7 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 our Consolidated Financial
Statements for additional information.
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<PAGE> 37
TRADING ACTIVITIES
We enter into trading account activities both as an intermediary for
customers and for our own account. As an intermediary, we will take positions in
securities, generally mortgage-backed securities, government agency securities
and municipal bonds. These securities are purchased for resale to customers,
which include individuals, corporations, foundations and financial institutions.
We will also take trading positions in U.S. Treasury securities, mortgage-backed
securities, municipal bonds and financial futures for our own account through
either Bank of Oklahoma or BOSC, Inc. These positions are taken with the
objective of generating trading profits. Both of these activities involve
interest rate risk.
A variety of methods are used to manage the interest rate risk of trading
activities. These methods include a daily marking of all positions to market
value, independent verification of inventory pricing and position limits for
each type of trading activity. Hedges in either the futures or cash markets may
be used to reduce the risk associated with some trading positions. The Risk
Management Department monitors trading activity daily and reports to senior
management and the Risk Oversight and Audit Committee of our Board of Directors
on any exceptions to trading position limits and risk management policy
exceptions.
During 1998, we adopted a Value at Risk ("VAR") methodology to measure the
market risk inherent in our trading. VAR is calculated based upon historical
simulations over the past five years. It represents an amount of market loss
that is likely to be exceeded only one out of every 100 two-week periods.
Trading positions are managed within guidelines approved by the Board of
Directors. These guidelines limit the nominal aggregate trading positions to
$360 million and the VAR to $5.6 million. At December 31, 1998, the nominal
aggregate trading position was $109 million, and the VAR was $3.1 million. The
year-end position was near the high VAR for the year.
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133")
which is required to be adopted in years beginning after June 15, 1999. FAS 133
permits early adoption as of the beginning of any fiscal quarter that begins
after June 1998. We expect to adopt FAS 133 effective January 1, 2000. FAS 133
will require the recognition of all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivatives will either be offset against
changes in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
We have not yet determined what the effect of FAS 133 will be on our
earnings and financial position.
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, including information technology ("IT") and noninformation
technology ("non-IT") systems, 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.
The Federal Financial Institution Examination Council ("FFIEC") provides
regulatory guidance on our and other financial institutions' Year 2000
compliance and has outlined five phases to effectively manage the Year 2000
issues. The phases are: Awareness, Assessment, Renovation, Validation and
Implementation. The FFIEC encouraged institutions to have all mission-critical
applications identified and priorities set by September 30, 1997 and to have
renovation work largely completed and testing well underway by December 31,
1998. Furthermore, the FFIEC required that testing of mission-critical systems
be substantially complete by June 30, 1999.
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<PAGE> 38
Assisting in our Year 2000 efforts are the Year 2000 Oversight Committee,
comprised of various members of executive management, as well as a Year 2000
Project Team, which includes representatives from our major business units. Both
groups meet on a regular basis to monitor and discuss continuing Year 2000
developments for both IT and non-IT systems. Our Board of Directors recognizes
the importance of and supports these Year 2000 initiatives.
Outsourced providers of data processing services run most critical
applications. These processors have been contacted and have provided compliance
status reports for their respective hardware and software systems. Our core
processing systems are outsourced to FiServ Solutions, Inc. ("FiServ"), based in
Pittsburgh, Pennsylvania. FiServ is an international data processing company
that specializes in financial institution data processing and is subject to
regulatory requirements imposed upon bank data processors. Our personnel are
members of FiServ's customer advisory committee and directly participated in the
coordination of the testing process for these applications. We receive monthly
updates from FiServ to monitor progress towards completion of the Year 2000
compliance process.
Our trust accounting systems are outsourced to M&I Data Services ("M&I"),
based in Milwaukee, Wisconsin. Proxy testing of the M&I trust accounting system
was conducted in June, 1998 by members of M&I's staff. The test procedures and
results were subject to review by the M&I Advisory Board, which included a BOK
Financial representative. The results of this testing have been analyzed and
accepted as satisfactory by our management. We also receive processing services
from Mellon Network Services, based in Pittsburgh, Pennsylvania, and SunGard
Securities Systems in Hopkins, Minnesota. Both Mellon's and SunGard's systems
have also been successfully renovated, tested and implemented.
Overall, we are well ahead of the FFIEC guidelines. There were 281 core IT
applications identified which required testing, 53 of these applications were
deemed mission critical. Testing of these critical applications has been
completed. All mission critical, non-IT systems within our control have been
successfully tested. Written representations as to Year 2000 readiness have been
received for all other mission critical, non-IT systems.
We have also initiated communication with large customers to determine what
steps they have undertaken to ensure they are prepared for Year 2000. This
effort has enabled us to develop contingency plans related to the possible
effects of the Year 2000 issue on the credit risk of our borrowers, cash flow
disruptions of its funds providers and our overall liquidity needs. We have
included the potential effect of Year 2000 on the credit risk of our borrowers
in determining the adequacy of our loan loss reserve.
FFIEC guidelines require financial institutions to substantially complete
the four phases of the Year 2000 business resumption contingency planning
process no later than June 30, 1999. Our Year 2000 Project Team is focused on
preparation for the Year 2000 event. Plans are being finalized to address
situations that arise as a result of internal or external disruptions. These
plans have been completed and include a definition of and a plan to address the
most reasonably likely worst case scenario. Our system change control policy
requires that new enhancements or initiatives within the company or at our
outsourced providers be tested for Year 2000 compliance prior to introduction to
our processing environment. This policy includes severe limitations on all
changes from October 1, 1999 through February 29, 2000. Finally, plans are being
developed to have key resources available throughout all high-risk processing
periods during December 1999, January 2000 and February 2000.
We invested approximately $9.9 million in computer systems upgrades during
1998, including approximately $405,000 directly related to the Year 2000 issue.
The majority of computer systems upgrades have been planned in the normal course
of business for competitive reasons, although compliance with Year 2000 issues
is a factor in determining the timing of such upgrades. These investments are in
addition to upgrades for Year 2000 compliance by outside processors that provide
services to us. During 1997, we invested $5.2 million in computer systems
upgrades with minimal expenditures directly related to the Year 2000 issue.
Based upon 1998 expenditures and the anticipated 1999 expenditures, management
believes that the costs of the Year 2000 compliance efforts will not materially
affect our results of operations, liquidity or capital resources.
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<PAGE> 39
The foregoing forward-looking statements, including the costs of addressing
the Year 2000 issue and the dates upon which compliance will be attained,
reflect management's current assessment and estimates with respect to our Year
2000 compliance effort. Various factors could cause actual plans and results to
differ materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond our control. Some of these
factors include, but are not limited to, third party modification plans,
availability of technological and monetary resources, representations by vendors
and counter parties, technological advances, economic considerations and
consumer perceptions. Our Year 2000 compliance program is an ongoing process
involving continual evaluation and may be subject to change in response to new
developments.
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<PAGE> 40
BUSINESS
BOK Financial Corporation is the largest bank holding company headquartered
in the State of Oklahoma. We conduct business primarily in Oklahoma and
selected markets in neighboring states. We provide a broad array of financial
products and services to major corporations, middle-market companies, small
businesses, retail customers and other entities, including:
o corporate, small business and consumer lending;
o deposit taking;
o corporate treasury services and cash management;
o mortgage lending and servicing;
o trust and asset management services;
o automated teller machine network services; and
o capital markets services.
We have the number one deposit market share in Oklahoma and a leading
market position in nine of the 11 Oklahoma counties in which we operate. At
March 31, 1999, approximately 76% of our assets were managed in Tulsa and in
Oklahoma City and 8% in the Dallas/Fort Worth area, with additional assets
managed in other Oklahoma markets, Fayetteville, Arkansas and Albuquerque, New
Mexico. We are the largest originator of mortgage loans in Oklahoma, serve as
the state's leading fiduciary and own the state's largest ATM/EFT network and
supermarket banking network.
As of March 31, 1999, we had:
o assets of $7.0 billion;
o loans of $3.6 billion;
o deposits of $4.3 billion; and
o shareholders' equity of $519.2 million.
For 1998, we had net income of $74.7 million, and for the three months ended
March 31, 1999, we had net income of $19.8 million.
COMPETITIVE ADVANTAGES
We are a leading provider of financial services in Oklahoma and selected
markets in neighboring states. Our ability to maintain and further enhance our
competitive position is based on a number of significant competitive advantages
which include:
o STRONG FINANCIAL GROWTH AND CAPITAL POSITION. We have consistently
achieved financial performance and growth superior to that of comparable
banks:
-- 19.8% compounded annual revenue growth from 1995 through 1998 and
24.5% revenue growth in 1998;
-- 22.5% compounded annual fee-based revenue growth from 1995 through
1998 and 24.8% fee-based revenue growth in 1998, compared to the
median 20.0% compounded annual fee-based revenue growth for comparable
banks;
-- 14.9% compounded annual net income growth from 1995 through 1998 and
15.6% net income growth in 1998;
-- 14.5% compounded annual diluted earnings per share growth from 1995
through 1998 and 15.2% diluted earnings per share growth in 1998;
-- 1998 ROA and ROE of 1.31% and 16.0%, compared to medians of 1.35% and
15.4% for comparable banks; and
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<PAGE> 41
-- 1998 tangible ROA and tangible ROE of 1.46% and 17.8%, compared to
medians of 1.42% and 16.8%, respectively, for comparable banks.
We have achieved this growth and profitability while maintaining solid
reserve levels and capital ratios, as reflected below:
-- provision for loan losses has exceeded net charge-offs in each of the
last four years;
-- reserves to loans at year-end were at 1.98% in 1997 and 1.88% in 1998;
-- our Tier 1 capital ratio was 9.39% in 1997 and 7.80% in 1998, compared
to medians of 10.69% and 10.25% for comparable banks;
-- our total capital ratio was 14.5% in 1997 and 12.0% in 1998, compared
to medians of 12.9% and 12.0% for comparable banks; and
-- our leverage ratio was 6.81% in 1997 and 6.57% in 1998, compared to
medians of 8.53% and 7.84% for comparable banks.
A bank with better than 6% for the Tier 1 capital ratio, 10% for the total
capital ratio and 5% for the leverage ratio is considered well-capitalized
by regulatory agencies.
We believe that our consistently strong financial performance and capital
adequacy have provided us with the momentum and characteristics that are
critical for continued business success.
o STRONG PRESENCE IN ATTRACTIVE AND GROWING MARKETS. We are the largest
locally-owned and managed bank in Oklahoma with the number one deposit
market share in the state and a leading position in nine of the 11
Oklahoma counties in which we operate. Our deposit market share in
Oklahoma grew from 8.3% in 1995 to 10.4% in 1998, without in-state
acquisitions. We have also established a significant presence in the
majority of the counties in which we operate outside of Oklahoma,
including selected counties in Texas, New Mexico and Arkansas. We rank
among the top five banks in terms of deposit market share in 12 of the
17 counties in which we operate.
While our presence in Oklahoma has been historically strong, recent
acquisitions have provided us with a significant increase in market
share in some of our newer markets. We recently achieved the number four
deposit market share position in Albuquerque through our acquisition of
17 branches in New Mexico from Bank of America. Recent acquisitions in
the Dallas/Fort Worth metropolitan area have increased our deposits in
the area from $404 million to $756 million, giving us an approximate
1.2% share in this $53.9 billion deposit market. With the completion of
these acquisitions, we believe that we have reached the necessary
critical mass to be a significant competitive force in each of these
markets.
We have chosen to enter and expand our share in markets that we believe
possess attractive demographics and future growth characteristics. The
population growth rate of the Valencia County, New Mexico market is
expected to be approximately 3.89% per annum over the next five years,
and the Dallas/Fort Worth market area is expected to grow in excess of
1.1% in population per annum over the same period. Our primary markets
together are estimated to have a population growth rate of over 10% from
1997 to 2002, compared to 4.5% for the United States over the same
period. We believe that our strong presence in these growing markets will
provide a platform for significant expansion of our business into the
future.
o EXCEPTIONAL LOCAL MARKET KNOWLEDGE AND CUSTOMER SERVICE. We have grown
our share in all of the markets in which we compete by emphasizing our
reputation for in-depth local market knowledge and strong customer
service. This reputation has been particularly valuable in allowing us to
capitalize on the deterioration of competitors' customer service levels
caused by ongoing merger and acquisition activity. Our senior management
team in each of our major markets has extensive local experience. Our
commercial lending officers have an average of seven years of service
at BOK Financial and approximately 13 years of overall industry
experience. This experience extends into a number of more specialized
industries, including energy, real estate and agriculture. In each of our
principal markets, we identify our operations using a local name and
provide local management with the necessary decision-making authority to
provide a quick response to customer requests.
We believe that it is, in part, our combination of local market
knowledge, commitment and specialized industry expertise that allows us
to deliver superior customer service and build significant market share.
o DIVERSIFIED, FEE-BASED PRODUCT OFFERING. In the first quarter of 1999,
our fee-based revenue represented over 46% of our total revenue, which
compares favorably to the median of 29% for comparable banks. We offer
our commercial and retail customers a full line of banking services and
products comparable to those provided by many larger, super-regional or
national banks. This product offering has enabled us to grow our customer
base and market share while competing against larger institutions. Many
of these products and services provide us with predominantly fee-based
revenue as opposed to interest income. In Corporate Banking, our
fee-based products include: treasury and cash management, asset
management, selected capital markets services and certain trade finance
products. In our other divisions, our fee-based products include:
mortgage loan related services, ATM services, brokerage, trust services
and asset management. In striving to serve all of
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<PAGE> 42
our customers' banking needs, we have developed a significant presence
in many of these businesses. As a result, we enjoy an above-average
proportion of predictable, fee-based revenue. This relative diversity
and predictability of revenue increases the stability of our earnings
stream and financial performance.
o EXPERIENCED AND HIGHLY INCENTIVIZED MANAGEMENT TEAM. Our senior
management team has an average of 26 years of experience in financial
services. Most of our senior management team has had significant
experience at other leading national banking organizations including Banc
One, Bankers Trust, Comerica and NationsBank. Our Chairman, Mr. George B.
Kaiser, has served as Chairman of BOK Financial and Bank of Oklahoma
since 1991, when he acquired his current ownership interest. In addition
to his banking investment, Mr. Kaiser is actively involved in the oil and
gas exploration and production business, with interests in 22 states and
two Canadian provinces. Our CEO, Mr. Stanley A. Lybarger, has been with
BOK Financial for the past 25 years, gaining substantial experience
across our organization in a variety of positions. We believe that our
management team has industry and regional knowledge superior to that of
our primary competitors in the Oklahoma market.
We have historically encouraged a high level of employee ownership. Mr.
Kaiser owns 74.1% of our diluted outstanding shares.
Our management compensation system is highly oriented toward employee
retention and generation of long-term appreciation in equity ownership by
the management group. The primary non-cash compensation is a stock option
plan which vests over a seven-year period. This program is intended to
align the interests of management with those of our shareholders, while
encouraging the retention of senior management. Depending upon their
tenure, members of our senior management team can expect to have almost
40% of their compensation derived from options. Participation in stock
option plans is also used as an incentive for other bank officers.
Approximately 302 employees participated in at least one of our stock
option plans in 1998, representing approximately 11% of our total
full-time employee base.
o CONSISTENT UNDERWRITING APPROACH AND SUPERIOR CREDIT QUALITY. The local
market knowledge of our commercial relationship officers, as well as our
extensive experience as a lender in the middle-market commercial, energy,
agriculture and real estate markets, helps us to identify quality lending
opportunities. In order to prudently capitalize on these opportunities,
we employ a conservative underwriting approach that emphasizes local
market and industry knowledge and experience as well as standardized
credit evaluation criteria tailored by industry and asset class. By
providing our commercial relationship officers with a standardized set of
criteria, we provide both a more efficient and timely approval process,
as well as a high degree of predictability and consistency, in our
treatment of customers.
Central to this approach is the "Credit Concurrence Officer" ("CCO"). The
CCO is a senior level, highly experienced banker whose primary
responsibility is to work closely with relationship managers in
evaluating all new credit decisions over $2.5 million. Importantly, the
CCO has no direct lending duties or business development responsibilities
and is compensated solely upon the quality of his or her credit
decisions.
This consistent and prudent underwriting approach has allowed us to
maintain and grow our market share without sacrificing credit quality. As
of March 31, 1999, our nonperforming assets to loans and foreclosed
assets ratio was 0.55%, compared to a median of 0.57% for comparable
banks. In addition, our net charge-offs to average loans ratio was 0.04%,
compared to a median of 0.27% for comparable banks.
We believe that the maintenance of our strong credit culture and
consistent underwriting approach is essential for sustaining and growing
our market share in favorable economic climates, while avoiding
deteriorated asset quality in adverse environments.
BUSINESS STRATEGY
o FURTHER ENHANCE OUR LEADERSHIP POSITION IN THE OKLAHOMA MARKET. One of
our primary strengths is our number one deposit market share in the
State of Oklahoma, particularly in the metropolitan markets of Tulsa
and Oklahoma City. We rank among the five largest banks in terms of
deposits in nine of the 11 Oklahoma counties in which we operate. At
the end of 1998, our Corporate Banking Division had the leading market
share in Tulsa and a significant market share in Oklahoma City. At the
end of 1998, approximately 34% of commercial customers in Tulsa and 19%
of commercial customers in Oklahoma City had their primary lending
relationships with us. We currently have banking relationships with 16
of the 20 largest public companies headquartered in the state and
provide fiduciary services for 11 of these businesses. In addition, we
are the largest originator of mortgage loans in Oklahoma, we serve as
the state's leading fiduciary, responsible for over $15 billion of
assets, and we own the state's largest ATM/EFT network and supermarket
banking network.
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<PAGE> 43
We believe that we will further enhance our leadership position in
Oklahoma by focusing on our Oklahoma market strengths, which include:
-- an historically strong presence and recognized brand name in Oklahoma;
-- a broader product and service offering than our community bank
competitors;
-- an in-depth knowledge of local markets and high level of customer
service;
-- a reputation for consistently and prudently providing credit services
to our customers throughout economic and market cycles;
-- a loyal local customer base which continues to grow due to disruptions
at other banks caused by ongoing merger and acquisition activity; and
-- a record of service leadership in the middle-market business
community.
Additionally, the breadth and variety of our distribution channels makes
us one of the most convenient banks in Oklahoma based upon number of
branches and geographic coverage. As an example, we have built the
largest supermarket banking network in the state through our strong and
established relationship with Albertsons, one of the premier supermarket
chains in the U.S. The favorable business climate and diversified economy
in Oklahoma provide us with opportunities to increase revenue along all
of our primary business lines. We believe our established strengths,
together with our ability to think and act more entrepreneurially than
our competitors, will allow us to grow our leadership position in
Oklahoma in the future.
o CAPITALIZE ON THE VOID CREATED BY MERGERS OF LENDING LOCAL BANKS INTO
LARGE NATIONAL BANKS. We believe that there is significant potential to
build upon our competitive advantages in high growth markets outside of
Oklahoma, and that we can capitalize on the market disruptions caused by
consolidation within the banking system. In addition to an increased
focus on middle market companies no longer being adequately served by
their traditional bank, we are employing a carefully designed bank
acquisition strategy which targets small to medium-size banks located in
growing communities with large numbers of mid-sized businesses and
upper-income customer bases. The institutions that we target typically do
not have the financial capacity and scale to provide their customers with
the range of products and services required to meet all of their
financial needs, but have an excellent reputation for customer
responsiveness. Post acquisition, we improve our partners' overall level
of customer service by combining our full range of products and services
with our partners' local presence, experience and relationships.
After entering a new market, we use our partner as a hub to develop
additional business opportunities, primarily in the small and medium-size
local business market. We retain and hire experienced bankers from local
markets who have expertise in specific industries and market segments,
such as energy, real estate, agriculture and middle-market commercial
lending. Post integration, the subsidiary operates as an affiliate bank,
making localized lending decisions in accordance with our comprehensive
credit policy. Our philosophy is to offer the best of large bank services
with the look and feel of a service-oriented community bank.
Examples of the effective employment of this strategy include our recent
acquisitions in the Dallas and Albuquerque markets.
-- Dallas Acquisitions. In 1997, we acquired First National Bank of Park
Cities in Dallas, which served the affluent markets of Highland Park
and University Park in Dallas. Park Cities offered traditional upscale
retail products and services, but lacked other services, including
trust, significant commercial lending and investment services.
Subsequent to this acquisition, we acquired a strong small business
bank in the Dallas market, the First Texas Bank, which we combined
with Park Cities to create Bank of Texas. We hired local bankers
experienced in middle-market lending and retained both management
teams who now serve as the senior management at Bank of Texas. Lending
decisions for Bank of Texas are made locally, but in accordance with
our credit guidelines to ensure overall credit quality. Bank of Texas,
now a broad-based bank with a middle-market/small-business niche, is
expected to experience significant internal and acquisition-related
growth. In 1999, we have further expanded our presence in the Dallas/
Fort Worth Metropolitan area through our acquisition of Swiss Avenue
State Bank, Mid-Cities National Bank and Canyon Creek National Bank.
We anticipate combining these newly acquired entities with Bank of
Texas in the second quarter of 2000.
-- New Mexico Acquisition. Through our acquisition of 17 Bank of America
branches in New Mexico, we obtained entry into Bernalillo, Valencia
and Sandoval Counties, among the fastest growing counties in New
Mexico, and created the Bank of Albuquerque. This newly established
bank, with $420 million in deposits and a loan portfolio of
approximately $147 million, as of March 31, 1999, is the fourth
largest bank in the City of Albuquerque and the fifth largest in the
State of New Mexico in terms of deposits. We plan to develop our
management team and introduce our products and services in a manner
consistent with that utilized in Dallas.
Focusing on high quality acquisition opportunities, we intend to apply
this acquisition strategy throughout selected major midwest and southwest
metropolitan business centers, such as Dallas, Fort Worth, Houston, the
greater Kansas City area and other attractive regional markets.
o CONTINUE TO GROW OUR FEE-BASED REVENUE. Growing our fee-based revenue
continues to be a major operating objective. While we believe that we
have one of the highest percentages of fee-based revenue of any bank in
the country, we see significant opportunities to grow further through the
expansion and implementation of fee-generating businesses and products.
- 40 -
<PAGE> 44
The table below illustrates the percentage of total pre-tax income
contributed by our primary fee-generating businesses.
Fee-based Operating Revenue
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
INVESTMENT
TRUST MORTGAGE TRANSFUND SERVICES
SERVICES(1) BANKING (ATM NETWORK) (BOSC, INC.)(1) TOTAL(1)
----------- ------- ------------- --------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fee-based operating revenue ....... $ 37,928 $ 44,379 $ 19,138 $ 14,941 $ 109,511
Fee-based operating expense ....... 35,419 39,573 12,440 14,310 95,885
Pretax contribution ............... 12,463 10,940 6,954 1,557 30,893
Percentage contribution to
consolidated net income ......... 11.13% 9.78% 6.21% 1.39% 27.59%
</TABLE>
- ----------
(1) Approximately $6.9 million of investment revenue and $5.9 million in related
expenses are reported in both Trust Services and BOSC, Inc. but excluded
from Total.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
---------------------------------------------------------------------
INVESTMENT
TRUST MORTGAGE TRANSFUND SERVICES
SERVICES BANKING (ATM NETWORK) (BOSC, INC.)(1) TOTAL(1)
----------- ------- ------------- --------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Fee-based operating revenue ....... $ 9,961 $ 9,926 $ 5,711 $ 5,454 $ 29,246
Fee-based operating expense ....... 9,880 9,261 3,380 4,925 25,930
Pretax contribution ............... 2,592 1,659 2,434 957 7,352
Percentage contribution to
consolidated net income ......... 8.70% 5.57% 8.17% 3.21% 24.67%
</TABLE>
- ----------
(1) Approximately $1.8 million of investment revenue and $1.5 million in related
expenses are reported in both Trust Services and BOSC, Inc. but excluded
from Total.
We also have several businesses, including Commercial Deposits/Treasury and
Retail Deposits, which provide us with a revenue stream that is more stable
than that of traditional lending services. In the aggregate, these
businesses and our other fee-generating businesses accounted for
approximately 46% of our 1998 total revenue and 46% of our revenue for the
three months ended March 31, 1999.
We are expanding our fee-generating businesses through a number of ongoing
initiatives:
-- The Trust Services Division's recent growth initiatives include:
workplace delivery of voluntary insurance products, a new, partially
proprietary mutual fund asset allocation product, Trust Internet
access and Employee Benefit Record-keeping System Internet access.
Internet delivery of retail brokerage and research service is pending
implementation.
-- We have recently grown the Mortgage Banking Division through two
acquisitions in the affluent metropolitan Kansas City market and one
acquisition in Little Rock. Other recent Mortgage Banking initiatives
include the creation of a Portfolio Retention Department designed to
focus on providing mortgage services to our existing customer base.
-- TransFund has recently introduced several new and innovative products
and services, including off-line debit cards, business debit cards,
direct debit point of sale and Internet payment processing.
-- BOSC, Inc. is the result of the August 1998 merger of our securities
units with Leo Oppenheim & Co., Inc., Oklahoma's leading public
finance firm. In 1998, we were the largest underwriter of general
obligation municipal securities in the State of Arkansas, serving as
the lead underwriter on 22 new competitive issues. We were also a
leading underwriter in Oklahoma, serving as lead underwriter on 24
issues in 1998. Our acquisition of Leo Oppenheim has enabled us to
also enter the revenue bond underwriting market, resulting in an
additional nine lead- managed revenue bond transactions completed
between August 15 and December 31, 1998. The new BOSC, Inc.
strengthens the breadth of our fee-based products and services by
providing specialized expertise in public and municipal finance,
asset-backed securities and private placement activities.
o IMPROVE OUR OPERATING EXPENSE MANAGEMENT AND EFFICIENCY RATIO. We have
identified expense management and productivity improvement as major
corporate objectives for 1999 and 2000. In prior years, the unprecedented
opportunity to gain market share resulting from merger- related
disruptions required that we place more emphasis on business development
than on expense management. While continued opportunities exist to gain
customers and market share, we see a clear opportunity to enhance
profitability through productivity improvement and expense management. In
1998, our efficiency ratio was 62.9% and for the three months ended March
31, 1999, it was 65.5%. Adjusted to exclude intangible amortization, the
ratio was 60.3% for 1998 and 62.2% for the three months ended
March 31, 1999.
In 1998, we engaged the strategic consulting firm of Carreker-Antinori,
Inc. to formulate a number of initiatives to increase income and to reduce
expenses. In addition, a working group of senior executives chaired by our
Chief Executive Officer meets monthly to identify specific areas and
opportunities to reduce expenses.
- 41 -
<PAGE> 45
Initiatives generated by the consultants and our management working group
include:
--personnel expense reduction;
--reduction of inefficient outsourcing operations;
--consolidation of operational facilities; and
--revenue enhancement through differential pricing and improved float
management.
We believe these initiatives together will yield over $5 million in
ongoing pre-tax income improvement beginning in 1999. $2.2 million of this
improvement relates to personnel reductions already implemented for fiscal year
1999.
Our estimates regarding expense reduction and improved efficiency are
forward-looking statements based on estimates of cost savings and revenue
enhancements attributable to various planned initiatives. Actual results may
vary from our estimates. In particular, the estimates are based on current
conditions and do not take into effect future cost increases that may result
from acquisitions, internal growth, wage and price increases or other factors
that may increase our expenses. See "Risk Factors--Adverse factors could impact
our ability to implement our operating strategy."
PRIMARY MARKETS
As of March 31, 1999, approximately 76% of our assets were managed in Tulsa
and in Oklahoma City and 8% in the Dallas/Fort Worth area, with additional
assets managed in other Oklahoma markets, Fayetteville, Arkansas and
Albuquerque, New Mexico. However, after giving effect to the acquisitions of
Canyon Creek National Bank, Mid-Cities National Bank and Swiss Avenue State
Bank, we have increased our assets in the Dallas/Fort Worth area from $566
million to approximately $977 million, representing approximately 13% of our
total asset base (including assets resulting from the recent Muskogee
acquisition).
OKLAHOMA
Historically, Oklahoma's economy has been largely dependent on the energy
industry and, to a lesser extent, the agricultural industry. However, following
the deterioration of energy prices in the mid-to-late 1980s and a subsequent
regional economic downturn, Oklahoma's economy became more diversified. While
energy continues to be an important business sector, Oklahoma has experienced
significant growth in many other sectors, including health care, aviation and
telecommunications. Consequently, Oklahoma's gross state product has grown
significantly, from approximately $48 billion in 1980 to approximately $79
billion in 1998. Oklahoma's gross state product has also become more
diversified, as shown in the table below.
Oklahoma Gross State Product
<TABLE>
<CAPTION>
CONTRACT WHOLESALE, FINANCIAL
AGRICULTURE ENERGY CONSTRUCTION MANUFACTURING RETAIL SERVICES OTHER TOTAL
----------- ------ ------------ ------------- ------ -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1980.......... 3.15% 17.83% 4.85% 14.61% 6.64% 11.33% 41.79% 100.00%
1997.......... 2.72 5.33 3.10 16.98 6.13 12.51 53.23 100.00
---- ---- ---- ----- ---- ----- ----- ------
change in %... (0.43) (12.50) (1.75) 2.37 (0.51) 1.18 11.44 --
</TABLE>
Oklahoma's two largest metropolitan areas, Tulsa and Oklahoma City, have
led the state's economic growth. These two business centers serve as corporate
or regional headquarters for a number of major domestic and international
companies, including CITGO Petroleum Corporation, Dollar Thrifty Automotive
Group Inc., Fleming Companies, Inc., Phillips Petroleum, Kerr-McGee and
Williams, Inc. Additionally, due in part to the state's highly skilled
workforce, companies such as American Airlines, General Motors Corporation, MCI
Worldcom, Lucent Technologies, Seagate Technologies and Whirlpool have
established major servicing and manufacturing operations in Oklahoma. A variety
of small businesses, in a number of different industries, continue to choose
both cities as major business locations.
Median household income in Oklahoma has shown consistent growth. From 1990
to 1998, household income grew 29.6% in the Tulsa MSA and 27.0% in the Oklahoma
City MSA, compared to the U.S. median of 27.3%. During 1998, employment growth
was 3.5% in the Tulsa MSA and 2.1% in the Oklahoma City MSA, compared to the
national growth level of 2.5%.
- 42 -
<PAGE> 46
Oklahoma State Government Revenue
As Oklahoma's economic base has become increasingly diversified, the
state's reliance on oil-related businesses has decreased commensurately. For
example, in 1984, oil and gas severance taxes accounted for 26.7% of the total
tax revenue for Oklahoma. By 1998, the percentage of tax revenue attributable
to oil and gas severance taxes had dropped to 3.8%. This decrease occurred
while Oklahoma tax revenue increased from $2.6 billion in 1984 to almost $3.9
billion in 1998.
TEXAS
Texas is the second most populous state in the country, with a population
of over 19.4 million in 1997. The state also has the country's third largest
state economy, according to the Texas Chamber of Commerce. In addition to the
energy industry, Texas has become a leader in technology, research and other
emerging industries in recent years.
Our Texas operations are concentrated in the Dallas/Fort Worth area. Dallas
has more than 140,000 businesses and more than 5,000 corporate headquarters in
its metropolitan area. In recent history, the Dallas/ Fort Worth area has
experienced population and business growth superior to that of the majority of
other U.S. markets. In 1998, Fortune magazine reported that Dallas ranked sixth
in the number of Fortune 500 companies headquartered in its metropolitan area.
Sixteen Fortune 500 companies are located in the Dallas/ Fort Worth Metroplex.
In addition, the Dallas/Fort Worth area was rated one of the best places in
America to start and grow a company, ranking 13th out of 50 U.S. metropolitan
areas, according to data provided by the Dallas Chamber of Commerce. Dallas is
also among the largest high technology employment centers in the U.S. and is
expected to lead the nation in employment growth from 1997 through 2005,
according to data provided by the Dallas Chamber of Commerce.
Also, according to data provided by the Dallas Chamber of Commerce, the
Dallas/Fort Worth Consolidated Metropolitan Statistical Area ("CMSA") is larger
in population than the majority of U.S. states and is the nation's ninth most
populous CMSA. By 2010, the Dallas/Fort Worth area is expected to be the fourth
largest CMSA in the nation. Household income in the area is expected to rise at
a faster rate than the national average.
The following tables illustrate population and income growth in the Dallas/Fort
Worth area.
Population Growth
<TABLE>
<CAPTION>
1990-1998 1998-2003
AREA 1990 1998 % CHANGE 2003 ESTIMATE % CHANGE
---- ---- ---- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Dallas MSA................. 2,676,248 3,154,195 17.9% 3,399,780 7.8%
Fort Worth-Arlington MSA... 1,361,034 1,570,657 15.4 1,682,415 7.1
U.S........................ 248,709,873 269,412,836 8.3 280,885,064 4.3
</TABLE>
Median Household Income Growth
<TABLE>
<CAPTION>
AREA 1990 1998 % CHANGE
---- ---- ---- --------
<S> <C> <C> <C>
Dallas MSA.................. $ 32,739 $ 45,117 37.8%
Fort Worth-Arlington MSA.... 32,161 41,972 30.5
U.S......................... 30,097 38,302 27.3
</TABLE>
NEW MEXICO
In 1998, the State of New Mexico had a population of approximately 1.7
million. New Mexico has experienced rapid compounded annual population growth in
recent years. In 1997, its compounded annual population growth rate was the
ninth fastest among all the states in the U.S. From 1990 to 1998, New Mexico's
gross state product grew at a compounded annual rate of 5.6%. An area with
especially strong growth in New Mexico has been high technology. Major
corporations with production facilities located in New Mexico include Intel,
Motorola, General Electric, General Mills, Philips, Levi, Strauss and Sumitomo
Sitix Silicon. Our operations in New Mexico are concentrated in the Albuquerque
MSA. The following tables illustrate population and household income growth in
those markets.
Population Growth
<TABLE>
<CAPTION>
1990-1998 1998-2003
AREA 1990 1998 % Change 2003 Estimate % Change
---- ---- ---- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Albuquerque MSA..... 589,131 681,530 15.7% 741,341 8.8%
U.S................. 248,709,873 269,412,836 8.3 280,885,064 4.3
</TABLE>
Median Household Income Growth
<TABLE>
<CAPTION>
AREA 1990 1998 % CHANGE
---- ---- ---- --------
<S> <C> <C> <C>
Albuquerque MSA..... $ 27,347 $ 37,895 38.6%
U.S................. 30,097 38,302 27.3
</TABLE>
- 43 -
<PAGE> 47
ARKANSAS
In 1998, Arkansas had a population of approximately 2.5 million. Principal
industries in Arkansas include manufacturing, agriculture, forestry and tourism.
Arkansas has experienced strong economic growth in recent years. From 1990 to
1998, the state's gross state product grew from $40.1 billion to $54.9 billion.
Sixty-eight Fortune 500 firms operate in Arkansas. Five of those firms, Wal-Mart
Stores, Tyson Foods, ALLTEL, Beverly Enterprises and Dillard's, are
headquartered in Arkansas.
Our Arkansas operations are concentrated in Benton County and Washington
County, which include the towns of Fayetteville, Springdale, Rogers and
Bentonville. These two counties ranked first and sixth out of 74 Arkansas
counties in population growth from 1990 to 1998. The following tables
illustrate population and household income growth in these markets.
Population Growth
<TABLE>
<CAPTION>
1990-1998 1998-2003
AREA 1990 1998 % CHANGE 2003 ESTIMATE % CHANGE
---- ---- ---- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Benton County........ 97,499 133,534 37.0% 151,180 13.2%
Washington County.... 113,409 140,233 23.7 151,661 8.2
U.S.................. 248,709,873 269,412,836 8.3 280,885,064 4.3
</TABLE>
Median Household Income Growth
<TABLE>
<CAPTION>
AREA 1990 1998 % CHANGE
---- ---- ---- --------
<S> <C> <C> <C>
Benton County........ $ 26,039 $ 35,350 35.8%
Washington County.... 23,177 32,038 38.2
U.S.................. 30,097 38,302 27.3
</TABLE>
BUSINESS SEGMENTS
CORPORATE BANKING DIVISION
The following table provides summary historical financial data on the
Corporate Banking Division:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ---------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income .......... $ 56,449 $ 65,888 $ 77,493 $ 17,123 $ 19,801
Noninterest income ........... 14,278 20,757 24,862 5,921 6,674
----------- ----------- ---------- ---------- -----------
Total ........................ 70,727 86,645 102,355 23,044 26,475
Noninterest expense .......... 23,126 30,328 42,077 10,412 9,772
Provision for loan loss ...... (96) (133) 63 46 (337)
----------- ----------- ---------- ---------- -----------
Income before income taxes ... $ 47,697 $ 56,450 $ 60,215 $ 12,586 $ 17,040
=========== =========== ========== ========== ===========
Average assets ............... $ 1,449,637 $ 1,819,834 $2,171,023 $2,044,630 $ 2,598,249
Average equity ............... 164,214 210,407 255,108 247,068 293,600
</TABLE>
Our Corporate Banking Division has historically been one of our strengths.
Through this Division, we offer a broad spectrum of commercial banking services
to primarily middle-market companies and some of the nation's largest
corporations. These services include commercial and industrial loans, real
estate financing, commercial mortgage lending, energy industry loans,
agricultural loans, trade finance and letters of credit, lease financing and
selected capital markets products. Additionally, the Division also offers
highly specialized treasury and cash management products.
The Corporate Banking Division and our banking subsidiaries are active
lenders in all of our primary geographic markets, including Oklahoma, Texas,
New Mexico, Arkansas, Kansas, Missouri and Colorado. The Division is organized
on both a geographical and customer basis. The Division is organized into three
distinct, geographically-oriented units, each of which is headed by an
experienced senior manager with strong local market knowledge. In addition, the
Division manages certain activities in accordance with the specific customer
segments and industries it serves:
o the Commercial and Industrial Group serves middle-market and larger
companies;
- 44 -
<PAGE> 48
o the Real Estate Group serves residential and commercial real estate
developers, operators and builders;
o the Business Banking Group serves smaller family-owned businesses;
o the various Specialized Lending Groups serve companies operating in
selected industries, including energy, agriculture, healthcare and
banking/finance; and
o the Treasury Services/Cash Management Group provides a wide range of
treasury and cash management services to companies of all sizes.
The Division's primary objective is to develop relationships in which we
can serve as the customer's lead or primary bank. The Division attempts to meet
the full breadth of customer needs by offering a nationally competitive array
of depository, trust, investment, cash management and credit services which are
superior to those offered by our community bank competitors.
At the end of 1998, our Corporate Banking Division had the leading market
share in Tulsa and a significant and growing market share in Oklahoma City.
Approximately 34% of commercial customers in Tulsa and 19% of commercial
customers in Oklahoma City have their primary lending relationships with us. We
believe that we oversee all but one of the retail lockbox accounts managed in
the State of Oklahoma. Following the acquisition of our two main Oklahoma
competitors by nationally-operating bank holding companies, we were successful
in winning all of their Oklahoma-based retail lockbox business.
Our Corporate Banking Division competes with a variety of financial service
companies. These competitors include a number of community, regional, national
and international banks. In addition, we compete with commercial finance
companies, investment banks, leasing companies and insurance companies.
This Division's recent initiatives include:
o Regional expansion. Consistent with our strategy of focusing our growth
in areas with higher growth rates than our home markets, we have
established business development calling efforts in the Denver/Colorado
Springs, Kansas City and Wichita markets. Our initial effort is directed
toward identifying middle-market companies to which we can offer our
array of services, in some situations using our expertise in specialized
industries as a means to establish initial contact and credibility. As
these efforts mature, we will assess the possibility of establishing loan
production offices and potentially acquiring a bank or establishing a de
novo bank in some of these markets. At December 31, 1998, approximately
$50 million in loans were outstanding in these three markets, and we are
focused on achieving loan growth in these markets in the future.
o Commercial leasing function. For several years, we have engaged in
commercial leasing. The initial focus of our leasing activity was the
financing of large scale equipment, such as gas compressors. We have
developed a strategy to actively expand our leasing activity during 1999
in order to broaden the financing alternatives we offer our existing
customers, and to a lesser extent, to develop relationships with new
customers. The total amount of leases outstanding at December 31, 1998
was $38.8 million. Of this amount, $20.5 million represented leases
originated in 1998. In May 1999, $29 million of gas compressor leases
were liquidated at a gain, before taxes, of $3.6 million.
o Establishment of a Merchant Banking Unit. We are establishing a unit to
provide non-traditional bank financing services to our existing
customers. This unit will execute private placement of mezzanine
financing and structured finance transactions and will utilize a
syndications desk for larger, multi-bank credits. The principal focus of
this unit will initially be on existing customers to reduce the
competitive threat posed by larger banks that provide similar services.
o Enhanced technology. We continue to improve our information technology in
an effort to enhance the efficiency of our operations, increase the
productivity of our bankers and support staff and continue providing
excellent customer service. Significant system improvements that are
either ongoing or will begin this year include:
-- enhanced loan operations;
-- improved loan automation technology;
-- improved software to measure customer profitability; and
-- enhanced information and contact management systems for our
relationship officers.
- 45 -
<PAGE> 49
CONSUMER BANKING DIVISION
The following table provides summary historical financial data on the
Consumer Banking Division:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income .......... $ 44,647 $ 43,283 $ 46,290 $ 10,195 $ 9,889
Noninterest income ........... 19,853 21,800 23,156 6,430 7,804
---------- ---------- ---------- ---------- ----------
Total ........................ 64,500 65,083 69,446 16,625 17,693
Noninterest expense .......... 49,911 50,879 52,395 12,258 11,975
Provision for loan loss ...... 1,817 2,520 2,116 527 383
---------- ---------- ---------- ---------- ----------
Income before income taxes ... $ 12,772 $ 11,684 $ 14,935 $ 3,840 $ 5,335
========== ========== ========== ========== ==========
Average assets ............... $1,963,068 $1,894,535 $1,904,409 $1,932,739 $1,886,641
Average equity ............... 55,332 44,600 46,767 44,813 43,432
</TABLE>
Through the Consumer Banking Division, we provide our retail and
small-business customers with a full line of deposit, loan and fee-based banking
products. The Division serves approximately 200,000 households and over 7,500
business customers with 64 branches in Oklahoma. Additionally, the Division
serves as a significant referral source for BOSC's Retail Brokerage Division,
Mortgage Banking and the Business Banking Department of the Corporate Banking
Division. We also offer consumer banking services in Texas, New Mexico and
Arkansas through the Bank of Texas, Bank of Albuquerque, Bank of Arkansas,
Swiss Avenue State Bank, Mid-Cities National Bank and Canyon Creek National
Bank. The Division owns and operates approximately 284 ATMs located throughout
our major markets.
The Division is organized into two business units responsible for marketing
and operations, and three geographic units responsible for eastern Oklahoma,
western Oklahoma and New Mexico. In the Dallas market, through our Bank of Texas
subsidiary, we have four offices which offer a variety of consumer and
commercial banking services and operate under the direct management of Bank of
Texas. The recent acquisitions of Mid-Cities National Bank, Canyon Creek
National Bank and Swiss Avenue State Bank have added six offices in the Dallas
market.
The Consumer Banking Division's primary strategic objective is to be the
most convenient consumer bank in our markets. The Division conducts business
through four major distribution channels: traditional branches, supermarket
branches, the 24-hour ExpressBank call center and, more recently, the Internet.
We offer service seven days a week, 24 hours a day in numerous, accessible
locations throughout our major markets. The Division leads Community
Reinvestment Act ("CRA") compliance efforts for all of our banks and ensures
that appropriate CRA initiatives are implemented as we enter into new markets.
Through our strong and established relationship with Albertsons, one of the
premier supermarket chains in the U.S., we have built the largest supermarket
banking network in Oklahoma. Of our 26 supermarket branches, 23 are located in
Albertsons. The average deposits of these supermarket locations are
significantly higher than comparable average deposits for branches of most other
major banks throughout the United States. In 1998, our supermarket banking
network generated $40 million of consumer loan applications, or 23% of the total
Oklahoma application volume in the Consumer Banking Division.
Consumer Banking targets two classes of customers: consumer households and
businesses with sales under $1 million. The Division's deposit base is stable,
with customers over 55 years of age accounting for more than 70% of deposits.
The borrower base is also attractive, with customers between 35 and 55 years of
age accounting for over 62% of the Division's total loan portfolio. The small
business customers we serve are a broad and diverse customer class, generally
with annual revenues under $1 million. The Division typically handles credit
relationships for small businesses with borrowing needs of up to $150,000.
In Tulsa and Oklahoma City, the Consumer Banking Division has long been an
established market leader. In New Mexico, Bank of Albuquerque is the fourth
largest bank in the city and fifth largest in the state in terms of deposits.
Our Consumer Banking Division competitors include:
o large, multi-state bank holding companies and their divisions operating
in Oklahoma;
o credit unions;
o smaller community banks that compete for small business customers; and
- 46 -
<PAGE> 50
o national brokerage firms and home equity lenders.
This Division's recent initiatives include:
o Strategic Selling Initiative. In 1998, the Consumer Division retained
Action Systems, Inc., a major strategy consulting firm, to develop a
system to better measure and manage profitability. The new system enables
our branches to create weekly performance targets and tactics to identify
customers for cross-selling and retention efforts. This initiative has
aided in the repricing of a number of lower-profitability accounts, while
insulating high-value customers from the effects of these price changes.
o New branch/call center automation. In 1998, we began replacing our branch
and call center automated systems with Unisys systems. By September 1999,
these new platform and teller systems will be in place throughout the
Division. The new systems will provide improved sales presentations,
simplify the account opening process for multiple products and provide a
link into a new consumer loan processing system that will improve loan
turnaround time and efficiency.
o Remote Teller System. Since September 1998, the Division has been pilot
testing Remote Teller technology. This technology allows us to replace
some or all of our traditional teller windows with a two-way video
connection and a pneumatic tube-delivery system (similar to drive-ins)
that connects to teller workstations.
o 24-Hour ExpressBank. In 1995, we developed the 24-hour ExpressBank that
serves the Oklahoma, New Mexico and Arkansas markets with full sales and
service seven days a week, 24 hours a day. In 1998, the 24-hour
ExpressBank generated $39 million of consumer loan application volume, or
23% of total Oklahoma application volume in the Consumer Banking
Division. We expect that our 24-hour ExpressBank will begin providing
services to our Dallas area customers in the second quarter of 1999.
o On-line banking services. In 1998, we introduced two web sites which
enable customers to apply for consumer loans, On-line Banking and On-line
BillPay, check mortgage rates and download account information. The web
sites, www.bankofoklahoma.com and www.bankofalbuquerque.com, also support
our branding strategy at the local level. We also plan to launch web
sites for Bank of Texas and Bank of Arkansas in mid-year 1999 and to
initiate an on-line brokerage service in the early part of the third
quarter of 1999, which will be available to active BOSC, Inc. retail
customers. We do not incorporate the contents of the websites into this
prospectus.
MORTGAGE BANKING DIVISION
The following table provides summary historical financial data on the
Mortgage Banking Division:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income ............................ $ 4,247 $ 5,099 $ 6,264 $ 1,212 $ 994
Noninterest income ............................. 28,189 34,208 44,379 9,868 9,926
--------- --------- --------- --------- ---------
Total .......................................... 32,436 39,307 50,643 11,080 10,920
Noninterest expense ............................ 27,750 33,204 41,863 9,501 9,261
Provision for loan losses ...................... 119 165 130 33 --
Provision for impairment of mortgage servicing
rights ...................................... 361 4,100 (2,290) 3,000 --
--------- --------- --------- --------- ---------
Income before income taxes ..................... $ 4,206 $ 1,838 $ 10,940 $ (1,454) $ 1,659
========= ========= ========= ========= =========
Average assets ................................. $ 520,559 $ 386,985 $ 350,362 $ 378,799 $ 305,660
Average equity ................................ 26,396 28,723 30,556 29,505 25,705
</TABLE>
The Mortgage Banking Division is a full-service, prime mortgage banking
company which reports to the Consumer Banking Division. Through Mortgage
Banking, we originate, purchase and service individual residential mortgage
loans and acquire bulk mortgage servicing portfolios.
Mortgage Banking is organized along three functional lines, each of which
is managed by an experienced veteran of the mortgage industry:
o Retail Production;
o Servicing; and
o Financial.
- 47 -
<PAGE> 51
The Division's primary strategic focus is to use technology to improve
customer service and operating efficiency by constantly evaluating and updating
our mortgage servicing systems, as well as exploring new ways to improve
production and reduce servicing costs. While we are the market leader in
mortgage servicing in Oklahoma, we are focused on expanding our business
outside of our home state. We service a $6.7 billion mortgage portfolio, with
pending acquisitions expected to add an additional $577 million to the
portfolio. We are currently positioning ourselves to offer our full range of
mortgage products in the State of Texas.
Mortgage Banking's primary markets for originating new mortgages are
Oklahoma, Arkansas, Kansas and New Mexico. In 1998, we originated $850 million
in direct retail mortgage loans. In Oklahoma, we have lending outlets in
Oklahoma City, Tulsa, Owasso, Enid, Ponca City and Lawton. In Arkansas, through
our Bank of Arkansas subsidiary, we have offices in Fayetteville, Little Rock
and Bentonville. We also have operations in the greater Kansas City
metropolitan area and, through our Bank of Albuquerque subsidiary, in
Albuquerque.
The Division's customers consist of individuals who are financing home
purchases and homeowners who are refinancing their existing mortgages. We
actively market our services directly to these consumers and through referrals
from our extensive local home builder and realtor network.
Mortgage Banking has the largest share of mortgage originations in
Oklahoma. Our significant retail origination market share in Oklahoma has also
opened up opportunities to expand outside the state.
We compete with local and national banks, mortgage brokers and credit
unions.
This Division's recent initiatives include:
o Creation of a Portfolio Retention Department. Mortgage Banking is a
regional "originator" of home loans, and a national "servicer" of such
loans, with approximately 88,000 loans serviced in 49 states and the
District of Columbia. To take advantage of this potential customer base
for new and refinancing mortgage lending, a "Portfolio Retention"
department was formed in 1998 with the purpose of serving this customer
base by offering refinance lending and the origination of new mortgages.
This operation is conducted through in-bound telemarketing
representatives, with additional contacts generated through Internet
channels. In 1998, the Portfolio Retention Department generated
approximately 684 loans with a total principal amount of over $70
million.
o Broader automated underwriting. In all of its lending locations, Mortgage
Banking continues to expand its automated underwriting capabilities
through the use of proprietary credit-scoring based systems of Fannie Mae
and Freddie Mac. These systems, which are integrated with Mortgage
Banking's own automated origination systems, allow for increased
productivity in processing and underwriting, thereby leading to more
timely loan approvals for mortgage customers.
o Expansion into Little Rock and Kansas City. As a result of our 1998
retail expansion program, Mortgage Banking expanded the coverage area of
its mortgage origination businesses to both the Little Rock and the
Kansas City metropolitan areas. Our expansion efforts in these markets
were primarily through three acquisitions:
-- In March 1998, we acquired Suburban Mortgage Co. in the Kansas City
area, which became part of the Mortgage Banking Division.
-- In August 1998, we acquired Arkansas Fidelity Mortgage in Little Rock,
which now operates as Bank of Arkansas Mortgage Group in concert with
our offices in Fayetteville and Bentonville, Arkansas.
-- In March 1999, we acquired First Mortgage Investors, Inc., which
expands our presence in the greater Kansas City metropolitan area.
o Hedging of interest rate exposure in the servicing portfolio. In 1998,
the Mortgage Banking Division implemented a program that uses futures
contracts and call and put options to hedge against the effect of falling
interest rates on the fair value of its mortgage servicing rights
portfolio. At March 31, 1999, realized hedging gains totaled $9.6
million, net of accumulated amortization, while unrealized losses on open
hedging positions totaled $3.1 million
- 48 -
<PAGE> 52
TRUST SERVICES DIVISION
The following table provides summary historical financial data on the Trust
Services Division:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income ........... $ 6,618 $ 8,324 $ 10,079 $ 2,074 $ 2,511
Noninterest income ............ 26,902 30,084 37,928 8,809 9,961
-------- -------- -------- -------- --------
Total ......................... 33,520 38,408 48,007 10,883 12,472
Noninterest expense ........... 25,779 28,532 35,419 8,573 9,880
Provision for loan losses ..... 130 180 125 31 --
-------- -------- -------- -------- --------
Income before income taxes .... $ 7,611 $ 9,696 $ 12,463 $ 2,279 $ 2,592
======== ======== ======== ======== ========
Average assets ................ $219,851 $242,886 $295,660 $274,766 $306,223
Average equity ................ 20,898 24,233 30,188 27,657 33,542
</TABLE>
Our Trust Services Division provides institutional, investment and
retirement products and services to affluent individuals and businesses,
non-profit organizations and governmental entities. We are now responsible for
more than $15 billion in assets.
Our Trust Services Division consists of four units:
o PRIVATE FINANCIAL SERVICES ("PFS"). PFS targets individuals with a net
worth of more than $1 million or an annual income of $200,000 or greater.
We serve our market with a number of products and services, such as:
-- deposit and cash management accounts;
-- customized loans;
-- full service brokerage;
-- mutual fund asset allocation;
-- private portfolio management; and
-- personal trust and estate planning.
PFS serves 7,000 Oklahoma households. Collectively, the PFS business units
have grown revenue at an average rate of 18% per year since 1995.
The primary focus of PFS is to provide customized products and services to the
most affluent individuals within its chosen markets. This group's strategy
relies on building and maintaining highly-trained sales groups that focus on
client development and are compensated based upon attaining specific performance
measures. We also cross-sell other services to our PFS customers. Currently,
approximately 31% of our PFS customers use one or more of our other banking
services.
o INSTITUTIONAL AND EMPLOYEE BENEFITS. Institutional and Employee Benefits
targets clients who require a full line of retirement plan products and
services, as well as trustee, custody and investment management services
for foundations and endowments. Our target market for 401(k) plan
services includes firms with at least 50 employees in the local market
and at least 500 employees in the national market. Our trust/custody area
focuses on local non-profit organizations, pension plans and public
entities that seek a local provider. We are the largest provider of
institutional and employee benefits in Oklahoma.
This group's primary strategy is to build market share by cross-selling its full
line of retirement plan products and services to our broad customer base, as
well as to new customer groups gained through acquisitions.
o TRUST INVESTMENTS. Trust Investments is responsible for individual money
management and for management of our American Performance Funds. It
primarily targets retail customers, 401(k) plans and other pension plans.
Our American Performance Fund mutual fund family consists of ten funds which are
designed for retail investors. These funds have nearly $1.6 billion in assets
and grew approximately 18% in 1998. The Short-Term Income Fund ranked number one
in the U.S. for 1998, and the Growth Equity Fund ranked in the seventh, sixth
and fourth percentiles nationally for the last one, two and three-year periods,
respectively.
- 49 -
<PAGE> 53
At year-end 1998, the group managed $5.6 billion in discretionary assets,
ranking us as the largest discretionary asset manager in Oklahoma. Our 356
customers for our 401(k) service rank us among the 40 largest providers in the
United States with in-house trust services.
o CORPORATE TRUST. Corporate Trust targets governmental bodies and
companies requiring bond trustees, registrars, paying agents and escrow
agents. Corporate Trust is a leader in the Oklahoma market in serving the
fiduciary needs of governmental bodies and companies. Given our
established strength in the Oklahoma market, our primary strategy is to
expand these services into Texas, New Mexico and Arkansas.
The Trust Services Division's primary markets are Oklahoma, Texas, New
Mexico and Arkansas. We have regional offices in Tulsa, Oklahoma City, Dallas
and Sherman, Texas and plan to open additional offices this year in
Fayetteville, Arkansas and Albuquerque.
The Division's primary competitors are other banks and other financial
service providers, such as brokerage houses, national mutual fund companies,
private money management firms and insurance companies.
This Division's recent initiatives include:
o Workplace availability of insurance products. In November 1997, we
introduced workplace availability for insurance products, which
facilitates mass-market delivery of life, health and disability
insurance products to customers. This initiative complements traditional
pension/401(k) plan delivery and takes advantage of existing commercial
banking relationships. In 1998, 34% of our total insurance revenue
attributable to insurance was derived through workplace delivery.
o Foundations Mutual Fund asset allocation account. The full launch of our
Foundations Mutual Fund asset allocation product began in March 1998.
This product features ten distinct model portfolios of proprietary and
nonproprietary mutual funds and is marketed by both trust and brokerage
sales professionals to emerging affluent customers. This product tailors
investment portfolios to the risk tolerance, time horizon and specific
objectives of the investor.
o 401(k)/Self Directed Option product. In 1996, we introduced a 401(k)/Self
Directed Option product in response to plan participants' desire to
exercise more control over their account balances. Our program offers
core mutual fund options and a self-directed brokerage account option
integrated with daily valuation, voice response and consolidated
reporting. The target market for this product includes primarily
corporate retirement pools with over $25 million in assets. We market
this product nationally and have established customer relationships in
several markets including Chicago, New York, Los Angeles and Dallas.
Target customers include professional firms in the legal, medical,
engineering, technology, architecture, accounting and financial fields.
We presently have nine customers in our 401(k)/SDO program throughout six
different states.
OTHER FINANCIAL SERVICES
Other Financial Services includes our TransFund and BOSC, Inc. businesses
and Bank of Texas, Bank of Albuquerque and Bank of Arkansas.
TRANSFUND
TransFund, our electronic card processing unit, provides merchants and
financial institutions with a full line of ATM, debit/credit cards and merchant
payment processing products.
TransFund consists of four units:
o Operations and Technology;
o Sales and Marketing;
o Customer Service; and
o Financial Administration.
TransFund's primary strategic goal is to increase market share both within
Oklahoma and in contiguous states by introducing new products and services to
current and potential customers. In addition, we continue to employ new
technology in an effort to improve customer responsiveness, increase
information and communication flow and maintain our position as a low cost
service provider.
- 50 -
<PAGE> 54
In our ATM/debit card business, we processed 58 million debit card
transactions in 1998, representing transactions conducted by more than one
million cardholders. In 1998, we served 238 financial institution customers in
Oklahoma, Kansas, Missouri, Arkansas, Texas, Colorado, New Mexico and Nevada. We
process transactions at approximately 995 ATMs located in these eight states.
In addition, through alliances with other processors, we offer our customers
access to more than 432,000 ATMs worldwide and debit card purchase capability at
more than 15 million merchant locations worldwide.
TransFund markets products to a variety of merchants and financial
institutions. We focus on smaller financial institutions, a segment not heavily
targeted by our larger competitors. Additionally, we focus on the small to
mid-sized merchant market segment. In the merchant payment business, we
processed approximately 3.9 million merchant sales in 1998 with a value of $390
million at more than 5,900 merchant locations.
TransFund's superior customer service and responsiveness has enabled us to
increase our market share significantly over the past few years. For the period
1995 through 1998, the number of debit transactions processed in the United
States grew 26.9% compounded annually, while the number of cardholders in the
United States increased at a compounded annual rate of 28.2%. Over the same
time period, we experienced compounded annual growth rates of 34.4% and 37.5%,
respectively, in the number of merchant locations and the dollar volume of
merchant payments processed. During 1998, TransFund's transaction volume grew
11.3% while total ATM transactions grew 2.2% nationally. While we have the
number one market share in Oklahoma, much of our growth in the past few years
has been in contiguous states.
Our primary competitors are ATM/debit card processors and regional
electronic funds transfer networks. Our competitors have similar capabilities
to ours in terms of cost, product features and functionality. In the merchant
payment processing business, our major competitors are large national
commercial banks.
TransFund's recent initiatives include:
o Business debit cards. In 1998, we began offering the TransFund Business
Check Card. This product was developed to target the purchasing and cash
management needs of businesses with annual revenue of less than $10
million and fewer than 100 employees. The business check card simplifies
cash management and tracking of smaller business expenses, separates
business and personal expenses and is widely accepted at merchant
locations. It also helps our financial institution clients strengthen and
expand their commercial relationships with small businesses.
o Direct debit point-of-sale. TransFund began offering direct debit
point-of-sale purchase capability in 1998 for our financial institution
clients that require a PIN-based debit card for purchases at merchant
locations. We currently have relationships with the Interlink and PULSE
networks to facilitate this PIN-based debit card product.
o Off-line debit cards. The TransFund Check Card is a signature-based card,
which is linked to a cardholder's checking account and routed through the
VISA payment system. This card can be used to make purchases at more than
15 million merchant locations worldwide. During the last two years,
TransFund has focused on introducing this product to most of our
financial institution clients. At year-end 1998, 229 of our client
financial institutions, or 96% of our total clients, used this product.
BOSC, INC.
BOSC, Inc., a subsidiary of BOK Financial Corporation, is a full-service
securities firm with specialized expertise in public and municipal finance,
asset backed securities and private placements. BOSC is authorized to deal in
and underwrite a broader range of securities than traditional banks.
BOSC is comprised of three divisions:
o the Retail Brokerage Division is responsible for retail customer sales
and brokerage activity;
o the Institutional Investments Division executes securities transactions
with other banks, corporations, foundations and public sector entities;
and
o the Leo Oppenheim Division specializes in public and municipal finance
activity, including financial advisory and underwriting services.
In 1998, we consolidated Leo Oppenheim and two of our existing securities
companies into one full-service securities firm. BOSC's strategy is to be the
leading underwriter and dealer in Oklahoma public and municipal securities, to
play a leading role in asset-backed transactions in Oklahoma and to provide
medium-size corporate clients access to the capital markets. We intend to grow
selectively into surrounding markets, particularly with our Retail Brokerage
and Public Finance units.
- 51 -
<PAGE> 55
The 35 retail financial consultants of BOSC, Inc. serve more than 22,000
households, primarily in Oklahoma, as well as in Texas, Arkansas and
Albuquerque. Institutional sales, trading and underwriting activity is based out
of four primary locations: Oklahoma City, Tulsa, Little Rock and Fayetteville,
Arkansas. Our 32 institutional sales representatives and eight fixed-income
traders focus on Oklahoma and contiguous states. The Leo Oppenheim Division has
eight investment bankers in Oklahoma, three in Arkansas and two in Texas.
The three BOSC divisions are further organized according to their primary
customer segments:
o the Retail Brokerage Division operates as a full-service broker/dealer.
The principal products the Division offers are mutual funds, annuities,
fixed-income securities and equities;
o the Institutional Investment Division focuses on Oklahoma and its
contiguous states. In 1998, the mix of revenue from securities sales
included approximately 25% from financial institutions, 16% from
foundations and trusts, 15% from governmental entities and 11% from
corporations. In 1998, approximately 64% of the revenue earned by the
Institutional Investments Division was generated from Oklahoma-based
institutional customers, but we have recently seen strong growth from
outside of Oklahoma; and
o the Leo Oppenheim Division specializes in municipal finance, asset-backed
securities and private placement activities. Among its clients are many
of the largest issuers of municipal debt in Oklahoma. Although the
Division is growing into adjacent states, the majority of its 1999
revenue is expected to be derived from Oklahoma-based customers.
The Leo Oppenheim Division is the market leader in the underwriting of
Oklahoma and Arkansas school bonds and Oklahoma housing bonds. With BOSC's
appointment as the sole underwriter of the Oklahoma Water Resource Board, we
hope to expand our market share in other public finance areas. We have one of
the largest networks of sales representatives in Oklahoma specializing in
public and municipal securities, and we have been particularly successful in
placing double-tax-exempt bonds with our customer base.
Primary competitors for BOSC include:
o other full-service broker/dealers, financial planning firms and
electronic brokerage firms, which compete with BOSC's Retail Brokerage
Division;
o regional and national securities dealers, which compete with BOSC's
Institutional Investment Division; and
o regional and national firms engaged in public finance underwriting in
Oklahoma and its contiguous states and several small municipal financial
advisory firms based in Oklahoma, which compete with BOSC's Oppenheim
Division.
BOSC's recent initiatives include:
o Section 20, Tier II Authorization. We recently secured Tier II approval
from the Federal Reserve Board, allowing us to expand BOSC's underwriting
activity into the corporate debt market. This additional capability
significantly enhances our position as a niche investment banking firm
which focuses on public finance and asset-backed transactions in the
region. As the only remaining provider of such services based in
Oklahoma, we believe we have significant competitive advantages relative
to out-of-state firms.
o Internet access to brokerage accounts. BOSC plans to offer our retail
clients access to their brokerage accounts through Pershing's "Net
Exchange Client" system. This service provides Internet access for
account review, equity research, stock trade order entry, stock quote,
market news and other information. Our clients will be able to access
this system through a link from our current Web Page. We anticipate
offering this service early in the third quarter of 1999.
BANKING SUBSIDIARIES
We operate six out-of-state banking subsidiaries:
o Bank of Texas, which operates primarily in the Dallas/Forth Worth
metropolitan area;
o Bank of Albuquerque, which serves as our hub in the largest and
fastest-growing market in New Mexico; and
o Bank of Arkansas, which operates primarily in northwest Arkansas.
o Mid-Cities National Bank, Canyon Creek National Bank and Swiss Avenue
State Bank, all recently acquired, which are based in the Dallas/Fort
Worth metropolitan area.
- 52 -
<PAGE> 56
These subsidiaries have similar lines of business and focus on similar
market segments as Bank of Oklahoma. While tailored for the unique
characteristics of these markets and operating environments, our strategy in
these markets closely resembles the strategy we have pursued successfully in
Oklahoma. We plan to build these subsidiaries into banks with significant
expertise in selected niche products and industries, while offering a community
bank level of service quality.
The primary products and services offered by Bank of Texas, Bank of
Albuquerque and Bank of Arkansas include middle-market and small- business
banking, consumer banking, trust services, treasury services and retail
investments through BOSC. Our primary customer focus is on small businesses and
middle-market corporations that have been affected by disruptions in their
banking services due to consolidations in the banking industry. We also offer
our products and services to retail customers, large corporations and public
and nonprofit entities.
Primary competitors of our banking subsidiaries consist of various
community, regional, national and international banks operating in their
respective geographic areas, as well as other financial services companies.
Market position and recent initiatives for each of our primary banking
subsidiaries are:
o Bank of Texas
-- Bank of Texas currently has $404 million in deposits and a loan
portfolio of approximately $318 million. Our three recent
acquisitions in the Dallas/Fort Worth area, which we anticipate
merging with Bank of Texas in the second quarter of 2000, increased
our total assets in this area to approximately $977 million from $566
million at March 31, 1999. They also have increased our deposits in
the area from $404 million to $756 million, giving us an approximate
1.2% share in this $53.9 billion deposit market.
-- Recent initiatives include expansion in the Dallas/Fort Worth
metropolitan area, as well as the establishment of a merchant banking
unit. This unit will be located in our Dallas office. Initial business
development for this unit will focus upon customers and prospects of
Bank of Texas.
o Bank of Albuquerque
-- Bank of Albuquerque currently has $420 million in deposits and a loan
portfolio of approximately $147 million. It is the fourth largest bank
in the City of Albuquerque and the fifth largest in the State of New
Mexico in terms of deposits.
-- Recent initiatives include expanding middle-market commercial banking
to more fully service the middle-market customer segment, introducing
on-line debit cards and launching an Internet site, which will enable
customers to use various banking services via the Internet.
o Bank of Arkansas
-- Bank of Arkansas currently has $87 million in deposits and a loan
portfolio of approximately $76 million. It grew its total deposits by
17.7% and net loans by 48.2% in 1998. Furthermore, Bank of Arkansas
has become a significant employee benefit plan administrator in
northwest Arkansas.
-- Recent initiatives include expansion in the Ft. Smith, Arkansas
market, establishment of a loan production office in Little Rock,
addition of a local trust administrator for our northwest Arkansas
employee benefit plans and ongoing efforts to enhance the sale of our
treasury service products.
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<PAGE> 57
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES
The following table presents certain information with respect to the
executive officers, directors and certain key employees of BOK Financial as of
the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
George B. Kaiser......... 56 Chairman of the Board
Stanley A. Lybarger...... 49 President, Chief Executive Officer, and
Director
James A. White........... 55 Executive Vice President and Chief
Financial Officer
W. Wayne Allen........... 63 Director
C. Fred Ball, Jr......... 55 Director, President and Chief Executive Officer,
Bank of Texas
James E. Barnes.......... 65 Director
Sharon J. Bell*.......... 49 Director
Luke R. Corbett.......... 52 Director
Robert H. Donaldson...... 56 Director
William E. Durrett....... 68 Director
James O. Goodwin......... 59 Director
V. Burns Hargis.......... 53 Director, Vice Chairman
Howard E. Janzen......... 45 Director
E. Carey Joullian, IV 39 Director
Robert J. LaFortune*..... 72 Director
Philip C. Lauinger, Jr.* 63 Director
Frank A. McPherson*...... 66 Director
Steve E. Moore*.......... 53 Director
J. Larry Nichols......... 56 Director
Ronald J. Norick......... 57 Director
Robert L. Parker, Sr..... 75 Director
James W. Pielsticker..... 61 Director
E.C. Richards............ 49 Director
James A. Robinson........ 70 Director
L. Francis Rooney, III... 45 Director
David J. Tippeconnic*.... 59 Director
Tom E. Turner............ 60 Director, Chairman, Bank of Texas
Robert L. Zemanek........ 49 Director
Jeffrey R. Dunn.......... 36 Chairman, President, Bank of Arkansas
Paul M. Elvir............ 59 Executive Vice President, Bank of Oklahoma
Mark W. Funke............ 43 President, Bank of Oklahoma, Oklahoma City
Eugene A. Harris......... 57 Executive Vice President, Chief Credit
Officer
H. James Holloman........ 48 Executive Vice President, Bank of Oklahoma
David L. Laughlin........ 46 Senior Vice President and President,
Mortgage Banking
John C. Morrow........... 43 Senior Vice President, Financial Accounting
& Reporting
Steven E. Nell........... 37 Senior Vice President, Corporate Controller
W. Jeffrey Pickryl....... 47 Executive Vice President, Bank of Oklahoma
Norman W. Smith.......... 52 Executive Vice President, Bank of Oklahoma
Gregory K. Symons........ 46 President, Bank of Albuquerque
Charles D. Williamson.... 52 Executive Vice President, Bank of Oklahoma
</TABLE>
- ----------
* Member, Risk Oversight and Audit Committee
- 54 -
<PAGE> 58
George B. Kaiser. Mr. Kaiser has served as a Director of BOK Financial
since 1991 and serves as Chairman of the Board of BOK Financial and Bank of
Oklahoma. He also serves as President and principal owner of Kaiser-Francis Oil
Company, an independent oil and gas exploration and production company with
interests in 22 states and two provinces. Kaiser-Francis also owns Fountains
Continuum of Care, Inc., which holds interests in senior housing communities in
fifteen states.
Stanley A. Lybarger. Mr. Lybarger has served as a Director of BOK Financial
since 1991. He also serves as President and Chief Executive Officer of BOK
Financial and Bank of Oklahoma. He has been with Bank of Oklahoma for 25 years.
Previously, he was President of Bank of Oklahoma's Oklahoma City Regional Office
and Executive Vice President of Bank of Oklahoma with responsibility for
corporate banking.
James A. White. Mr. White is a Director of Bank of Oklahoma and Executive
Vice President, Chief Financial Officer and Treasurer of BOK Financial and Bank
of Oklahoma. He became Chief Financial Officer of BOK Financial and Bank of
Oklahoma in 1992. He formerly served as President and Chief Executive Officer of
First National Bank & Trust Co. of Tulsa, and currently is Chairman of the Board
of Hillcrest Healthcare System.
W. Wayne Allen. Mr. Allen has served as a Director of BOK Financial since
1992. He also serves as Chairman and Director of Phillips Petroleum Company.
From 1993 until 1995, he served as a member of the Board of Directors of the
Federal Reserve Bank of Kansas City.
C. Fred Ball, Jr. Mr. Ball has served as a Director of BOK Financial since
April, 1999. Mr. Ball is President and CEO of the Bank of Texas and is
responsible for Commercial Banking in the Dallas area. Before joining Bank of
Oklahoma in 1997, he was Executive Vice President of Comerica Bank-Texas and
later President of Comerica Securities Inc.
James E. Barnes. Mr. Barnes has served as a Director of BOK Financial since
1991. He is retired Chairman of the Board, President, and Chief Executive
Officer of MAPCO Inc., which has subsequently merged with Williams, Inc. In
addition, he is a Director of Parker Drilling Co., Kansas City Southern
Industries, Inc. and SBC Communications, Inc.
Sharon J. Bell. Ms. Bell has served as a Director of BOK Financial since
1993. She is also an Attorney and Managing Partner at Rogers and Bell in Tulsa,
Oklahoma. She serves as a Trustee and General Counsel to Chapman-McFarlin
Interests. Previously, she was a Director and President of Red River Oil
Company.
Luke R. Corbett. Mr. Corbett has served as a Director of BOK Financial since
April, 1999. He serves as Chairman and Chief Executive Officer of Kerr-McGee
Corporation.
Robert H. Donaldson. Mr. Donaldson has served as a Director of BOK Financial
since 1995. He is a Professor and former President of the University of Tulsa in
Tulsa, Oklahoma.
William E. Durrett. Mr. Durrett has served as a Director of BOK Financial
since 1991. He also serves as Senior Chairman of the Board of American Fidelity
Corporation and American Fidelity Assurance Company. He is also a Director of
Oklahoma Gas & Electric Company and Chairman of the Board of Integris Health.
James O. Goodwin. Mr. Goodwin has served as a Director of BOK Financial
since 1995. He serves as Chief Executive Officer of Oklahoma Eagle Publishing
Co. He is also the Sole Proprietor of Goodwin & Goodwin Law Firm in Tulsa,
Oklahoma.
V. Burns Hargis. Mr. Hargis has served as a Director of BOK Financial since
1993. He also serves as Vice Chairman of BOK Financial and Bank of Oklahoma and
Director of BOSC. Formerly, he was an Attorney and Of Counsel to the law firm of
McAfee & Taft in Oklahoma City, Oklahoma.
Howard E. Janzen. Mr. Janzen has served as a Director of BOK Financial since
1998. He is also President and Chief Executive Officer of Williams
Communications, a subsidiary of Williams, Inc.
E. Carey Joullian, IV. Mr. Joullian has served as a Director of BOK
Financial since 1995. He also serves as President of Mustang Fuel Corporation
and Subsidiaries. In addition, he serves as President and Manager of Joullian &
Co., Inc.
Robert J. LaFortune. Mr. LaFortune has served as a Director of BOK Financial
since 1993. He is self-employed in the investment and management of personal
financial holdings. He is also a Director of Williams, Inc.
Philip C. Lauinger, Jr. Mr. Lauinger has served as a Director of BOK
Financial since 1991. He also serves as Chairman and Chief Executive Officer of
Lauinger Publishing Company. Previously, he was Chairman of the Board and Chief
Executive Officer of PennWell Publishing Co.
Frank A. McPherson. Mr. McPherson has served as a Director of BOK Financial
since 1996. He also served as Chairman of the Board and Chief Executive Officer
of Kerr-McGee Corporation from 1983 to 1997. He is a member of the Board of
Directors of Kimberly-Clark Corp., Conoco Inc.,
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<PAGE> 59
Tri-Continental Corporation, Seligman Quality Fund, Inc., Seligman Select
Municipal Fund, Inc. and Seligman Group of Mutual Funds and is a former Director
of the Federal Reserve Bank of Kansas City.
Steven E. Moore. Mr. Moore has served as a Director of BOK Financial since
1998. He also serves as Chairman, President and Chief Executive Officer of OGE
Energy Corp. In addition, he is Director of the Oklahoma City Chamber of
Commerce, Oklahoma State Chamber of Commerce and Edison Electric Institute.
J. Larry Nichols. Mr. Nichols has served as a Director of BOK Financial
since 1997. He is the President and Chief Executive Officer of Devon Energy. He
also serves as Director of Independent Petroleum Association of America and the
Domestic Petroleum Counsel. He is on the Board of Governors for the American
Stock Exchange. In addition, he serves as Director of Smedvig ASA, CMI
Corporation and Caribou Communications Company.
Ronald J. Norick. Mr. Norick has served as a Director of BOK Financial since
April, 1999. He is Controlling Manager, Norick Investments Company, L.L.C. He
previously served as Mayor of Oklahoma City from 1987 until 1998 and was
President of Norick Brothers, Inc. from 1981 to 1992. In addition, he is a
Director of Sport Haley, Inc., Oklahoma Medical Holdings, Ltd., and the Oklahoma
City Chamber of Commerce.
Robert L. Parker, Sr. Mr. Parker has served as a Director of BOK Financial
since 1991. He is the Chairman and Director of Parker Drilling Co. In addition,
he serves as a Director of Weatherford-Enterra Corp., Clayton Williams Energy,
Inc. and Norwest Bank of Texas-Kerrville.
James W. Pielsticker. Mr. Pielsticker has served as a Director of BOK
Financial since 1996. He is the President of Arrow Trucking Co.
E.C. Richards. Mr. Richards has served as a Director of BOK Financial since
1997. He is also Executive Vice President and Chief Operating Officer for Sooner
Pipe and Supply Corporation.
James A. Robinson. Mr. Robinson has served as a Director of BOK Financial
since 1993. He is self-employed in the investment and management of personal
financial holdings and in the ranching business.
L. Francis Rooney, III. Mr. Rooney has served as a Director of BOK Financial
since 1995. He is Chairman of the Board and Chief Executive Officer of Manhattan
Construction Company.
David J. Tippeconnic. Mr. Tippeconnic has served as a Director of BOK
Financial since 1998. He is the President, Chief Executive Officer and Director
of CITGO Petroleum Corporation. In addition, he is the Director of the American
Petroleum Institute, St. Francis Health Systems, the Boy Scouts of America and
Southdown, Inc.
Tom E. Turner. Mr. Turner has served as a Director of BOK Financial since
1998. He is the Chairman of Bank of Texas, NA. Prior to the Bank of Texas, he
served as Chairman and Chief Executive Officer of the First National Bank of
Park Cities in Dallas, Texas, which was acquired by BOK Financial on February
12, 1997. He had been the Chief Executive Officer of FNB Park Cities since 1984.
Robert L. Zemanek. Mr. Zemanek has served as a Director of BOK Financial
since 1994. He is the President of Energy Delivery, at Central & South West
Services. Previously, he served as the President, Chief Executive Officer and
Director of Public Service Company of Oklahoma and as Director of Central and
Southwest Service, Inc., Ash Creek Mining Company and the University of Tulsa.
Jeffrey R. Dunn. Mr. Dunn is Chairman and President of Bank of Arkansas.
Prior to becoming President of Bank of Arkansas, he served as Senior Vice
President of Commercial Lending. He has been with Bank of Oklahoma for ten
years.
Paul M. Elvir. Mr. Elvir is the Executive Vice President and Manager of the
Bank of Oklahoma Operations and Technology Division. Before joining Bank of
Oklahoma in 1997, he was the President of Liberty Payments Services, Inc., a
subsidiary of Banc One Services Corporation. He had previously served as an
Executive Vice President of Banc One Services Corporation.
Mark W. Funke. Mr. Funke is President of the Bank of Oklahoma, Oklahoma City
and heads our Commercial Banking Division in Oklahoma City. He also heads our
Business Banking Group, which manages our statewide small-business banking
efforts and all of our Community Banking Offices. He joined BOK Financial in
1984 as Vice President in the financial institutions department and was named to
his current position in 1997. Before joining BOK Financial, he was a commercial
lender with Republic Bank in Houston for seven years.
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<PAGE> 60
Eugene A. Harris. Mr. Harris has served as a Director of Bank of Oklahoma
since 1991. He is also the Director and Executive Vice President of Bank of
Oklahoma, Chief Credit Officer and Manager of the Credit Administration
Division. He has been with Bank of Oklahoma for 17 years.
H. James Holloman. Mr. Holloman is the Executive President of Bank of
Oklahoma and Manager of Trust Services. Before joining Bank of Oklahoma, he
spent 12 years at First Union National Bank in Charlotte, NC. He has been with
Bank of Oklahoma since 1985.
David L. Laughlin. Mr. Laughlin is the Senior Vice President and President
of the Mortgage Banking Division. He joined BOK Financial in 1986 as the
Secondary Marketing Manager in charge of retail production and secondary
marketing, and he became President of Mortgage Banking in 1993. He has served
two terms on the Fannie Mae Advisory Board and is a past President of the
Oklahoma Mortgage Bankers' Association and the Tulsa Mortgage Bankers
Association.
John C. Morrow. Mr. Morrow is Senior Vice President and serves as Director
of Financial Accounting and Reporting. He joined Bank of Oklahoma in 1993. He
was previously with Ernst & Young for 10 years.
Steven E. Nell. Mr. Nell is Senior Vice President and serves as Corporate
Controller. He joined Bank of Oklahoma in 1992. He was previously with Ernst &
Young for eight years.
W. Jeffrey Pickryl. Mr. Pickryl is the Executive Vice President responsible
for Corporate Banking in Tulsa, as well as statewide energy and real estate
lending. Before joining Bank of Oklahoma in 1997, he was President and Chief
Credit Officer for Liberty Bancorp, Inc. in Tulsa, where he worked for 14 years.
He was previously with Arizona Bank in Phoenix.
Norman W. Smith. Mr. Smith is the Executive Vice President of Bank of
Oklahoma and manages the Consumer Banking Division. In addition to BOKF's branch
network, he is responsible for mortgage operations, corporate marketing and
corporate Community Reinvestment Act activities. Before joining Bank of Oklahoma
in 1991, he was Senior Vice President and Manager, Branch Sales and Services
Division, at Ameritrust Bank in Cleveland, Ohio.
Gregory K. Symons. Mr. Symons is the President of the Bank of Albuquerque
and is responsible for Corporate Banking in New Mexico. He previously served as
Bank of Oklahoma's Senior Vice President of Regional Banking and Commercial
Lending/Sales. He has been with Bank of Oklahoma since 1976 and was named to his
current position in 1998.
Charles D. Williamson. Mr. Williamson is the Executive Vice President of
Capital Markets of Bank of Oklahoma and Chairman and Chief Executive Officer of
BOSC. Before joining Bank of Oklahoma six years ago, he was the Manager of the
Investment Division at First Interstate Bank of Arizona and the Manager of the
Investment Division at First Interstate Bank of Oklahoma.
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<PAGE> 61
PRINCIPAL AND SELLING SHAREHOLDERS
We are presenting the following information as if all of our outstanding
Series A Preferred Stock had been converted to common stock.
OUR PRINCIPAL SHAREHOLDER
As of the date of this prospectus, our principal shareholder, Mr. George B.
Kaiser, beneficially owns 74.1% of our common stock after giving effect to
conversion of 249,490,880 shares of our Series A Preferred Stock owned by him.
Mr. Kaiser has been our Chairman since 1991. He is also the owner and CEO of
Kaiser-Francis Oil Co., an oil and gas exploration and production company that
he has managed for more than 25 years. Kaiser-Francis also owns Fountains
Continuum of Care, Inc., which holds interests in senior housing communities in
15 states.
Mr. Kaiser's primary reasons for offering a portion of his shares is to
enable our shares to attain more appropriate public market valuation levels and
to increase the attractiveness of our shares as an acquisition currency. Mr.
Kaiser intends to maintain at least a majority ownership of BOK Financial.
SELLING SHAREHOLDERS
The following table identifies shareholders that will be offering their
common stock and the number of shares to be sold by each shareholder, as well as
the number of shares beneficially owned before and after the offering. We are
presenting the information in the table as if the underwriters did not exercise
the over-allotment option.
<TABLE>
<CAPTION>
SHARES OWNED SHARES SHARES OWNED
PRIOR TO OFFERING BEING OFFERED AFTER OFFERING
----------------- ------------- --------------
NAME NUMBER NUMBER NUMBER
---- ------ ------ ------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
The following descriptions of our capital stock are not complete. You should
also read our Amended and Restated Certificate of Incorporation, our Bylaws and
the General Corporation Act of the State of Oklahoma. We have filed copies of
our Certificate of Incorporation and Bylaws with the SEC. These documents are
incorporated by reference into the registration statement of which this
prospectus is a part.
We have 3,500,000,000 shares of capital stock authorized, of which
2,500,000,000 shares are common stock, $0.00006 par value, and 1,000,000,000
shares are preferred stock, $0.00005 par value. As of June 25, 1999, we had
47,553,759 shares of common stock issued and outstanding and 250,000,000
shares of preferred stock issued and outstanding as a single series of Series A
Preferred Stock.
COMMON STOCK
Each holder of shares of our common stock is entitled to one vote for each
share held on all matters to be voted upon by our shareholders. The holders of
outstanding shares of our common stock are entitled to receive ratably such
dividends out of assets legally available therefor as our Board of Directors may
determine. Upon our liquidation or dissolution, the holders of our common stock
will be entitled to share ratably in our assets that are legally available for
distribution to shareholders after payment of liabilities. Holders of
outstanding Series A Preferred Stock are entitled to dividend and/or liquidation
preferences. Holders of other series of preferred stock may likewise be entitled
to dividend and liquidation preferences. In either such case, we must pay the
applicable distribution to the holders of our preferred stock before we may pay
them to the holders of our common stock. Holders of our common stock have no
conversion, sinking fund, redemption, preemptive or subscription rights. In
addition, holders of our common stock do not have cumulative voting rights. We
cannot further call or assess shares of our common stock.
SERIES A PREFERRED STOCK
The Series A Preferred Stock has no voting rights under the Certificate of
Incorporation and under Oklahoma corporate law would only have the right to vote
in the event of a proposed amendment to the Certificate of Incorporation
altering or changing the special rights and preferences of the Series A
Preferred Stock, changing the par value or increasing or decreasing the number
of authorized shares.
The holders of outstanding shares of our Series A Preferred Stock are
entitled to receive cumulative cash dividends at the annual rate of ten percent
of the $0.06 liquidation preference value per share, when and as declared by our
Board of Directors. Any shares of Series A Preferred Stock may be redeemed by us
at any time, provided that all regulatory requirements are met and all accrued
dividends are paid. Holders of our Series A Preferred Stock may convert their
shares to our common stock at any time at a ratio of 2.39 shares of common stock
for each 100 shares of Series A Preferred Stock. This ratio has been adjusted to
account for the two for one stock split which was issued February 22, 1999 and
also gives effect to the 1 for 100 reverse stock split of common stock effected
December 17, 1991 and the November 18, 1993, November 17, 1994, November 27,
1995, November 27, 1996, November 19, 1997 and November 25, 1998 BOKF 3% common
stock dividends payable by the issuance of our common stock. Holders of our
preferred stock have no sinking fund or preemptive rights.
PREFERRED STOCK
Our Board of Directors has the authority to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed upon any unissued
series of our preferred stock and to fix the number of shares, dividend rights,
conversion or exchange rights, voting rights, redemption rights, liquidation
preferences and sinking funds of any series of our preferred stock. The
authorized shares of our preferred stock will be available for issuance without
further action by our shareholders, unless shareholder action is required by
applicable law or by the rules of a stock exchange on which any series of our
stock may be listed. The holders of our preferred stock will have the right to
vote separately as a class on any proposal involving fundamental changes in the
rights of those holders as provided by the General Business Corporation Act of
the State of Oklahoma.
This authority of our Board of Directors gives it the power to approve the
issuance of a series of preferred stock that could, depending on its terms,
either impede or facilitate the completion of a merger, tender offer or other
takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights that
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to satisfy an applicable percentage vote
requirement.
If applicable, the terms on which our preferred stock may be convertible
into or exchangeable for our common stock or our other securities will be
described in the applicable Certificate of Determination. The terms will include
provisions as to whether conversion or exchange is
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<PAGE> 63
mandatory, at the option of the holder, or at our option, and may include
provisions that adjust the number of shares of our common stock or other
securities of ours that the holders of our preferred stock may receive.
DIRECTORS' LIABILITY
Article VI of our Bylaws provide for indemnification of directors to the
fullest extent authorized by Oklahoma Law. Section 1031 of the Oklahoma General
Business Corporation Act Authorizes a corporation to indemnify its officers,
employees and agents against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred, whether
in civil, criminal, administrative, or investigative proceedings, by him or her
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Pursuant to statutory and bylaw provisions, we have purchased insurance against
certain costs of indemnification of its officers and directors.
TRANSFER AGENT AND REGISTRAR
The Bank of New York acts as transfer agent and registrar for our common
stock and our Series A Preferred Stock.
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<PAGE> 64
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
In the opinion of Davis Polk & Wardwell, our special tax counsel, the
following is a general discussion of certain U.S. federal income and estate tax
consequences of the ownership and disposition of Common Stock by a beneficial
owner that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a person or entity
that, for U.S. federal income tax purposes, is a non-resident alien individual,
a foreign corporation, a foreign partnership or a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders are advised to
consult their tax advisors with respect to the particular tax consequences to
them of owning and disposing of Common Stock, including the consequences under
the laws of any state, local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
For purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, we will presume that
dividends paid on or before December 31, 1999 to an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption is
not warranted. Under the United States Treasury Regulations applicable to
dividends paid after December 31, 1999 (the "Final Regulations"), to obtain a
reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be
required to provide an Internal Revenue Service Form W-8 certifying such Non-
U.S. Holder's entitlement to benefits under a treaty. The Final Regulations also
provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an
entity should be treated as paid to the entity or those holding an interest in
that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 (or, after December 31, 1999, a
Form W-8) stating that the dividends are so connected is filed with us. Instead,
the effectively connected dividends will be subject to regular U.S. income tax
in the same manner as if the Non-U.S. Holder were a U.S. resident. A non-U.S.
corporation receiving effectively connected dividends may also be subject to an
additional "branch profits tax" which is imposed, under certain circumstances,
at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) of the non-U.S. corporation's effectively connected earnings and
profits, subject to certain adjustments.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of such
holder in the United States, (ii) in the case of certain Non-U.S. Holders who
are non-resident alien individuals and hold the Common Stock as a capital asset,
such individuals are present in the United States for 183 or more days in the
taxable year of the disposition, (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) we are or have been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. We believe that we are not, and do not anticipate
becoming, a U.S. real property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Generally, we must report to the U.S. Internal Revenue Service the amount
of dividends paid, the name and address of the recipient, and the amount, if
any, of tax withheld. A similar report is sent to the holder.
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<PAGE> 65
Pursuant to tax treaties or certain other agreements, the U.S. Internal Revenue
Service may make its reports available to tax authorities in the recipient's
country of residence.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information to us, or
in the case of dividends paid after December 31, 1999, it fails to certify its
non-U.S. status on a Form W-8. Backup withholding generally will not apply to
dividends paid on or before December 31, 1999 to a Non-U.S. Holder at an address
outside the United States (unless the payer has knowledge that the payee is a
U.S. person). Under the Final Regulations, however, a Non-U.S. Holder will be
subject to backup withholding unless the applicable certification requirements
are met.
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of common stock effected by or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting requirements will apply to
a payment of disposition proceeds where the transaction is effected outside the
United States by or through an office outside the United States of a broker that
is either (1) a U.S. person, (2) a foreign person which derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, (3) a "controlled foreign corporation" for U.S. federal
income tax purposes, and (4) effective after December 31, 1999, a foreign
partnership (A) at least 50% of the capital or profits interest in which is
owned by U.S. persons, or (B) that is engaged in a U.S. trade or business, and
the broker fails to maintain documentary evidence that the holder is a Non-U.S.
Holder and that certain conditions are met, or that the holder otherwise is
entitled to an exemption.
Effective January 1, 2000, in the case of a transaction described in (1),
(2), (3) or (4), a Non-United States Holder will be subject to backup
withholding and information reporting unless the broker receives certification
of non-U.S. status on a Form W-8. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained, provided that the required information is
furnished to the U.S. Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
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<PAGE> 66
UNDERWRITERS
Under the terms and conditions of the Underwriting Agreement dated as of
the date of this prospectus, the U.S. underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Keefe Bruyette & Woods, Inc., Smith Barney Inc. and
Stephens Inc. are acting as U.S. representatives, and the international
underwriters named below, for whom Morgan Stanley & Co. International Limited,
Keefe Bruyette & Woods, Inc., Salomon Brothers International Limited and
Stephens Inc. are acting as international representatives, have severally agreed
to purchase, and we and the selling shareholders have agreed to sell to them,
severally, the number of shares indicated below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Keefe Bruyette & Woods, Inc...............................
Salomon Smith Barney Inc..................................
Stephens Inc..............................................
----------
Subtotal...............................................
----------
International Underwriters:
Morgan Stanley & Co. International Limited................
Keefe Bruyette & Woods, Inc...............................
Salomon Brothers International Limited....................
Stephens Inc..............................................
----------
Subtotal...............................................
----------
Total................................................
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and selling shareholders and subject to prior
sale. The Underwriting Agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares are conditioned on the
delivery of legal opinions by their counsel. The underwriters are obligated to
purchase all of the shares, except those covered by the U.S. underwriters'
over-allotment option described below, if any are purchased.
In the Agreement between U.S. and International Underwriters, each U.S.
underwriter has represented and agreed that (1) it is not purchasing any shares
for the account of anyone other than a United States or Canadian person and (2)
it has not offered or sold, and will not offer or sell any shares or distribute
any prospectus relating to the shares outside the United States or Canada or to
anyone other than a United States or Canadian person. Each international
underwriter has represented and agreed that (1) it is not purchasing any shares
for the account or any United States or Canadian person and (2) it has not
offered or sold, and will not offer or sell any shares or distribute any
prospectus relating to the shares in the United States or Canada or to any
United States or Canadian person. For any underwriter that is both a U.S.
underwriter and an international underwriter, these representations and
agreements (1) made by it in its capacity as a U.S. underwriter apply only to it
in its capacity as a U.S. underwriter and (2) made by it in its capacity as an
international underwriter apply only to it in its capacity as an international
underwriter. The limitations described above do not apply to, among other
things, stabilization transactions or to other transactions specified in the
Agreement between U.S. and International Underwriters. As used in this section,
"United States or Canadian person" means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision of the United States or Canada, other than a branch
located outside the United States and Canada of any United States or Canadian
person. "United States or Canadian person" includes any United States or
Canadian branch of an entity who is otherwise not a United States or Canadian
person.
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<PAGE> 67
In the Agreement between U.S. and International Underwriters, sales of
shares may be made between U.S. underwriters and international underwriters. The
price of any shares so sold will be the public offering price set forth on the
cover page hereof, in United States dollars, less an amount not greater than
$ a share.
In the Agreement between U.S. and International Underwriters, each U.S.
underwriter has represented that it has not offered or sold, and has agreed not
to offer or sell, any shares in any province or territory of Canada or to, or
for the benefit of, any resident of any province or territory of Canada in
contravention of the securities laws of Canada. Each U.S. underwriter has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of shares a notice stating that, by purchasing the shares, the dealer agrees
that any offer or sale of shares in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or territory
of Canada in which the offer or sale is made. Each dealer will deliver to any
other dealer to whom it sells any shares a notice containing substantially the
same Canadian selling restrictions.
In the Agreement between U.S. and International Underwriters, each
international underwriter has represented and agreed that:
- it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares to the international
underwriters, will not offer or sell, any shares to persons in the United
Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments for the purposes
of their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986; and
- it has and will distribute any document relating to the shares in the
United Kingdom only to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document
may otherwise lawfully be distributed.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus. The underwriters may also offer the shares to
securities dealers at a price that represents a concession not in excess of
$ a share under the public offering price. Any underwriter may allow,
and dealers may reallow, a concession not in excess of $ a share to
other underwriters or to securities dealers. After the initial offering of the
shares of common stock, the offering price and other selling terms may from time
to time be changed by the representatives.
The U.S. underwriters have an option to purchase from us up to an aggregate
of additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and commissions.
The U.S. underwriters' option is exercisable for 30 days from the date of this
prospectus. The U.S. underwriters may exercise this option only for the purpose
of covering over-allotments, if any, made in connection with this offering. If
this option is exercised, each U.S. underwriter will become obligated to
purchase the same percentage of additional shares of common stock as set forth
in the preceding table. If the U.S. underwriter's option is exercised in full,
the total price to the public for this offering would be $ , the total
underwriting discounts and commissions would be $ , the total proceeds
to us would be $ and the total proceeds to the selling shareholders
would be $ .
We have agreed that we will not, directly or indirectly, during the period
ending 180 days after the date of this prospectus, and each of the selling
shareholders, our directors and certain of our executive officers has agreed
that he or she will not, directly or indirectly, during the period ending 90
days after the date of this
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<PAGE> 68
prospectus, in each case without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the underwriters:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right, or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another
person, in whole or in part, any of the economic consequences of
ownership of the common stock,
whether any transaction described above is to be settled by delivery of common
stock or other securities, in cash, or otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of the shares to the underwriters;
- the issuance of shares in connection with future acquisition
transactions;
- the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of our common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in our common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of our common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
shares in the offering, if the syndicate repurchases previously distributed
shares in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of our common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
In addition, holders of shares of common stock held by persons who
acquired the common stock in connection with our acquisition of First Muskogee
Bancshares, Inc. have agreed that they will not sell their shares for a period
of 90 days following the date of this prospectus.
From time to time, certain of the underwriters have provided and may
continue to provide banking services to us and to Mr. George B. Kaiser and our
affiliates.
BOK Financial, the selling shareholders and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the common stock being offered hereby is being passed upon
for us by Frederic Dorwart, Lawyers. Certain matters relating to U.S. federal
income tax considerations will be passed upon for us by Davis Polk & Wardwell,
acting as our special tax counsel for this offering only. Davis Polk & Wardwell
has in the past represented and continues to represent the underwriters in this
offering. Matters for the underwriters will be passed upon by Davis Polk &
Wardwell.
- 65 -
<PAGE> 69
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the years
ended December 31, 1998, 1997, and 1996, as set forth in their report, which is
incorporated by reference. Our financial statements are incorporated by
reference, as well as included, in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements, and other information with the SEC. You
may read and copy these reports, proxy statements, and other information
concerning us at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800- SEC-0330 for further
information on the Public Reference Room. The SEC maintains an internet site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC,
including ourselves. Our common stock is quoted on the Nasdaq National Market.
These reports, proxy statements and other information are also available for
inspection at the offices of the National Association of Securities Dealers,
Inc., Report Section, 1735 K Street N.W., Washington, D.C. 20006.
This prospectus is part of a registration statement that we filed with the
SEC. You can obtain the full registration statement from the SEC as indicated
above, or from us.
The SEC allows us to "incorporate by reference" the information we file with
the SEC. This permits us to disclose important information to you by referring
to these filed documents. Any information referred to in this way is considered
part of this prospectus, and any information that we file with the SEC after the
date of this prospectus will automatically be deemed to update and supersede
this information. We incorporate by reference the following documents that have
been filed with the SEC:
o Annual Report on Form 10-K for the year ended December 31, 1998.
o Quarterly Report on Form 10-Q for the three months ended March 31, 1999.
We also incorporate by reference any future filings made with the SEC
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until we file
a post-effective amendment that indicates the termination of the offering of the
securities made by this prospectus.
We will provide without charge upon written or oral request, a copy of any
or all of the documents that are incorporated by reference into this prospectus.
Requests should be directed to Chief Financial Officer, BOK Financial
Corporation, Bank of Oklahoma Tower, Boston Avenue at Second Street, Tulsa,
Oklahoma 74172, (telephone number 918-588-6717) ([email protected]).
- 66 -
<PAGE> 70
BOK FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Statements of Earnings for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996, 1997 and 1998...... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of BOK
Financial Corporation as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
January 26, 1999
F-2
<PAGE> 72
BOK FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest Revenue
Loans..................................................... $ 258,974 $ 227,044 $ 196,309
Taxable securities........................................ 108,727 97,416 77,588
Tax-exempt securities..................................... 16,003 16,809 14,665
---------- ---------- ----------
Total securities.................................... 124,730 114,225 92,253
---------- ---------- ----------
Trading securities........................................ 1,046 287 340
Funds sold and resell agreements.......................... 1,837 2,992 1,630
---------- ---------- ----------
Total interest revenue.............................. 386,587 344,548 290,532
---------- ---------- ----------
Interest Expense
Deposits.................................................. 130,021 122,042 118,066
Borrowed funds............................................ 64,621 62,740 45,027
Subordinated debenture.................................... 9,693 4,166 --
---------- ---------- ----------
Total interest expense.............................. 204,335 188,948 163,093
---------- ---------- ----------
Net Interest Revenue........................................ 182,252 155,600 127,439
Provision for Loan Losses................................... 14,451 9,026 4,267
---------- ---------- ----------
Net Interest Revenue After Provision for Loan Losses........ 167,801 146,574 123,172
---------- ---------- ----------
Other Operating Revenue
Brokerage and trading revenue............................. 15,301 9,556 7,896
Transaction card revenue.................................. 24,426 19,339 14,298
Trust fees and commissions................................ 29,939 24,062 21,638
Service charges and fees on deposit accounts.............. 32,187 28,651 24,104
Mortgage banking revenue.................................. 41,733 32,235 26,234
Leasing revenue........................................... 7,111 5,861 2,236
Other revenue............................................. 11,237 10,013 10,769
---------- ---------- ----------
Total fees and commissions.......................... 161,934 129,717 107,175
---------- ---------- ----------
Gain on student loan sales................................ 1,548 1,311 1,069
Loss on branch sales...................................... -- -- (325)
Gain (loss) on securities................................. 9,337 (1,329) (2,607)
---------- ---------- ----------
Total other operating revenue....................... 172,819 129,699 105,312
---------- ---------- ----------
Other Operating Expense
Personnel expense......................................... 105,995 87,728 71,945
Business promotion........................................ 8,040 8,657 6,372
Contribution of stock to BOk Charitable Foundation........ 2,257 3,638 --
Professional fees and services............................ 9,657 6,769 5,406
Net occupancy, equipment and data processing expense...... 42,819 35,614 30,831
FDIC and other insurance.................................. 1,260 1,293 1,740
Special deposit insurance assessment...................... -- -- 3,820
Printing, postage and supplies............................ 9,196 7,783 6,792
Net gains and operating expenses on repossessed assets.... (480) (3,849) (4,552)
Amortization on intangible assets......................... 9,371 8,824 5,411
Write-off of core deposit intangible assets related to
SAIF-insured deposits................................... -- -- 3,821
Mortgage banking costs.................................... 25,949 19,968 15,473
Provision for impairment of mortgage servicing rights..... (2,290) 4,100 361
Other expense............................................. 16,881 14,641 11,608
---------- ---------- ----------
Total other operating expense....................... 228,655 195,166 159,028
---------- ---------- ----------
Income Before Taxes......................................... 111,965 81,107 69,456
Federal and state income tax.............................. 37,249 16,482 15,329
---------- ---------- ----------
Net Income.................................................. $ 74,716 $ 64,625 $ 54,127
========== ========== ==========
Earnings Per Share(1)(2):
Basic:
Net income.............................................. $ 1.62 $ 1.40 $ 1.17
========== ========== ==========
Diluted:
Net income.............................................. $ 1.44 $ 1.25 $ 1.06
========== ========== ==========
Average Shares Used in Computation(1)(2):
Basic..................................................... 45,101,378 45,102,967 44,997,016
Diluted................................................... 51,773,048 51,616,188 51,143,696
</TABLE>
- ------------------
(1) Shares and per share data have been restated to reflect the two-for-one
stock split in the form of a 100% stock dividend on February 22, 1999.
(2) Shares and per share data have been restated to reflect the 3% stock
dividend paid in November 1998.
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 73
BOK FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998(1) 1997(1)(2)
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 426,265 $ 371,321
Funds sold and resell agreements............................ 9,151 18,005
Trading securities.......................................... 41,138 4,999
Securities:
Available for sale........................................ 2,219,636 1,749,411
Investment (fair value: 1998--$227,754; 1997--$214,125)... 227,777 213,111
---------- ----------
Total securities.................................. 2,447,413 1,962,522
---------- ----------
Loans....................................................... 3,551,941 2,765,093
Less reserve for loan losses................................ 64,931 53,101
---------- ----------
Net loans......................................... 3,487,010 2,711,992
---------- ----------
Premises and equipment, net................................. 81,965 65,478
Accrued revenue receivable.................................. 62,630 50,754
Excess cost over fair value of net assets acquired and core
deposit premiums (net of accumulated amortization:
1998--$48,953; 1997--$39,582)............................. 95,935 67,796
Mortgage servicing rights, net.............................. 69,224 83,890
Real estate and other repossessed assets.................... 4,600 5,258
Other assets................................................ 84,017 57,627
---------- ----------
Total assets................................................ $6,809,348 $5,399,642
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing demand deposits......................... $1,126,860 $ 881,029
Interest-bearing deposits:
Transaction............................................... 1,420,573 1,124,288
Savings................................................... 146,751 106,900
Time...................................................... 1,685,046 1,615,862
---------- ----------
Total deposits.................................... 4,379,230 3,728,079
---------- ----------
Funds purchased and repurchase agreements................... 1,039,533 631,815
Other borrowings............................................ 660,347 394,087
Subordinated debenture...................................... 146,921 148,356
Accrued interest, taxes and expense......................... 57,357 39,998
Other liabilities........................................... 20,846 21,830
---------- ----------
Total liabilities................................. 6,304,234 4,964,165
---------- ----------
Shareholders' equity:
Preferred stock........................................... 25 23
Common stock ($.00006 par value; 2,500,000,000 shares
authorized; issued: 1998--45,061,350;
1997--43,951,494)...................................... 3 3
Capital surplus........................................... 233,022 208,325
Retained earnings......................................... 261,822 218,629
Treasury stock (shares at cost: 1998--23,792;
1997--132,754)......................................... (565) (2,190)
Accumulated other comprehensive income.................... 10,807 10,691
Notes receivable from exercise of stock options........... -- (4)
---------- ----------
Total shareholders' equity........................ 505,114 435,477
---------- ----------
Total liabilities and shareholders' equity.................. $6,809,348 $5,399,642
========== ==========
</TABLE>
- ------------------
(1) Shares have been restated to reflect the two-for-one stock split in the form
of a 100% stock dividend on February 22, 1999.
(2) Shares have been restated to reflect the 3% stock dividend paid in November
1998.
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 74
(This page intentionally left blank)
F-5
<PAGE> 75
BOK FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- ---------------------
SHARES AMOUNT SHARES(3)(4) AMOUNT
------- ------ ------------ ------
<S> <C> <C> <C> <C>
December 31, 1995........................................... 250,000 $23 40,831 $3
Comprehensive income:
Net income................................................ -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ -- -- -- --
Total comprehensive income..................................
Director retainer shares.................................... -- -- 15 --
Exercise of stock options................................... -- -- 82 --
Payments on stock options notes receivable.................. -- -- -- --
Cash dividends paid on preferred stock...................... -- -- -- --
Dividends paid in shares of common stock:
Preferred stock........................................... -- -- 139 --
Common stock.............................................. -- -- 1,230 --
------- --- ------ --
December 31, 1996........................................... 250,000 23 42,297 3
Comprehensive income:
Net income................................................ -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ -- -- -- --
Total comprehensive income..................................
Director retainer shares.................................... -- -- 17 --
Issuance of common stock to Thrift Plan..................... -- -- 36 --
Exercise of stock options................................... -- -- 216 --
Payments on stock options notes receivable.................. -- -- -- --
Dividends paid in shares of common stock:
Preferred stock........................................... -- -- 107 --
Common stock.............................................. -- -- 1,278 --
------- --- ------ --
December 31, 1997........................................... 250,000 23 43,951 3
Comprehensive income:
Net income................................................ -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale........ -- -- -- --
Total comprehensive income..................................
Director retainer shares.................................... -- -- 12 --
Issue preferred stock....................................... -- 2 -- --
Treasury stock purchase..................................... -- -- -- --
Issuance of common stock to Thrift Plan..................... -- -- -- --
Exercise of stock options................................... -- -- 234 --
Payments on stock options notes receivable.................. -- -- -- --
Preferred stock dividend.................................... -- -- -- --
Dividends paid in shares of common stock:
Preferred stock........................................... -- -- 69 --
Common stock.............................................. -- -- 795 --
------- --- ------ --
December 31, 1998........................................... 250,000 $25 45,061 $3
======= === ====== ==
</TABLE>
- ------------------
(1)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Reclassification adjustment:
Unrealized gains on available for sale securities......... $6,347 $ 8,160 $ 1,866
Less reclassification adjustment for gains (losses)
realized and included in net income, net of tax......... 6,231 (1,059) (2,033)
------ ------- -------
Net unrealized gains on securities........................ $ 116 $ 9,219 $ 3,899
====== ======= =======
</TABLE>
(2) Notes receivable from exercise of stock options.
(3) shares and per share data have been restated to reflect the two-for-one
stock split in the form of a 100% stock dividend on February 22, 1999.
(4) shares and per share data have been restated to reflect the 3% stock
dividend paid in November 1998.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 76
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TREASURY STOCK
COMPREHENSIVE CAPITAL RETAINED ---------------------- NOTES
INCOME SURPLUS EARNINGS SHARES(3)(4) AMOUNT RECEIVABLE(2) TOTAL
------------- -------- -------- ------------ ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
$(2,427) $157,393 $146,727 -- $ -- $(154) $301,565
-- -- 54,127 -- -- -- 54,127
3,899 -- -- -- -- -- 3,899
--------
58,026
--------
-- 173 -- -- -- -- 173
-- 569 -- 34 (419) -- 150
-- -- -- -- -- 67 67
-- -- (3) -- -- -- (3)
-- 1,500 (1,500) -- -- -- --
-- 16,456 (16,459) -- (9) -- (12)
------- -------- -------- ---- ------ ----- --------
1,472 176,091 182,892 34 (428) (87) 359,966
-- -- 64,625 -- -- -- 64,625
9,219 -- -- -- -- -- 9,219
--------
73,844
--------
-- 256 -- -- -- -- 256
-- 715 -- -- -- -- 715
-- 2,315 -- 95 (1,681) -- 634
-- -- -- -- -- 83 83
-- 1,500 (1,500) -- -- -- --
-- 27,448 (27,388) 4 (81) -- (21)
------- -------- -------- ---- ------ ----- --------
10,691 208,325 218,629 133 (2,190) (4) 435,477
-- -- 74,716 -- -- -- 74,716
116 -- -- -- -- -- 116
--------
74,832
--------
-- 292 -- -- -- -- 292
-- -- -- -- -- -- 2
-- -- -- 386 (9,138) -- (9,138)
-- 94 -- (56) 1,204 -- 1,298
-- 3,791 -- 78 (1,421) -- 2,370
-- -- -- -- -- 4 4
-- -- (1) -- -- -- (1)
-- 1,500 (1,500) -- -- -- --
-- 19,020 (30,022) (517) 10,980 -- (22)
------- -------- -------- ---- ------ ----- --------
$10,807 $233,022 $261,822 24 $ (565) $ -- $505,114
======= ======== ======== ==== ====== ===== ========
</TABLE>
F-7
<PAGE> 77
BOK FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 74,716 $ 64,625 $ 54,127
Adjustments to reconcile net income to net cash provided
by operating activities:
Provisions for loan losses.............................. 14,451 9,026 4,281
Provisions for mortgage servicing rights................ (2,290) 4,100 361
Depreciation and amortization........................... 39,439 32,389 23,693
Write-off of core deposit intangible assets............. -- -- 3,821
Net amortization of securities discounts and premiums... 609 2,926 2,935
Net gain on sale of assets.............................. (22,918) (7,632) (2,803)
Contribution of stock to BOk Charitable Foundation...... 2,257 3,638 --
Mortgage loans originated for resale.................... (894,822) (830,132) (714,447)
Proceeds from sale of mortgage loans held for resale.... 886,185 850,366 693,012
(Increase) decrease in trading securities............... (36,139) 1,455 1,323
(Increase) decrease in accrued revenue receivable....... (11,867) 883 (4,899)
(Increase) decrease in other assets..................... (14,866) 6,607 (2,499)
Increase (decrease) in accrued interest, taxes and
expense............................................... 14,598 (12,909) (3,644)
Increase in other liabilities........................... 3,102 3,847 1,033
----------- ----------- ---------
Net cash provided by operating activities.......... 52,455 129,189 56,294
----------- ----------- ---------
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities...... 1,816,796 1,026,464 484,436
Proceeds from maturities of investment securities......... 33,163 25,904 25,284
Proceeds from maturities of available-for-sale
securities.............................................. 489,765 231,267 226,162
Purchases of investment securities........................ (48,791) (40,701) (44,890)
Purchases of available for sale securities................ (2,767,039) (1,390,255) (801,999)
Loans originated or acquired net of principal collected... (680,437) (256,328) (201,139)
Proceeds from sales of assets............................. 60,361 14,048 30,547
Purchases of assets....................................... (44,376) (74,341) (36,802)
Cash and cash equivalents of subsidiaries and branches
acquired and sold, net.................................. 311,977 12,365 (200)
----------- ----------- ---------
Net cash used by investing activities.............. (828,581) (451,577) (318,601)
----------- ----------- ---------
Cash Flows From Financing Activities:
Net increase in demand deposits, transaction deposits, and
savings accounts........................................ 106,649 126,326 211,353
Net increase (decrease) in certificates of deposit........ 48,322 (592) 107,693
Net increase (decrease) in other borrowings............... 673,978 68,406 (1,502)
Repayment of subordinated debenture....................... -- (20,000) --
Issuance of subordinated debt............................. -- 168,356 --
Repurchase of subordinated debt........................... (1,538) -- --
Issuance of preferred, common and treasury stock, net..... 3,940 1,584 311
Purchase of treasury stock................................ (9,138) -- --
Dividends on preferred stock.............................. (1) -- (3)
Payments on notes receivable.............................. 4 83 67
----------- ----------- ---------
Net cash provided by financing activities................... 822,216 344,163 317,919
----------- ----------- ---------
Net increase in cash and cash equivalents................... 46,090 21,775 55,612
Cash and cash equivalents at beginning of period............ 389,326 367,551 311,939
----------- ----------- ---------
Cash and cash equivalents at end of period.................. $ 435,416 $ 389,326 $ 367,551
=========== =========== =========
Cash paid for interest...................................... $ 174,060 $ 186,339 $ 163,777
=========== =========== =========
Cash paid for taxes......................................... 29,569 20,167 21,375
=========== =========== =========
Net loans transferred to repossessed real estate............ 2,772 2,584 2,043
=========== =========== =========
Payment of dividends in common stock........................ 31,500 28,948 17,956
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 78
BOK FINANCIAL CORPORATION
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., Bank of Arkansas, N.A., and Bank of Albuquerque, N.A.
Certain prior year amounts have been reclassified to conform to current year
classifications.
NATURE OF OPERATIONS
BOK Financial, through its subsidiaries, provides a wide range of financial
services to commercial and industrial customers, other financial institutions
and consumers throughout Oklahoma, Northwest Arkansas, North Texas and Northern
New Mexico. These services include depository and cash management; lending and
lease financing; mortgage banking; securities brokerage, trading and
underwriting; and personal and corporate trust.
USE OF ESTIMATES
Preparation of BOK Financial's consolidated financial statements requires
management to make estimates of future economic activities, including interest
rates, loan collectibility and prepayments and cash flows from customer
accounts. These estimates are based upon current conditions and information
available to management. Actual results may differ significantly from these
estimates.
ACQUISITIONS
Assets and liabilities acquired by purchase are recorded at fair values on
the acquisition dates. Intangible assets are amortized using straight-line and
accelerated methods over the estimated benefit periods. These periods range from
7 to 25 years for goodwill and 7 to 10 years for core deposit intangibles. The
net book values of intangible assets are evaluated for impairment when economic
conditions indicate an impairment may exist. The Consolidated Statements of
Earnings include the results of purchases from the dates of acquisition. The
financial statements of companies acquired in pooling-of-interests transactions
are combined with the Consolidated Financial Statements of BOK Financial at
historical cost as if the mergers occurred at the beginning of the earliest
period presented.
CASH EQUIVALENTS
Due from banks, funds sold (generally federal funds sold for one-day
periods) and resell agreements (which generally mature within one to 30 days)
are considered cash equivalents.
SECURITIES
Securities are identified as trading, investment (held to maturity) or
available for sale at the time of purchase based upon the intent of management,
liquidity and capital requirements, regulatory limitations and other relevant
factors. Trading securities, which are acquired for profit through resale, are
carried at market value with unrealized gains and losses included in current
period earnings. Investment securities are carried at amortized cost.
Amortization is computed by methods which approximate level yield and is
adjusted for changes in prepayment estimates. Securities identified as available
for sale are carried at fair value. Unrealized gains and losses are recorded,
net of deferred income taxes, as accumulated other comprehensive income in
shareholders' equity. Realized gains and losses on sales of securities are based
upon the amortized cost of the specific security sold.
F-9
<PAGE> 79
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LOANS
Loans are either secured or unsecured based on the type of loan and the
financial condition of the borrower. Repayment is generally expected from cash
flow or proceeds from the sale of selected assets of the borrower. BOK Financial
is exposed to risk of loss on loans due to the borrower's difficulties, which
may arise from any number of factors including problems within the respective
industry or local economic conditions. Access to collateral, in the event of
borrower default, is reasonably assured through adherence to applicable lending
laws and through sound lending standards and credit review procedures.
Interest is accrued at the applicable interest rate on the principal amount
outstanding. Loans are placed on nonaccrual status when, in the opinion of
management, full collection of principal or interest is uncertain, generally
when the collection of principal or interest is 90 days or more past due.
Interest previously accrued but not collected is charged against interest income
when the loan is placed on nonaccrual status. Payments on nonaccrual loans are
applied to principal or reported as interest income, according to management's
judgment as to the collectibility of principal.
Loan origination and commitment fees, and direct loan origination costs
when significant, are deferred and amortized as an adjustment to yield over the
life of the loan or over the commitment period, as applicable.
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.
RESERVE FOR LOAN LOSSES
The adequacy of the reserve for loan losses is assessed by management based
upon an ongoing quarterly evaluation of the probable estimated losses inherent
in the portfolio, and includes probable losses on both outstanding loans and
unused commitments to provide financing. A consistent methodology has been
developed that includes reserves assigned to specific criticized loans, general
reserves that are based upon a statistical migration analysis for each category
of loans, and other allocated reserves that are based upon an analysis of
current economic conditions, loan concentrations, portfolio growth, and other
relevant factors. The reserve for loan losses related to loans that are
identified for evaluation in accordance with Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS
114"), is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Loans are considered to be impaired when it becomes probable
that BOK Financial will be unable to collect all amounts due according to the
contractual terms of the loan agreement. This is substantially the same criteria
used to determine when a loan should be placed on nonaccrual status. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
In accordance with the provisions of FAS 114, management has excluded small
balance, homogeneous loans from the impairment evaluation specified in FAS 114.
Such loans include 1-4 family mortgage loans, consumer loans, and commercial
loans with committed amounts less than $1 million. The adequacy of the reserve
for loan losses applicable to these loans is evaluated in accordance with
standards established by the banking regulatory authorities and adopted as
policy by BOK Financial.
F-10
<PAGE> 80
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, which
is determined by fair value at date of foreclosure or current fair value less
estimated selling costs. Income generated by these assets is recognized as
received, and operating expenses are recognized as incurred.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the assets or, for leasehold
improvements, over the shorter of the estimated useful lives or remaining lease
terms. During 1998, BOK Financial adopted Statement of Position 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use." The statement requires the capitalization of certain costs incurred to
acquire, develop and install computer software subject to certain conditions.
Previously, only costs to acquire software were capitalized. All other costs,
including installation costs, were charged to expense. Upgrades and enhancements
to existing software will generally continue to be charged to expense. The
current year effect of this statement was not material.
MORTGAGE SERVICING RIGHTS
Capitalized mortgage servicing rights are carried at the lower of cost or
fair value. Cost is determined by acquisition amount minus accumulated
amortization plus/minus deferred loss/gain on hedges. Amortization is determined
in proportion to the projected cash flows over the estimated lives of the
servicing portfolios. The actual cash flows are dependent upon the prepayment of
the mortgage loans and may differ significantly from the estimates.
Fair value is determined by discounting the estimated cash flows of
servicing revenue, less projected servicing costs, using risk-adjusted rates,
which is the assumed market rate for these instruments. Prepayment assumptions
are based on industry consensus provided by independent reporting sources.
Changes in current interest rates may significantly affect these assumptions by
changing loan refinancing activity. Fair value for capitalized servicing rights
is based upon an interest rate stratification. Separate prepayment assumptions
are then used to project net cash flows by interest rate strata within each
portfolio. A valuation allowance is provided when the net amortized cost of each
interest rate strata exceeds the calculated fair value.
Originated mortgage servicing rights are recognized when either mortgage
loans are originated pursuant to an existing plan for sale or, if no such plan
exists, when the mortgage loans are sold. Substantially all fixed rate mortgage
loans originated by BOK Financial are sold under existing commitments. The fair
value of the originated servicing rights is determined at closing based upon
current market rates.
HEDGING OF MORTGAGE SERVICING RIGHTS
BOK Financial enters into futures contracts and call and put options on
futures contracts to hedge against the risk of loss on mortgage servicing rights
due to accelerated loan prepayments during periods of falling interest rates.
Contracts on underlying securities which are expected to have a similar duration
to the mortgage
F-11
<PAGE> 81
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
servicing portfolio, such as 10-year U.S. Treasury notes, are used for these
hedges. The combination of contracts selected is based upon an analysis of the
expected range of market value changes over a probable range of interest rates
to achieve a high degree of correlation between changes in the fair value of the
mortgage servicing rights and changes in the market value of the contracts.
These contracts are designated as hedges on the trade date. Transaction fees are
charged to expense when incurred. Premiums paid or received on option contracts
are deferred and amortized against mortgage banking costs over the life of the
options. Both unrealized and realized gains and losses on futures contracts and
option contracts are deferred as part of the capitalized mortgage servicing
rights. These deferred gains and losses are amortized over the estimated life of
the loan servicing portfolio. Changes in the fair value of the contracts and
changes in the market value of the mortgage servicing rights are reviewed at
least monthly to determine whether a high degree of correlation exists on a
statistically valid basis. If correlation criteria are not met, the contracts
are no longer accounted for as a hedge. In such circumstances, any remaining
unamortized deferred gains or losses are recognized in current income.
INTEREST RATE SWAPS AND FORWARD COMMITMENTS
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.
Forward sales contracts are used to hedge existing and anticipated loans in
conjunction with mortgage banking activities. The fair value of these
instruments is included in determining the adjustment of the loan held for sale
portfolio to the lower of cost or market. Gains or losses on closed contracts
are recognized when the underlying assets are disposed. The cost of terminating
these contracts prior to their expiration dates is expensed when incurred.
FEDERAL AND STATE INCOME TAXES
BOK Financial utilizes the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based upon
the difference between the values of the assets and liabilities as reflected in
the financial statement and their related tax basis using enacted tax rates in
effect for the year in which the differences are expected to be recovered or
settled. As changes in tax law or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
BOK Financial and its subsidiaries file consolidated tax returns. The
subsidiaries provide for income taxes on a separate return basis, and remit to
BOK Financial amounts determined to be currently payable.
EMPLOYEE BENEFIT PLANS
BOK Financial sponsors various plans, including a defined benefit pension
plan ("Pension Plan"), a qualified profit sharing plan ("Thrift Plan"), and
employee health care plans. 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.
F-12
<PAGE> 82
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EXECUTIVE BENEFIT PLANS
BOK Financial has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock options on the date of grant, no compensation expense is
recorded. BOK Financial has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"), included in Note 12.
FIDUCIARY SERVICES
Fees and commissions on approximately $14.4 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 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 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.
COMPREHENSIVE INCOME
As of January 1, 1998, BOK Financial adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS
130 establishes new rules for reporting and display of comprehensive income and
its components; however, the adoption of FAS 130 had no impact on BOK
Financial's net income or shareholders' equity. FAS 130 requires unrealized
gains or losses on available-for-sale securities to be included in other
comprehensive income. The components of comprehensive income are disclosed in
the Consolidated Statements of Changes in Shareholders' Equity.
SEGMENT DISCLOSURES
On December 31, 1998, BOK Financial adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"). FAS 131 established standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers. BOK Financial operates four
principal lines of business corporate banking, consumer banking, mortgage
banking and trust services which account for more than 75% of total revenue. The
disclosures required by FAS 131 have been included in Note 17.
EFFECT OF PENDING STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133, which requires BOK Financial to recognize all derivatives on the
balance sheet at fair value, is effective for years beginning after June 15,
1999. FAS 133 permits early adoption as of the beginning of any fiscal quarter
that begins after June 1998. BOK Financial expects to adopt FAS 133 effective
January 1, 2000. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset against the
change in fair value of the assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
F-13
<PAGE> 83
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recognized in earnings. The ineffective portions of a derivative's change in
fair value will be immediately recognized in earnings. BOK Financial has not yet
determined what effect the adoption of this statement will have on its results
of operations or financial positions.
2. ACQUISITIONS
On December 4, 1998, BOK Financial, through Bank of Albuquerque, paid a
premium of $34 million to Bank of America to assume the deposits and to acquire
the premises and equipment and certain loans at 17 branches, primarily in
Albuquerque, New Mexico. Bank of Albuquerque accounted for the transaction as a
purchase with the premium being first allocated to core deposit premium and the
remainder to goodwill. The core deposit intangible will be amortized over the
estimated life of the deposit relationships by an accelerated method. Goodwill
will be amortized over fifteen years on the straight-line method.
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 acquisitions were accounted for by
the purchase method of accounting. Allocation of the purchase price to the net
assets acquired were as follows (in thousands):
<TABLE>
<CAPTION>
AGGREGATE
BANK OF ACQUISITIONS
ALBUQUERQUE 1997
----------- ------------
<S> <C> <C>
Cash and cash equivalents:................................ $ 9,029 $ 91,581
Securities.............................................. -- 148,472
Loans................................................... 144,209 137,838
Less reserve for loan losses............................ -- (2,525)
--------- --------
Loans, net.............................................. 144,209 135,313
Premises and equipment.................................. 11,205 5,141
Core deposit premium.................................... 13,495 11,109
Other assets............................................ 233 9,382
--------- --------
Total assets acquired........................... 178,171 400,998
Deposits:
Noninterest bearing..................................... 47,361 123,716
Interest bearing........................................ 418,490 221,016
--------- --------
Total deposits.................................. 465,851 344,732
Borrowed funds............................................ -- 623
Other liabilities......................................... 9 2,793
--------- --------
Net assets purchased/(liabilities assumed)................ (287,689) 52,850
Less: Purchase price...................................... (267,189) 90,118
--------- --------
Goodwill.................................................. $ 20,500 $ 37,268
========= ========
</TABLE>
On December 30, 1998, BOK Financial agreed to issue approximately 2.4
million shares of common stock to acquire First Bancshares of Muskogee, Inc. and
its subsidiary, First National Bank and Trust Company of Muskogee (collectively
"First Muskogee"). At December 31, 1998, First Muskogee had total assets of $250
million and total deposits of $228 million. For the years ended December 31,
1998 and 1997, respectively, First Muskogee recorded net income of $4.9 million
and $3.5 million. Completion of the merger is expected in the first quarter of
1999 subject to regulatory approval and to qualification for accounting as a
F-14
<PAGE> 84
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
pooling of interests. The following unaudited Condensed Consolidated Pro Forma
Statement of Earnings for BOK Financial presents the effects on income had these
acquisitions described above occurred at the beginning of 1998 and 1997.
CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATE)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net interest revenue........................................ $203,157 $176,120
Provision for loan losses................................... 15,600 10,640
-------- --------
Net interest revenue after provision for loan losses........ 187,557 165,480
Other operating revenue..................................... 180,437 137,466
Other operating expense..................................... 248,326 215,488
-------- --------
Income before taxes......................................... 119,668 87,458
Federal and state income tax................................ 38,341 17,604
-------- --------
Net income.................................................. $ 81,327 $ 69,854
-------- --------
Earnings per share:
Basic net income.......................................... $ 1.68 $ 1.44
Diluted net income........................................ 1.50 1.29
-------- --------
Average shares used in computation:
Basic..................................................... 47,426 47,405
Diluted................................................... 54,169 53,984
</TABLE>
BOK Financial also completed the acquisition of Leo Oppenheim & Co., a
public finance firm, and a branch office in Bartlesville, Oklahoma during 1998.
These acquisitions, which were not material to BOK Financial's financial
position or results of operations, provided net cash of $35.8 million and
deposits of $30.3 million.
During the first quarter of 1999, BOK Financial announced that it had
reached definitive agreements to pay approximately $76 million to acquire three
banks in Dallas, Texas, in separate transactions. The three banks have total
assets of approximately $393 million and 1998 net income of $1.95 million. These
acquisitions, which will be accounted for as purchases, are expected to be
completed by June 30, 1999, pending regulatory approval.
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
F-15
<PAGE> 85
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 $3.2 million, $829
thousand and $3.3 million for 1998, 1997 and 1996, respectively.
4. SECURITIES
INVESTMENT SECURITIES
The amortized cost and fair values of investment securities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997
--------------------------------------- -------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED FAIR ---------------- AMORTIZED FAIR --------------
COST VALUE GAIN LOSS COST VALUE GAIN LOSS
--------- -------- ------ ------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.............................. $ 600 $ 600 $ -- $ -- $ 850 $ 845 $ -- $ (5)
Municipal and other tax exempt........... 184,988 184,521 1,159 (1,626) 164,379 164,873 1,453 (959)
Mortgage-backed U.S. agency securities... 30,385 30,829 452 (8) 46,849 47,374 555 (30)
Other debt securities.................... 11,804 11,804 -- -- 1,033 1,033 -- --
-------- -------- ------ ------- -------- -------- ------ -----
Total.............................. $227,777 $227,754 $1,611 $(1,634) $213,111 $214,125 $2,008 $(994)
======== ======== ====== ======= ======== ======== ====== =====
</TABLE>
F-16
<PAGE> 86
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and fair values of investment securities at December 31,
1998, by contractual maturity, are as shown in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
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................... $ 600 $ -- $ -- $ -- $ 600 .097
Fair value....................... 600 -- -- -- 600
Nominal yield.................... 5.19% -- -- -- 5.19%
Municipal and other tax exempt:
Amortized cost................... 24,854 110,389 46,628 3,117 184,988 3.61
Fair value....................... 24,708 110,314 46,221 3,278 184,521
Nominal yield(1)................. 6.95% 7.06% 7.38% 9.63% 7.17%
Other debt securities:
Amortized cost................... 1,178 776 9,850 -- 11,804 5.50
Fair value....................... 1,178 776 9,850 -- 11,804
Nominal yield(1)................. 5.81% 6.43% 6.75% -- 6.64%
------- -------- ------- ------ -------- ----
Total fixed maturity securities:
Amortized cost................... $26,632 $111,165 $56,478 $3,117 $197,392 3.71
Fair value....................... 26,486 111,090 56,071 3,278 196,925
Nominal yield.................... 6.86% 7.05% 7.27% 9.63% 7.13%
======= ======== ======= ======
Mortgage-backed securities:
Amortized cost................... 30,385 --(2)
Fair value....................... 30,829
Nominal yield(3)................. 7.07%
========
Total investment securities:
Amortized cost................... $227,777
Fair value....................... 227,754
Nominal yield.................... 7.12%
========
</TABLE>
- ------------------
(1) Calculated on a taxable equivalent basis using a 39% effective tax rate.
(2) The average expected lives of mortgage-backed securities were 4.3 years
based upon current prepayment assumptions.
(3) The nominal yield on mortgage-backed securities is based upon prepayment
assumptions at the purchase date. Actual yields earned may differ
significantly based upon actual prepayments.
F-17
<PAGE> 87
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AVAILABLE FOR SALE SECURITIES
The amortized cost and fair value of available-for-sale securities are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------
1998 1997
------------------------------------------- -------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED FAIR ----------------- AMORTIZED FAIR -----------------
COST VALUE GAIN LOSS COST VALUE GAIN LOSS
---------- ---------- ------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury..................... $ 158,314 $ 158,945 $ 1,009 $ (378) $ 277,618 $ 278,402 $ 989 $ (205)
Municipal and other tax exempt.... 86,647 87,526 1,153 (274) 107,196 108,720 1,949 (425)
Mortgage-backed securities:
U.S. agencies................... 1,813,036 1,823,230 12,278 (2,084) 1,210,322 1,215,867 7,315 (1,770)
Other........................... 1,772 1,762 -- (10) 2,183 2,185 2 --
---------- ---------- ------- ------- ---------- ---------- ------- -------
Total mortgage-backed
securities.............. 1,814,808 1,824,992 12,278 (2,094) 1,212,505 1,218,052 7,317 (1,770)
---------- ---------- ------- ------- ---------- ---------- ------- -------
Other debt securities............. 456 462 6 -- 4,480 4,498 18 --
Equity securities and mutual
funds........................... 141,727 147,711 8,041 (2,057) 130,196 139,739 10,164 (621)
---------- ---------- ------- ------- ---------- ---------- ------- -------
Total..................... $2,201,952 $2,219,636 $22,487 $(4,803) $1,731,995 $1,749,411 $20,437 $(3,021)
========== ========== ======= ======= ========== ========== ======= =======
</TABLE>
F-18
<PAGE> 88
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and fair values of available-for-sale securities at
December 31, 1998, by contractual maturity, are as shown in the following table
(dollars in thousands):
<TABLE>
<CAPTION>
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.............. $109,813 $ 48,501 $ -- $ -- $ 158,314 1.70
Fair value.................. 110,289 48,656 -- -- 158,945
Nominal yield............... 5.73% 4.76% -- -- 5.43%
Municipal and other tax
exempt:
Amortized cost.............. 7,390 60,013 9,908 9,336 86,647 4.29
Fair value.................. 7,352 60,255 10,168 9,751 87,526
Nominal yield(1)............ 6.83% 7.49% 8.48% 9.56% 7.77%
Other debt securities:
Amortized cost.............. -- -- 125 331 456 10.79
Fair value.................. -- -- 126 336 462
Nominal yield............... -- -- 7.51% 7.73% 7.67%
-------- -------- ------- ------- ---------- -----
Total fixed maturity
securities:
Amortized cost.............. $117,203 $108,514 $10,033 $ 9,667 245,417 2.63
Fair value.................. 117,641 108,911 10,294 10,087 246,933
Nominal yield............... 5.80% 6.27% 8.47% 9.49% 6.26%
======== ======== ======= =======
Mortgage-backed securities:
Amortized cost.............. 1,814,808 --(2)
Fair value.................. 1,824,992
Nominal yield(4)............ 6.09%
----------
Equity securities and mutual
funds:
Amortized cost.............. 141,727 --(3)
Fair value.................. 147,711
Nominal yield............... 2.87%
----------
Total available-for-sale
securities:
Amortized cost.............. $2,201,952
Fair value.................. 2,219,636
Nominal yield............... 5.90%
==========
</TABLE>
- ------------------
(1) Calculated on a taxable equivalent basis using a 39% effective tax rate.
(2) The average expected lives of mortgage-backed securities were 4.0 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.
F-19
<PAGE> 89
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sales of available-for-sale securities resulted in gains and losses as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Proceeds......................................... $1,816,796 $1,026,464 $484,436
Gross realized gains............................. 15,508 3,159 328
Gross realized losses............................ 6,171 4,488 2,935
Related federal and state income tax expense
(benefit)...................................... 3,106 (270) (574)
</TABLE>
Securities with amortized costs of $1.6 billion and $1.2 billion at
December 31, 1998 and 1997, 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>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------
1998 1997
---------------------------------------------- --------------------------------------------
FIXED VARIABLE NON- FIXED VARIABLE NON-
RATE RATE ACCRUAL TOTAL RATE RATE ACCRUAL TOTAL
---------- ---------- ------- ---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial................ $ 287,841 $1,645,129 $ 8,386 $1,941,356 $204,641 $1,282,042 $12,717 $1,499,400
Commercial real estate.... 242,334 500,035 1,684 744,053 153,611 321,230 2,960 477,801
Residential mortgage...... 298,966 181,203 1,928 482,097 192,208 224,490 2,441 419,139
Residential mortgage--held
for sale................ 98,616 -- -- 98,616 78,669 -- -- 78,669
Consumer.................. 204,262 80,439 1,118 285,819 168,896 120,539 649 290,084
---------- ---------- ------- ---------- -------- ---------- ------- ----------
Total............. $1,132,019 $2,406,806 $13,116 $3,551,941 $798,025 $1,948,301 $18,767 $2,765,093
========== ========== ======= ========== ======== ========== ======= ==========
Foregone interest on
nonaccrual loans........ $ 2,173 $ 2,882
========== ==========
</TABLE>
The majority of the commercial and consumer loan portfolios and
approximately 64% 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 $467.3 million, or 13% of total loans. Other notable segments
include wholesale/retail, $264.7 million; manufacturing, $240.6 million;
agriculture, $155.1 million, which includes $137.5 million loans to the cattle
industry; and services, $615.3 million, which include nursing homes of $56.9
million, hotels of $119.5 million and healthcare of $71.6 million.
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, $178.2 million; construction and
land development, $172.3 million; retail facilities, $133.2 million; and office
buildings, $154.0 million.
Included in loans at December 31 are loans to executive officers, directors
or principal shareholders of BOK Financial, as defined in Regulation S-X of the
Securities and Exchange Commission. Such loans have been made on substantially
the same terms as those prevailing at the time for loans to other customers in
comparable transactions.
F-20
<PAGE> 90
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information relating to loans to executive officers, directors or principal
shareholders is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Beginning balance........................................... $ 65,666 $ 53,476
Advances.................................................. 7,883 30,934
Payments.................................................. (12,927) (17,749)
Adjustments............................................... (1,385) (995)
-------- --------
Ending balance.............................................. $ 59,237 $ 65,666
======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Beginning balance................................... $53,101 $45,148 $38,287
Provision for loan losses........................... 14,451 9,026 4,267
Loans charged off................................... (7,478) (9,203) (6,510)
Recoveries.......................................... 4,857 5,605 9,104
Addition due to acquisitions........................ -- 2,525 --
------- ------- -------
Ending balance...................................... $64,931 $53,101 $45,148
======= ======= =======
</TABLE>
At December 31, 1998 and 1997, respectively, the recorded investment in
loans that are considered to be impaired under FAS 114 was $10.4 million and
$15.8 million (all of which were on a nonaccrual basis). Included in this amount
at December 31, 1998, is $2.6 million of impaired loans for which the related
specific reserve for loan losses is $1.4 million and $7.8 million that did not
have a specific related reserve for loan losses. At December 31, 1997, this
amount included $2.5 million of impaired loans for which the related allowance
for credit loss was $851 thousand and $13.3 million that did not have a related
allowance for credit losses. The average recorded investments in impaired loans
during the years ended December 31, 1998 and 1997 were approximately $12.8
million and $18.5 million, respectively. Interest income recognized on impaired
loans during 1998 and 1997 was not significant.
(6) PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 14,374 $ 11,820
Buildings and improvements.................................. 43,174 42,443
Furniture and equipment..................................... 66,036 45,904
-------- --------
Subtotal.......................................... 123,584 100,167
-------- --------
Less accumulated depreciation and amortization.............. 41,619 34,689
-------- --------
Total............................................. $ 81,965 $ 65,478
======== ========
</TABLE>
Depreciation and amortization of premises and equipment were $8.2 million,
$7.8 million and $6.9 million for the years ended December 31, 1998, 1997 and
1996, respectively.
F-21
<PAGE> 91
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $98.6
million and $78.7 million and outstanding mortgage loan commitments totaled
$239.0 million and $164.2 million, respectively, at December 31, 1998 and 1997.
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, 1998, forward sales
contracts totaled $172.7 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, 1998, BOk owned the rights to service 84,958 mortgage loans
with outstanding principal balances of $6.4 billion, including $130 million
serviced for BOk, and held related funds for investors and borrowers of $153.8
million. The weighted average interest rate and remaining term was 7.56% and 279
months, respectively. Mortgage loans sold with recourse totaled $5.4 million at
December 31, 1998. At December 31, 1997, BOk owned the rights to service
mortgage loans with outstanding principal balances of $7.0 billion and held
related funds for investors and borrowers of $99.5 million.
The portfolio of mortgage servicing rights exposes BOk to interest rate
risk. During periods of falling interest rates, mortgage loan prepayments
increase. This reduces the value of the mortgage servicing rights. BOk uses a
combination of futures contracts and options related to 10-year U.S. Treasury
securities to hedge this risk. The value of these derivative instruments moves
inversely to the value of the mortgage servicing rights. See Note 1 for specific
accounting policies for mortgage servicing rights and the related hedges.
F-22
<PAGE> 92
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in capitalized mortgage servicing rights and related valuation
allowance during 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITALIZED MORTGAGE SERVICING RIGHTS
--------------------------------------- VALUATION HEDGING
PURCHASED ORIGINATED TOTAL ALLOWANCE GAIN/LOSS NET
----------- ------------ ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
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
Additions.................... 9,443 14,355 23,798 -- -- 23,798
Amortization expense......... (15,185) (3,085) (18,270) -- 739 (17,531)
Provision for impairment..... -- -- -- 2,290 -- 2,290
Impairment charge-off........ (2,710) -- (2,710) 2,710 -- --
Realized hedge gains......... -- -- -- -- (22,705) (22,705)
Unrealized hedge gains....... -- -- -- -- (518) (518)
-------- ------- -------- ------- -------- --------
Balance at December 31, 1998... $ 70,509 $21,199 $ 91,708 $ -- $(22,484) $ 69,224
======== ======= ======== ======= ======== ========
Estimated fair value of
mortgage servicing rights at:
December 31, 1996(1)......... $ 75,660 $ 8,576 $ 84,236 $ 84,236
December 31, 1997(1)......... $ 86,335 $14,022 $100,357 $100,357
December 31, 1998(1)......... $ 66,663 $23,527 $ 90,190 $ 90,190
</TABLE>
- ------------------
(1) Excludes approximately, $18 million, $19 million and $9 million at December
31, 1996, 1997 and 1998, respectively, of loan servicing rights on mortgage
loans originated prior to the adoption of FAS 122.
Fair value is determined by discounting the projected net cash flows.
Significant assumptions are:
DISCOUNT RATE--Risk adjusted rates by loan product, ranging from 9.00%
to 14.5%.
PREPAYMENT RATE--Industry consensus annual prepayment estimates
ranging from 10.89% to 67.41% from an independent reporting source based
upon loan interest rate, original term and loan type.
LOAN SERVICING COSTS--$50 per conventional loan and $60 per government
insured loan.
F-23
<PAGE> 93
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stratification of the mortgage loan servicing portfolio, outstanding
principal of loans serviced, and related hedging information by interest rate at
December 31, 1998 follows (in thousands):
<TABLE>
<CAPTION>
> or equal
< 6.50% 6.50% - 7.49% 7.50% - 8.49% to 8.50% TOTAL
-------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cost less accumulated
amortization.................... $ 3,003 $ 41,639 $ 41,850 $ 5,216 $ 91,708
Deferred hedge gains.............. -- (9,999) (12,485) -- (22,484)
-------- ---------- ---------- ---------- ----------
Adjusted cost..................... 3,003 31,640 29,365 5,216 69,224
Fair value........................ 3,502 42,936 36,806 6,946 90,190
-------- ---------- ---------- ---------- ----------
Impairment........................ $ -- $ -- $ -- $ -- $ --
-------- ---------- ---------- ---------- ----------
Outstanding principal of loans
serviced........................ $233,284 $2,297,250 $2,655,297 $ 542,238 $5,728,069(1)
======== ========== ========== ========== ==========
</TABLE>
- ------------------
(1) Excludes outstanding principal of $647,170 for loans serviced by BOk for
which there is no capitalized mortgage servicing rights.
8. DEPOSITS
Interest expense on deposits is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transaction deposits........................................ $ 36,425 $ 33,091 $ 28,336
Savings..................................................... 2,373 2,367 2,464
Time:
Certificates of deposits under $100,000................... 41,219 41,699 44,531
Certificates of deposits $100,000 and over................ 39,136 33,607 31,728
Other time deposits....................................... 10,868 11,278 11,007
-------- -------- --------
Total time........................................ 91,223 86,584 87,266
-------- -------- --------
Total............................................. $130,021 $122,042 $118,066
======== ======== ========
</TABLE>
The aggregate amounts of time deposits in denominations of $100,000 or more
at December 31, 1998 and 1997 were $724.6 million and $709.6 million,
respectively.
Time deposits expected to mature in less than one year are $1.3 billion, in
one to five years are $358.3 million, and in over five years are $0.6 million.
Interest expense on time deposits during 1998 and 1997 was reduced by net
income from interest rate swaps of $0.5 million and $0.9 million, respectively.
F-24
<PAGE> 94
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. OTHER BORROWINGS
Information relating to other borrowings is summarized as follows (dollars
in thousands):
<TABLE>
<CAPTION>
DAILY AVERAGE RATE AT MAXIMUM
PERIOD-END ----------------- END OF OUTSTANDING AT
BALANCE BALANCE RATE YEAR ANY MONTH-END
---------- ---------- ---- ------- --------------
<S> <C> <C> <C> <C> <C>
1998:
Funds purchased and repurchase
agreements.................. $1,039,533 $ 731,381 5.38% 4.98% $1,039,533
Other.......................... 807,268 563,188 6.20 5.98 807,268
---------- ---------- ---- ---- ----------
Total.................. $1,846,801 $1,294,569 5.74 5.41 1,846,801
========== ========== ==== ==== ==========
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
========== ========== ==== ==== ==========
</TABLE>
Other borrowings at December 31, 1998 included $563.7 million in advances
from the Federal Home Loan Bank. These advances, which are used for funding
purposes, include term funds of $320.7 million bearing interest from
5.07% --7.80%. Of these term funds, $228.0 million mature in 1999, $16.8 million
mature in 2000, $19.4 million mature in 2001, $17.8 million mature in 2002, and
$38.7 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 unused credit available
to BOk at December 31, 1998 pursuant to the Federal Home Loan Bank's collateral
policies is $53 million.
BOK Financial had unsecured lines of credit available from commercial banks
at December 31, 1998 of $100 million, with $92 million outstanding. Interest
which is based on LIBOR is paid monthly. Principal is due no later than
September 1999.
BOK Financial filed a shelf registration statement with the Securities and
Exchange Commission for the issuance of up to $250 million of senior debt
securities during the fourth quarter of 1998. These securities will be direct,
unsecured obligations, and are not insured by the Federal Deposit Insurance
Corporation or guaranteed by any governmental agency. None of this debt has been
issued at December 31, 1998.
BOk issued $150 million of subordinated debentures in 1997 at a discounted
cost of 7.2%, which had a balance at December 31, 1998 of $146.9 million and
will mature in 2007. Interest expense on the subordinated debenture was reduced
by net income from interest rate swaps of $1.2 million during 1998.
Funds purchased generally mature within one to 90 days from the transaction
date. At December 31, 1998, securities sold under agreements to repurchase
totaled $728.4 million with related accrued interest
F-25
<PAGE> 95
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payable of $2.6 million. Additional information relating to repurchase
agreements at December 31, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
CARRYING MARKET REPURCHASE AVERAGE
SECURITY SOLD/MATURITY VALUE VALUE LIABILITY(1) RATE
- ---------------------- -------- -------- ------------ -------
<S> <C> <C> <C> <C>
U.S. Treasury Securities:
Overnight.............................. $ 22,128 $ 22,253 $ 9,037 4.74%
U.S. Agency Securities:
Overnight.............................. 250,491 252,009 248,354 4.69
Term of up to 30 days.................. 1,036 1,040 1,882 4.70
Term of 30 to 90 days.................. 507,966 509,092 471,739 5.33
-------- -------- --------
Total Agency Securities........ 759,493 762,141 721,975 4.89
-------- -------- --------
Total.......................... $781,621 $784,394 $731,012 5.05
======== ======== ========
</TABLE>
- ------------------
(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 plus 70 basis points.
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):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Deferred tax liabilities:
Pension contributions in excess of book expense........... $ 3,000 $ 2,500
Securities valuation adjustments.......................... 11,300 10,100
Mortgage servicing........................................ 12,600 7,000
Other..................................................... 2,900 3,000
------- -------
Total deferred tax liabilities.................... 29,800 22,600
------- -------
Deferred tax assets:
Loan loss reserve......................................... 24,500 20,000
Valuation adjustments..................................... 19,100 9,000
Book expense in excess of tax............................. 4,900 4,900
Other..................................................... 4,500 3,300
------- -------
Total deferred tax assets......................... 53,000 37,200
------- -------
Deferred tax assets in excess of deferred tax liabilities... $23,200 $14,600
======= =======
</TABLE>
F-26
<PAGE> 96
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The significant components of the provision for income taxes attributable
to continuing operations for BOK Financial are shown below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $41,415 $ 9,631 $16,623
State............................................. 4,937 1,333 2,399
------- ------- -------
Total current............................. 46,352 10,964 19,022
------- ------- -------
Deferred:
Federal........................................... (7,699) 4,667 (3,380)
State............................................. (1,404) 851 (313)
------- ------- -------
Total deferred............................ (9,103) 5,518 (3,693)
------- ------- -------
Total income tax.......................... $37,249 $16,482 $15,329
======= ======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Amount:
Federal statutory tax............................. $39,188 $28,387 $24,310
Tax exempt revenue................................ (4,110) (4,219) (3,958)
Effect of state income taxes, net of federal
benefit........................................ 3,533 2,184 2,086
Goodwill amortization............................. 2,296 2,267 1,411
Utilization of tax credits........................ (750) (774) (1,488)
Reduction of tax reserve.......................... -- (9,000) --
Portion of reduction in valuation allowance
impacting tax expense.......................... -- -- (6,200)
Other, net........................................ (2,908) (2,363) (832)
------- ------- -------
Total..................................... $37,249 $16,482 $15,329
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Percent of pretax income:
Federal statutory rate............................ 35% 35% 35%
Tax-exempt revenue................................ (4) (5) (6)
Effect of state income taxes, net of federal
benefit........................................ 3 3 3
Goodwill amortization............................. 3 3 2
Utilization of tax credits........................ (1) (1) (2)
Reduction of tax reserve.......................... -- (11) --
Portion of reduction in valuation allowance
impacting tax expense.......................... -- -- (9)
Other, net........................................ (3) (4) (1)
------- ------- -------
Total..................................... 33% 20% 22%
======= ======= =======
</TABLE>
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. In addition, the Internal Revenue Service
has closed its examination for 1994 and 1995 with no material impact on the
financial statements.
F-27
<PAGE> 97
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFITS
BOK Financial sponsors a defined benefit Pension Plan for all employees who
satisfy certain age and service requirements. The following table presents
information regarding this plan (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation, at beginning of year....... $ 13,313 $ 11,331
Service cost............................................. 2,145 1,772
Interest cost............................................ 897 812
Actuarial loss........................................... 592 425
Benefits paid............................................ (1,325) (1,027)
-------- --------
Projected benefit obligation at end of year................ $ 15,622 $ 13,313
======== ========
Change in plan assets:
Plan assets at fair value, at beginning of year.......... $ 17,102 $ 13,261
Actual return on plan assets............................. 2,681 2,776
Company contributions.................................... 1,961 2,092
Benefits paid............................................ (1,325) (1,027)
-------- --------
Plan assets at fair value at end of year................... $ 20,419 $ 17,102
======== ========
Reconciliation of prepaid (accrued) and total amount
recognized:
Benefit obligation....................................... $(15,622) $(13,313)
Fair value of assets..................................... 20,419 17,102
-------- --------
Funded status of the plan................................ 4,797 3,789
Unrecognized net loss.................................... 1,154 1,567
Unrecognized prior service cost.......................... 801 860
-------- --------
Prepaid pension costs...................................... $ 6,752 $ 6,216
======== ========
Components of net periodic benefit costs:
Service cost............................................. $ 2,145 $ 1,772
Interest cost............................................ 897 812
Expected return on plan assets........................... (1,638) (1,390)
Amortization of unrecognized amounts:
Net loss.............................................. 90 171
Prior service cost.................................... 60 60
-------- --------
Net periodic pension cost.................................. $ 1,554 $ 1,425
======== ========
Weighted-average assumptions as of December 31:
Discount rate............................................ 7.00% 7.00%
Expected return on plan assets........................... 10.00% 10.00%
Rate of compensation increase............................ 5.25% 5.25%
</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
F-28
<PAGE> 98
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
five years. Expenses incurred by BOK Financial for the Thrift Plan totaled $1.8
million, $1.4 million and $1.2 million for 1998, 1997 and 1996, respectively.
BOK Financial also sponsors a defined benefit post-retirement employee
medical plan which pays 50 percent of annual medical insurance premiums for
retirees who meet certain age and service requirements. Assets of the retiree
medical plan consist primarily of shares in a cash management fund. Eligibility
for the post-retirement plan is limited to current retirees and certain
employees currently age 60 or older.
Under various performance incentive plans, participating employees may be
granted awards based on defined formulas or other criteria. Earnings were
charged $11.7 million in 1998, $10.3 million in 1997 and $7.5 million in 1996,
for such awards.
12. EXECUTIVE BENEFIT PLANS
The Board of Directors of BOK Financial has approved various stock option
plans. The number of options awarded and the employees to receive the options
are 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 1997 and 1998 under
these plans:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
NUMBER PRICE
--------- ---------
<S> <C> <C>
Options outstanding at December 31, 1996.................... 2,313,289 $ 9.49
Options awarded............................................. 640,462 18.74
Options exercised........................................... (230,850) 8.73
Options forfeited........................................... (94,756) 10.18
Options expired............................................. (280) 9.18
--------- ------
Options outstanding at December 31, 1997.................... 2,627,865 11.79
Options awarded............................................. 661,990 22.05
Options exercised........................................... (238,560) 9.20
Options forfeited........................................... (165,680) 12.38
Options expired............................................. (951) 9.24
--------- ------
Options outstanding at December 31, 1998.................... 2,884,664 $14.28
========= ======
Options vested at December 31, 1998......................... 800,270 $10.20
========= ======
</TABLE>
The following table summarizes information concerning currently outstanding
and vested options:
<TABLE>
<CAPTION>
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
----------- ----------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 6.28 193,302 2.42 $ 6.28 138,226 $ 6.28
9.33-11.24 1,447,006 3.89 10.08 580,568 9.94
18.74 621,506 5.83 18.74 81,476 18.74
22.05 622,850 6.92 22.05 -- --
</TABLE>
F-29
<PAGE> 99
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Average risk-free interest rate....................... 4.71% 5.72% 6.10%
Dividend yield........................................ None None None
Volatility factors.................................... .198 .200 .190
Weighted-average expected life........................ 7 years 7 years 8 years
</TABLE>
The weighted-average fair value of options granted during 1998, 1997 and
1996 was $6.04, $5.56 and $3.70, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because BOK Financial's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
table represents the required pro forma disclosures for options granted
subsequent to December 31, 1994:
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996(1)
------- ------- -------
<S> <C> <C> <C>
Pro forma net income................................ $73,698 $63,986 $53,748
Pro forma earnings per share:
Basic............................................. $ 1.60 $ 1.39 $ 1.16
Diluted........................................... 1.42 1.24 1.05
</TABLE>
- ------------------
(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.
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 previously reported that it had been sued in an action in the United
States District Court by the mortgagor of a mortgage serviced by BOk Mortgage in
which the plaintiff sought class action certification and alleged BOk improperly
required the mortgagor to maintain an escrow balance in excess of the amount
permitted under the mortgage. That action was dismissed on its merits by the
Court prior to any ruling on the request for class certification. The law firm
representing the plaintiff subsequently filed essentially the same complaint
seeking class action certification in the United States District Court for the
Eastern District of
F-30
<PAGE> 100
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New York on behalf of another mortgagor of a mortgage serviced by BOk Mortgage.
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 1998, $2.7 million in 1997 and $2.7
million in 1996. Total rent expense for BOK Financial was $9.0 million in 1998,
$7.7 million in 1997 and $6.9 million in 1996.
At December 31, 1998, the future minimum lease payments for equipment and
premises under operating leases were as follows: $9.3 million in 1999, $9.1
million in 2000, $8.5 million in 2001, $7.7 million in 2002, $5.3 million in
2003 and a total of $102.3 million thereafter.
BOk and Williams, 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 $178 thousand in 1998, $226 thousand in 1997 and
zero in 1996.
The Federal Reserve Bank requires member banks to maintain certain minimum
average cash balances. These balances were approximately $83.7 million for 1998
and $78.8 million for 1997.
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, 1998, outstanding commitments
totaled $1.7 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, 1998, outstanding
standby letters of credit totaled $113.0 million.
Commercial letters of credit are used to facilitate customer trade
transactions with the drafts being drawn when the underlying transaction is
consummated. At December 31, 1998, outstanding commercial letters of credit
totaled $5.7 million.
BOK Financial uses interest rate swaps, a form of off-balance-sheet
derivative product, in managing its interest rate risk. These swaps are used
primarily to more closely match the interest 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
F-31
<PAGE> 101
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amounts calculated by reference to an agreed-upon notional amount. At December
31, 1998, the notional amount of BOK Financial's interest rate swaps totaled
$241.3 million with related credit exposure, represented by the fair value of
the contracts, of $10.2 million. During 1998 and 1997, income from the swaps
exceeded costs by $1.7 million and $1.2 million, respectively, which reduced
interest expense. Scheduled repricing periods for the swaps are as follows
(notional value in thousands):
<TABLE>
<CAPTION>
31-90 91-365 OVER
DAYS DAYS 1 YEAR TOTAL
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Pay floating......................... $(115,000) $(7,000) $ -- $(122,000)
Receive fixed........................ 15,000 7,000 100,000 122,000
Pay fixed............................ -- -- (119,278) (119,278)
Receive floating..................... 119,278 -- -- 119,278
--------- ------- --------- ---------
Total...................... $ 19,278 $ -- $ (19,278) $ --
========= ======= ========= =========
</TABLE>
The expiration dates of the swap contracts are designed to match the
estimated maturity dates of the underlying liability and matures as follows:
$22,000 in 1999, $4,316 in 2001, $7,660 in 2002, $41,475 in 2003, $9,004 in
2004, $8,375 in 2005, $16,500 in 2006, $114,384 in 2007 and $17,564 in 2008.
BOK Financial utilized securities forward sales contracts associated with
its mortgage banking activities as described in Note 7.
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 2.39
shares of common stock for each 100 shares of Series A Preferred Stock. This
ratio has been adjusted to account for the two for one stock split which was
issued February 22, 1999 and also gives effect to the 1 for 100 reverse stock
split of common stock effect December 17, 1991 and the November 18, 1993,
November 17, 1994, November 27, 1995, November 27, 1996, November 19, 1997 and
November 25, 1998 BOKF 3% common stock dividends payable by the issuance of our
common stock. 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 1998, 1997 and
1996, 68,765 shares, 107,230 shares and 139,344 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 1998, 1997 and
1996, based on average market price, as defined, for a 65 business day period
preceding declaration.
During 1998, the number of nonvoting units in an entity owned by BOk and
issued to various officers of BOk was increased to 125 from 102. 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
F-32
<PAGE> 102
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recommend payment of cash dividends on common stock. Additionally, regulations
restrict the ability of national banks and bank holding companies to pay
dividends.
During 1998, 1997 and 1996, 3% dividends payable in shares of BOK Financial
common stock were declared and paid. The shares issued were valued at $30.3
million, $27.4 million and $16.5 million, respectively, based on the average
closing bid/ask prices on the day preceding declaration. Presently, management
plans to recommend continued payment of annual dividends in shares of common
stock.
All share and per share amounts for all years presented have been
retroactively adjusted for a two-for-one stock split effected in the form of a
stock dividend declared January 26, 1999 for stockholders on record on February
8, 1999.
SUBSIDIARY BANKS
The amounts of dividends which BOK Financial's subsidiary banks can declare
and the amounts of loans the subsidiary banks can extend to affiliates are
limited by various federal and state banking regulations. Generally, dividends
declared during a calendar year are limited to net profits, as defined, for the
year plus retained profits for the preceding two years. The amounts of dividends
are further restricted by minimum capital requirements. Pursuant to the most
restrictive of the regulations at December 31, 1998, BOK Financial's subsidiary
banks could declare dividends up to $63.6 million without prior regulatory
approval. The subsidiary banks declared and paid dividends of $26.3 million in
1998, $69.8 million in 1997, and $31.0 million in 1996.
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, 1998
and 1997, these loans totaled $40.4 million and $28.8 million, respectively.
Total loan commitments to affiliates at December 31, 1998 were $57.0 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.
F-33
<PAGE> 103
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997
---------------- ----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Consolidated........................................... $610,618 11.96% $552,872 14.54%
BOk.................................................... 535,070 12.13 464,996 13.35
Bank of Arkansas....................................... 11,323 11.33 10,632 16.43
Bank of Texas.......................................... 55,848 15.81 49,775 26.93
Bank of Albuquerque.................................... 40,716 18.87 -- --
Tier I Capital (to Risk Weighted Assets):
Consolidated........................................... $398,325 7.80% $356,928 9.39%
BOk.................................................... 331,426 7.51 280,920 8.06
Bank of Arkansas....................................... 10,073 10.08 9,820 15.18
Bank of Texas.......................................... 51,430 14.56 47,458 25.68
Bank of Albuquerque.................................... 40,341 18.70 -- --
Tier I Capital (to Average Assets):
Consolidated........................................... $398,325 6.57% $356,928 6.81%
BOk.................................................... 331,426 6.02 280,920 5.90
Bank of Arkansas....................................... 10,073 9.47 9,820 11.51
Bank of Texas.......................................... 51,430 11.52 47,458 12.16
Bank of Albuquerque.................................... 40,341 8.91 -- --
</TABLE>
- ------------------
(1) Bank of Albuquerque was formed in 1998, see Note 2.
F-34
<PAGE> 104
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings
per share (dollars in thousands except share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income.............................. $ 74,716 $ 64,625 $ 54,127
Preferred stock dividends............... (1,500) (1,500) (1,500)
----------- ----------- -----------
Numerator for basic earnings per share--
income available to common
stockholders............................ 73,216 63,125 52,627
----------- ----------- -----------
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................ $ 74,716 $ 64,625 $ 54,127
=========== =========== ===========
Denominator:
Denominator for basic earnings per
share--weighted average shares....... 45,101,378 45,102,967 44,997,016
Effect of dilutive securities:
Employee stock options............... 701,406 542,957 176,416
Convertible preferred stock.......... 5,970,264 5,970,264 5,970,264
----------- ----------- -----------
Dilutive potential common shares.......... 6,671,670 6,513,221 6,146,680
----------- ----------- -----------
Denominator for diluted earnings per
share--adjusted weighted average shares
and assumed conversions................. 51,773,048 51,616,188 51,143,696
=========== =========== ===========
Basic earnings per share.................. $ 1.62 $ 1.40 $ 1.17
=========== =========== ===========
Diluted earnings per share................ $ 1.44 $ 1.25 $ 1.06
=========== =========== ===========
</TABLE>
17. REPORTABLE SEGMENTS
BOK Financial has four reportable segments: Corporate Banking, Consumer
Banking, Mortgage Banking and Trust Services. The Corporate Banking segment
consists of eight operating units that provide credit and lease financing,
deposit and cash management, and international collection services to commercial
and industrial customers and to other financial institutions in Oklahoma and
surrounding states. The Consumer Banking segment consists of two operating units
which provide direct and indirect consumer loans and deposit services to
individuals primarily within Oklahoma. The Mortgage Banking segment consists of
two operating units that originate a full range of mortgage products from
federally sponsored programs to "jumbo loans" on higher priced homes in BOK
Financial's primary market areas. The Mortgage Banking segment also services
mortgage loans acquired from throughout the United Sates. The Trust Services
segment consists of one operating unit that provides financial services to both
individual and corporate clients. Individual financial services include personal
trust management, administration of estates and management of investment and
custodial accounts. Individual financial services also includes lending and
investment services to select individuals. Corporate financial services include
administration of employee benefit plans, transfer and paying agent services and
investment advisory services.
F-35
<PAGE> 105
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BOK Financial identifies reportable segments by type of service provided
for the Mortgage Banking and the Trust Services segments and by type of customer
for the Corporate Banking and Consumer Banking segments.
BOK Financial evaluates performance and allocates resources based upon a
measurement of performance after the allocation of certain indirect expenses,
taxes and capital cost. The accounting policies of the reportable segments
generally follow those described in the summary of significant account policies
except interest income is reported on a fully taxable-equivalent basis, loan
losses are based on actual net amounts charged off and the amortization of
intangible assets is generally excluded. The cost of funds provided from one
segment to another is transfer-priced at rates that approximate market for funds
with similar duration. Assessment of performance is based on net interest
revenue after internal funds transfer pricing.
Nonreportable business segments include TransFund, BOSC, Inc., Bank of
Arkansas, Bank of Albuquerque and Bank of Texas. The sources of revenue in these
segments include interest on loans and securities, commissions earned on
securities transactions, securities trading gains or losses, and fees earned on
various banking activities, including merchant discounts, interchange fees and
deposit account fees.
BOK Financial has not made any significant investments in long-term assets
other than financial instruments, including core deposit intangible assets and
purchased mortgage servicing rights. Substantially all revenue is from domestic
customers. No single external customer accounts for more than 10% of total
revenue.
<TABLE>
<CAPTION>
CORPORATE CONSUMER MORTGAGE TRUST ALL
BANKING BANKING BANKING SERVICES OTHER TOTAL
---------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Net interest revenue/(expense) from external
sources........................................... $ 151,766 $ (40,527) $16,133 $ 1,881 $ 52,999 $ 182,252
Net interest revenue/(expense) from internal
sources........................................... (74,273) 86,817 (9,869) 8,198 (10,873) --
---------- ---------- ------- -------- -------- ----------
Total net interest revenue.................. 77,493 46,290 6,264 10,079 42,126 182,252
Provision for loan losses........................... 63 2,116 130 125 12,017 14,451
Other operating revenue............................. 24,862 23,156 44,379 37,928 33,157 163,482
Securities gains/(losses)........................... -- -- -- -- 9,337 9,337
Other operating expense............................. 42,077 52,395 41,863 35,419 59,191 230,945
Provision for impairment of mortgage servicing
rights............................................ -- -- (2,290) -- -- (2,290)
Income taxes........................................ 23,331 6,595 4,306 4,897 (1,880) 37,249
---------- ---------- ------- -------- -------- ----------
Net income.................................. $ 36,884 $ 8,340 $ 6,634 $ 7,566 $ 15,292 $ 74,716
========== ========== ======== ======== ======== ==========
Average assets...................................... $2,171,023 $1,904,409 $350,362 $295,660 $991,337 $5,712,791
Average equity...................................... 255,108 46,767 30,556 30,188 104,681 467,300
Performance measurements:
Return on assets.................................. 1.70% 0.44% 1.89% 2.56% -- 1.31%
Return on equity.................................. 14.46% 17.83% 21.71% 25.06% -- 15.99%
Efficiency ratio.................................. 41.11% 75.45% 82.66% 73.78% -- 66.14%
</TABLE>
RECONCILIATION TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OTHER OTHER
NET INTEREST OPERATING OPERATING AVERAGE
REVENUE REVENUE EXPENSE ASSETS
------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Total reportable segments................................... $140,126 $130,325 $169,464 $4,721,454
Total nonreportable segments................................ 28,198 31,419 41,349 646,701
Unallocated items:
Taxable-equivalent adjustment............................. (9,293) -- -- --
Funds management.......................................... 24,365 3,371 11,561 89,272
Contribution to BOk Foundation............................ -- -- 2,257 --
All others, net........................................... (1,144) (1,633) 4,024 255,364
-------- -------- -------- ----------
BOK Financial consolidated.................................. $182,252 $163,482 $228,655 $5,712,791
======== ======== ======== ==========
</TABLE>
F-36
<PAGE> 106
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CORPORATE CONSUMER MORTGAGE TRUST ALL
BANKING BANKING BANKING SERVICES OTHER TOTAL
---------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Net interest revenue/(expense) from external sources... $ 133,264 $ (43,903) $21,897 $ 2,460 $ 41,882 $ 155,600
Net interest revenue/(expense) from internal sources... (67,376) 87,186 (16,798) 5,864 (8,876) --
---------- ---------- -------- -------- -------- ----------
Total net interest revenue..................... 65,888 43,283 5,099 8,324 33,006 155,600
Provision for loan losses.............................. (133) 2,520 165 180 6,294 9,026
Other operating revenue................................ 20,757 21,800 34,208 30,084 24,179 131,028
Securities gains/(losses).............................. -- -- -- -- (1,329) (1,329)
Other operating expense................................ 30,328 50,879 33,204 28,532 48,123 191,066
Provision for impairment of mortgage servicing
rights............................................... -- -- 4,100 -- -- 4,100
Income taxes........................................... 21,814 5,493 779 3,842 (15,446) 16,482
---------- ---------- -------- -------- -------- ----------
Net income............................................. $ 34,636 $ 6,191 $ 1,059 $ 5,854 $ 16,885 $ 64,625
========== ========== ======== ======== ======== ==========
Average assets......................................... $1,819,834 $1,894,535 $386,985 $242,886 $746,305 $5,090,545
Average equity......................................... 210,407 44,600 28,723 24,233 82,015 393,704
Performance measurements:
Return on assets..................................... 1.90% 0.33% 0.27% 2.41% -- 1.27%
Return on equity..................................... 16.46% 13.88% 3.69% 24.16% -- 16.41%
Efficiency ratio..................................... 35.00% 78.18% 84.47% 74.29% -- 68.09%
</TABLE>
RECONCILIATION TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OTHER OTHER
NET INTEREST OPERATING OPERATING AVERAGE
REVENUE REVENUE EXPENSE ASSETS
------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Total reportable segments................................... $122,594 $106,849 $147,043 $4,344,240
Total nonreportable segments................................ 20,686 22,408 31,004 485,716
Unallocated items:
Taxable-equivalent adjustment............................. (9,567) -- -- --
Funds management.......................................... 23,072 1,001 8,227 (5,385)
Contribution to BOk Foundation............................ -- -- 3,638 --
All others, net........................................... (1,185) 770 5,254 265,974
-------- -------- -------- ----------
BOK Financial consolidated.................................. $155,600 $131,028 $195,166 $5,090,545
======== ======== ======== ==========
</TABLE>
F-37
<PAGE> 107
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CORPORATE CONSUMER MORTGAGE TRUST ALL
BANKING BANKING BANKING SERVICES OTHER TOTAL
---------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Net interest revenue/(expense) from external sources... $ 108,054 $ (39,914) $13,656 $ 2,133 $ 43,510 $ 127,439
Net interest revenue/(expense) from internal sources... (51,605) 84,561 (9,409) 4,485 (28,032) --
---------- ---------- -------- -------- -------- ----------
Total net interest revenue..................... 56,449 44,647 4,247 6,618 15,478 127,439
Provision for loan losses.............................. (96) 1,817 119 130 2,297 4,267
Other operating revenue................................ 14,278 19,853 28,189 26,902 18,697 107,919
Securities gains/(losses).............................. -- -- -- -- (2,607) (2,607)
Other operating expense................................ 23,126 49,911 27,750 25,779 32,101 158,667
Provision for impairment of mortgage servicing
rights............................................... -- -- 361 -- -- 361
Income taxes........................................... 18,421 5,654 1,684 3,011 (13,441) 15,329
---------- ---------- -------- -------- -------- ----------
Net income..................................... $ 29,276 $ 7,118 $ 2,522 $ 4,600 $ 10,611 $ 54,127
========== ========== ======== ======== ======== ==========
Average assets......................................... $1,449,637 $1,963,068 $520,559 $219,851 $149,312 $4,302,427
Average equity......................................... 164,214 55,332 26,396 20,898 55,414 322,254
Performance measurements:
Return on assets..................................... 2.02% 0.36% 0.48% 2.09% -- 1.26%
Return on equity..................................... 17.83% 12.86% 9.55% 22.01% -- 16.80%
Efficiency ratio..................................... 32.70% 77.38% 85.55% 76.91% -- 67.57%
</TABLE>
RECONCILIATION TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OTHER OTHER
NET INTEREST OPERATING OPERATING AVERAGE
REVENUE REVENUE EXPENSE ASSETS
------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Total reportable segments................................... $111,961 $ 89,222 $126,927 $4,153,115
Total nonreportable segments................................ 3,929 16,205 15,769 107,305
Unallocated items:
Taxable-equivalent adjustment............................. (8,365) -- -- --
Funds management.......................................... 22,533 1,312 8,988 (172,008)
All others, net........................................... (2,619) 1,180 7,344 214,015
-------- -------- -------- ----------
BOK Financial consolidated.................................. $127,439 $107,919 $159,028 $4,302,427
======== ======== ======== ==========
</TABLE>
F-38
<PAGE> 108
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying values and estimated fair values
of financial instruments as of December 31, 1998 and 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
RANGE OF AVERAGE ESTIMATED
CARRYING CONTRACTUAL REPRICING DISCOUNT FAIR
VALUE YIELDS (IN YEARS) RATE VALUE
---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1998:
Cash and cash equivalents......... $ 435,416 -- -- -- $ 435,416
Securities........................ 2,488,551 -- -- -- 2,488,528
Loans:
Commercial..................... 1,941,356 4.50 - 13.69% .60 6.89 - 10.03% 1,944,298
Commercial real estate......... 744,053 6.08 - 12.93 1.37 8.05 - 9.75 740,034
Residential mortgage........... 482,097 3.81 - 14.25 3.24 6.62 - 6.95 492,644
Residential mortgage--held
for sale..................... 98,616 -- -- -- 98,616
Consumer....................... 285,819 6.40 - 17.90 1.48 7.02 - 12.75 288,423
---------- ------------ ---- ------------ ----------
Total loans............... 3,551,941 -- -- -- 3,564,015
Reserve for loan losses............. (64,931) -- -- -- --
---------- ------------ ---- ------------ ----------
Net loans........................... 3,487,010 -- -- -- 3,564,015
Deposits with no stated maturity.... 2,694,184 -- -- -- 2,694,184
Time deposits....................... 1,685,046 2.03 - 10.00 .62 3.62 - 5.12 1,686,286
Other borrowings.................... 1,699,880 4.76 - 6.95 .24 4.50 - 7.75 1,703,895
Subordinated debt................... 146,921 7.13 6.27 5.42 - 5.48 158,869
========== ============ ==== ============ ==========
1997:
Cash and cash equivalents......... $ 389,326 -- -- -- $ 389,326
Securities........................ 1,967,521 -- -- -- 1,968,535
Loans:
Commercial..................... 1,499,400 4.28 - 15.97% 0.4 7.52 - 10.28% 1,489,902
Commercial real estate......... 477,801 5.78 - 12.93 1.1 9.15 - 10.00 472,610
Residential mortgage........... 419,139 3.81 - 14.87 1.6 7.15 - 7.73 425,185
Residential mortgage--held
for sale..................... 78,669 -- -- -- 78,669
Consumer....................... 290,084 5.00 - 17.90 1.2 7.75 - 13.50 289,681
---------- ------------ ---- ------------ ----------
Total loans............... 2,765,093 2,756,047
Reserve for loan losses............. (53,101) --
---------- ------------ ---- ------------ ----------
Net loans........................... 2,711,992 -- -- -- 2,756,047
Deposits with no stated maturity.... 2,112,217 -- -- -- 2,112,217
Time deposits....................... 1,615,862 2.71 - 9.81 0.4 4.65 - 5.98 1,606,668
Other borrowings.................... 1,025,902 4.66 - 6.87 0.5 5.25 - 8.50 1,029,773
Subordinated debt................... 148,356 7.13 6.1 6.49 154,101
========== ============ ==== ============ ==========
</TABLE>
The preceding table presents the estimated fair values of financial
instruments. The fair values of certain of these instruments were calculated by
discounting expected cash flows, which involved significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management
does not intend
F-39
<PAGE> 109
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to sell these financial instruments, BOK Financial does not know whether the
fair values shown above represent values at which the respective financial
instruments could be sold individually or in the aggregate.
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 $9.6 million and $10.6 million at December 31, 1998
and 1997, 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, 1998 and
1997. 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 $10.2
million and $6.6 million at December 31, 1998 and 1997, respectively.
F-40
<PAGE> 110
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Summarized financial information for BOK Financial--Parent Company Only
follows:
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
ASSETS -------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 762 $ 627
Securities--available for sale.............................. 24,904 30,682
Investment in subsidiaries.................................. 572,337 437,553
Other assets................................................ 1,907 1,747
-------- --------
Total assets...................................... $599,910 $470,609
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other borrowings............................................ $ 92,132 $ 32,887
Other liabilities........................................... 2,664 2,245
-------- --------
Total liabilities................................. 94,796 35,132
-------- --------
Preferred stock............................................. 25 23
Common stock................................................ 3 3
Capital surplus............................................. 233,022 208,325
Retained earnings........................................... 261,822 218,629
Treasury stock.............................................. (565) (2,190)
Accumulated other comprehensive income...................... 10,807 10,691
Notes receivable............................................ -- (4)
-------- --------
Total shareholders' equity........................ 505,114 435,477
-------- --------
Total liabilities and shareholders' equity... $599,910 $470,609
======== ========
</TABLE>
F-41
<PAGE> 111
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividends, interest and fees received from subsidiaries..... $28,518 $70,803 $31,202
Other operating revenue..................................... 1,717 2,612 532
------- ------- -------
Total revenue..................................... 30,235 73,415 31,734
------- ------- -------
Interest expense............................................ 2,469 3,566 819
Personnel expense........................................... 579 293 7
Professional fees and services.............................. 670 172 177
Contribution of stock to BOk Charitable Foundation.......... 2,257 3,638 --
Other operating expense..................................... 116 106 236
------- ------- -------
Total expense..................................... 6,091 7,775 1,239
------- ------- -------
Income before taxes and equity in undistributed income of
subsidiaries.............................................. 24,144 65,640 30,495
Federal and state income tax expense (credit)............... (3,093) (3,657) (4,116)
------- ------- -------
Income before equity in undistributed income of
subsidiaries.............................................. 27,237 69,297 34,611
Equity in undistributed income (loss) of subsidiaries....... 47,479 (4,672) 19,516
------- ------- -------
Net income........................................ $74,716 $64,625 $54,127
======= ======= =======
</TABLE>
F-42
<PAGE> 112
BOK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 74,716 $ 64,625 $ 54,127
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income (loss) of
subsidiaries......................................... (47,479) 4,672 (19,516)
Gain on sale of available-for-sale securities.......... -- (1,226) --
Contribution of stock to BOk Charitable Foundation..... 2,257 3,638 --
Change in other assets................................. (160) (156) 170
Change in other liabilities............................ 2,593 (3,610) (3,552)
-------- --------- --------
Net cash provided by operating activities......... 31,927 67,943 31,229
-------- --------- --------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities...... -- 12,157 --
Purchases of available-for-sale securities................ -- (10,000) (22,826)
Investment in subsidiaries................................ (85,842) (104,488) (6,029)
-------- --------- --------
Net cash used in investing activities............. (85,842) (102,331) (28,855)
-------- --------- --------
Cash flows from financing activities:
Increase (decrease) in short-term borrowings.............. 59,245 32,887 (2,500)
Issuance of preferred, common and treasury stock, net..... 3,940 1,584 311
Purchase treasury stock................................... (9,138) -- --
Stock dividends on preferred stock........................ (1) -- (3)
Payments on notes receivable.............................. 4 83 67
-------- --------- --------
Net cash provided (used) by financing
activities...................................... 54,050 34,554 (2,125)
-------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 135 166 249
Cash and cash equivalents at beginning of period............ 627 461 212
-------- --------- --------
Cash and cash equivalents at end of period.................. $ 762 $ 627 $ 461
-------- --------- --------
Payment of dividends in common stock........................ $ 31,500 $ 28,948 $ 17,956
-------- --------- --------
Cash paid for interest...................................... $ 2,364 $ 3,395 $ 827
======== ========= ========
</TABLE>
F-43
<PAGE> 113
BOK FINANCIAL CORPORATION
ANNUAL FINANCIAL SUMMARY--UNAUDITED
CONSOLIDATED DAILY AVERAGE BALANCES,
AVERAGE YIELDS AND RATES
<TABLE>
<CAPTION>
1998 1997
-------------------------------- ----------
AVERAGE REVENUE/ YIELD/ AVERAGE
BALANCE EXPENSE(1) RATE BALANCE
---------- ---------- ------ ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Taxable securities.................. $1,767,795 $108,727 6.15% $1,560,535
Tax-exempt securities............... 324,743 24,801 7.64 344,112
---------- -------- ---- ----------
Total securities............ 2,092,538 133,528 6.38 1,904,647
---------- -------- ---- ----------
Trading securities.................. 20,038 1,046 5.22 4,785
Funds sold and resell agreements.... 31,550 1,837 5.82 52,911
Loans(2)(3)......................... 2,978,438 259,469 8.60 2,598,718
Less reserve for loan losses...... 58,563 -- -- 50,091
---------- -------- ---- ----------
Loans, net of reserve............... 2,919,875 259,469 8.77(3) 2,548,627
---------- -------- ---- ----------
Total earning assets........ 5,064,001 395,880 7.75(3) 4,510,970
---------- -------- ---- ----------
Cash and other assets............... 648,790 579,575
---------- -------- ---- ----------
Total assets................ $5,712,791 $5,090,545
========== ======== ==== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits................ $1,188,779 $ 36,425 3.06% $1,048,060
Savings deposits.................... 112,431 2,373 2.11 106,811
Time deposits....................... 1,675,222 91,223 5.45 1,564,236
---------- -------- ---- ----------
Total interest-bearing
deposits.................. 2,976,432 130,021 4.37 2,719,107
---------- -------- ---- ----------
Other borrowings.................... 1,146,165 64,621 5.64 1,088,470
Subordinated debenture.............. 148,404 9,693 6.53 64,374
---------- -------- ---- ----------
Total interest-bearing
liabilities............... 4,271,001 204,335 4.78 3,871,951
---------- -------- ---- ----------
Demand deposits..................... 902,369 752,768
Other liabilities................... 72,121 72,122
Shareholders' equity................ 467,300 393,704
---------- -------- ---- ----------
Total liabilities and
shareholders' equity...... $5,712,791 $5,090,545
========== ======== ==== ==========
Taxable-equivalent Net Interest
Revenue........................... $191,545 2.97%(3)
Taxable-equivalent Net Interest
Revenue to Earning Assets......... 3.72(3)
Less taxable-equivalent
adjustment(1)..................... 9,293
---------- -------- ---- ----------
Net Interest Revenue................ 182,252
Provision for loan losses........... 14,451
Other operating revenue............. 172,819
Other operating expense............. 228,655
---------- -------- ---- ----------
Income before taxes................. 111,965
Federal and state income tax........ 37,249
---------- -------- ---- ----------
Net Income.................. $ 74,716
========== ======== ==== ==========
Earnings Per Average Common Share
Equivalent:
Net Income
Basic........................... $ 1.62
---------- -------- ---- ----------
Diluted......................... 1.44
---------- -------- ---- ----------
<CAPTION>
1997 1996
------------------- --------------------------------
REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
EXPENSE(1) RATE BALANCE EXPENSE(1) RATE
---------- ------ ---------- ---------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Taxable securities.................. $ 97,416 6.24% $1,285,333 $ 77,588 6.04%
Tax-exempt securities............... 26,137 7.60 305,000 22,801 7.48
-------- ---- ---------- -------- ----
Total securities............ 123,553 6.49 1,590,333 100,389 6.31
-------- ---- ---------- -------- ----
Trading securities.................. 287 6.00 5,096 340 6.67
Funds sold and resell agreements.... 2,992 5.65 29,134 1,630 5.59
Loans(2)(3)......................... 227,283 8.75 2,252,216 196,538 8.73
Less reserve for loan losses...... -- -- 42,074 -- --
-------- ---- ---------- -------- ----
Loans, net of reserve............... 227,283 8.92 2,210,142 196,538 8.89
-------- ---- ---------- -------- ----
Total earning assets........ 354,115 7.85 3,834,705 298,897 7.79
-------- ---- ---------- -------- ----
Cash and other assets............... 467,722
-------- ---- ---------- -------- ----
Total assets................ $4,302,427
======== ==== ========== ======== ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits................ $ 33,091 3.16% $ 848,365 $ 28,336 3.34%
Savings deposits.................... 2,367 2.22 101,273 2,464 2.43
Time deposits....................... 86,584 5.54 1,555,073 87,266 5.61
-------- ---- ---------- -------- ----
Total interest-bearing
deposits.................. 122,042 4.49 2,504,711 118,066 4.71
-------- ---- ---------- -------- ----
Other borrowings.................... 62,740 5.76 794,715 45,027 5.67
Subordinated debenture.............. 4,166 6.47 -- -- --
-------- ---- ---------- -------- ----
Total interest-bearing
liabilities............... 188,948 4.88 3,299,426 163,093 4.94
-------- ---- ---------- -------- ----
Demand deposits..................... 621,069
Other liabilities................... 59,678
Shareholders' equity................ 322,254
-------- ---- ---------- -------- ----
Total liabilities and
shareholders' equity...... $4,302,427
======== ==== ========== ======== ====
Taxable-equivalent Net Interest
Revenue........................... $165,167 2.97% $135,804 2.85%
Taxable-equivalent Net Interest
Revenue to Earning Assets......... 3.66 3.54
Less taxable-equivalent
adjustment(1)..................... 9,567 8,365
-------- ---- ---------- -------- ----
Net Interest Revenue................ 155,600 127,439
Provision for loan losses........... 9,026 4,267
Other operating revenue............. 129,699 105,312
Other operating expense............. 195,166 159,028
-------- ---- ---------- -------- ----
Income before taxes................. 81,107 69,456
Federal and state income tax........ 16,482 15,329
-------- ---- ---------- -------- ----
Net Income.................. $ 64,625 $ 54,127
======== ==== ========== ======== ====
Earnings Per Average Common Share
Equivalent:
Net Income
Basic........................... $ 1.40 $ 1.17
-------- ---- ---------- -------- ----
Diluted......................... 1.25 1.06
-------- ---- ---------- -------- ----
</TABLE>
- ------------------
(1) Tax equivalent at the statutory federal and state rates of 38.9% for the
periods presented. The taxable-equivalent adjustments shown are for
comparative purposes.
(2) The loan averages included loans on which the accrual of interest has been
discontinued and are stated net of unearned income. See Note 1 of Notes to
the Consolidated Financial Statements for a description of income
recognition policy.
(3) Excludes $3,262 of nonrecurring foregone interest in the 2nd and 3rd
quarters of 1998.
F-44
<PAGE> 114
BOK FINANCIAL CORPORATION
QUARTERLY FINANCIAL SUMMARY--UNAUDITED
CONSOLIDATED DAILY AVERAGE BALANCES,
AVERAGE YIELDS AND RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
DECEMBER 31, 1998 SEPTEMBER 30, 1998
-------------------------------- --------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE
---------- ---------- ------ ---------- ---------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Taxable securities................................ $1,902,736 $29,073 6.06% $1,751,428 $ 27,300 6.18%
Tax-exempt securities(1).......................... 323,147 6,167 7.57 325,413 6,212 7.57
---------- ------- ---- ---------- -------- ----
Total securities........................... 2,225,883 35,240 6.28 2,076,841 33,512 6.40
---------- ------- ---- ---------- -------- ----
Trading securities................................ 19,415 232 4.74 27,389 389 5.63
Funds sold........................................ 16,539 242 5.81 25,287 333 5.22
Loans(2)(3)....................................... 3,270,560 69,158 8.39 2,978,087 66,503 8.62
Less reserve for loan losses..................... 63,727 59,821
---------- ------- ---- ---------- -------- ----
Loans, net of reserve............................. 3,206,833 69,158 8.56 2,918,266 66,503 8.80(3)
---------- ------- ---- ---------- -------- ----
Total earning assets....................... 5,468,670 104,872 7.61 5,047,783 100,737 7.78(3)
---------- ------- ---- ---------- -------- ----
Cash and other assets............................. 672,352 647,741
---------- ------- ---- ---------- -------- ----
Total assets............................... $6,141,022 $5,695,524
========== ======= ==== ========== ======== ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits.............................. $1,236,386 $ 8,967 2.88% $1,187,685 $ 9,273 3.10%
Savings deposits.................................. 119,970 607 2.01 108,911 547 1.99
Other time deposits............................... 1,601,350 21,264 5.27 1,643,596 22,455 5.42
---------- ------- ---- ---------- -------- ----
Total interest-bearing deposits............ 2,957,706 30,838 4.14 2,940,192 32,275 4.36
---------- ------- ---- ---------- -------- ----
Other borrowings.................................. 1,502,825 20,427 5.39 1,152,503 16,830 5.79
Subordinated debenture............................ 147,418 2,333 6.28 148,392 2,529 6.76
---------- ------- ---- ---------- -------- ----
Total interest-bearing liabilities......... 4,607,949 53,598 4.61 4,241,087 51,634 4.83
---------- ------- ---- ---------- -------- ----
Demand deposits................................... 950,560 904,128
Other liabilities................................. 85,721 78,383
Shareholders' equity.............................. 496,792 471,926
---------- ------- ---- ---------- -------- ----
Total liabilities and shareholders'
equity.................................... $6,141,022 $5,695,524
========== ======= ==== ========== ======== ====
Taxable-equivalent Net Interest Revenue(1)........ $51,274 2.99% $ 49,103 2.95%(3)
Taxable-equivalent Net Interest Revenue(1) to
Earning Assets................................... 3.72 3.72(3)
Less taxable-equivalent adjustment(1)............. 2,299 2,326
---------- ------- ---- ---------- -------- ----
Net Interest Revenue.............................. 48,975 46,777
Provision for loan losses......................... 4,027 4,001
Other operating revenue........................... 44,817 42,860
Other operating expense........................... 60,821 56,837
---------- ------- ---- ---------- -------- ----
Income before taxes............................... 28,944 28,799
Federal and state income tax (benefit)............ 9,729 10,049
---------- ------- ---- ---------- -------- ----
Net Income....................................... $19,215 $ 18,750
========== ======= ==== ========== ======== ====
Earnings Per Average Common Share Equivalent:
Net Income
Basic.......................................... $ .42 $ .41
---------- ------- ---- ---------- -------- ----
Diluted........................................ .37 .36
========== ======= ==== ========== ======== ====
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
JUNE 30, 1998 MARCH 31, 1998
-------------------------------- --------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE
---------- ---------- ------ ---------- ---------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Taxable securities................................ $1,642,799 $25,119 6.13% $1,772,971 $27,235 6.23%
Tax-exempt securities(1).......................... 321,703 6,173 7.70 328,735 6,248 7.71
---------- ------- ---- ---------- ------- ----
Total securities........................... 1,964,502 31,292 6.39 2,101,706 33,483 6.46
---------- ------- ---- ---------- ------- ----
Trading securities................................ 21,408 262 4.91 11,774 163 5.61
Funds sold........................................ 37,728 571 6.07 47,050 691 5.96
Loans(2)(3)....................................... 2,838,037 63,072 8.71 2,822,147 60,737 8.73
Less reserve for loan losses..................... 56,423 54,164
---------- ------- ---- ---------- ------- ----
Loans, net of reserve............................. 2,781,614 63,072 8.88(3) 2,767,983 60,737 8.90
---------- ------- ---- ---------- ------- ----
Total earning assets....................... 4,805,252 95,197 7.82(3) 4,928,513 95,074 7.82
---------- ------- ---- ---------- ------- ----
Cash and other assets............................. 643,626 625,863
---------- ------- ---- ---------- ------- ----
Total assets............................... $5,448,878 $5,554,376
========== ======= ==== ========== ======= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits.............................. $1,184,835 $ 9,268 3.14% $1,145,221 $ 8,917 3.16%
Savings deposits.................................. 111,207 617 2.23 109,560 602 2.23
Other time deposits............................... 1,717,993 23,640 5.52 1,739,816 23,864 5.56
---------- ------- ---- ---------- ------- ----
Total interest-bearing deposits............ 3,014,035 33,525 4.46 2,994,597 33,383 4.52
---------- ------- ---- ---------- ------- ----
Other borrowings.................................. 873,616 12,406 5.70 1,051,724 14,958 5.77
Subordinated debenture............................ 148,410 2,464 6.66 148,374 2,367 6.47
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities......... 4,036,061 48,395 4.81 4,194,695 50,708 4.90
---------- ------- ---- ---------- ------- ----
Demand deposits................................... 895,415 858,340
Other liabilities................................. 61,814 57,095
Shareholders' equity.............................. 455,588 444,246
---------- ------- ---- ---------- ------- ----
Total liabilities and shareholders'
equity.................................... $5,448,878 $5,554,376
========== ======= ==== ========== ======= ====
Taxable-equivalent Net Interest Revenue(1)........ $46,802 3.01%(3) $44,366 2.92%
Taxable-equivalent Net Interest Revenue(1) to
Earning Assets................................... 3.78(3) 3.65
Less taxable-equivalent adjustment(1)............. 2,338 2,330
---------- ------- ---- ---------- ------- ----
Net Interest Revenue.............................. 44,464 42,036
Provision for loan losses......................... 3,953 2,470
Other operating revenue........................... 44,355 40,787
Other operating expense........................... 53,804 57,193
---------- ------- ---- ---------- ------- ----
Income before taxes............................... 31,062 23,160
Federal and state income tax (benefit)............ 10,624 6,847
---------- ------- ---- ---------- ------- ----
Net Income....................................... $20,438 $16,313
========== ======= ==== ========== ======= ====
Earnings Per Average Common Share Equivalent:
Net Income
Basic.......................................... $ .44 $ .35
---------- ------- ---- ---------- ------- ----
Diluted........................................ .39 .31
========== ======= ==== ========== ======= ====
<CAPTION>
THREE MONTHS ENDED
--------------------------------
DECEMBER 31, 1997
--------------------------------
AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE(1) RATE
---------- ---------- ------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Taxable securities................................ $1,562,445 $24,408 6.20%
Tax-exempt securities(1).......................... 331,793 6,666 7.97
---------- ------- ----
Total securities........................... 1,894,238 31,074 6.51
---------- ------- ----
Trading securities................................ 6,203 93 5.95
Funds sold........................................ 53,964 724 5.32
Loans(2)(3)....................................... 2,764,436 60,924 8.74
Less reserve for loan losses..................... 53,180
---------- ------- ----
Loans, net of reserve............................. 2,711,256 60,924 8.92
---------- ------- ----
Total earning assets....................... 4,665,661 92,815 7.89
---------- ------- ----
Cash and other assets............................. 618,039
---------- ------- ----
Total assets............................... $5,283,700
========== ======= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Transaction deposits.............................. $1,102,144 $ 8,466 3.05%
Savings deposits.................................. 106,207 596 2.23
Other time deposits............................... 1,582,538 22,037 5.52
---------- ------- ----
Total interest-bearing deposits............ 2,790,889 31,099 4.42
---------- ------- ----
Other borrowings.................................. 1,050,545 15,169 5.73
Subordinated debenture............................ 148,334 2,439 6.52
---------- ------- ----
Total interest-bearing liabilities......... 3,989,768 48,707 4.84
---------- ------- ----
Demand deposits................................... 783,508
Other liabilities................................. 80,763
Shareholders' equity.............................. 429,661
---------- ------- ----
Total liabilities and shareholders'
equity.................................... $5,283,700
========== ======= ====
Taxable-equivalent Net Interest Revenue(1)........ $44,108 3.05%
Taxable-equivalent Net Interest Revenue(1) to
Earning Assets................................... 3.75
Less taxable-equivalent adjustment(1)............. 2,396
---------- ------- ----
Net Interest Revenue.............................. 41,712
Provision for loan losses......................... 3,500
Other operating revenue........................... 33,521
Other operating expense........................... 61,277
---------- ------- ----
Income before taxes............................... 10,456
Federal and state income tax (benefit)............ (6,362)
---------- ------- ----
Net Income....................................... $16,818
========== ======= ====
Earnings Per Average Common Share Equivalent:
Net Income
Basic.......................................... $ .36
---------- ------- ----
Diluted........................................ .32
========== ======= ====
</TABLE>
- ------------------
(1) Taxable-equivalent at the statutory federal and state rates of 38.9% for the
periods presented. The taxable-equivalent adjustments shown are for
comparative purposes.
(2) The loan averages included loans on which the accrual of interest has been
discounted and are stated net of unearned income. See Note 1 of Notes to the
Consolidated Financial Statements for a description of income recognition
policy.
(3) Excludes $1,794 of nonrecurring foregone interest in the third quarter 1998
and $1,468 in the second quarter 1998.
F-45
<PAGE> 115
[ALTERNATIVE COVER
PAGE FOR
INTERNATIONAL
PROSPECTUS]
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND THE SELLING SHAREHOLDER IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS Issued August , 1999 (Subject to Completion)
Shares
LOGO
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK OF BOK FINANCIAL CORPORATION THAT ARE BEING
OFFERED FOR SALE, BOK FINANCIAL CORPORATION IS OFFERING SHARES AND THE
SHAREHOLDERS LISTED IN THIS PROSPECTUS ARE OFFERING SHARES. MR. GEORGE B.
KAISER, BOK FINANCIAL CORPORATION'S PRINCIPAL STOCKHOLDER, CURRENTLY
BENEFICIALLY OWNS 74.1% OF OUR COMMON STOCK AND WILL OWN % AFTER THE OFFERING.
------------------------
OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"BOKF". ON AUGUST 5, 1999, THE LAST REPORTED SALE PRICE OF OUR COMMON STOCK
WAS $23.375 PER SHARE.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS BOK FINANCIAL SHAREHOLDERS
-------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
BOK Financial Corporation has granted the underwriters the right to purchase up
to an additional shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
KEEFE BRUYETTE & WOODS, INC.
SALOMON SMITH BARNEY INTERNATIONAL
STEPHENS INC.
August , 1999
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses to be incurred by BOK Financial
Corporation in connection with the Offer described in this Registration
Statement:
<TABLE>
<S> <C>
SEC registration fee.................... $
NASD fee................................
NASDAQ Listing fee......................
Printing and engraving expense..........
Fees and expenses of transfer agent.....
Accounting fees and expenses............
Legal fees and expenses.................
Miscellaneous...........................
--------
Total ........................ $
========
</TABLE>
BOK Financial Corporation will bear all costs relating to the registration
of the shares as related to the selling shareholders. The selling shareholders
shall pay all legal fees and underwriting discounts related to subsequent
offerings.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Oklahoma Business Corporation Act and Article VI of the Bylaws of BOK
Financial Corporation provide BOK Financial Corporation with broad powers and
authority to indemnify its directors and officers and to purchase and maintain
insurance for such purposes. Pursuant to such statutory and Bylaw provisions,
BOK Financial Corporation has purchased insurance against certain costs of
indemnification of its officers and directors.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<S> <C>
3 -- The Certificate of Incorporation of BOK Financial
Corporation, incorporated by reference to (i) Amended and
Restated Certificate of Incorporation of BOK Financial
Corporation 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 Corporation, incorporated by
reference to Exhibit 3.1 of S-1 Registration Statement No.
33-90450.
4 -- The rights of the holders of the Common Stock and Preferred
Stock of BOK Financial Corporation are set forth in its
Certificate of Incorporation.
5* -- Opinion of Frederic Dorwart, Lawyers
23* -- Consent of Independent Auditors--Ernst & Young LLP.
24 -- Power of Attorney (contained on page II-7)
27 -- Financial Data Schedule for ended December 31, 1998,
incorporated by reference to Exhibit 27.0 of Form 10-K for
the fiscal year ended December 31, 1998.
27.1 -- Restated Financial Data Schedule, incorporated by
reference to Exhibit 27.1 of Form 10-Q for the fiscal
quarter ended March 31, 1999.
</TABLE>
<PAGE> 117
<TABLE>
<S> <C>
99 -- Additional Exhibits.
99.1 -- Undertakings incorporated by reference into S-8
Registration Statement No. 33-44121 for Bank of Oklahoma
Master Thrift Plan and Trust, incorporated by reference to
Exhibit 99.1 of Form 10-K for the fiscal year ended
December 31, 1993.
99.2 -- Undertakings incorporated by reference into S-8
Registration Statement No. 33-44122 for BOK Financial
Corporation 1991 Special Stock Option Plan, incorporated by
reference to Exhibit 99.2 of Form 10-K for the fiscal year
ended December 31, 1993.
99.3 -- Undertakings incorporated by reference into S-8
Registration Statement No. 33-55312 for BOK Financial
Corporation 1992 Stock Option Plan, incorporated by
reference to Exhibit 99.3 of Form 10-K for the fiscal year
ended December 31, 1993.
99.4 -- Undertakings incorporated by reference into S-8
Registration Statement No. 33-70102 for BOK Financial
Corporation 1993 Stock Option Plan, incorporated by
reference to Exhibit 99.4 of Form 10-K for the fiscal year
ended December 31, 1993.
99.5 -- Undertakings incorporated by reference into S-8
Registration Statement No. 33-79834 for BOK Financial
Corporation 1994 Stock Option Plan, incorporated by
reference to Exhibit 99.5 of Form 10-K for the fiscal year
ended December 31, 1994.
99.6 -- Undertakings incorporated by reference into S-8
Registration Statement No. 33-79836 for BOK Financial
Corporation Directors' Stock Compensation Plan,
incorporated by reference to Exhibit 99.6 of Form 10-K for
the fiscal year ended December 31, 1994.
99.7 -- Undertakings incorporated by reference into S-8
Registration Statement No. 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.
</TABLE>
- ----------
* Filed herewith.
(b) Financial Statement Schedules.
All schedules either are not applicable or the information required thereby
is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
II-2
<PAGE> 118
(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
State of Oklahoma, on March 15, 1999.
BOK FINANCIAL CORPORATION
By: /s/ STANLEY A. LYBARGER
--------------------------------------------
Stanley A. Lybarger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
/s/ GEORGE B. KAISER Chairman of the Board of BOK 3/15/99
- ------------------------------- Financial Corporation
George B. Kaiser
/s/ STANLEY A. LYBARGER President, Chief Executive 3/15/99
- ------------------------------- Officer,-and Director of
Stanley A. Lybarger BOK Financial Corporation
/s/ JAMES A. WHITE Executive Vice President and 3/15/99
- ------------------------------- Chief-Financial Officer of
James A. White BOK Financial Corporation
/s/ JOHN C. MORROW Senior Vice President and 3/15/99
- ------------------------------- Director-of Financial
John C. Morrow Accounting and Reporting
of BOK Financial
Corporation
/s/ STEVEN E. NELL Senior Vice President and 3/15/99
- ------------------------------- Corporate Controller of
Steven E. Nell BOK Financial Corporation
/s/ W. WAYNE ALLEN Director of BOK Financial 3/15/99
- ------------------------------- Corporation
W. Wayne Allen
/s/ JAMES E. BARNES Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James E. Barnes
/s/ SHARON J. BELL Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Sharon J. Bell
Director of BOK Financial
- ------------------------------- Corporation
C. Fred Ball, Jr.
Director of BOK Financial
- ------------------------------- Corporation
Luke R. Corbett
</TABLE>
II-4
<PAGE> 120
<TABLE>
<S> <C>
/s/ ROBERT H. DONALDSON Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert H. Donaldson
/s/ WILLIAM E. DURRETT Director of BOK Financial 3/15/99
- ------------------------------- Corporation
William E. Durrett
/s/ JAMES O. GOODWIN Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James O. Goodwin
/s/ V. BURNS HARGIS Vice Chairman and Director 3/15/99
- ------------------------------- of-BOK-Financial
V. Burns Hargis Corporation
/s/ HOWARD E. JANZEN Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Howard E. Janzen
/s/ E. CAREY JOULLIAN, IV Director of BOK Financial 3/15/99
- ------------------------------- Corporation
E. Carey Joullian, IV
/s/ ROBERT J. LAFORTUNE Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert J. LaFortune
/s/ PHILIP C. LAUINGER, JR. Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Philip C. Lauinger, Jr.
/s/ FRANK A. MCPHERSON Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Frank A. McPherson
/s/ STEVEN E. MOORE Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Steven E. Moore
/s/ J. LARRY NICHOLS Director of BOK Financial 3/15/99
- ------------------------------- Corporation
J. Larry Nichols
Director of BOK Financial
- ------------------------------- Corporation
Ronald J. Norick
/s/ ROBERT L. PARKER, SR. Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert L. Parker, Sr.
/s/ JAMES W. PIELSTICKER Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James W. Pielsticker
</TABLE>
II-5
<PAGE> 121
<TABLE>
<S> <C>
/s/ E. C. RICHARDS Director of BOK Financial 3/15/99
- ------------------------------- Corporation
E.C. Richards
/s/ JAMES A. ROBINSON Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James A. Robinson
/s/ L. FRANCIS ROONEY, III Director of BOK Financial 3/15/99
- ------------------------------- Corporation
L. Francis Rooney, III
/s/ DAVID J. TIPPECONNIC Director of BOK Financial 3/15/99
- ------------------------------- Corporation
David J. Tippeconnic
/s/ TOM E. TURNER Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Tom E. Turner
/s/ ROBERT L. ZEMANEK Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert L. Zemanek
</TABLE>
II-6
<PAGE> 122
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes George B.
Kaiser and James A. White, or either of them, to file one or more amendments
(including post-effective amendments which may be filed pursuant to Rule 462(b)
under the Securities Act of 1933) to Registration Statement number , which
amendments may make such changes in the Registration Statement as Mr. Kaiser or
Mr. White deems appropriate, and each such person hereby appoints George B.
Kaiser and James A. White, or either of them, as attorney-in-fact to execute in
the name and on behalf of each person individually, and in each capacity stated
below, any such amendment to the Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE B. KAISER Chairman of the Board of BOK 3/15/99
- ------------------------------- Financial Corporation
George B. Kaiser
/s/ STANLEY A. LYBARGER President, Chief Executive 3/15/99
- ------------------------------- Officer,-and Director of
Stanley A. Lybarger BOK Financial Corporation
/s/ JAMES A. WHITE Executive Vice President and 3/15/99
- ------------------------------- Chief-Financial Officer of
James A. White BOK Financial Corporation
/S/ JOHN C. MORROW Senior Vice President and 3/15/99
- ------------------------------- Director-of Financial
John C. Morrow Accounting and Reporting
of BOK Financial
Corporation
/s/ STEVEN E. NELL Senior Vice President and 3/15/99
- ------------------------------- Corporate Controller of
Steven E. Nell BOK Financial Corporation
/s/ W. WAYNE ALLEN Director of BOK Financial 3/15/99
- ------------------------------- Corporation
W. Wayne Allen
/s/ JAMES E. BARNES Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James E. Barnes
/s/ SHARON J. BELL Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Sharon J. Bell
Director of BOK Financial
- ------------------------------- Corporation, President and
C. Fred Ball, Jr. Chief Executive Officer,
Bank of Texas
Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Luke R. Corbett
/s/ ROBERT H. DONALDSON Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert H. Donaldson
</TABLE>
II-7
<PAGE> 123
<TABLE>
<S> <C>
/s/ WILLIAM E. DURRETT Director of BOK Financial 3/15/99
- ------------------------------- Corporation
William E. Durrett
/s/ JAMES O. GOODWIN Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James O. Goodwin
/s/ V. BURNS HARGIS Vice Chairman and Director 3/15/99
- ------------------------------- of-BOK-Financial
V. Burns Hargis Corporation
/s/ HOWARD E. JANZEN Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Howard E. Janzen
/s/ E. CAREY JOULLIAN, IV Director of BOK Financial 3/15/99
- ------------------------------- Corporation
E. Carey Joullian, IV
/s/ ROBERT J. LAFORTUNE Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert J. LaFortune
/s/ PHILLIP C. LAUINGER, JR. Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Philip C. Lauinger, Jr
/s/ FRANK A. MCPHERSON Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Frank A. McPherson
/s/ STEVEN E. MOORE Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Steven E. Moore
/s/ J. LARRY NICHOLS Director of BOK Financial 3/15/99
- ------------------------------- Corporation
J. Larry Nichols
Director of BOK Financial
- ------------------------------- Corporation
Ronald J. Norick
/s/ ROBERT L. PARKER, SR Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert L. Parker, Sr.
/s/ JAMES W. PIELSTICKER Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James W. Pielsticker
/s/ E. C. RICHARDS Director of BOK Financial 3/15/99
- ------------------------------- Corporation
E.C. Richards
/s/ JAMES A. ROBINSON Director of BOK Financial 3/15/99
- ------------------------------- Corporation
James A. Robinson
</TABLE>
II-8
<PAGE> 124
<TABLE>
<S> <C>
/s/ L. FRANCIS ROONEY, III Director of BOK Financial 3/15/99
- ------------------------------- Corporation
L. Francis Rooney, III
/s/ DAVID J. TIPPECONNIC Director of BOK Financial 3/15/99
- ------------------------------- Corporation
David J. Tippeconnic
/s/ TOM E. TURNER Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Tom E. Turner
/s/ ROBERT L. ZEMANEK Director of BOK Financial 3/15/99
- ------------------------------- Corporation
Robert L. Zemanek
</TABLE>
II-9
<PAGE> 125
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<S> <C>
5 -- Opinion of Frederic Dorwart, Lawyers
23 -- Consent of Independent Auditors--Ernst & Young LLP
</TABLE>
<PAGE> 1
EXHIBIT 5
Opinion of Frederic Dorwart, Lawyers
August 6, 1999
BOK Financial Corporation
Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa, Oklahoma 74172
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by
you with the Securities and Exchange Commission in connection with the
registration under the Securities Act of 1933, as amended, of 5,000,000 shares
of your common stock to be offered for the sale for the benefit of certain
selling shareholders. The shares are to be sold from time to time by the selling
shareholders as described in the Registration Statement. As your counsel in
connection with these transactions, we have examined the proceedings taken and
proposed to be taken in connection with the issue in sale of the shares.
It is our opinion that the shares, when issued as described in the
Registration Statement, will be legally and validly issued, fully paid, and
non-assessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement, including the prospectus constituting a part thereof
and any amendment thereto.
Sincerely,
/s/ FREDERIC DORWART
Frederic Dorwart
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 No. 333-________ and related Prospectus of BOK
Financial Corporation for the registration of 5,000,000 shares of its common
stock and to the incorporation by reference therein of our report dated January
26, 1999, with respect to the consolidated financial statements of BOK Financial
Corporation incorporated by reference in its Annual Report (Form 10-K) for the
year ended December 31, 1998, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
August 6, 1999
