Business Context and Reporting Period
Company: BOK Financial Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2001
Business Overview: BOK Financial is a financial holding company operating primarily through Bank of Oklahoma, N.A., Bank of Texas, N.A., Bank of Albuquerque, N.A., and Bank of Arkansas, N.A. It also operates BOSC, Inc., a securities firm. The company serves commercial and consumer markets in Oklahoma, Texas, New Mexico, and Arkansas through five principal lines of business: corporate banking, consumer banking, mortgage banking, trust services, and regional banks.
Key Financial Metrics
| Metric | 2001 | 2000 |
|---|---|---|
| Net Income | $116.3 million | $100.1 million |
| Earnings Per Share (Diluted) | $2.01 | $1.75 |
| Total Assets | $11.13 billion | $9.75 billion |
| Total Loans (Net) | $6.19 billion | $5.44 billion |
| Total Deposits | $6.91 billion | $6.05 billion |
| Shareholders' Equity | $828.5 million | $703.6 million |
| Return on Average Assets | 1.14% | 1.15% |
| Return on Average Equity | 14.93% | 16.46% |
| Net Interest Margin | 3.64% | 3.56% |
| Nonperforming Assets | $50.7 million | $43.6 million |
| Provision for Loan Losses | $37.6 million | $17.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Net interest revenue increased 22% to $326.8 million, driven by a $1.4 billion increase in average earning assets. Fee-based revenue grew 18% to $232.1 million, representing 40% of total revenue.
- Acquisition Impact: The January 2001 acquisition of CNBT Bancshares (Houston) contributed significantly to growth in Texas, adding $184 million in loans and $366 million in deposits.
- Expense Increases: Operating expenses rose 11% to $368.8 million. This included a $15.6 million provision for impairment of mortgage servicing rights due to declining interest rates and increased prepayments.
- Loan Portfolio: Total loans grew 14% to $6.3 billion. Commercial loans increased $427 million, with notable growth in the energy sector ($988 million outstanding) and services sector ($1.1 billion).
- Capital Ratios: The company remained "well capitalized" with a Tier 1 capital ratio of 8.08% and a Total capital ratio of 11.56%.
Outlook, Risks, and Management Commentary
- Accounting Changes: The company will adopt FAS 142 (Goodwill and Other Intangible Assets) effective January 1, 2002. This will discontinue goodwill amortization, which management estimates would have increased 2001 net income to $124.6 million ($2.15 per diluted share) if applied retroactively.
- Interest Rate Risk: Management utilizes a strategy of borrowing in capital markets to supplement deposits, which reduces interest rate risk but lowers net interest margin. The company uses mortgage-backed securities as an economic hedge against mortgage servicing rights, though the hedge was less effective in Q4 2001 due to prepayment behavior changes.
- Market Expansion: The company plans to continue expanding in Texas and New Mexico and opened a commercial loan office in Denver in January 2002.
- Risks: Key risks include the impact of a slowing economy on loan charge-offs, interest rate volatility affecting mortgage servicing values, and the competitive banking environment. The company has no foreign operations.
- Dividends: Management plans to continue paying annual dividends in shares of common stock rather than cash, retaining earnings for capital growth.
Investor Verification Checklist
- Goodwill Amortization Impact: Verify the specific impact of the FAS 142 adoption on 2002 earnings and the results of the first required goodwill impairment test.
- Mortgage Servicing Hedge Effectiveness: Review the correlation between mortgage servicing rights impairment and the realized gains/losses on the hedging securities portfolio in future quarters.
- Energy Sector Exposure: Monitor the $988 million loan concentration in the energy sector, particularly given the volatility of oil and gas prices affecting borrower repayment capacity.
- Nonperforming Asset Trends: Track the ratio of nonperforming assets to total loans, which rose to 0.71% in 2001 from 0.73% in 2000, and the adequacy of the loan loss reserve (1.66% of loans).
- Uninsured Deposits: Note that uninsured deposits represented 42% of total deposits in 2001, up from 33% in 2000, indicating a shift in funding mix.