BOKF

Business Context and Reporting Period

Company: BOK Financial Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2000
Business Overview: BOK Financial operates primarily through its Bank of Oklahoma franchise, offering corporate banking, consumer banking, mortgage banking, and trust services. It also operates regional banks in Arkansas, Texas, and New Mexico, and maintains a securities broker-dealer subsidiary (BOSC, Inc.).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net interest revenue increased 20% ($11.3 million) quarter-over-quarter, driven by a $1.1 billion increase in average earning assets, specifically a $975 million rise in average loans. Loans now comprise 63% of average earning assets (up from 58%).
• Non-Interest Revenue: Total other operating revenue decreased $2.1 million. While fees and commissions rose 4% (driven by transaction card and trust revenue), gains on sales of assets dropped $4.0 million due to a one-time $3.6 million gain in the prior year from leasing partnership sales.
• Expense Increases: Operating expenses rose 6% ($4.2 million). This includes $2.4 million in expenses related to acquisitions consummated late in Q2 1999. Excluding acquisition impacts, personnel costs rose 2% and data processing costs rose 18% due to transaction volume.
• Loan Portfolio: Total loans increased $222 million since March 2000. Energy loans grew $64 million to $665.6 million (13% of total), and service industry loans grew $35 million.
• Asset Quality: Nonperforming assets increased to $29.3 million from $22.6 million in Q1 2000, primarily due to a commercial borrower bankruptcy. The reserve for loan losses to nonperforming loans ratio stood at 311.69%.

Outlook, Risks, and Management Commentary

• Capital Strategy: Management continues a strategy of utilizing capital markets to supplement deposit growth, which lowers the net interest margin (estimated 83 basis point decrease) but increases total net interest revenue.
• Market Risk: Interest rate sensitivity modeling indicates that a 200 basis point increase in rates would increase net interest revenue by $1.2 million over the next 12 months, while a 200 basis point decrease would reduce it by $0.6 million. Economic value of equity is more sensitive to rate decreases.
• Accounting Changes: The company expects to adopt FAS 133 (Accounting for Derivative Instruments) effective January 1, 2001, which may increase earnings volatility.
• Leasing Expansion: Equipment leasing activities expanded in Q1 2000, introducing unique credit and collateral risks. Management expects leasing revenue to continue increasing.
• Geographic Concentration: Approximately 73% of the loan portfolio is concentrated in Oklahoma, subjecting the company to regional economic conditions.

Investor Verification Checklist

• Acquisition Integration: Verify the realization of cost savings and revenue synergies from banks acquired late in 1999, which currently impact expense comparability.
• Energy Sector Exposure: Assess the credit quality of the $665.6 million energy loan portfolio (13% of total loans) given the volatility of the oil and gas industry.
• Nonperforming Assets: Monitor the trend of nonperforming assets, which rose to $29.3 million, specifically the impact of the recent commercial bankruptcy.
• Fee Revenue Volatility: Review the stability of underwriting and placement fees at BOSC, Inc., which fluctuated significantly due to transaction closings.
• Interest Rate Sensitivity: Evaluate the impact of the company's aggressive funding strategy (borrowing in capital markets) on net interest margin compression in a rising rate environment.