Business Context and Reporting Period
Company: BOK Financial Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1999
Business Overview: BOK Financial operates four principal lines of business: corporate banking, consumer banking, mortgage banking, and trust services. The company is expanding geographically into Dallas, Texas, and Albuquerque, New Mexico, while maintaining significant loan concentrations in Oklahoma, particularly in the energy, agriculture, and commercial real estate sectors.
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Net Income | $19.8 million | $16.3 million |
| Diluted EPS | $0.38 | $0.31 |
| Tangible Net Income | $22.7 million | $18.4 million |
| Net Interest Revenue | $49.9 million | $42.0 million |
| Net Interest Margin | 3.57% | 3.65% |
| Total Assets | $7.04 billion | $5.63 billion |
| Total Loans | $3.59 billion | $2.84 billion |
| Return on Average Assets | 1.19% | 1.19% |
| Return on Average Equity | 15.75% | 14.89% |
| Non-Performing Assets | $19.8 million | $24.2 million |
| Loan Loss Reserve | $68.0 million | $54.8 million |
Material Changes vs. Prior Period
- Revenue Growth: Net income increased 21% year-over-year, driven by an $8.0 million (22%) increase in fees and commissions and a $7.9 million (19%) increase in net interest revenue.
- Expense Increases: Operating expenses rose $6.4 million (11%), primarily due to the inclusion of Bank of Albuquerque operations ($6.1 million) and increased personnel costs ($4.3 million) from higher staffing and incentive compensation.
- Asset Expansion: Average earning assets grew by $1.0 billion, with average loans increasing $701 million and securities increasing $306 million.
- Margin Compression: Net interest margin decreased 8 basis points to 3.57%. This was primarily caused by the securitization sale of $100 million in high-yield automobile loans and a strategic decision to utilize borrowed funds to fund securities investments, which lowered the overall margin.
- Asset Quality: Non-performing assets decreased to $19.8 million from $24.2 million in the prior year. The reserve for loan losses increased to 1.94% of total loans.
Outlook, Risks, and Management Commentary
- Year 2000 Compliance: Management reports being ahead of FFIEC guidelines. Testing on all mission-critical IT systems is complete. Business resumption contingency plans are scheduled for completion by June 30, 1999. Costs are not expected to be significant.
- Market Risk: Interest rate sensitivity modeling indicates that a 200 basis point increase in rates would decrease the economic value of equity by $86.5 million, primarily due to the securities portfolio. A 200 basis point decrease would have a minimal impact on net income.
- Acquisitions: The acquisition of First Muskogee Bancshares, Inc. is pending regulatory approval, anticipated in the second quarter. Merger agreements were also filed for Chaparral Bancshares, Park Cities Bancshares, and Mid-Cities Bancshares.
- Accounting Changes: The company expects to adopt FAS 133 (Accounting for Derivative Instruments) effective January 1, 2000. The impact on earnings has not yet been determined.
- Geographic Concentration: Despite expansion, the loan portfolio remains subject to economic conditions in Oklahoma, with notable concentrations in the cattle industry ($190 million) and hotel industry ($113 million).
Investor Verification Checklist
- Year 2000 Readiness: Verify the completion of non-IT system testing and the validation of business resumption plans by the June 30, 1999 deadline.
- Acquisition Integration: Monitor the regulatory approval status and integration costs for the pending First Muskogee Bancshares acquisition and other filed merger agreements.
- Interest Rate Sensitivity: Assess the potential impact of rising interest rates on the $86.5 million projected decrease in economic value of equity.
- Loan Concentration Risk: Review the performance of the $190 million cattle industry and $113 million hotel industry loan portfolios given the regional economic dependence.
- FAS 133 Impact: Track the company's assessment of the financial impact of adopting Statement No. 133 in the fiscal year 2000.