2001/2000 2000/1999 Change Due To! Change Due To! Change Volume Yield/Rate Change Volume Yield/Rate Tax-equivalent interest revenue: Securities $17,329 $ 26,009 $ (8,680) $ 20,384 $11,444 $ 8,940 Trading securities (250) 226 (476) (841) (1,683) 842 Loans 1,149 88,815 (87,666) 117,643 77,933 39,710 Funds sold and resell agreements (2,133) (1,516) (617) 743 164 579 Total 16,095 113,534 (97,439) 137,929 87,858 50,071 Interest expense: Transaction deposits (5,126) 9,642 (14,768) 8,509 4,847 3,662 Savings deposits (422) 50 (472) (268) (174) (94) Time deposits 5,686 26,304 (20,618) 49,387 28,452 20,935 Borrowed funds (42,608) 15,392 (58,000) 46.962 22,154 24,808 Subordinated debenture 486 2,059 (1,573) 1,103 15 1,088 Total (41,984) 53,447 (95,431) 105,693 55,294 50,399 Tax-equivalent net interest revenue 58,079 $ 60,087 $ (2,008) 32,236 $32,564 $..(328) (Increase) decrease in tax-equivalent 527 adjustment (192) Net interest revenue $57,887 $ 32,763 Table 2 Volume/Rate Analysis (In Thousands) 4th Qtr 2001/4th Qtr 2000 Change Due To! Change Volume Yield/Rate Tax-equivalent interest revenue: Securities $ 1,534 $ 7,337 $ (5,803) Trading securities (160) 67 (227) Loans (26,211) 18,863 (45,074) Funds sold and resell agreements (703) (360) (343) Total (25,540) 25,907 (51,447) - Interest expense: Transaction deposits (5,713) 3,202 (8,915) Savings deposits (184) 55 (239) Time deposits (12,493) 2.315 (14,808) Borrowed funds (24,807) 3,494 (28,301) Subordinated debenture 97 619 (522) Total (43,100) 9,685 (52,785) Tax-equivalent net interest revenue 17,560 $16.222 $.1.338 Decrease in tax-equivalent adjustment 267 Net interest revenue $17,827 Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate onan equal basis. Since inception in 1990, BOK Financial has followed a strategy of fully utilizing its capital resources by borrowing funds in the capital markets to supplement deposit growth and to invest in securities. The primary objective of this strategy is to reduce total interest rate risk. The interest rate on these borrowed funds, which generally reacts quickly to changes in market interest rates, tends to match the effect of changes in interest rates on the loan portfolio. Interest rates earned on the securities purchased with the proceeds of these borrowed funds are affected less quickly by changes in market interest rates. The timing of changes in interest rates earned on securities more closely matches the timing of changes in interest rates paid on deposit accounts. Although this strategy frequently results in a net interest margin that falls below those normally seen in the commercial banking industry, it provides net interest revenue as well as a reduction in interest rate risk. Management estimates that this strategy resulted in a 31 basis point decrease in net interest margin for 2001. However, this strategy contributed $38.8 million to net interest revenue. Net interest margin, excluding this strategy, was 3.95% for 2001. As more fully discussed in the subsequent Market Risk Section, management employs various techniques to control, within established parameters, the interest rate and liquidity risk inherent in this strategy. The effectiveness of these strategies are reflected in the overall changes in net interest revenue due to changes in interest rates as shown in Table 2. Tax-equivalent net interest revenue for the fourth quarter of 2001 was $88.8 million compared to $71.3 million for the fourth quarter of 2000. This increase was due to the growth in average earning assets, which increased $1.4 billion or 17%. Net interest margin increased 22 basis points to 3.69% due to the effect of declining rates over the past year as discussed above. Tax-equivalent net interest revenue totaled $276.7 million for 2000 compared to $244.5 million in 1999. The increase in net interest revenue during 2000 was primarily due to an increase in average earning assets. Average earning assets increased by $1.0 billion during 2000. Additionally, the mix of earning assets improved during 2000. Average loans, which generally have higher yields than other types of earning assets. increased to 63% of earning assets in 2000 compared to 60% in 1999. These volume factors contributed $87.9 million to the increase in net interest revenue.