Mortgage Banking Trust Services 14 Years ended December 31, 2001 2000 1999 Revenue (interest expense)from external sources $ 41,064 $ 43,433 $ 39,809 Revenue (interest expense)from internal sources 13,589 8,995 7,243 Operating expense 38,534 35,916 33,481 Net income 9,771 10,087 8,249 Average assets $475,715 $355,150 $332,297 Average equity 41,290 37,895 33,473 Return on assets 2.05% 2.84% 2.48% Return on equity 23.66 26.62 24.64 Efficiency ratio 70.51 68.51 71.16 Table 7 Trust Services (In Thousands) Years ended December 31, 2001 2000 1999 Revenue (interest expense)from external sources $ 62,664 © $44,907 $39,675 Capitalized mortgage servicing rights 22,695 11,267 11,483 Revenue (interest expense) from internal sources (20,867) (15,006) (8,296) Operating expense 47,750 37,762 39,422 Provision for impairment of mortgage servicing tights 15,551 2,900 - Gain on sales of securities, net 12,757 5,257 - Net income 8,493 3,486 2,051 Average assets $651,103 $412,219. $355,887 Average equity 50,891 32,053 32,006 Return on assets 1.30% 85% 38% Return on equity 16.69 10.88 6.41 Efficiency ratio 74.04 91.73 91.97 Table 6 Mortgage Banking (In Thousands) income of $7.8 million for 2000. See the Market Risk section of this report for additional discussion of the prepayment risk of the mortgage servicing portfolio and related hedging strategies. BOk Mortgage services approximately $6.6 billion of mortgage loans. Approximately 60% of these loans are in BOK Financial’s primary market area and 21% are in the southeastern United Sates. Information regarding stratification of the servicing portfolio by primary risk characteristics is presented in Note 8 to the Consolidated Financial Statements. BOK Financial engages in mortgage banking activities through the BOk Mortgage Division of Bank of Oklahoma. These activities include the origination, marketing and servicing of conventional and government-sponsored mortgage loans. BOk Mortgage contributed 7% of net income in 2001 compared to 3% in 2000. Mortgage banking revenue, which is included in other operating revenue, totaled $50.2 million in 2001, an increase of $13.0 million compared to 2000. Declining interest rates throughout 2001 were favorable for mortgage lending. Mortgage loans originated totaled $1.1 billion during 2001, including $562 million for home purchases and $566 million of loans refinanced. Mortgage loans originated during 2000 totaled $590 million. The increase in volume of new loans combined with improved pricing resulted in an increase in revenue from loan production to $17.8 million in 2001 compared to $4.8 million in 2000. Revenue from loan production included $22.7 million in 2001 and $11.3 million in 2000 from capitalized originated mortgage loan servicing rights. Income before taxes from loan origination and marketing activities was $12.1 million in 2001 compared to a loss of $3.1 million in- 2000. Approximately 71% of the mortgage loans originated during 2001 were in Oklahoma. The declining interest rate environment had an unfavorable effect on BOk Mortgage’s Joan servicing portfolio, as both actual and anticipated prepayments increased significantly. Total servicing revenue was $32.3 million for 2001 compared to $32.9 million for 2000. Amortization of servicing rights, which is included in operating expense, increased by $8.3 million to $23.5 million due to the higher level of prepayments. Additionally, an impairment provision of $15.6 million was recognized in 2001 for actual run-off and anticipated prepayments. Net gains from the sales of securities that have been designated as an economic hedge of the loan servicing portfolio totaled $12.8 million in 2001 and $5.3 million in 2000. These factors combined to reduce pretax income on loan servicing activities to $378 thousand during 2001 compared to pretax BOK Financial provides a wide range of trust services, including institutional, investment and retirement products and services to affluent individuals and businesses, not-for-profit organizations and governmental agencies. Trust services are primarily provided to clients in Oklahoma, Texas, Arkansas and New Mexico. Additionally, trust services include a nationally competitive, self-directed 401-k program with clients in Dallas, Chicago, New York and Los Angeles. At December 31, 2001 and 2000, trust assets with an aggregate market value of $18 billion were subject to various fiduciary arrangements. BOK Financial has sole or joint discretionary authority over $10 billion of trust assets at Decemiber 31, 2001 compared to $9 billion at the end of 2000. Trust services contributed 8% to consolidated net income for 2001 compared to 10% for 2000. Growth in trust fees was limited by the declining stock market values during 2001 on which many fees are based. Total revenue from trust services increased $2.2 million or 4% during 2001, while operating expenses increased $2:6 million or 7% due primarily to $921 thousand in personnel costs.