As filed with the Securities and Exchange Commission on November 3, 2008
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File No. 0-19341
BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Oklahoma 73-1373454
(State or other jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
Bank of Oklahoma Tower
P.O. Box 2300
Tulsa, Oklahoma 74192
(Address of Principal Executive Offices) (Zip Code)
(918) 588-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |X| Accelerated filer |_| Non-accelerated filer |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 67,433,837 shares of common
stock ($.00006 par value) as of September 30, 2008.
===============================================================================
2
BOK Financial Corporation
Form 10-Q
Quarter Ended September 30, 2008
Index
Part I. Financial Information
Management's Discussion and Analysis (Item 2) 2
Market Risk (Item 3) 31
Controls and Procedures (Item 4) 33
Consolidated Financial Statements - Unaudited (Item 1) 34
Nine Month Financial Summary - Unaudited (Item 2) 47
Quarterly Financial Summary - Unaudited (Item 2) 48
Part II. Other Information
Item 1. Legal Proceedings 50
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 50
Item 6. Exhibits 50
Signatures 51
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Performance Summary
BOK Financial Corporation reported earnings of $56.7 million or $0.84 per
diluted share for the third quarter of 2008. The Company reported a net loss of
$1.2 million or $.02 per diluted share for the second quarter of 2008 and net
income of $59.8 million or $0.89 per diluted share for the third quarter of
2007.
Year-to-date net income totaled $117.8 million or $1.74 per diluted share for
the nine months ended September 30, 2008 and $166.5 million or $2.46 per diluted
share for the nine months ended September 30, 2007.
As disclosed in the previous quarter's Form 10-Q, the Company recognized $87.0
million of pre-tax charges for loan and energy derivative credit exposure to
SemGroup LP in the second quarter of 2008. These charges reduced net income for
the second quarter of 2008 by approximately $57.0 million or $0.84 per diluted
share. A $19.4 million increase in the fair value of derivative contracts
related to SemGroup, partially offset by a $12.7 million write off of derivative
contracts with Lehman Brothers increased net income for the third quarter of
2008 by $4.5 million or $0.07 per diluted share.
Highlights of the third quarter of 2008 included:
o Net interest revenue totaled $164.3 million, up $5.4 million over the
second quarter of 2008 and $24.9 million over the third quarter of 2007.
Net interest margin was 3.48% for the third quarter of 2008, 3.44% for the
second quarter of 2008 and 3.27% for the third quarter of 2007. Growth in
net interest revenue and net interest margin was due largely to increased
earning assets and widening spreads.
o Fees and commission revenue totaled $126.7 million for the third quarter of
2008, $63.6 million for the second quarter of 2008 and $103.7 million for
the third quarter of 2007. Fees and commissions grew $16.9 million or 16%
over the third quarter of 2007, excluding SemGroup and Lehman related
items, due largely to brokerage and trading revenue. Fees and commissions
decreased $2.4 million, excluding SemGroup and Lehman related items, from
the second quarter of 2008.
o Combined reserves for credit losses totaled $209 million or 1.65% of
outstanding loans at September 30, 2008, up from $177 million or 1.41% of
outstanding loans at June 30, 2008. Net loans charged off and provision for
credit losses were $20.2 million and $52.7 million, respectively, for the
third quarter of 2008. Net loans charged off and provision for credit
losses were $39.0 million and $59.3 million, respectively, for the second
quarter of 2008 and $4.9 million and $7.2 million, respectively, for the
third quarter of 2007.
3
o Non-performing assets totaled $252 million or 1.98% of outstanding loans
and repossessed assets at September 30, 2008, up from $181 million or 1.45%
of outstanding loans and repossessed assets at June 30, 2008. The increase
in non-performing assets included an expected $36.0 million of unpaid
amounts due from SemGroup in settlement of funded letters of credit and
derivative contracts which terminated during the third quarter.
o The Company maintained strong Tier 1 and tangible capital ratios of 9.25%
and 7.16%, respectively, at September 30, 2008. Tier 1 and tangible capital
ratios were 8.69% and 7.15%, respectively, at June 30, 2008. The Company
paid a dividend of $15.2 million or $0.225 per common share during the
third quarter of 2008.
o On October 28, 2008, the Company's board of directors declared a dividend
of $0.225 per common share payable on December 2, 2008 to shareholders of
record as of November 14, 2008.
Results of Operations
Net Interest Revenue and Net Interest Margin
Net interest revenue totaled $164.3 million for the third quarter of 2008, up
$5.4 million over the second quarter of 2008 and $24.9 million over the third
quarter of 2007. Average earning assets for the third quarter of 2008 increased
$1.7 billion over the third quarter of 2007. Average loans, excluding
residential mortgage loans held for sale, increased $980 million and average
securities increased $745 million. Growth in the securities portfolio generally
consisted of fixed-rate mortgage backed securities issued by FNMA and FHLMC.
These securities were purchased to take advantage of widening spreads caused by
disruptions in the mortgage-backed securities market.
Growth in average earning assets was funded primarily by a $1.3 billion increase
in average deposits. Average deposits were up 10% over the third quarter of
2007. Interest-bearing transaction accounts increased $973 million and demand
deposit accounts increased $349 million. In addition to deposit growth, average
funds purchased and other borrowings increased $458 million and $509 million,
respectively.
Funds generated by growth in deposits and borrowings were also used to fund a
$437 million increase in average margin assets. Margin assets are placed by the
Company to secure its obligations under various derivative contracts. Margin
assets are generally reported as reductions of the derivative liabilities they
secure on the Company's consolidated balance sheet.
Net interest margin was 3.48% for the third quarter of 2008, 3.44% for the
second quarter of 2008 and 3.27% for the third quarter of 2007. Growth in net
interest margin compared with the third quarter of 2007 was due primarily to a
widening of the spread between LIBOR and the federal funds rate. LIBOR is the
basis for interest earned on many of our loans. The federal funds rate is the
basis for interest paid on many of our interest-bearing liabilities.
The tax-equivalent yield on earning assets was 5.55% for the third quarter of
2008, down 144 basis points from the third quarter of 2007. Loan yields
decreased 219 basis points to 5.69%. Securities portfolio yield was 5.15%, up 20
basis points over the third quarter of 2007. Our securities re-price as cash
flow received is reinvested at current market rates. The resulting change in
yield on the securities portfolio occurs more slowly and may not move in the
same direction as changes in market rates.
The cost of interest-bearing liabilities was 2.41% for the third quarter of
2008, down 198 basis points from the third quarter of 2007. The cost of interest
bearing deposits decreased 171 basis points to 2.39% and the cost of funds
purchased and other borrowings decreased 288 basis points to 2.16%. Competition
for deposits in all our markets limited our ability to move deposit rates down
as interest rates declined. The benefit to the net interest margin from earning
assets funded by non-interest bearing liabilities was 34 basis points in the
third quarter of 2008 compared with 67 basis points in the third quarter of 2007
and 30 basis points in the preceding quarter.
Management regularly models the effects of changes in interest rates on net
interest revenue. Based on this modeling, we expect net interest revenue to
decrease slightly over a one-year forward looking period. However, other factors
such as loan spread compression, deposit product mix, the overall balance sheet
composition and the previously noted changes in the spread between LIBOR and the
federal funds rate may affect this general expectation.
Our overall objective is to manage the Company's balance sheet to be relatively
neutral to changes in interest rates. Approximately two-thirds of our commercial
and commercial real estate loan portfolios are either variable rate or fixed
rate that will re-price within one year. These loans are funded primarily by
deposit accounts that are either non-interest bearing, or that re-price more
slowly than the loans. The result is a balance sheet that would be asset
sensitive, which means that assets generally re-price more quickly than
liabilities. Among the strategies that we use to achieve a
4
relatively rate-neutral position, we purchase fixed-rate, mortgage-backed
securities to offset the short-term nature of the majority of the Company's
funding sources. The liability-sensitive nature of this strategy provides an
offset to the asset-sensitive characteristics of our loan portfolio. We also use
derivative instruments to manage our interest rate risk. Interest rate swaps
with a combined notional amount of $685 million convert fixed rate liabilities
to floating rate based on LIBOR. The purpose of these derivatives is to position
our balance sheet to be relatively neutral to changes in interest rates.
The effectiveness of these strategies is reflected in the overall change in net
interest revenue due to changes in interest rates as shown in Table 1 and in the
interest rate sensitivity projections as shown in the Market Risk section of
this report.
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Table 1 - Volume / Rate Analysis
(In thousands)
Three months ended Nine months ended
September 30, 2008 / 2007 September 30, 2008 / 2007
--------------------------------------------------------------------------
Change Due To (1) Change Due To (1)
--------------------------------------------------------------------------
Yield / Yield /
Change Volume Rate Change Volume Rate
--------------------------------------------------------------------------
Tax-equivalent interest revenue:
Securities $ 13,845 $ 10,525 $ 3,320 $ 42,959 $ 32,307 $ 10,652
Trading securities 478 691 (213) 2,178 2,165 13
Loans (50,584) 16,912 (67,496) (108,054) 60,604 (168,658)
Funds sold and resell agreements (1,298) (207) (1,091) (1,692) 88 (1,780)
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Total (37,559) 27,921 (65,480) (64,609) 95,164 (159,773)
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Interest expense:
Transaction deposits (22,338) 6,469 (28,807) (47,017) 21,765 (68,782)
Savings deposits (263) (59) (204) (618) (44) (574)
Time deposits (17,626) (125) (17,501) (38,262) (6,702) (31,560)
Federal funds purchased and
repurchase agreements (17,231) 3,979 (21,210) (45,096) 12,715 (57,811)
Other borrowings (2,854) 5,039 (7,893) 2,038 26,363 (24,325)
Subordinated debentures (1,613) (1,074) (539) (2,420) 203 (2,623)
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Total (61,925) 14,229 (76,154) (131,375) 54,300 (185,675)
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Tax-equivalent net interest revenue 24,366 13,692 10,674 66,766 40,864 25,902
Change in tax-equivalent adjustment 537 453
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Net interest revenue $ 24,903 $ 67,219
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(1) Changes attributable to both volume and yield/rate are allocated to both
volume and yield/rate on an equal basis.
5
Other Operating Revenue
Other operating revenue increased $22.9 million compared with the third quarter
of 2007. Fees and commissions revenue was up $22.9 million, including a $19.4
million increase in the fair value of derivative contracts related to SemGroup
partially offset by charges of $12.7 million from the Lehman Brothers
bankruptcy. The SemGroup-related contracts were with other counterparties to
offset our exposure to commodity price changes.
Diversified sources of fees and commission revenue are a significant part of our
business strategy and generally represent 40% to 45% of our total revenue,
excluding gains and losses on asset sales, securities and derivatives. We
believe that a variety of fee revenue sources provide an offset to changes in
interest rates, values in the equity markets, commodity prices and consumer
spending, all of which can be volatile.
Fees and commissions revenue
Brokerage and trading revenue was $30.8 million for the third quarter of 2008,
up $15.3 million over the third quarter of 2007. Excluding the net effect of
transactions related to SemGroup and Lehman Brothers from the third quarters of
2008 and 2007, brokerage and trading revenue increased $9.3 million or 62%.
Revenue from trading and institutional securities sales totaled $10.6 million
for the third quarter of 2008, up $5.2 million over the third quarter of 2007.
Customer hedging revenue, excluding SemGroup and Lehman Brothers, totaled $7.0
million for the third quarter of 2008, up $3.3 million over the third quarter of
2007. The Company is currently modifying the terms of its customer hedging
program, which may affect future revenue.
Brokerage and trading revenue, excluding SemGroup and Lehman Brothers, increased
$884 thousand compared to the second quarter of 2008. Revenue from trading and
institutional securities sales decreased $1.0 million and customer hedging
revenue increased $3.0 million. Retail brokerage fees totaled $5.0 million for
the third quarter of 2008, down $1.2 million from the previous quarter.
Transaction card revenue totaled $25.6 million for the third quarter of 2008, up
$1.8 million or 8% over the third quarter of 2007. ATM network revenue increased
$1.0 million or 10% and check card revenue increased $971 thousand or 16%.
Merchant discount fees were down $182 thousand or 3%. Transaction card revenue
decreased $154 thousand or 2% annualized compared with the second quarter of
2008. Check card revenue was down $113 thousand or 6% annualized due to a
general slow-down of consumer spending.
Trust fees and commissions totaled $20.1 million for the third quarter of 2008,
an increase of $467 thousand or 2% over the third quarter of 2007. The fair
value of all trust assets which is the basis for a significant portion of trust
revenue totaled $33.2 billion at September 30, 2008 and $34.9 billion at
September 30, 2007. The decrease in the fair value of trust assets primarily
affected personal trust management fees and mutual fund fees. Personal trust
management fees, which provide 29% of total trust fees and commissions decreased
$101 thousand or 2% compared with 2007. Net fees from mutual fund advisory and
administrative services which provide 20% of total trust fees and commissions
decreased $150 thousand or 4%. Revenue from management of oil and gas properties
increased $1.0 million compared with the third quarter of 2007 due to higher
energy prices. Employee benefit plan management fees, which provide 18% of total
trust fees and commissions, increased $462 thousand or 15%.
Trust fees and commissions decreased $841 thousand or 16% annualized compared
with the second quarter of 2008. The fair value of all trust assets managed
totaled $34.4 billion at June 30, 2008 or 3% more than the fair value of all
trust assets at September 30, 2008 due to market conditions. Personal trust
revenue decreased $1.0 million. Net fees from mutual fund advisory and
administrative services decreased $463 thousand.
Deposit service charges and fees totaled $30.4 million for the third quarter of
2008, up $2.5 million or 9% over the third quarter of 2007. Overdraft fees grew
$1.2 million or 6%. Service charges on retail accounts decreased $51 thousand or
4% due to continued migration to service charge free checking products.
Commercial deposit account fees were up $1.4 million or 19% over the same period
of 2007 due to a decrease in earnings credit available to commercial deposit
customers and an increase in service charges for higher deposit insurance costs.
The earnings credit, which provides a non-cash method for commercial customers
to avoid incurring charges for deposit services, decreases when interest rates
fall. Deposit service charges increased $205 thousand or 3% annualized compared
with the second quarter of 2008. Overdraft fees were up $911 thousand.
Commercial deposit account fees were down $684 thousand.
Mortgage banking revenue was up $421 thousand or 7% compared with 2007.
Servicing revenue totaled $4.4 million, up $196 thousand or 5%. The outstanding
principal balance of mortgage loans serviced for others totaled $5.1 billion at
September 30, 2008 and $4.8 billion at September 30, 2007. Net gains on mortgage
loans sold totaled $1.8 million, up $223 thousand over the third quarter of
2007. Mortgage loans originated for sale in the secondary market totaled $258
million for the third quarter of 2008, up 5% over the same period in 2007.
6
Margin asset fees totaled $1.9 million in the third quarter of 2008 and $1.1
million in the third quarter of 2007. Margin assets which are placed by the
Company to secure its obligations under customer derivatives programs averaged
$532 million for the third quarter of 2008, compared with $95 million for the
third quarter of 2007. The increase in revenue earned on margin assets is offset
by a decrease in net interest revenue due to the costs to fund the margin
assets.
Securities and derivatives
Net gains and losses on securities consisted of the following (in thousands):
Three Months Ended
September 30, June 30, September 30,
2008 2008 2007
---- ---- ----
Gain on portfolio securities $ 917 $ 276 $ 21
Gain on Mastercard IPO securities - - 1,073
Gain (loss) on mortgage hedge securities 1,186 (5,518) 3,654
------- -------- --------
Net gain (loss) on securities $2,103 $(5,242) $ 4,748
====== ======== =======
BOK Financial recognized net gains of $2.1 million on securities for the third
quarter of 2008, net gains on securities of $4.7 million for the third quarter
of 2007 and net losses on securities of $5.2 million for the second quarter of
2008. Mortgage hedge securities held as an economic hedge of the changes in fair
value of mortgage servicing rights are carried at fair value. Changes in fair
value of these securities are recognized in earnings as they occur.
Net gains on derivatives totaled $4.4 million for the third quarter of 2008 and
$865 thousand for the third quarter of 2007. Net gains or losses on derivatives
consist of fair value adjustments of all derivatives used to manage interest
rate risk and the related hedged liabilities when adjustments are permitted by
generally accepted accounting principles. Derivative instruments generally
consist of interest rate swaps where the Company pays a variable rate based on
LIBOR and receives a fixed rate. The fair value of these swaps generally
decreases as interest rates rise and increase in value as interest rates fall.
The Company adopted Statement of Financial Accounting Standards No. 159, Fair
Value Option ("FAS 159") effective January 1, 2008. FAS 159 provides an option
to measure eligible financial assets and financial liabilities at fair value.
Certain certificates of deposit that were either currently designated as hedged
or had previously been designated as hedged, but no longer met the correlation
requirements of Statement of Financial Accounting Standards No. 133 were
designated as being reported at fair value when FAS 159 was first adopted. In
addition, certain certificates of deposit issued subsequent to the adoption of
FAS 159 have been designated as reported at fair value. This determination is
made when the certificates of deposit are issued based on the Company's intent
to swap the interest rate on the certificates from a fixed rate to a LIBOR-based
variable rate. The fair value of these fixed-rate certificates of deposit
generally increases as interest rates fall.
7
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Table 2 - Other Operating Revenue
(In thousands)
Three Months Ended
-------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
-------------------------------------------------------------------------------
Brokerage and trading revenue $ 30,846 $ (35,462) $ 23,913 $ 20,402 $ 15,541
Transaction card revenue 25,632 25,786 23,558 23,512 23,812
Trust fees and commissions 20,100 20,940 20,796 20,145 19,633
Deposit service charges and fees 30,404 30,199 27,686 29,938 27,885
Mortgage banking revenue 6,230 7,198 7,217 6,912 5,809
Bank-owned life insurance 2,829 2,658 2,512 2,614 2,520
Margin asset fees 1,934 4,460 1,967 2,012 1,061
Other revenue 8,691 7,824 6,215 7,819 7,456
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Total fees and commissions 126,666 63,603 113,864 113,354 103,717
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Gain (loss) on sales of assets (839) 216 (35) (1,316) 42
Gain (loss) on securities, net 2,103 (5,242) 4,620 (6,251) 4,748
Gain (loss) on derivatives, net 4,366 (2,961) 2,113 1,529 865
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Total other operating revenue $ 132,296 $ 55,616 $ 120,562 $ 107,316 $ 109,372
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Other Operating Expense
Other operating expense for the third quarter of 2008 totaled $164.3 million, up
$13.3 million or 9% over the third quarter of 2007. Personnel costs increased
$1.7 million or 2%. Non-personnel expenses increased $11.5 million or 18% due
largely to higher deposit insurance costs and losses on mortgage loans sold with
recourse. In addition, the Company accrued $1.7 million in the third quarter of
2008 to recognize its additional contingent obligation to support Visa's
antitrust litigation costs. This amount is expected to reverse in future periods
when Visa issues additional common shares to provide additional funds to its
litigation escrow account.
Personnel expense
Personnel expense totaled $87.5 million for the third quarter of 2008 and $85.8
million for the third quarter of 2007, including personnel expense of $2.5
million for net workforce reduction costs. Regular compensation, which consists
of salaries and wages, overtime pay and temporary personnel costs totaled $55.4
million, up $1.8 million or 3% over the third quarter of 2007. The increase in
regular compensation expense was due primarily to an increase in average regular
compensation per full time equivalent employee. Average staffing levels were
down 4% over the third quarter of last year.
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Table 3 - Personnel Expense
(Dollars in thousands)
Three Months Ended
----------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
----------------------------------------------------------------------------------
Regular compensation $ 55,435 $ 54,024 $ 52,576 $ 52,316 $ 53,592
Incentive compensation:
Cash-based 20,110 19,503 19,287 19,568 15,559
Stock-based 68 2,760 2,272 1,794 2,345
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Total incentive compensation 20,178 22,263 21,559 21,362 17,904
Employee benefits 11,936 13,310 13,971 10,834 11,816
Workforce reduction costs, net - - - - 2,499
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Total personnel expense $ 87,549 $ 89,597 $ 88,106 $ 84,512 $ 85,811
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Number of employees
(full-time equivalent) 4,231 4,137 4,135 4,110 4,299
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Incentive compensation increased $2.3 million or 13% to $20.2 million compared
to the third quarter of 2007. Expense for cash-based incentive compensation
plans increased $4.6 million or 29%. These plans are either intended to provide
current rewards to employees who generate long-term business opportunities to
the Company based on growth in loans, deposits, customer relationships and other
measurable metrics or intended to compensate employees with commissions on
completed transactions. The increase in cash-based incentive compensation over
the third quarter of 2007 included a
8
$2.8 million increase in commissions related to brokerage and trading revenue.
The Company also provides stock-based incentive compensation plans. Stock-based
compensation plans include both equity and liability awards. Compensation
expense related to liability awards decreased $2.7 million compared with the
second quarter of 2008. This decrease reflected changes in the market value of
BOK Financial common stock and other investments. The market value of BOK
Financial common stock decreased $5.04 per share in the third quarter of 2008
and decreased $2.01 per share in the third quarter of 2007. Compensation expense
for equity awards increased $371 thousand or 30% compared with the third quarter
of 2007. Expense for equity awards is based on the grant-date fair value of the
awards and is unaffected by subsequent changes in fair value.
Employee benefit expense totaled $11.9 million, a $120 thousand or 1% increase
over the third quarter of 2007. Medical insurance costs were down $353 thousand
or 8%. The Company self-insures a portion of its employee health care coverage.
Personnel expense decreased $2.0 million compared with the second quarter of
2008 due to lower incentive compensation and employee benefit expenses.
Stock-based incentive compensation decreased $2.7 million due to lower cost of
liability awards. Employee benefit expense decreased $1.4 million due primarily
to seasonally lower payroll tax expense.
Data processing and communications expense
Data processing and communications expense totaled $19.9 million, up $1.6
million or 9% over the third quarter of 2007. This expense consists of two broad
categories, data processing systems and transaction card processing. Data
processing systems costs increased $1.5 million or 14% due to growth in
processing volumes. Transaction card processing costs increased $145 thousand or
2% due to growth in processing volume.
Other operating expenses
Occupancy and equipment expenses totaled $15.6 million for the third quarter of
2008, up $818 thousand or 6% over 2007. Growth in occupancy expense was due to 3
new branch locations added in the past year. Insurance expense increased $1.7
million compared to the third quarter of 2007 due to an increase in FDIC
insurance premiums. A one-time credit granted to eligible depository
institutions by the Federal Deposit Insurance Reform Act of 2005 to offset
deposit insurance premiums was largely used in 2007. The Company expects higher
deposit insurance expense as recently-announced increases in deposit insurance
premiums and other Treasury Department initiatives become effective.
Mortgage banking costs included a $1.4 million increase in provision for losses
on residential mortgage loans sold with recourse. The Company's obligation to
repurchase these loans is more-fully discussed in the Loan Commitments section
of this report.
Subsequent to September 30, 2008, Visa and Mastercard announced that they had
reached an agreement in principal to settle antitrust litigation with Discover
Financial Services for approximately $2.8 billion. Management has estimated its
additional obligation for this settlement under Visa's retrospective
responsibility plan to be approximately $1.7 million. Management expects that
this accrual will be offset in future periods as Visa issues additional Class A
shares to provide funds for its litigation escrow account.
9
----------------------------------------------------------------------------------------------------------------------
Table 4 - Other Operating Expense
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
----------------------------------------------------------------------------------
Personnel $ 87,549 $ 89,597 $ 88,106 $ 84,512 $ 85,811
Business promotion 5,837 5,777 4,639 6,528 5,399
Professional fees and services 6,501 6,973 5,648 6,209 5,749
Net occupancy and equipment 15,570 15,100 15,061 15,466 14,752
Insurance 2,436 2,626 3,710 843 759
Data processing & communications 19,911 19,523 18,893 19,086 18,271
Printing, postage and supplies 4,035 4,156 4,419 4,221 4,201
Net (gains) losses and operating
expenses of repossessed assets (136) (229) 378 120 172
Amortization of intangible assets 1,884 1,885 1,925 2,382 2,397
Mortgage banking costs 5,811 6,054 5,681 4,225 3,877
Change in fair value of mortgage
servicing rights 5,554 767 1,762 3,344 3,446
Visa retrospective responsibility
obligation 1,700 - (2,767) 2,767 -
Other expense 7,638 7,039 5,949 8,024 6,184
---------------------------------------------------------------------------------------------------------------------
Total other operating expense $ 164,290 $ 159,268 $ 153,404 $ 157,727 $ 151,018
---------------------------------------------------------------------------------------------------------------------
Income Taxes
Income tax expense was $23.0 million or 29% of book taxable income for the third
quarter of 2008 compared with $30.8 million or 34% of book taxable income for
the third quarter of 2007. The statute of limitations expired on an uncertain
tax position and the Company adjusted its current income tax liability to
amounts on filed tax returns for 2007 during the third quarter of 2008. Income
tax expense would have been $26.6 million or 33% of book taxable income for the
third quarter of 2008, excluding these items.
BOK Financial operates in numerous jurisdictions, which requires judgment
regarding the allocation of income, expense and earnings under various laws and
regulations of each of these taxing jurisdictions. Each jurisdiction may audit
our tax returns and may take different positions with respect to these
allocations. The reserve for uncertain tax positions was approximately $11.7
million at September 30, 2008.
Lines of Business
BOK Financial operates five principal lines of business: Oklahoma corporate
banking, Oklahoma consumer banking, mortgage banking, wealth management, and
regional banking. Mortgage banking activities include loan origination and
servicing across all markets served by the Company. Wealth management provides
brokerage and trading, private financial services and investment advisory
services in all markets. It also provides fiduciary services in all markets
except Colorado. Fiduciary services in Colorado are included in regional
banking. Regional banking consists primarily of corporate and consumer banking
activities in the respective local markets.
In addition to its lines of business, BOK Financial has a funds management unit.
The primary purpose of this unit is to manage the Company's overall liquidity
needs and interest rate risk. Each line of business borrows funds from and
provides funds to the funds management unit as needed to support their
operations. Operating results for Funds Management and Other include the effect
of interest rate risk positions and risk management activities, the provision
for credit losses, tax-exempt income and tax credits and certain executive
compensation costs that are not attributed to the lines of business.
BOK Financial allocates resources and evaluates performance of its lines of
business after allocation of funds, certain indirect expenses, taxes and capital
costs. The cost of funds borrowed from the funds management unit by the
operating lines of business is transfer priced at rates that approximate market
for funds with similar duration. Market is generally based on the applicable
LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of
transfer-pricing funds that support assets of the operating lines of business
tends to insulate them from interest rate risk.
The value of funds provided by the operating lines of business to the funds
management unit is based on applicable
10
Federal Home Loan Bank advance rates. Deposit accounts with indeterminate
maturities, such as demand deposit accounts and interest-bearing transaction
accounts, are transfer-priced at a rolling average based on expected duration of
the accounts. The expected duration ranges from 90 days for certain
rate-sensitive deposits to five years.
Economic capital is assigned to the business units by a capital allocation model
that reflects management's assessment of risk. This model assigns capital based
upon credit, operating, interest rate and market risk inherent in our business
lines and recognizes the diversification benefits among the units. The level of
assigned economic capital is a combination of the risk taken by each business
line, based on its actual exposures and calibrated to its own loss history where
possible. Additional capital is assigned to the regional banking line of
business based on our investment in those entities. Return on economic capital
excludes amortization of intangible assets.
The increase in contribution to net income provided by the Oklahoma Corporate
Banking Division was due primarily to a $19.4 million increase in the fair value
of derivative contracts related to SemGroup. The decrease in contribution to net
income provided by the Regional Banking Division was due to increased net loans
charged off, primarily in the Arizona market.
------------------------------------------------------ -------------------------------- --------------------------------
Table 5 - Net Income by Line of Business
(In thousands) Three months ended Sept. 30, Nine months ended Sept. 30,
2008 2007 2008 2007
---------------- --------------- ---------------- ---------------
Regional banking $ 11,854 $ 21,798 $ 53,634 $ 70,853
Oklahoma corporate banking 34,125 21,694 16,720 58,754
Mortgage banking (2,352) 503 (6,844) 671
Oklahoma consumer banking 7,052 9,270 23,934 27,810
Wealth management 9,380 6,166 29,275 20,214
------------------------------------------------------ ---------------- --------------- ---------------- ---------------
Subtotal 60,059 59,431 116,719 178,302
Funds management and other (3,374) 417 1,070 (11,798)
------------------------------------------------------ ---------------- --------------- ---------------- ---------------
Total $ 56,685 $ 59,848 $117,789 $166,504
------------------------------------------------------ ---------------- --------------- ---------------- ---------------
Oklahoma Corporate Banking
The Oklahoma Corporate Banking Division provides loan and lease financing and
treasury and cash management services to businesses throughout Oklahoma and
certain relationships in surrounding states. In addition to serving the banking
needs of small businesses, middle market and larger customers, this Division has
specialized groups that serve customers in the energy, agriculture, healthcare
and banking/finance industries, and includes the TransFund network. The Oklahoma
Corporate Banking Division contributed $34.1 million to net income for the third
quarter of 2008, up from $21.7 million for the third quarter of 2007. This
Division recognized a $53.0 million after-tax loss in the second quarter of 2008
on loans and derivative contracts with SemGroup. During the third quarter of
2008, the fair value of certain derivative contracts related to SemGroup
increased by $19.4 million due to falling energy prices. The change in fair
value of these contracts increased net income after taxes by $11.9 million for
the third quarter of 2008. The increase in fair value of derivative contracts is
included in Other Operating Revenue. Excluding changes in the fair value of
these contracts, the Oklahoma Corporate Banking Division's net income for the
third quarter of 2008 was $22.3 million, up $585 thousand over the third quarter
of 2007.
Net interest revenue increased $829 thousand or 2% compared to the third quarter
of 2007. Average earnings assets attributed to this division increased $151
million or 3% over the third quarter of 2007 to $4.7 billion. Average loans
increased $23 million or 1% to $4.4 billion. Average commercial loans decreased
$25 million or 1%. The decrease in average commercial loans was offset by a $38
million increase in average consumer loans, primarily indirect automobile loans,
and a $13 million increase in average real estate loans. Average funds provided
to the funds management unit by the Oklahoma Corporate Banking Division
increased $104 million due to deposit growth.
Operating revenue increased $3.3 million, excluding changes in the fair value of
SemGroup related derivative contracts. Operating revenue provided by TransFund
increased $1.1 million or 12% and service charges on commercial deposit accounts
were up $495 thousand or 9%. Fees received from standby letters of credit were
up $404 thousand or 20% over the third quarter of 2007. Operating expenses,
which consist primarily of personnel and data processing costs, increased $2.6
million or 9%.
11
Table 6 - Oklahoma Corporate Banking
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- --- ------------- -- -------------- -- -------------
NIR (expense) from external sources $ 48,311 $ 62,144 $ 150,186 $ 184,822
NIR (expense) from internal sources (8,777) (23,439) (39,286) (69,341)
------------- ------------- -------------- -------------
Net interest revenue 39,534 38,705 110,900 115,481
Other operating revenue 46,870 24,174 36,566 68,627
Operating expense 31,116 28,532 91,248 84,443
Gains on financial instruments, net - 1,073 4,689 1,073
Net loans charged off (recovered) (512) (33) 33,932 4,611
Net income 34,125 21,694 16,720 58,754
Average assets $ 6,460,061 $ 5,743,011 $ 6,232,829 $ 5,746,449
Average economic capital 475,380 405,620 443,780 406,340
Return on assets 2.10% 1.50% 0.36% 1.37%
Return on economic capital 28.56% 21.22% 5.03% 19.33%
Efficiency ratio 36.01% 45.38% 61.88% 45.87%
Oklahoma Consumer Banking
The Oklahoma Consumer Banking Division provides a full line of deposit, loan and
fee-based services to customers throughout Oklahoma through four major
distribution channels: traditional branches, supermarket branches, the 24-hour
ExpressBank call center and the Internet. Additionally, the division is a
significant referral source for the Bank of Oklahoma Mortgage Division and
BOSC's retail brokerage division. Consumer banking services are offered through
36 locations in Tulsa, 32 locations in Oklahoma City and 15 locations throughout
the state. Two locations are scheduled to open in the fourth quarter of 2008.
The Oklahoma Consumer Banking Division contributed net income of $7.1 million
for the third quarter of 2008, compared to net income of $9.3 million for the
third quarter of 2007. Net interest revenue decreased $2.8 million or 15% over
2007 due primarily to a decrease in the internal transfer pricing credit.
Average loans attributed to the Oklahoma Consumer Banking Division in 2008
increased $17 million or 6% compared with 2007. Average deposits provided by the
Oklahoma Consumer Banking Division grew $109 million or 4% to $3.0 billion.
Average demand deposits were up $44 million or 13% over 2007. Interest bearing
deposits increased $65 million or 3%, including a $213 million or 21% increase
in interest bearing transaction accounts and a $152 million or 10% decrease in
time deposits.
Other operating revenue was up $1.0 million or 5% over 2007 largely from check
card revenue and overdraft fees. Operating expenses increased $2.0 million or 9%
over 2007, including a $514 thousand or 6% increase in personnel expense and a
$1.5 million or 14% increase in non-personnel expense. Net loans charged-off,
which consist primarily of overdrawn deposit accounts, totaled $835 thousand for
the third quarter of 2008 and $1.0 million for the third quarter of 2007.
Table 7 - Oklahoma Consumer Banking
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ (10,812) $ (17,497) $ (37,208) $ (51,388)
NIR (expense) from internal sources 26,455 35,899 85,270 106,338
------------- ------------- -------------- -------------
Net interest revenue 15,643 18,402 48,062 54,950
Other operating revenue 20,991 19,975 60,933 57,183
Operating expense 24,258 22,242 69,619 64,624
Gains on financial instruments, net - - 1,576 -
Net loans charged off 835 1,005 1,799 2,067
Net income 7,052 9,270 23,934 27,810
Average assets $ 3,044,296 $ 2,936,051 $ 3,023,757 $ 2,923,662
Average economic capital 60,340 63,540 60,020 61,660
Return on assets 0.92% 1.25% 1.06% 1.27%
Return on economic capital 46.49% 57.88% 53.27% 60.30%
Efficiency ratio 66.22% 57.96% 63.87% 57.63%
12
Mortgage Banking
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 incurred a net loss of $2.4 million in the third quarter of 2008
compared to net income of $504 thousand in the third quarter of 2007. Changes in
the fair value of mortgage servicing rights, net of hedging activity, reduced
net income $2.7 million in 2008 and increased net income $127 thousand in 2007.
In addition, an increase in the provision for off-balance sheet credit risk on
mortgage loans sold with recourse reduced net income $1.3 million in the third
quarter of 2008 and $500 thousand for the third quarter of 2007.
Mortgage banking activities consisted primarily of two sectors, loan production
and loan servicing. The loan production sector generally performs best when
mortgage rates are relatively low and loan origination volumes are high.
Conversely, the loan servicing sector generally performs best when mortgage
rates are relatively high and prepayments are low. The Mortgage Banking Division
also holds a permanent portfolio of $468 million of residential mortgage loans
which generated net income of $513 thousand in the third quarter of 2008.
Loan Production Sector
Pre-tax losses from loan production totaled $1.0 million for the third quarter
of 2008 and $201 thousand for the third quarter of 2007. Loan production revenue
totaled $2.9 million in third quarter of 2008, including $5.1 million of
capitalized mortgage servicing rights, partially offset by net losses on
mortgage loans sold. Loan production revenue totaled $5.0 million in third
quarter of 2007. Capitalized mortgage servicing rights totaled $4.0 million. The
average initial fair value of servicing rights on mortgage loans funded was
1.47% for the third quarter of 2008 and 1.30% for the third quarter of 2007.
Mortgage loans funded totaled $347 million in third quarter of 2008 and $305
million in the third quarter of 2007. Approximately 55% and 20% of the loans
funded during the third quarter of 2008 were in Oklahoma and Texas,
respectively. The pipeline of mortgage loan applications totaled $507 million at
September 30, 2008, compared to $517 million at June 30, 2008 and $323 million
at September 30, 2007. Operating expenses, excluding direct loan production
costs which are recognized as part of the gain or loss on loans sold, totaled
$5.2 million in 2008 and $5.6 million in 2007.
Loan Servicing Sector
The loan servicing sector had a pre-tax loss of $3.4 million for the third
quarter of 2008 compared with pre-tax income of $467 thousand for the third
quarter of 2007. We recognized a net pre-tax loss of $4.4 million in the third
quarter of 2008 compared with a net pre-tax gain of $208 thousand in 2007 from
changes in the value of mortgage servicing rights and economic hedging
activities.
Servicing revenue, including revenue on loans serviced for affiliates, totaled
$5.0 million in third quarter of 2008 compared to $4.7 million in the same
period of 2007. The average outstanding balance of loans serviced, including
loans serviced for affiliates, was $5.8 billion during the third quarter of 2008
compared to $5.4 billion during 2007. Servicing revenue per outstanding loan
principal was 35 basis points in 2008 compared with 36 basis points in 2007.
Servicing costs totaled $2.2 million for the third quarter of 2008 and $1.9
million for the third quarter of 2007. At September 30, 2008, the total number
of loans serviced by BOk Mortgage totaled 57,970. Serviced loans delinquent 90
days or more or in process of foreclosure totaled 682 or 1.18% of the number of
loans serviced; 404 of these loans are in Oklahoma, 90 are in Arkansas, 59 are
in Kansas / Missouri and 35 are in Texas.
13
Table 8 - Mortgage Banking
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 11,362 $ 9,833 $ 34,898 $ 26,177
NIR (expense) from internal sources (8,000) (8,620) (25,827) (23,163)
------------- ------------- -------------- -------------
Net interest revenue 3,362 1,213 9,071 3,014
Capitalized mortgage servicing rights 5,092 3,964 15,406 9,879
Other operating revenue 2,073 5,822 7,791 16,417
Operating expense 9,632 10,133 30,491 26,447
Change in fair value of mortgage servicing
rights 5,554 3,446 8,083 (451)
Gains (losses) on financial instruments, net 1,186 3,654 (4,141) (1,773)
Net loans charged off 353 249 659 440
Net income (loss) (2,352) 503 (6,844) 671
Average assets $ 905,650 $ 770,608 $ 892,884 $ 692,854
Average economic capital 34,140 24,990 27,790 25,630
Return on assets (1.03)% 0.26% (1.02)% 0.13%
Return on economic capital (27.41)% 7.99% (32.90)% 3.50%
Efficiency ratio 91.50% 92.13% 94.49% 90.23%
BOK Financial designated a portion of its securities portfolio as an economic
hedge against the risk of changes in the fair value of its mortgage servicing
rights. These securities, which are identified as mortgage trading securities
are carried at fair value. Changes in fair value are recognized in earnings as
they occur. Additionally, mortgage-related derivative contracts may also be
designated as an economic hedge of the risk of loss on mortgage servicing
rights. Because the fair values of these instruments are expected to vary
inversely to the fair value of the servicing rights, they are expected to
partially offset risk. No special hedge accounting treatment is applicable to
either the mortgage servicing rights or the financial instruments designated as
an economic hedge.
Our hedging strategy presents certain risks. A well-developed market determines
the fair value for the securities and derivatives, however there is no
comparable market for mortgage servicing rights. Therefore, the computed change
in value of the servicing rights for a specified change in interest rates may
not correlate to the change in value of the securities.
At September 30, 2008, financial instruments with a fair value of $198 million
were held for the economic hedge program. The interest rate sensitivity of the
mortgage servicing rights and securities held as a hedge is modeled over a range
of +/- 50 basis points. At September 30, 2008, the pre-tax results of this
modeling on reported earnings were:
Table 9 - Interest Rate Sensitivity - Mortgage Servicing
(Dollars in Thousands)
50 bp increase 50 bp decrease
Anticipated change in:
Fair value of mortgage servicing rights $ 4,498 $ (4,927)
Fair value of hedging instruments (4,649) 3,697
----------------- ----------------
Net $ (151) $ (1,230)
----------------- ----------------
Table 9 shows the non-linear effect of changes in mortgage commitment rates on
the value of mortgage servicing rights. A 50 basis point increase in rates is
expected to increase the fair value of our servicing rights $4.5 million while a
50 basis point decrease is expected to reduce the fair value $4.9 million. This
considers that there is an upper limit to appreciation in the value of servicing
rights as rates rise due to the contractual repayment terms of the loans and
other factors. There is much less of a limit of the speed at which mortgage
loans may prepay in a declining rate environment.
Modeling changes in the value of mortgage servicing rights due to changes in
interest rates assumes stable relationships between mortgage commitment rates
and discount rates used to determine the present value of future cash flows. It
also assumes a stable relationship between the assumed loan prepayment speeds
and actual prepayments of our loans. Changes in market conditions can increase
or decrease the discount spread over benchmark rates expected by investors in
mortgage servicing rights and actual prepayments may increase or decrease due to
factors other than changes in interest rates. These factors and others may cause
changes in the value of our mortgage servicing rights to differ from our
expectations.
14
Wealth Management
BOK Financial provides a wide range of financial services through its wealth
management line of business, including trust and private financial services, and
brokerage and trading activities. This line of business includes the activities
of BOSC, Inc., a registered broker / dealer and Cavanal Hill Investment
Management, Inc., an SEC-registered investment advisor.
Trust and private financial services includes sales of institutional, investment
and retirement products, loans and other services to affluent individuals,
businesses, not-for-profit organizations, and governmental agencies. Trust
services are provided primarily to clients throughout Oklahoma, Texas and New
Mexico. Additionally, trust services include a nationally competitive,
self-directed 401-(k) program and provides administrative and advisory services
to the American Performance family of mutual funds. Brokerage and trading
activities within the wealth management line of business consists of retail
sales of mutual funds, securities, and annuities, institutional sales of
securities and derivatives, bond underwriting and other financial advisory
services and customer risk management programs.
Wealth Management contributed net income of $9.4 million in the third quarter of
2008. This compared to net income of $6.2 million in the third quarter of 2007.
Growth in net income was due primarily to increased revenue from trading and
institutional securities sales. Net income for the third quarter of 2007 was
decreased $1.4 million for the after-tax cost of the settlement of certain
matters with the American Performance Funds. Net income for the Wealth
Management Division for the third quarter of 2008 increased $1.9 million or 25%
over the same period of 2007, excluding this settlement cost.
Trust fees and commissions for the Wealth Management line of business totaled
$17.5 million, up $501 thousand or 3% increase over last year. At September 30,
2008 and 2007, the Wealth Management line of business was responsible for trust
assets with aggregate market values of $30.4 billion and $31.8 billion,
respectively, under various fiduciary arrangements. The change in trust assets
reflected lower market value of assets managed partially offset by new business
generated during the year. We have sole or joint discretionary authority over
$11.5 billion of trust assets at September 30, 2008 compared to $11.8 billion of
trust assets at September 30, 2007. The fair value of non-managed assets was
$11.8 billion at September 30, 2008 and $12.2 billion at September 30, 2007.
Assets held in safekeeping totaled $7.1 billion at September 30, 2008.
Brokerage and trading activities provided $4.6 million of the Wealth Management
Division's net income in the third quarter of 2008 compared to $2.5 million in
2007. Trading fees and commissions revenue increased $5.8 million due primarily
to a $4.1 million increase in revenue from institutional securities and a $1.7
million increase in customer derivative revenue. Operating expenses, which
consist primarily of compensation expense increased $2.4 million or 18%.
Incentive compensation expense which is directly related to revenue growth was
up $2.6 million.
Table 10 - Wealth Management
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 6,697 $ 3,398 $ 17,603 $ 11,404
NIR (expense) from internal sources (1,075) 4,775 (1,410) 13,669
------------- ------------- -------------- -------------
Net interest revenue 5,622 8,173 16,193 25,073
Other operating revenue 43,748 35,785 135,156 98,275
Operating expense 34,022 31,466 102,234 87,470
American Performance Fund settlement - 2,232 - 2,232
Net loans charged off (recovered) (3) 168 1,196 575
Net income 9,380 6,166 29,275 20,214
Average assets $ 2,848,047 $ 1,907,534 $ 2,705,409 $ 1,791,883
Average economic capital 156,840 155,270 147,700 156,430
Return on assets 1.31% 1.28% 1.45% 1.51%
Return on economic capital 23.79% 15.76% 26.48% 17.28%
Efficiency ratio 68.91% 71.58% 67.55% 70.91%
15
Regional Banking
Regional banking consists primarily of the corporate and commercial banking
services provided by Bank of Texas, Bank of Albuquerque, Bank of Arkansas,
Colorado State Bank and Trust, Bank of Arizona and Bank of Kansas City in their
respective markets. It also includes fiduciary services provided by Colorado
State Bank and Trust. Small businesses and middle-market corporations are the
regional banks' primary customer focus. Regional banking contributed net income
of $11.9 million during the third quarter of 2008. This compares with net income
of $21.8 million during the third quarter of 2007. Net loans charged off at the
regional banks totaled $19.2 million in the third quarter of 2008, including
$10.8 million in Arizona and $5.0 million in Colorado. Net loans charged off at
the regional banks totaled $3.5 million in the third quarter of 2007.
Net losses from banking operations in the Arizona market totaled $6.1 million
for the third quarter of 2008, compared with net income of $142 thousand for the
third quarter of 2007. Net loans charged off were $10.8 million, up $10 million
over the third quarter of 2007. Substantially all of the third quarter's net
loans charged off were residential development, construction and related land
loans. Charge offs of two loans in the Tucson market totaled $6.1 million.
Management has reviewed substantially all loans and loan commitments during the
third quarter and has reorganized loan production staff in the Tucson market.
Net losses from banking operations in the Colorado market totaled $658 thousand
for the third quarter of 2008, compared with net income of $3.2 million for the
third quarter of 2007. Net loans charged off were $5.0 million, compared with a
net recovery of $9 thousand in the third quarter of 2007. A single real estate
credit comprised substantially all of the third quarter of 2008 charge off.
Average loans in the Colorado market increased $123 million or 16% over the
third quarter of 2007. Average commercial loans and average commercial real
estate loans were up $62 million and $60 million, respectively. Average deposits
decreased $58 million. Average time deposits decreased $147 million and average
interest-bearing transaction and savings deposits increased $75 million. Average
demand deposits were up $15 million.
Net income provided by Texas operations was $12.0 million for the third quarter
of 2008 a $937 thousand decrease from the third quarter of 2007. Net loans
charged off totaled $2.3 million for the third quarter of 2008 and $1.1 million
for the third quarter of 2007.
Average loans in the Texas market totaled $3.4 billion for the third quarter of
2008, up $324 million or 10% over the same quarter of last year. Average
commercial loans were up $185 million and average real estate loans were up $85
million. Consumer loans, which consist primarily of indirect automobile loans,
grew $63 million over the third quarter of 2007. Average loans in the Dallas
market increased $330 million or 15% over the third quarter of 2007. Average
loans in the Houston market increased $4.6 million or 1%. Growth in community
banking loans was largely offset by a decrease in energy loans in the Houston
market.
Average deposits in the Texas market were $3.1 billon for the third quarter of
2008, down $70 million or 2% compared with the third quarter of 2007. Average
time deposits decreased $105 million and average interest-bearing transaction
deposits decreased $60 million. Average demand deposits increased $98 million.
Average deposits decreased $55 million or 3% in the Dallas market and $22
million or 2% in the Houston market.
Net income from banking operations in New Mexico and Arkansas totaled $5.0
million and $997 thousand, respectively, for the third quarter of 2008. Net
income for the third quarter of 2007 was $5.0 million from banking operations in
New Mexico and $886 thousand from banking operations in Arkansas. Average
outstanding loans in the New Mexico market were $794 million for the third
quarter of 2008, up $58 million or 8% over 2007. Average outstanding loans in
the Arkansas market were $408 million for the third quarter of 2008, up $61
million or 18% over 2007.
Net income from banking operations in Kansas City was $732 thousand for the
third quarter of 2008 compared with a net loss of $328 thousand for the third
quarter of 2007. Net interest revenue was up $1.2 million and other operating
revenue was up $623 thousand. Average loans were $387 million, up $193 million
from last year. Average deposits were $77 million, up $27 million over the third
quarter of 2007.
16
Table 11 - Bank of Texas
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 45,353 $ 49,475 $ 134,800 $ 140,711
NIR (expense) from internal sources (5,498) (9,545) (17,716) (24,227)
------------- ------------- -------------- -------------
Net interest revenue 39,855 39,930 117,084 116,484
Other operating revenue 8,174 7,713 24,189 20,851
Operating expense 27,763 26,379 81,975 71,963
Gains on financial instruments, net - - 258 -
Net loans charged off 2,299 1,110 5,193 1,646
Net income 11,960 12,898 35,316 40,740
Average assets $ 4,685,980 $ 4,617,458 $ 4,698,910 $ 4,227,765
Average economic capital 238,100 286,290 198,520 284,630
Average invested capital 489,990 453,370 450,400 451,710
Return on assets 1.02% 1.11% 1.00% 1.29%
Return on economic capital 19.98% 17.87% 23.76% 19.14%
Return on average invested capital 9.71% 11.29% 10.47% 12.06%
Efficiency ratio 57.80% 55.37% 58.03% 52.40%
Table 12 - Bank of Albuquerque
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 14,808 $ 18,685 $ 48,699 $ 55,130
NIR (expense) from internal sources (2,722) (5,669) (9,661) (16,438)
------------- ------------- -------------- -------------
Net interest revenue 12,086 13,016 39,038 38,692
Other operating revenue 4,571 4,401 13,378 12,687
Operating expense 8,235 7,893 24,046 23,004
Gains on financial instruments, net - - 190 -
Net loans charged off 288 1,306 1,425 2,866
Net income 4,970 5,022 16,576 15,586
Average assets $ 1,696,897 $ 1,621,220 $ 1,965,631 $ 1,592,287
Average economic capital 96,730 94,450 93,420 92,890
Average invested capital 115,820 113,540 112,510 111,980
Return on assets 1.17% 1.23% 1.13% 1.31%
Return on economic capital 20.44% 21.10% 23.70% 22.43%
Return on average invested capital 17.07% 17.55% 19.68% 18.61%
Efficiency ratio 49.44% 45.32% 45.88% 44.77%
17
Table 13 - Bank of Arkansas
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 4,279 $ 4,555 $ 12,704 $ 12,192
NIR (expense) from internal sources (1,039) (1,915) (3,668) (5,032)
------------- ------------- -------------- -------------
Net interest revenue 3,240 2,640 9,036 7,160
Other operating revenue 284 291 927 935
Operating expense 1,069 1,114 3,289 3,253
Gains on financial instruments, net - - 7 -
Net loans charged off 825 367 2,180 773
Net income 997 886 2,750 2,486
Average assets $ 428,078 $ 366,423 $ 422,120 $ 327,903
Average economic capital 28,520 19,540 25,720 18,390
Average invested capital 28,520 19,540 25,720 18,390
Return on assets 0.93% 0.96% 0.87% 1.01%
Return on economic capital 13.91% 17.99% 14.28% 18.07%
Return on average invested capital 13.91% 17.99% 14.28% 18.07%
Efficiency ratio 30.33% 38.01% 33.01% 40.19%
Table 14 - Colorado State Bank and Trust
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 16,000 $ 19,551 $ 47,805 $ 54,695
NIR (expense) from internal sources (4,352) (8,031) (14,146) (22,185)
------------- ------------- -------------- -------------
Net interest revenue 11,648 11,520 33,659 32,510
Other operating revenue 3,437 3,416 11,181 9,760
Operating expense 11,064 9,707 31,298 23,651
Gains on financial instruments, net - - 66 -
Net loans charged off (recovered) 4,998 (9) 5,432 72
Net income (loss) (658) 3,178 4,968 11,306
Average assets $ 1,880,419 $ 1,865,783 $ 1,885,981 $ 1,673,872
Average economic capital 115,320 97,550 109,730 91,530
Average invested capital 170,620 152,840 165,030 146,830
Return on assets (0.14)% 0.68% 0.35% 0.90%
Return on economic capital (2.27)% 12.93% 6.05% 16.51%
Return on average invested capital (1.53)% 8.25% 4.02% 10.29%
Efficiency ratio 73.34% 64.99% 69.80% 55.95%
18
Table 15 - Bank of Arizona
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 7,563 $ 10,422 $ 24,527 $ 30,166
NIR (expense) from internal sources (2,869) (5,457) (9,855) (15,704)
------------- ------------- -------------- -------------
Net interest revenue 4,694 4,965 14,672 14,462
Other operating revenue 237 198 794 567
Operating expense 4,223 4,222 12,547 12,177
Net loans charged off 10,768 708 12,912 708
Net income (loss) (6,147) 142 (6,104) 1,309
Average assets $ 611,729 $ 598,967 $ 614,945 $ 576,126
Average economic capital 71,770 50,630 61,090 47,970
Average invested capital 88,420 67,280 77,740 64,620
Return on assets (4.00)% 0.09% (1.33)% 0.30%
Return on economic capital (34.07)% 1.11% (13.35)% 3.65%
Return on average invested capital (27.66)% 0.84% (10.49)% 2.71%
Efficiency ratio 85.64% 81.77% 81.13% 81.02%
Table 16 - Bank of Kansas City
(Dollars in Thousands)
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------------- ----------------------------------
2008 2007 2008 2007
------------- ------------- -------------- -------------
NIR (expense) from external sources $ 4,719 $ 3,627 $ 14,480 $ 11,927
NIR (expense) from internal sources (2,150) (2,247) (7,230) (7,530)
------------- ------------- -------------- -------------
Net interest revenue 2,569 1,380 7,250 4,397
Other operating revenue 1,373 750 3,821 1,960
Operating expense 2,746 2,667 8,489 7,295
Net loans charged off (recovered) (3) - 2,373 2
Net income (loss) 732 (328) 128 (574)
Average assets $ 425,999 $ 236,883 $ 428,095 $ 250,735
Average economic capital 40,050 12,590 28,690 6,070
Average invested capital 40,050 12,590 28,690 6,070
Return on assets 0.68% (0.55)% 0.04% (0.31)%
Return on economic capital 7.27% (10.34)% 0.60% (12.64)%
Return on average invested capital 7.27% (10.34)% 0.60% (12.64)%
Efficiency ratio 69.66% 125.21% 76.68% 114.76%
Financial Condition
Securities
Investment securities, which consist primarily of Oklahoma municipal bonds, are
carried at cost and adjusted for amortization of premiums or accretion of
discounts. At September 30, 2008, investment securities were carried at $244
million and had a fair value of $240 million. Management has the ability and
intent to hold these securities until they mature.
Available for sale securities, which may be sold prior to maturity, are carried
at fair value. Unrealized gains or losses, less deferred taxes, are recorded as
accumulated other comprehensive income in shareholders' equity. The amortized
cost of available for sale securities totaled $6.4 billion at September 30,
2008, up $420 million compared with June 30, 2008. Mortgage-backed securities
represented 97% of total available for sale securities. The Company holds no
debt securities of corporate issuers.
19
Table 17 - Available for Sale Securities
(in thousands) September 30, 2008
-----------------------------------------------
Amortized Fair Gross Unrealized
-----------------------
Cost Value Gain Loss
-----------------------------------------------
U.S. Treasury $ 26,984 $ 27,005 $ 21 $ -
Municipal and other tax-exempt 18,833 18,534 57 (356)
Mortgage-backed securities:
U. S. agencies 4,553,582 4,560,587 34,716 (27,711)
Private issue 1,685,742 1,523,021 44 (162,765)
----------------------------------------------------------------------------------------
Total mortgage-backed securities 6,239,324 6,083,608 34,760 (190,476)
----------------------------------------------------------------------------------------
Other debt securities 38 37 - (1)
Equity securities and mutual funds 153,005 150,346 5,920 (8,579)
----------------------------------------------------------------------------------------
Total $6,438,184 $6,279,530 $40,758 $(199,412)
----------------------------------------------------------------------------------------
A primary risk of holding mortgage-backed securities comes from extension during
periods of rising interest rates or prepayment during periods of falling
interest rates. We evaluate this risk through extensive modeling of risk both
before making an investment and throughout the life of the security. The
expected duration of the mortgage-backed securities portfolio was approximately
2.8 years at September 30, 2008. Management estimates that the expected duration
would extend to approximately 3.3 years assuming an immediate 300 basis point
upward rate shock.
Mortgage-backed securities also have credit risk from delinquency or default of
the underlying loans. The Company mitigates this risk by primarily investing in
securities issued by FNMA and FHLMC. Principal and interest payments on the
underlying loans are fully guaranteed. At September 30, 2008, approximately $4.8
billion of the Company's mortgage-backed securities were issued by U.S.
government agencies.
The Company also holds $1.5 billion of mortgage-backed securities privately
issued by publicly-owned financial institutions. Credit risk on mortgage-backed
securities originated by these issuers is mitigated by investment in senior
tranches with additional collateral support. None of these securities are backed
by sub-prime mortgage loans, collateralized debt obligations or collateralized
loan obligations.
Approximately $439 million of the privately issued mortgage-backed securities
consisted of Alt-A mortgage loans. Approximately 83% of these securities are
credit enhanced with additional collateral support and approximately 87% of our
Alt-A mortgage-backed securities represents pools of fixed-rate mortgage loans.
None of the adjustable rate mortgages are payment option ARMs.
Our portfolio of available for sale securities also included preferred stocks
issued by seven financial institutions. These stocks were originally purchased
for $46 million and have a current carrying value of $32 million. Our carrying
value of these stocks has been reduced by $14 million of other-than-temporary
impairment charges recognized in previous periods. None of the institutions that
issued these stocks are in default and all of the issuers are rated investment
grade. BOK Financial does not own any equity securities issued by Fannie Mae or
Freddie Mac. These preferred stocks have certain debt-like features such as a
quarterly dividend based on LIBOR. However, the issuers of these stocks have no
obligation to redeem them. The aggregate fair value of these preferred stocks
decreased to $24 million at September 30, 2008 due to a significant widening of
spreads to LIBOR related to current market disruptions. Management believes that
the fair value of these securities will recover to our carrying value as spreads
to LIBOR return to a range of 400 basis points to 500 basis points over the next
two years.
Net unrealized losses on available for sale debt and equity securities totaled
$159 million at September 30, 2008 compared with net unrealized losses of $91
million at June 30, 2008. The aggregate gross amount of unrealized losses at
September 30, 2008 totaled $199 million. Management evaluated the securities
with unrealized losses to determine if we believed that the losses were
temporary. This evaluation considered factors such as causes of the unrealized
losses, support for debt securities provided by government guarantees or credit
enhancements, ratings of the respective issuers and other factors to assess the
prospects for recovery over various interest rate scenarios and time periods. We
also considered our intent and ability to either hold or sell the securities. It
is our belief, based on currently available information and our evaluation, that
the unrealized losses in these securities were temporary.
Certain mortgage-backed securities, identified as mortgage trading securities,
have been designated as economic hedges of mortgage servicing rights. These
securities are carried at fair value with changes in fair value recognized in
current period income. These securities are held with the intent that gains or
losses will offset changes in the fair value of mortgage servicing rights. The
Company also maintains a separate trading portfolio. Trading portfolio
securities, which
20
are also carried at fair value with changes in fair value recognized in current
period income, are acquired and held with the intent to sell at a profit to the
Company.
Bank-Owned Life Insurance
The Company has approximately $234 million of bank-owned life insurance at
September 30, 2008. This investment is expected to provide a long-term source of
earnings to support existing employee benefit programs. Substantially all of the
funds are held in separate accounts and are invested in U.S. government,
mortgage-backed and corporate debt securities. The cash surrender value of
certain life insurance policies is further supported by a stable value wrap,
which protects against changes in the fair value of the investments. At
September 30, 2008, cash surrender value represented by the underlying fair
value of investments held in separate accounts was approximately $196 million
and cash surrender value represented by the value of the stable value wrap was
approximately $5.7 million. The stable value wrap was provided by a
highly-rated, domestic bank. The remaining cash surrender value primarily
represented the cash surrender value of policies held in the general accounts of
various insurance companies.
Loans
The aggregate loan portfolio before allowance for loan losses totaled $12.7
billion at September 30, 2008, a $162 million or 5% annualized increase since
June 30, 2008. Commercial loans and residential mortgage loans increased during
the third quarter of 2008. Commercial real estate loans and consumer loans
decreased during the same period.
Previously, the Company had reported residential loans held for sale by its
mortgage banking division as part of its loan portfolio. These loans are now
reported separately on the consolidated balance sheet and are excluded from this
discussion. Information for prior periods has been reclassified for consistent
presentation.
---------------------------------------------------------------------------------------------------------------------
Table 18 - Loans
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
---------------------------------------------------------------------------------
Commercial:
Energy $ 2,099,996 $ 1,895,050 $ 1,966,996 $ 1,954,967 $ 1,852,681
Services 1,975,604 1,848,360 1,784,723 1,721,143 1,671,291
Wholesale/retail 1,199,216 1,226,875 1,206,224 1,081,172 1,039,855
Manufacturing 519,485 542,019 542,297 493,185 536,631
Healthcare 778,819 747,434 733,086 680,294 648,871
Agriculture 229,447 253,198 248,345 236,860 259,904
Other commercial and industrial 471,235 525,637 475,187 569,884 501,128
---------------------------------------------------------------------------------------------------------------------
Total commercial 7,273,802 7,038,573 6,956,858 6,737,505 6,510,361
---------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Construction and land development 968,522 1,021,135 1,066,096 1,004,547 975,764
Retail 375,929 378,241 409,690 371,913 380,040
Office 470,383 422,558 414,466 394,739 427,444
Multifamily 268,614 251,325 236,787 214,388 234,182
Industrial 151,187 180,358 161,068 151,765 163,116
Other real estate loans 479,357 573,880 543,817 613,120 604,489
---------------------------------------------------------------------------------------------------------------------
Total commercial real estate 2,713,992 2,827,497 2,831,924 2,750,472 2,785,035
---------------------------------------------------------------------------------------------------------------------
Residential mortgage:
Permanent mortgage 1,193,488 1,130,417 1,052,785 1,089,073 1,069,356
Home equity 476,465 477,180 476,984 442,223 428,212
---------------------------------------------------------------------------------------------------------------------
Total residential mortgage 1,669,953 1,607,597 1,529,769 1,531,296 1,497,568
---------------------------------------------------------------------------------------------------------------------
Consumer:
Indirect automobile 721,390 735,098 685,803 625,203 592,207
Other consumer 300,833 309,273 291,401 296,094 292,505
---------------------------------------------------------------------------------------------------------------------
Total consumer 1,022,223 1,044,371 977,204 921,297 884,712
---------------------------------------------------------------------------------------------------------------------
Total $ 12,679,970 $ 12,518,038 $ 12,295,755 $ 11,940,570 $ 11,677,676
---------------------------------------------------------------------------------------------------------------------
The commercial loan portfolio increased $235 million during the third quarter of
2008 to $7.3 billion at September 30, 2008 from the second quarter of 2008.
Energy loans totaled $2.1 billion or 17% of total loans. Outstanding energy
loans increased $205 million during the third quarter of 2008. Approximately
$1.8 billion of energy loans were to oil
21
and gas producers, up from $1.6 billion at June 30, 2008. The amount of credit
available to these customers generally depends on a percentage of the value of
their proven energy reserves based on anticipated prices. The energy category
also included loans to borrowers involved in the transportation and sale of oil
and gas and to borrowers that manufacture equipment or provide other services to
the energy industry. The energy category of our loan portfolio is distributed
$1.1 billion in Oklahoma, $615 million in Texas and $392 million in Colorado.
The services sector of the loan portfolio totaled $2.0 billion or 16% of total
loans and consists of a large number of loans to a variety of businesses,
including communications, gaming and transportation services. Approximately $1.3
billion of the services category is made up of loans with individual balances of
less than $10 million. Approximately $718 million of the outstanding balance of
services loans is attributed to Texas, $644 million to Oklahoma, $244 million to
New Mexico, $141 million to Arizona and $108 million to Colorado.
Other notable loan concentrations by primary industry of the borrowers are
presented in Table 18.
BOK Financial participates in shared national credits when appropriate to obtain
or maintain business relationships with local customers. Shared national credits
are defined by banking regulators as credits of more than $20 million and with
three or more non-affiliated banks as participants. At September 30, 2008, the
outstanding principal balance of these loans totaled $2.1 billion. Substantially
all of these loans are to borrowers with local market relationships. BOK
Financial serves as the agent lender in approximately 23% of its shared national
credits, based on dollars committed. The Company's lending policies generally
avoid loans in which we do not have the opportunity to maintain or achieve other
business relationships with the customer.
Commercial real estate loans totaled $2.7 billion or 21% of the loan portfolio
at September 30, 2008. Over the past five years, the percentage of commercial
real estate loans to our total loan portfolio ranged from 20% to 23%. The
outstanding balance of commercial real estate loans decreased $114 million from
the previous quarter end. Construction and land development loans decreased $53
million to $969 million. Loans secured by industrial facilities decreased $29
million and other commercial real estate loans decreased $95 million. Loans
secured by office buildings increased $48 million and loans secured by
multifamily residential properties increased $17 million.
Loans secured by land, residential lots and construction totaled $969 billion at
September 30, 2008. Approximately $252 million of these loans are attributed to
the Oklahoma market, $267 million to the Texas market, $178 million to the
Colorado market and $160 million to the Arizona market. The geographic
distribution of all other commercial real estate loans included $575 million in
Oklahoma, $586 million in Texas, $200 million in New Mexico, $166 million in
Arizona and $89 million in Colorado.
Residential mortgage loans totaled $1.7 billion, up $62 million since June 30,
2008. Permanent 1-4 family mortgage loans increased $63 million and home equity
loans decreased $1 million. We have no concentration in sub-prime residential
mortgage loans and our mortgage loan portfolio does not include payment option
adjustable rate mortgage loans or loans with initial rates that are below
market. Our portfolio of permanent 1- 4 family mortgage loans includes $130
million of community development loans. These loans are generally underwritten
to prime standards and require full documentation. Approximately $1.1 billion of
our residential mortgage loan portfolio is attributed to borrowers in Oklahoma
and $308 million to borrowers in Texas.
At September 30, 2008, consumer loans included $721 million of indirect
automobile loans. Approximately $454 million of these loans were purchased from
dealers in Oklahoma and $176 million were purchased from dealers in Arkansas.
The remaining $91 million were purchased from dealers in Texas. Indirect
automobile loans decreased $14 million since June 30, 2008. Approximately 6% of
the outstanding balance at September 30, 2008 is considered near-prime, which is
defined as loans to borrowers that had poor credit in the past but have
re-established credit over a period of time. We generally do not originate
sub-prime indirect automobile loans.
22
---------------------------------------------------------------------------------------------------------------------
Table 19 - Loans by Principal Market Area
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
---------------------------------------------------------------------------------
Oklahoma:
Commercial $ 3,368,823 $ 3,228,179 $ 3,248,424 $ 3,219,176 $ 3,113,412
Commercial real estate 827,357 875,546 940,686 890,703 875,135
Residential mortgage 1,134,066 1,099,277 1,080,882 1,080,483 1,058,142
Consumer 580,211 601,184 586,695 576,070 562,631
---------------------------------------------------------------------------------
Total Oklahoma $ 5,910,457 $ 5,804,186 $ 5,856,687 $ 5,766,432 $ 5,609,320
---------------------------------------------------------------------------------
Texas:
Commercial $ 2,205,169 $ 2,166,925 $ 2,124,192 $ 1,985,645 $ 1,941,731
Commercial real estate 853,653 889,364 838,781 846,303 913,910
Residential mortgage 307,655 299,996 262,305 275,533 266,850
Consumer 214,133 204,081 168,949 142,958 133,391
---------------------------------------------------------------------------------
Total Texas $ 3,580,610 $ 3,560,366 $ 3,394,227 $ 3,250,439 $ 3,255,882
---------------------------------------------------------------------------------
New Mexico:
Commercial $ 442,644 $ 451,225 $ 472,543 $ 473,262 $ 446,573
Commercial real estate 281,061 271,177 258,731 252,884 256,994
Residential mortgage 95,165 89,469 85,834 84,336 83,274
Consumer 18,296 16,977 14,977 16,105 15,769
---------------------------------------------------------------------------------
Total New Mexico $ 837,166 $ 828,848 $ 832,085 $ 826,587 $ 802,610
---------------------------------------------------------------------------------
Arkansas:
Commercial $ 104,630 $ 96,775 $ 100,489 $ 106,328 $ 117,993
Commercial real estate 127,925 124,049 130,956 124,317 107,588
Residential mortgage 16,941 19,527 16,621 16,393 18,411
Consumer 183,543 197,979 180,551 163,626 148,404
---------------------------------------------------------------------------------
Total Arkansas $ 433,039 $ 438,330 $ 428,617 $ 410,664 $ 392,396
---------------------------------------------------------------------------------
Colorado:
Commercial $ 598,519 $ 489,844 $ 486,525 $ 490,373 $ 491,204
Commercial real estate 266,739 276,062 261,099 252,537 247,802
Residential mortgage 49,676 38,517 31,011 26,556 26,322
Consumer 18,328 16,367 17,552 16,457 18,623
---------------------------------------------------------------------------------
Total Colorado $ 933,262 $ 820,790 $ 796,187 $ 785,923 $ 783,951
---------------------------------------------------------------------------------
Arizona:
$ 213,861 $ 207,173 $ 174,360 $ 157,341 $ 147,103
Commercial
Commercial real estate 326,615 351,058 361,567 342,673 349,840
Residential mortgage 58,800 53,321 50,719 46,269 43,510
Consumer 5,551 5,315 6,815 5,522 5,491
---------------------------------------------------------------------------------
Total Arizona $ 604,827 $ 616,867 $ 593,461 $ 551,805 $ 545,944
---------------------------------------------------------------------------------
Kansas / Missouri:
Commercial $ 340,156 $ 398,452 $ 350,325 $ 305,380 $ 252,345
Commercial real estate 30,642 40,241 40,104 41,055 33,766
Residential mortgage 7,650 7,490 2,397 1,726 1,059
Consumer 2,161 2,468 1,665 559 403
---------------------------------------------------------------------------------
Total Kansas / Missouri $ 380,609 $ 448,651 $ 394,491 $ 348,720 $ 287,573
---------------------------------------------------------------------------------
Total BOK Financial loans $ 12,679,970 $ 12,518,038 $ 12,295,755 $ 11,940,570 $ 11,677,676
---------------------------------------------------------------------------------
Loan Commitments
BOK Financial enters into certain off-balance sheet arrangements in the normal
course of business. These arrangements included loan commitments which totaled
$5.3 billion and standby letters of credit which totaled $601 million at
September 30, 2008. Loan commitments may be unconditional obligations to provide
financing or conditional obligations that depend on the borrower's financial
condition, collateral value or other factors. Standby letters of credit are
unconditional commitments to guarantee the performance of our customer to a
third party. Since some of these commitments are expected to expire before being
drawn upon, the total commitment amounts do not necessarily
23
represent future cash requirements. Approximately $311 thousand of the
outstanding standby letters of credit were issued on behalf of customers whose
loans are non-performing at September 30, 2008.
The Company also has off-balance sheet commitments for residential mortgage
loans sold with full or partial recourse. These loans consist of first lien,
fixed rate residential mortgage loans originated under various community
development programs and sold to U.S. government agencies. These loans were
underwritten to standards approved by the agencies, including full
documentation. However, these loans have a higher risk of delinquency and losses
given default than traditional residential mortgage loans. A separate recourse
reserve is maintained as part of other liabilities.
At September 30, 2008, the principal balance of loans sold subject to recourse
obligations totaled $388 million. Substantially all of these loans are to
borrowers in our primary markets including $274 million to borrowers in
Oklahoma, $44 million to borrowers in Arkansas, $22 million to borrowers in New
Mexico, $18 million to borrowers in the Kansas City area and $16 million to
borrowers in Texas. The separate reserve for these off-balance sheet commitments
was $8.6 million at September 30, 2008. Approximately 2.17% of the loans sold
with recourse with an outstanding principal balance of $8.2 million were either
delinquent more than 90 days, in bankruptcy or in foreclosure. The provision for
credit losses on loans sold with recourse, which is included in mortgage banking
costs, was $2.2 million for the third quarter of 2008. Net losses charged
against the reserve totaled $1.2 million for the third quarter of 2008.
Derivatives with Credit Risk
The Company offers programs that permit its customers to hedge various risks,
including fluctuations in energy, cattle and other agricultural product prices,
interest rates and foreign exchange rates, or to take positions in derivative
contracts. Each of these programs work essentially the same way. Derivative
contracts are executed between the customers and BOK Financial. Offsetting
contracts are executed between the Company and selected counterparties to
minimize the risk to us of changes in commodity prices, interest rates or
foreign exchange rates. The counterparty contracts are identical to the customer
contracts, except for a fixed pricing spread or a fee paid to us as compensation
for administrative costs, credit risk and profit.
The customer derivative programs create credit risk for potential amounts due to
the Company from its customers and from the counterparties. Customer credit risk
is monitored through existing credit policies and procedures. The effects of
changes in commodity prices, interest rates or foreign exchange rates are
evaluated across a range of possible options to determine the maximum exposure
we are willing to have individually to any customer. Customers may also be
required to provide margin collateral to further limit our credit risk.
Counterparty credit risk is evaluated through existing policies and procedures.
This evaluation considers the total relationship between BOK Financial and each
of the counterparties. Individual limits are established by management, approved
by Credit Administration and reviewed by the Asset / Liability Committee. Margin
collateral is required if the exposure between the Company and any counterparty
exceeds established limits. Based on declines in the counterparties' credit
ratings, these limits may be reduced and additional margin collateral may be
required.
A deterioration of the credit standing of one or more of the customers or
counterparties to these contracts may result in BOK Financial recognizing a loss
as the fair value of the affected contracts may no longer move in tandem with
the offsetting contracts. This occurs if the credit standing of the customer or
counterparty deteriorated such that either the fair value of underlying
collateral no longer supported the contract or the customer or counterparty's
ability to provide margin collateral was impaired.
Derivative contracts are carried at fair value. At September 30, 2008, the net
fair values of derivative contracts reported as assets under these programs
totaled $572 million, down from $1.4 billion at June 30, 2008 due to cash
settlements and falling energy prices. At September 30, derivative contracts
carried as assets included energy contracts with fair values of $415 million,
interest rate contracts with fair values of $93 million, agricultural product
contracts with fair values of $4 million and foreign exchange contracts with
fair values of $53 million. The aggregate net fair values of derivative
contracts held under these programs reported as liabilities totaled $374
million. As of January 1, 2008, the Company adopted FASB Staff Position FIN 39-1
which permits offsetting of cash collateral against the fair value of derivative
instruments executed with the same counterparty under a master netting
agreement. The total amount of derivative liabilities at September 30, 2008 was
reduced by $217 million of cash collateral. A table showing the fair value of
derivative assets and liabilities, net of cash margin, is presented in Footnote
3 to the Consolidated Financial Statements (Unaudited), which follows this
report.
24
The fair value of derivative contracts reported as assets under these programs,
net of cash margin held by the Company, by category of debtor at September 30,
2008 was (in thousands):
Customers $362,308
Banks 73,619
Energy companies 82,802
Exchanges 51,196
Other 1,583
-------
Fair value of customer hedge asset derivative contracts, net $571,508
=======
In addition to cash margin, the Company accepts liens against physical
commodities as collateral for derivative contracts. The fair value of contracts
backed by energy production totaled approximately $221 million. Approximately
$67 million of the fair value of derivative contracts are with customers which
store or transport energy products. Credit risk of these contracts is backed by
physical product and other collateral, including cash margin held by the Company
and letters of credit issued by third-party banks for the benefit of the
Company.
The largest amount due from a single counterparty, a subsidiary of an
international energy company, at September 30, 2008 was $67 million. The amount
due from this counterparty decreased to $35 million through receipt of cash
margin the next day.
Summary of Loan Loss Experience
BOK Financial maintains separate reserves for loan losses and reserves for
off-balance sheet credit risk. The combined allowance for loan losses and
reserve for off-balance sheet credit losses totaled $209 million or 1.65% of
outstanding loans and 99% of non-accruing loans at September 30, 2008. The
allowance for loan losses was $187 million and the reserve for off-balance
sheet credit losses was $22 million. At June 30, 2008, the combined allowance
for loan losses and off-balance sheet credit losses was $177 million or 1.41% of
outstanding loans and 119% of non-accruing loans.
Net loans charged off during the third quarter of 2008 totaled $20.2 million
compared to $39.0 million in the previous quarter and $4.9 million in the third
quarter of 2007. The ratio of net loans charged off to average outstanding loans
was 0.64% for the third quarter of 2008 compared with 1.26% for the second
quarter of 2008 and 0.17% for the third quarter of 2007.
Gross loans charged off in the third quarter of 2008 increased to $33.9 million
from $15.2 million in the second quarter of 2008, excluding a $26.0 million
SemGroup loan charge-off. Gross loans charged off included $11.4 million of
commercial loans, $14.4 million of commercial real estate loans and $5.3 million
of consumer loans. Recoveries of loans previously charged off increased to $13.7
million in the third quarter of 2008 from $2.5 million in the previous quarter.
We recovered $7.1 million from a loan charged off in 2005 and $4.0 million from
a loan charged off in 2001 during the third quarter of 2008.
Consumer loan net charge-offs, which includes indirect auto loan and deposit
account overdraft losses, totaled $3.7 million for the third quarter of 2008, up
$774 thousand over the previous quarter. Net charge-offs of indirect auto loans
totaled $2.3 million for the third quarter of 2008 and $1.7 million for the
second quarter of 2008. Net indirect auto loans charged off were $1.4 million in
the Oklahoma market, $668 thousand in the Arkansas market and $239 thousand in
the Texas market. Approximately 2.29% of the indirect automobile loan portfolio
is past due 30 days or more, including 2.23% in Oklahoma, 2.56% in Arkansas and
2.08% in Texas. At June 30, 2008, approximately 1.95% of the indirect automobile
loan portfolio was past due 30 days or more. This compares to a national average
of 2.60% for indirect automobile loans past due 30 days or more at June 30,
2008.
The Company considers the credit risk from loan commitments and letters of
credit in its evaluation of the adequacy of the reserve for loan losses. A
separate reserve for off-balance sheet credit risk is maintained. Table 20
presents the trend of reserves for off-balance sheet credit losses and the
relationship between the reserve and loan commitments. The relationship between
the combined reserve for credit losses and outstanding loans is also presented
for comparison with peer banks and others who have not adopted the preferred
presentation. The provision for credit losses included the combined charge to
expense for both the reserve for loan losses and the reserve for off-balance
sheet credit losses. All losses incurred from lending activities will ultimately
be reflected in charge-offs against the reserve for loan losses following funds
advanced against outstanding commitments and after the exhaustion of collection
efforts.
25
------------------------------------------------------------------------------------------------------------------------------
Table 20 - Summary of Loan Loss Experience
(In thousands)
Three Months Ended
----------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
----------------------------------------------------------------------------------
Reserve for loan losses:
Beginning balance $ 154,018 $ 136,584 $ 126,677 $ 121,932 $ 119,759
Loans charged off:
Commercial 11,393 33,502 4,244 2,731 3,072
Commercial real estate 14,394 2,572 1,602 1,369 339
Residential mortgage 2,865 1,068 814 891 394
Consumer 5,274 4,384 4,418 3,939 3,684
------------------------------------------------------------------------------------------------------------------------------
Total 33,926 41,526 11,078 8,930 7,489
------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 11,882 842 435 242 1,172
Commercial real estate 175 98 52 2 30
Residential mortgage 65 121 58 19 86
Consumer 1,590 1,474 1,676 1,321 1,332
------------------------------------------------------------------------------------------------------------------------------
Total 13,712 2,535 2,221 1,584 2,620
------------------------------------------------------------------------------------------------------------------------------
Net loans charged off 20,214 38,991 8,857 7,346 4,869
Provision for loan losses 52,712 56,425 18,764 12,091 7,104
Adjustments due to acquisitions - - - - (62)
------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 186,516 $ 154,018 $ 136,584 $ 126,677 $ 121,932
------------------------------------------------------------------------------------------------------------------------------
Reserve for off-balance sheet credit losses:
Beginning balance $ 22,545 $ 19,660 $ 20,853 $ 19,744 $ 19,647
Provision for off-balance sheet credit losses (1) 2,885 (1,193) 1,109 97
------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 22,544 $ 22,545 $ 19,660 $ 20,853 $ 19,744
------------------------------------------------------------------------------------------------------------------------------
Total provision for credit losses $ 52,711 $ 59,310 $ 17,571 $ 13,200 $ 7,201
------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses to loans outstanding
at period-end 1.47% 1.23% 1.11% 1.06% 1.04%
Net charge-offs (annualized)
to average loans 0.64 1.26 0.29 0.25 0.17
Total provision for credit losses (annualized)
to average loans 1.67 1.91 0.58 0.45 0.25
Recoveries to gross charge-offs 40.42 6.10 20.05 17.74 34.98
Reserve for loan losses as a multiple of net
charge-offs (annualized) 2.31x 0.99x 3.86x 4.31x 6.26x
Reserve for off-balance sheet credit losses to
off-balance sheet credit commitments 0.38% 0.36% 0.32% 0.35% 0.33%
Combined reserves for credit losses to loans
outstanding at period-end 1.65 1.41 1.27 1.24 1.21
------------------------------------------------------------------------------------------------------------------------------
Specific impairment reserves are determined through evaluation of estimated
future cash flows and collateral value. At September 30, 2008, specific
impairment reserves totaled $4.0 million on total impaired loans of $201
million. Specific impairment reserves were $11.0 million on total impaired loans
of $139 million at June 30, 2008. Approximately $7.5 million of loans impaired
at June 30, 2008 were charged off in the third quarter.
Nonspecific reserves are maintained for risks beyond factors specific to an
individual loan or those identified through migration analysis. A range of
potential losses is determined for each risk factor identified. The range of
nonspecific reserves for general economic factors includes their effect on our
commercial, commercial real estate, residential mortgage and consumer loan
portfolios. Nonspecific reserves attributed to general economic conditions
increased in the third quarter of 2008. Weakness in the economy became more
apparent due to disruption in the credit markets, lower consumer confidence and
continued weakness in residential real estate markets.
The provision for credit losses totaled $52.7 million for the third quarter of
2008, $59.3 million for the second quarter of 2008 and $7.2 million for the
third quarter of 2007. The second quarter of 2008 provision included $26.3
million directly related to the Company's loans and loan commitments to
SemGroup. Factors considered in determining the provision for credit losses for
the third quarter of 2008 included trends in net losses and nonperforming loans,
the application of statistical migration factors to loan growth and
concentrations in commercial real estate and residential homebuilder loans. In
addition, the outstanding balances of potential problem loans increased.
26
Nonperforming Assets
Non-performing assets totaled $252 million or 1.98% of outstanding loans and
repossessed assets at September 30, 2008, up $71 million since June 30, 2008.
The increase in non-performing assets included an expected $36 million from
amounts due from SemGroup on funded letters of credit and derivative contracts
that terminated during the third quarter. Non-performing assets included $9.6
million of restructured residential mortgage loans guaranteed by agencies of the
U.S. government and $16 million of loans and repossessed assets acquired with
First United Bank in the second quarter of 2007. The Company will be reimbursed
by the sellers up to $8 million for any losses incurred during a three-year
period after the June 2007 acquisition date.
Non-accruing loans totaled $212 million at September 30, 2008 and $149 million
at June 30, 2008. Newly identified non-accruing loans totaled $101 million,
including $36 million from SemGroup. Cash payment received on non-accruing loans
totaled $19 million and $19 million of non-accruing loans were charged-off.
Non-accruing commercial loans totaled $106 million or 1.45% of total commercial
loans at September 30, 2008. Approximately $50 million of non-accruing
commercial loans are in the energy sector of the portfolio, including $48
million due from SemGroup. This amount represents one-third of our
pre-bankruptcy amounts due from SemGroup. In addition, $27 million of
non-accruing commercial loans are in the services sector of the loan portfolio.
The distribution of non-accruing commercial loans among our various markets
included $75 million in Oklahoma, $12 million in Colorado and $10 million in
Texas. Non-accruing commercial loans included $21.5 million of shared national
credits at September 30, 2008. This represents 1.03% of the outstanding
principal balance of shared national credits. The total of non-accruing
commercial loans was unchanged during the third quarter of 2008, excluding
SemGroup funded letters of credit and derivative contracts.
Non-accruing commercial real estate loans totaled $78 million or 2.88% of
outstanding commercial real estate loans at September 30, 2008. Non-accruing
commercial real estate loans included $54 million of land and residential lot
and construction loans, $13 million of loans secured by retail properties and $3
million of loans secured by office buildings. The distribution of non-accruing
commercial real estate loans among our various markets included $51 million in
Arizona, $8 million in Texas, $8 million in Colorado and $5 million in New
Mexico. Non-accruing commercial real estate loans increased $18 million during
the third quarter of 2008.
At September 30, 2008, non-performing assets in the Arizona market totaled $58
million or 9.47% of Arizona loans and repossessed assets, up from $35 million or
5.67% at June 30, 2008. Non-performing land and residential lot and construction
properties in Arizona totaled $41 million at September 30, 2008, up from $30
million at June 30, 2008.
Non-accruing residential mortgage loans totaled $27 million or 1.62% of
outstanding residential mortgage loans at September 30, 2008. Non-accruing home
equity loans totaled $674 thousand or 0.14% of outstanding home equity loans and
non-accruing permanent residential mortgage loans totaled $26 million or 2.21%
of outstanding permanent residential mortgage loans. The distribution of
non-accruing residential mortgage loans among our various markets included $10
million in Texas, $9 million in Oklahoma and $3 million in Arizona. Non-accruing
residential mortgage loans increased $9 million during the third quarter of 2008
compared to the previous quarter.
Real estate and other repossessed assets totaled $28 million at September 30,
2008, up from $21 million at June 30, 2008. Real estate and other repossessed
assets included $17 million of 1-4 family residential properties and residential
land development properties, $5 million of developed commercial real estate
properties, $4 million of undeveloped land and $2 million of automobiles. Real
estate owned and other repossessed assets are primarily located in Oklahoma,
Texas, Arkansas and Colorado. Approximately $2 million of real estate and other
repossessed assets are supported by the First United Bank sellers' guaranty.
27
----------------------------------------------------------------------------------------------------------------------
Table 21 - Nonperforming Assets
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
-----------------------------------------------------------------------
Nonaccrual loans:
Commercial $ 105,757 $ 69,679 $ 41,966 $ 42,981 $ 21,168
Commercial real estate 78,235 60,456 40,399 25,319 11,355
Residential mortgage 27,075 17,861 15,960 15,272 11,469
Consumer 758 611 812 718 705
----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 211,825 148,607 99,137 84,290 44,697
Renegotiated loans (2) 12,326 11,840 11,850 10,394 10,752
----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 224,151 160,447 110,987 94,684 55,449
Other nonperforming assets 28,088 21,025 15,112 9,475 10,627
----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 252,239 $ 181,472 $ 126,099 $ 104,159 $ 66,076
----------------------------------------------------------------------------------------------------------------------
Nonaccrual loans by principal market:
Oklahoma $ 87,885 $ 57,155 $ 52,211 $ 47,977 $ 24,628
Texas 29,141 20,860 8,157 4,983 4,921
New Mexico 12,293 9,838 7,497 11,118 6,542
Arkansas 3,386 2,924 2,866 1,635 843
Colorado (3) 20,980 23,812 8,101 9,222 5,688
Arizona 54,832 33,482 18,811 9,355 2,075
Kansas / Missouri 3,308 536 1,494 - -
----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans $ 211,825 $ 148,607 $ 99,137 $ 84,290 $ 44,697
----------------------------------------------------------------------------------------------------------------------
Nonaccrual loans by loan portfolio sector:
Commercial:
Energy $ 49,839 $ 12,342 $ 475 $ 529 $ 536
Manufacturing 6,479 6,731 9,274 9,915 8,858
Wholesale / retail 7,806 3,735 3,868 3,792 3,850
Agriculture 755 811 1,848 380 540
Services 26,581 30,080 23,849 25,468 5,987
Healthcare 3,300 3,791 2,079 2,301 963
Other 10,997 12,189 573 596 434
----------------------------------------------------------------------------------------------------------------------
Total commercial 105,757 69,679 41,966 42,981 21,168
Commercial real estate:
Land development and construction 53,624 45,291 29,439 13,466 7,289
Retail 13,011 7,591 5,258 5,259 -
Office 3,022 3,304 1,985 1,013 1,045
Multifamily 896 896 1,906 3,998 1,238
Industrial 390 396 - - -
Other commercial real estate 7,292 2,978 1,811 1,583 1,783
----------------------------------------------------------------------------------------------------------------------
Total commercial real estate 78,235 60,456 40,399 25,319 11,355
Residential mortgage:
Permanent mortgage 26,401 17,039 15,135 14,541 10,604
Home equity 674 822 825 731 865
----------------------------------------------------------------------------------------------------------------------
Total residential mortgage 27,075 17,861 15,960 15,272 11,469
Consumer 758 611 812 718 705
----------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans $ 211,825 $ 148,607 $ 99,137 $ 84,290 $ 44,697
----------------------------------------------------------------------------------------------------------------------
Ratios:
Reserve for loan losses to nonperforming loans 83.21% 95.99% 123.06% 133.79% 219.90%
Nonperforming loans to period-end loans 1.77 1.28 0.90 0.79 0.47
----------------------------------------------------------------------------------------------------------------------
Loans past due (90 days) (1) $ 20,213 $ 10,683 $ 11,266 $ 5,575 $ 3,986
----------------------------------------------------------------------------------------------------------------------
(1) Includes residential mortgages guaranteed
by agencies of the U.S. Government. $ 1,210 $ 1,015 $ 788 $ 1,017 $ 1,806
(2) Includes residential mortgages guaranteed
by agencies of the U.S. Government.
These loans have been modified to extend
payment terms and/or reduce interest 9,604 8,638 8,386 7,550 7,083
rates to current market.
(3) Includes loans subject to First United
Bank sellers escrow. 13,262 11,973 8,101 8,412 4,677
----------------------------------------------------------------------------------------------------------------------
Our loan review process also identified loans that possess more than the normal
amount of risk due to deterioration in the financial condition of the borrower
or the value of the collateral. Because the borrowers are still performing in
accordance with the original terms of the loan agreements, and no loss of
principal or interest is anticipated, these loans were not included in
Nonperforming Assets. Known information does, however, cause management concern
as to the
28
borrowers' ability to comply with current repayment terms. These potential
problem loans totaled $81 million at September 30, 2008 and $40 million at June
30, 2008. The current composition of potential problem loans by primary industry
included real estate - $66 million, healthcare - $11 million and services - $4
million. Potential problem real estate loans consisted primarily of loans to
residential builders in the Colorado market of $20 million, the Arizona market
of $16 million and the Texas market of $16 million.
Deposits
Deposit accounts represent our largest funding source. Average deposits
represented approximately 65% of total liabilities and capital for the third
quarter of 2008, compared with 62% for the second quarter of 2008 and 67% for
the third quarter of 2007. The increase in average deposits relative to other
funding sources in the third quarter was due largely to an increase in brokered
deposits as the Company changed its mix of funding sources to increase
short-term liquidity. Average brokered deposits were $1.0 billion for the third
quarter of 2008 and $482 million for the second quarter of 2008.
During the third quarter of 2008, the Company revised the presentation of
certain deposit accounts. Previously, demand deposit accounts were shown net of
adjustments made to manage its reserve requirements. These adjustments were
excluded from the current presentation to provide a more-meaningful presentation
of the Company's deposit accounts. All prior periods have been reclassified for
a consistent presentation. The reclassification had no effect on total deposits,
interest expense, net interest revenue or net interest margin.
Average deposits totaled $14.3 billion for the third quarter of 2008, a $967
million increase over the second quarter of 2008. Average deposits increased
$1.3 billion compared with the third quarter of 2007.
Average time deposits increased $716 million over the second quarter of 2008,
including a $453 million increase in average brokered deposits. Average time
deposits increased $263 million excluding brokered deposits. Time deposits
generated through our Wealth Management Division and Oklahoma Corporate Banking
Division increased $136 million and $48 million, respectively. Average consumer
time deposits increased $18 million in New Mexico and $17 million in Texas.
Average interest-bearing transaction deposit accounts continued to grow in the
third quarter of 2008, up $145 million over the second quarter of 2008. Average
demand deposits increased $105 million over the second quarter of 2008 due
primarily to our commercial energy customers.
Core deposits, which we define as deposits of less than $100,000, excluding
public funds and brokered deposits, averaged $6.5 billion for the third quarter
of 2008, $6.5 billion for the second quarter of 2008 and $6.6 billion for the
third quarter of 2007. Accounts with balances in excess of $100,000 excluding
brokered deposit accounts averaged $5.9 billion for the third quarter of 2008,
$5.5 billion for the second quarter of 2008 and $5.1 billion for the third
quarter of 2007.
The distribution of deposit accounts among our principal markets is shown in
Table 22.
29
---------------------------------------------------------------------------------------------------------------------
Table 22 - Deposits by Principal Market Area
(In thousands)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2008 2008 2008 2007 2007
---------------------------------------------------------------------------------
Oklahoma:
Demand $ 1,681,325 $ 1,455,997 $ 1,464,258 $ 1,394,861 $ 1,155,820
Interest-bearing:
Transaction 4,151,430 3,997,136 3,659,002 3,477,208 3,035,205
Savings 86,900 90,100 88,141 80,467 83,139
Time 3,036,297 2,672,401 2,230,110 2,426,822 2,725,992
---------------------------------------------------------------------------------
Total interest-bearing 7,274,627 6,759,637 5,977,253 5,984,497 5,844,336
---------------------------------------------------------------------------------
Total Oklahoma $ 8,955,952 $ 8,215,634 $ 7,441,511 $ 7,379,358 $ 7,000,156
---------------------------------------------------------------------------------
Texas:
Demand $ 956,846 $ 1,046,651 $ 940,141 $ 1,035,134 $ 863,107
Interest-bearing:
Transaction 1,543,974 1,713,131 1,708,424 1,753,843 1,713,347
Savings 32,400 33,207 32,191 34,618 35,310
Time 794,911 723,146 759,892 800,460 893,018
---------------------------------------------------------------------------------
Total interest-bearing 2,371,285 2,469,484 2,500,507 2,588,921 2,641,675
---------------------------------------------------------------------------------
Total Texas $ 3,328,131 $ 3,516,135 $ 3,440,648 $ 3,624,055 $ 3,504,782
---------------------------------------------------------------------------------
New Mexico:
Demand $ 176,477 $ 168,621 $ 169,449 $ 151,231 $ 170,175
Interest-bearing:
Transaction 376,941 417,607 425,976 432,919 418,883
Savings 16,316 16,432 16,141 15,146 16,437
Time 475,560 445,505 455,861 486,868 512,497
---------------------------------------------------------------------------------
Total interest-bearing 868,817 879,544 897,978 934,933 947,817
---------------------------------------------------------------------------------
Total New Mexico $ 1,045,294 $ 1,048,165 $ 1,067,427 $ 1,086,164 $ 1,117,992
---------------------------------------------------------------------------------
Arkansas:
Demand $ 23,565 $ 21,142 $ 20,493 $ 13,247 $ 14,492
Interest-bearing:
Transaction 19,146 24,524 22,091 19,027 18,134
Savings 865 895 945 883 993
Time 47,684 39,305 39,803 40,692 43,401
---------------------------------------------------------------------------------
Total interest-bearing 67,695 64,724 62,839 60,602 62,528
---------------------------------------------------------------------------------
Total Arkansas $ 91,260 $ 85,866 $ 83,332 $ 73,849 $ 77,020
---------------------------------------------------------------------------------
Colorado:
Demand $ 115,677 $ 109,697 $ 99,584 $ 117,939 $ 98,914
Interest-bearing:
Transaction 440,888 507,260 529,771 446,427 375,468
Savings 19,300 20,245 22,233 23,806 27,143
Time 428,872 423,014 455,262 539,523 608,962
---------------------------------------------------------------------------------
Total interest-bearing 889,060 950,519 1,007,266 1,009,756 1,011,573
---------------------------------------------------------------------------------
Total Colorado $ 1,004,737 $ 1,060,216 $ 1,106,850 $ 1,127,695 $ 1,110,487
---------------------------------------------------------------------------------
Arizona:
Demand $ 45,725 $ 49,895 $ 46,508 $ 46,701 $ 46,339
Interest-bearing:
Transaction 64,463 73,034 84,648 65,788 77,567
Savings 1,033 1,233 878 1,435 1,269
Time 14,433 6,364 8,395 11,603 13,314
---------------------------------------------------------------------------------
Total interest-bearing 79,929 80,631 93,921 78,826 92,150
---------------------------------------------------------------------------------
Total Arizona $ 125,654 $ 130,526 $ 140,429 $ 125,527 $ 138,489
---------------------------------------------------------------------------------
Kansas / Missouri:
Demand $ 5,548 $ 7,157 $ 6,580 $ 9,656 $ 8,302
Interest-bearing:
Transaction 9,780 10,342 8,754 8,304 2,716
Savings 33 26 92 13 15
Time 19,794 51,649 33,837 24,670 23,119
---------------------------------------------------------------------------------
Total interest-bearing 29,607 62,017 42,683 32,987 25,850
---------------------------------------------------------------------------------
Total Kansas / Missouri $ 35,155 $ 69,174 $ 49,263 $ 42,643 $ 34,152
---------------------------------------------------------------------------------
Total BOK Financial deposits $ 14,586,183 $ 14,125,716 $ 13,329,460 $ 13,459,291 $ 12,983,078
---------------------------------------------------------------------------------
30
Borrowings and Capital
On July 21, 2008, the Company entered into a $188 million, unsecured revolving
credit agreement with George B. Kaiser, its Chairman and principal shareholder.
Interest on the outstanding balance is based on one-month LIBOR plus 125 basis
points and is payable quarterly. Additional interest in the form of a facility
fee is paid quarterly on the unused portion of the commitment at 25 basis
points. This agreement has no restrictive covenants, which provides greater
flexibility to fund the needs of BOK Financial and its subsidiaries. The lack
of restrictive covenants in this agreement also provides the Company time to
maximize the recovery on nonperforming assets. At September 30, 2008, the
outstanding balance under this credit agreement was $50 million.
Subsequent to September 30, the U.S. Treasury announced its TARP Capital
Purchase Program. The TARP program allows participating banks to increase
capital by issuing preferred stock and common stock warrants to the U.S.
government. The Company has been encouraged to apply and will make a decision
about participating in the TARP program before the November 14, 2008 deadline.
The primary source of liquidity for BOK Financial is dividends from subsidiary
banks, which are limited by various banking regulations to net profits, as
defined, for the preceding two years. Dividends are further restricted by
minimum capital requirements. Based on the most restrictive limitations, the
subsidiary banks could declare up to $128 million of dividends without
regulatory approval. Management has developed and the Board of Directors has
approved an internal capital policy that is more restrictive than the regulatory
capital standards. The subsidiary banks could declare dividends of up to $109
million under this policy.
Equity capital for BOK Financial was $1.9 billion at September 30, 2008, down
$1.9 million from June 30, 2008. Net income less cash dividend paid increased
equity $41.5 million. Accumulated other comprehensive losses increased $41.9
million during the third quarter of 2008 due primarily to an increase in net
unrealized losses on available for sale securities. Employee stock option
transactions increased equity capital $1.8 million.
Capital is managed to maximize long-term value to the shareholders. Factors
considered in managing capital include projections of future earnings, asset
growth and acquisition strategies, and regulatory and debt covenant
requirements. Capital management may include subordinated debt issuance, share
repurchase and stock and cash dividends.
On April 26, 2005, the Board of Directors authorized a share repurchase program,
which replaced a previously authorized program. The maximum of two million
common shares may be repurchased. The specific timing and amount of shares
repurchased will vary based on market conditions, securities law limitations and
other factors. Repurchases may be made over time in open market or privately
negotiated transactions. The repurchase program may be suspended or discontinued
at any time without prior notice. Since this program began, 784,073 shares have
been repurchased by the Company for $38.7 million. The Company repurchased
75,000 shares for $3.3 million in the third quarter of 2008.
BOK Financial and subsidiary banks are subject to various capital requirements
administered by federal agencies. Failure to meet minimum capital requirements
can result in certain mandatory and possibly additional discretionary actions by
regulators that could have a material impact on operations. These capital
requirements include quantitative measures of assets, liabilities, and
off-balance sheet items. The capital standards are also subject to qualitative
judgments by the regulators.
For a banking institution to qualify as well capitalized, its Tier 1, Total and
Leverage capital ratios must be at least 6%, 10% and 5%, respectively. All of
the Company's banking subsidiaries exceeded the regulatory definitions of well
capitalized. The capital ratios for BOK Financial on a consolidated basis are
presented in Table 23.
In addition to deposits, subsidiary bank liquidity is provided primarily by
federal funds purchased, securities repurchase agreements and Federal Home Loan
Bank borrowings. Federal funds purchased consist primarily of unsecured,
overnight funds acquired from other financial institutions. Securities
repurchase agreements generally mature within 90 days and are secured by certain
available for sale securities. Federal Home Loan Bank borrowings are generally
short term and are secured by a blanket pledge of eligible collateral (generally
unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family mortgage
loans and multifamily mortgage loans). At September 30, 2008, the outstanding
balance of federal funds purchased totaled $1.7 billion, securities repurchase
agreements totaled $2.0 billion and Federal Home Loan Bank borrowings totaled
$991 million.
Subsequent to September 30, 2008, the U.S. Treasury announced its Treasury
Liquidity Guarantee Program ("TGLP"). TGLP is intended to improve market
liquidity by providing FDIC insurance to certain non-interest bearing
transaction deposit accounts, interbank funding and newly issued unsecured debt.
The cost of the TGLP ranges from an additional 10 basis points for certain
non-interest bearing transaction accounts to an additional 75 basis points on
interbank funding
31
(federal funds purchased) and newly issued unsecured debt.
--------------------------------------------------------------------------------------------------------------------
Table 23 - Capital Ratios Sept. 30, June 30, March 31, Dec. 30, Sept. 30,
2008 2008 2008 2007 2007
--------------------------------------------------------------------------
Average shareholders' equity
to average assets 8.83% 9.19% 9.69% 9.48% 9.42%
Tangible capital ratio 7.16% 7.15% 7.83% 7.72% 7.67%
Risk-based capital:
Tier 1 capital 9.25 8.69 9.35 9.38 9.30
Total capital 12.55 11.69 12.44 12.54 12.53
Leverage 7.94 7.83 8.23 8.20 8.17
Off-Balance Sheet Arrangements
During the third quarter of 2007, Bank of Oklahoma agreed to guarantee rents
totaling $28.4 million over 10 years to the City of Tulsa ("City") as owner of a
building immediately adjacent to the bank's main office. These rents are due for
space rented by third-party tenants in the building as of the date of the
agreement. All guaranteed space has been rented since the date of the agreement.
In return for this guarantee, Bank of Oklahoma will receive 80% of net rent as
defined in an agreement with the City over the next 10 years from space in the
same building that was vacant as of the date of the agreement. The maximum
amount that Bank of Oklahoma may receive under this agreement is $4.5 million.
The fair value of this agreement at inception was zero and no asset or liability
is currently recognized in the Company's financial statements.
Market Risk
Market risk is a broad term for the risk of economic loss due to adverse changes
in the fair value of a financial instrument. These changes may be the result of
various factors, including interest rates, foreign exchange prices, commodity
prices or equity prices. Financial instruments that are subject to market risk
can be classified either as held for trading or held for purposes other than
trading. Market risk excludes changes in fair value due to credit of the
individual issuers of financial instruments.
BOK Financial is subject to market risk primarily through the effect of changes
in interest rates on both its assets held for purposes other than trading and
trading assets. The effects of other changes, such as foreign exchange rates,
commodity prices or equity prices do not pose significant market risk to BOK
Financial. BOK Financial has no material investments in assets that are affected
by changes in foreign exchange rates or equity prices. Energy and agricultural
product derivative contracts, which are affected by changes in commodity prices,
are matched against offsetting contracts as previously discussed.
Responsibility for managing market risk rests with the Asset / Liability
Committee that operates under policy guidelines established by the Board of
Directors. The acceptable negative variation in net interest revenue, net income
or economic value of equity due to a specified basis point increase or decrease
in interest rates is generally limited by these guidelines to +/- 10%. These
guidelines also set maximum levels for short-term borrowings, short-term assets,
public funds, and brokered deposits, and establish minimum levels for un-pledged
assets, among other things. Compliance with these guidelines is reviewed
monthly.
Interest Rate Risk - Other than Trading
As previously noted in the Net Interest Revenue section of this report,
management has implemented strategies to manage the Company's balance sheet to
be relatively neutral to changes in interest rates over a twelve month period.
The effectiveness of these strategies in managing the overall interest rate risk
is evaluated through the use of an asset/liability model. BOK Financial performs
a sensitivity analysis to identify more dynamic interest rate risk exposures,
including embedded option positions, on net interest revenue, net income and
economic value of equity. A simulation model is used to estimate the effect of
changes in interest rates over the next twelve and 24 months based on eight
interest rate scenarios. Two specified interest rate scenarios are used to
evaluate interest rate risk against policy guidelines. The first assumes a
sustained parallel 200 basis point increase and the second assumes a sustained
parallel 100 basis point decrease in interest rates. Management historically
evaluated interest rate sensitivity for a sustained 200 basis point decrease in
interest rates. However, the results of a 200 basis point decrease in interest
rates in the current low-rate environment are not meaningful. The Company also
performs a sensitivity analysis based on a "most likely" interest rate scenario,
which includes non-parallel shifts in interest rates. An independent source is
used to determine the most likely interest rate scenario.
32
The Company's primary interest rate exposures included the Federal Funds rate,
which affects short-term borrowings, and the prime lending rate and LIBOR, which
are the basis for much of the variable-rate loan pricing. Additionally, mortgage
rates directly affect the prepayment speeds for mortgage-backed securities and
mortgage servicing rights. Derivative financial instruments and other financial
instruments used for purposes other than trading are included in this
simulation. The model incorporates assumptions regarding the effects of changes
in interest rates and account balances on indeterminable maturity deposits based
on a combination of historical analysis and expected behavior. The impact of
planned growth and new business activities is factored into the simulation
model. The effects of changes in interest rates on the value of mortgage
servicing rights are excluded from Table 24 due to the extreme volatility over
such a large rate range. The effects of interest rate changes on the value of
mortgage servicing rights and securities identified as economic hedges are
presented in the Lines of Business - Mortgage Banking section of this report.
The simulations used to manage market risk are based on numerous assumptions
regarding the effects of changes in interest rates on the timing and extent of
re-pricing characteristics, future cash flows and customer behavior. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest revenue, net income or economic value of equity
or precisely predict the impact of higher or lower interest rates on net
interest revenue, net income or economic value of equity. Actual results will
differ from simulated results due to timing, magnitude and frequency of interest
rate changes, market conditions and management strategies, among other factors.
Table 24 - Interest Rate Sensitivity
(Dollars in Thousands)
200 bp Increase 100 bp Decrease Most Likely
-------------------------- --------------------------- -------------------------
2008 2007 2008 2007 2008 2007
------------- ------------ ------------ -------------- ------------ ------------
Anticipated impact over the
next twelve months on
net interest revenue $(16,405) $ (6,738) $ 6,644 *** $ 29,639 $(1,745)
(1.1)% (1.1)% 0.3% *** 3.4% (0.3)%
-------------------------------- --------------- ------------ --- ----------- -------------- -- ----------- ------------
*** A 100 basis point decrease was not computed in 2007. A 200 basis point
decrease in interest rates was expected to increase net interest revenue by
$1.1 million or 0.2%.
Trading Activities
BOK Financial enters into trading activities both as an intermediary for
customers and for its own account. As an intermediary, BOK Financial will take
positions in securities, generally mortgage-backed securities, government agency
securities, and municipal bonds. These securities are purchased for resale to
customers, which include individuals, corporations, foundations and financial
institutions. BOK Financial will also take trading positions in U.S. Treasury
securities, mortgage-backed securities, municipal bonds and financial futures
for its own account. These positions are taken with the objective of generating
trading profits. Both of these activities involve interest rate risk.
A variety of methods are used to manage the interest rate risk of trading
activities. These methods include daily marking of all positions to market
value, independent verification of inventory pricing, and position limits for
each trading activity. Hedges in either the futures or cash markets may be used
to reduce the risk associated with some trading programs.
Management uses a Value at Risk ("VAR") methodology to measure the market risk
inherent in its trading activities. VAR is calculated based upon historical
simulations over the past five years using a variance / covariance matrix of
interest rate changes. It represents an amount of market loss that is likely to
be exceeded only one out of every 100 two-week periods. Trading positions are
managed within guidelines approved by the Board of Directors. These guidelines
limit the VAR to $3.6 million. At September 30, 2008, the VAR was $1.8 million.
The greatest value at risk during the third quarter of 2008 was $2.1 million.
The value at risk guideline was exceeded with appropriate approvals by
management to take advantage of wide yields available on certain securities
during the quarter.
33
Controls and Procedures
As required by Rule 13a-15(b), BOK Financial's management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation as of the
end of the period covered by their report, of the effectiveness of the company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures were effective as
of the end of the period covered by this report. As required by Rule 13a-15(d),
BOK Financial's management, including the Chief Executive Officer and Chief
Financial Officer, also conducted an evaluation of the company's internal
controls over financial reporting to determine whether any changes occurred
during the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect, the company's internal controls over
financial reporting. Based on that evaluation, there has been no such change
during the quarter covered by this report.
Forward-Looking Statements
This report contains forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates, and projections about BOK
Financial, the financial services industry and the economy in general. Words
such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans,"
"projects," variations of such words and similar expressions are intended to
identify such forward-looking statements. Management judgments relating to and
discussion of the provision and reserve for loan losses involve judgments as to
expected events and are inherently forward-looking statements. Assessments that
BOK Financial's acquisitions and other growth endeavors will be profitable are
necessary statements of belief as to the outcome of future events, based in part
on information provided by others that BOK Financial has not independently
verified. These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to predict with
regard to timing, extent, likelihood and degree of occurrence. Therefore, actual
results and outcomes may materially differ from what is expressed, implied, or
forecasted in such forward-looking statements. Internal and external factors
that might cause such a difference include, but are not limited to: (1) the
ability to fully realize expected cost savings from mergers within the expected
time frames, (2) the ability of other companies on which BOK Financial relies to
provide goods and services in a timely and accurate manner, (3) changes in
interest rates and interest rate relationships, (4) demand for products and
services, (5) the degree of competition by traditional and nontraditional
competitors, (6) changes in banking regulations, tax laws, prices, levies, and
assessments, (7) the impact of technological advances and (8) trends in customer
behavior as well as their ability to repay loans. BOK Financial and its
affiliates undertake no obligation to update, amend, or clarify forward-looking
statements, whether as a result of new information, future events or otherwise.
34
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Consolidated Statements of Earnings (Unaudited)
(In Thousands Except Share and Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
----------- --- -------------- ---- -------------- ---- --------------
Interest Revenue
Loans $ 181,590 $ 232,150 $ 561,151 $ 669,190
Taxable securities 78,030 63,244 226,044 181,061
Tax-exempt securities 2,668 3,010 8,009 8,960
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Total securities 80,698 66,254 234,053 190,021
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Trading 780 388 2,796 1,253
securities
Funds sold and resell agreements 290 1,588 1,485 3,177
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Total interest revenue 263,358 300,380 799,485 863,641
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Interest Expense
Deposits 69,269 109,496 223,530 309,427
Borrowed funds 24,188 44,273 88,767 131,825
Subordinated debentures 5,553 7,166 16,773 19,193
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Total interest expense 99,010 160,935 329,070 460,445
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Net Interest Revenue 164,348 139,445 470,415 403,196
Provision for Credit Losses 52,711 7,201 129,592 21,521
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Net Interest Revenue After Provision for Credit Losses 111,637 132,244 340,823 381,675
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Other Operating Revenue
Brokerage and trading revenue 30,846 15,541 19,297 42,140
Transaction card revenue 25,632 23,812 74,976 66,913
Trust fees and commissions 20,100 19,633 61,836 58,086
Deposit service charges and fees 30,404 27,885 88,289 79,280
Mortgage banking revenue 6,230 5,809 20,645 15,363
Bank-owned life insurance 2,829 2,520 7,999 7,444
Margin asset fees 1,934 1,061 8,361 2,788
Other revenue 8,691 7,456 22,730 20,254
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Total fees and commissions 126,666 103,717 304,133 292,268
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Gain (loss) on sales of assets (839) 42 (658) 388
Gain (loss) on securities, net 2,103 4,748 1,481 (2,077)
Gain on derivatives, net 4,366 865 3,518 753
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Total other operating revenue 132,296 109,372 308,474 291,332
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Other Operating Expense
Personnel 87,549 85,811 265,252 244,193
Business promotion 5,837 5,399 16,253 15,360
Professional fees and services 6,501 5,749 19,122 16,586
Net occupancy and equipment 15,570 14,752 45,731 41,818
Insurance 2,436 759 8,772 2,174
Data processing and communications 19,911 18,271 58,327 53,647
Printing, postage and supplies 4,035 4,201 12,610 12,349
Net (gains) losses and operating expenses of
repossessed assets (136) 172 13 571
Amortization of intangible assets 1,884 2,397 5,694 4,976
Mortgage banking costs 5,811 3,877 17,545 8,932
Change in fair value of mortgage servicing rights 5,554 3,446 8,083 (451)
Visa retrospective responsibility obligation 1,700 - (1,067) -
Other expense 7,638 6,184 20,627 17,105
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Total other operating expense 164,290 151,018 476,962 417,260
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Income Before Taxes 79,643 90,598 172,335 255,747
Federal and state income tax 22,958 30,750 54,546 89,243
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Net Income $ 56,685 $ 59,848 $ 117,789 $ 166,504
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Earnings Per Share:
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Basic $ 0.84 $ 0.89 $ 1.75 $ 2.48
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Diluted $ 0.84 $ 0.89 $ 1.74 $ 2.46
------------------------------------------------------- ---- ----------- --- -------------- ---- -------------- ---- --------------
Average Shares Used in Computation:
------------------------------------------------------- --- ------------ --- -------------- ---- -------------- ---- --------------
Basic 67,263,317 67,078,378 67,252,296 67,092,549
------------------------------------------------------- --- ------------ --- -------------- ---- -------------- ---- --------------
Diluted 67,471,376 67,537,643 67,564,159 67,571,900
------------------------------------------------------- --- ------------ --- -------------- ---- -------------- ---- --------------
Dividends Declared per Share $ 0.225 $ 0.20 $ 0.65 $ 0.55
------------------------------------------------------- --- ------------ --- -------------- ---- -------------- ---- --------------
See accompanying notes to consolidated financial statements.
35
--------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
(In Thousands Except Share Data)
September 30, December 31, September 30,
2008 2007 2007
--------------------------------------------------
(Unaudited) (Footnote 1) (Unaudited)
Assets
Cash and due from banks $ 669,914 $ 717,259 $ 565,747
Funds sold and resell agreements 105,594 173,154 118,768
Trading securities 92,588 45,724 25,000
Securities:
Available for sale 5,047,524 5,323,001 5,214,837
Available for sale securities pledged to creditors 1,232,006 327,539 329,397
Investment (fair value: September 30, 2008 - $239,688;
December 31, 2007 - $248,788;
September 30, 2007 - $246,716) 243,617 247,949 250,873
Mortgage trading securities 198,201 154,701 127,222
--------------------------------------------------------------------------------------------------------------------
Total securities 6,721,348 6,053,190 5,922,329
--------------------------------------------------------------------------------------------------------------------
Residential mortgage loans held for sale 113,121 76,677 73,488
Loans 12,679,970 11,940,570 11,677,676
Less reserve for loan losses (186,516) (126,677) (121,932)
--------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 12,493,454 11,813,893 11,555,744
--------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 267,749 258,786 254,953
Accrued revenue receivable 118,096 128,350 129,849
Intangible assets, net 363,177 368,353 375,113
Mortgage servicing rights, net 68,680 70,009 71,927
Real estate and other repossessed assets 28,088 9,475 10,627
Bankers' acceptances 23,933 1,780 20,353
Derivative contracts 572,391 502,446 301,311
Cash surrender value of bank-owned life insurance 234,293 229,540 226,853
Receivable on unsettled securities trades 169,494 19,964 7,473
Other assets 335,882 199,101 187,670
--------------------------------------------------------------------------------------------------------------------
Total assets $ 22,377,802 $ 20,667,701 $ 19,847,205
--------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Noninterest-bearing demand deposits $ 3,005,163 $ 2,768,769 $ 2,357,149
Interest-bearing deposits:
Transaction 6,606,622 6,203,516 5,641,320
Savings 156,847 156,368 164,306
Time (includes $528,715 at fair value at September 30, 2008) 4,817,551 4,330,638 4,820,303
--------------------------------------------------------------------------------------------------------------------
Total deposits 14,586,183 13,459,291 12,983,078
--------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase agreements 3,667,225 3,225,131 3,175,802
Other borrowings 1,077,450 1,027,564 908,711
Subordinated debentures 398,372 398,273 398,240
Accrued interest, taxes and expense 120,280 124,029 118,275
Bankers' acceptances 23,933 1,780 20,353
Derivative contracts 377,973 341,677 236,882
Other liabilities 185,883 154,572 137,301
--------------------------------------------------------------------------------------------------------------------
Total liabilities 20,437,299 18,732,317 17,978,642
--------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock ($.00006 par value; 2,500,000,000
shares authorized; shares issued and outstanding:
September 30, 2008 - 69,838,173; December 31, 2007 -
69,465,154; September 30, 2007 - 69,092,403) 4 4 4
Capital surplus 740,578 722,088 706,927
Retained earnings 1,406,971 1,332,954 1,295,233
Treasury stock (shares at cost: September 30, 2008 -
2,404,336; December 31, 2007 - 2,158,774;
September 30, 2007 - 2,029,886) (100,801) (88,428) (81,619)
Accumulated other comprehensive loss (106,249) (31,234) (51,982)
--------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,940,503 1,935,384 1,868,563
--------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 22,377,802 $ 20,667,701 $ 19,847,205
--------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
36
----------------------------------------------------------------------------------------------------------
Consolidated Statements of Changes in
Shareholders' Equity (Unaudited)
(In Thousands)
Accumulated
Other
Common Stock Comprehensive Retained Treasury Stock
Capital
----------------- ---------------------
Shares Amount Loss Surplus Earnings Shares Amount Total
-----------------------------------------------------------------------------------
Balances at
December 31, 2006 68,705 $ 4 $ (73,444) $ 688,861 $1,166,994 1,637 $ (61,393) $1,721,022
Effect of implementing
FAS 157, net of
income taxes - - - - (679) - - (679)
Effect of implementing
FIN 48 - - - - (609) - - (609)
Comprehensive income:
Net income - - - - 166,504 - - 166,504
Other comprehensive
income, net of tax (1) - - 21,462 - - - - 21,462
----------
Comprehensive income 187,966
----------
Treasury stock purchase - - - - - 306 (15,583) (15,583)
Exercise of stock options 387 - - 11,443 - 87 (4,643) 6,800
Tax benefit on exercise
of stock options - - - 1,562 - - - 1,562
Stock-based compensation - - - 5,061 - - - 5,061
Cash dividends on
common stock - - - - (36,977) - - (36,977)
----------------------------------------------------------------------------------------------------------
Balances at
September 30, 2007 69,092 $ 4 $(51,982) $ 706,927 $1,295,233 2,030 $(81,619) $1,868,563
----------------------------------------------------------------------------------------------------------
Balances at
December 31, 2007 69,465 $ 4 $ (31,234) $ 722,088 $1,332,954 2,159 $(88,428) $1,935,384
Effect of
implementing FAS 159,
net of income taxes - - - - 62 - - 62
Comprehensive income:
Net income - - - - 117,789 - - 117,789
Other comprehensive
income, net of tax (1) - - (75,015) - - - - (75,015)
-----------
Comprehensive income 42,774
-----------
Treasury stock purchase - - - - - 166 (7,992) (7,992)
Exercise of stock options 373 - - 11,359 - 79 (4,381) 6,978
Tax benefit on exercise
of stock options - - - 1,004 - - - 1,004
Stock-based compensation - - - 6,127 - - - 6,127
Cash dividends on
common stock - - - - (43,834) - - (43,834)
----------------------------------------------------------------------------------------------------------
Balances at
September 30, 2008 69,838 $ 4 $(106,249) $ 740,578 $1,406,971 2,404 $(100,801) $1,940,503
----------------------------------------------------------------------------------------------------------
(1) September 30, 2008 September 30, 2007
------------------- --------------------
Changes in other comprehensive loss:
Unrealized gains (losses) on securities $(103,510) $ 29,224
Unrealized gains on cash flow hedges 216 1,188
Tax benefit (expense) on unrealized gains (losses) 29,776 (10,322)
Reclassification adjustment for (gains)
losses realized and included in net income (2,103) 2,077
Reclassification adjustment for tax
expense (benefit) on realized (gains) losses 606 (705)
------------------------------------
Net change in other comprehensive loss $ (75,015) $ 21,462
------------------------------------
See accompanying notes to consolidated financial statements.
38
---------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands) Nine Months Ended September 30,
---------------------------------------------
2008 2007
---------------------------------------------
Cash Flows From Operating Activities:
Net income $ 117,789 $ 166,504
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 129,592 21,521
Change in fair value of mortgage servicing rights 8,083 (451)
Unrealized losses (gains) from derivatives 71,258 (15,337)
Tax benefit on exercise of stock options (1,004) (1,562)
Change in bank-owned life insurance (4,753) (14,623)
Stock-based compensation 5,097 6,684
Depreciation and amortization 38,749 31,325
Net (accretion) amortization of securities discounts and premiums (12,200) (690)
Net (gain) loss on sale of assets (9,334) (9,955)
Mortgage loans originated for resale (902,186) (734,919)
Proceeds from sale of mortgage loans held for resale 879,728 692,470
Change in trading securities, including mortgage trading securities (89,485) 48,782
Change in accrued revenue receivable 10,254 (31,037)
Change in other assets (58,373) 67,800
Change in accrued interest, taxes and expense (3,749) 13,523
Change in other liabilities 38,630 (65,710)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 218,096 174,325
---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of investment securities 68,708 90,355
Proceeds from maturities of available for sale securities 706,594 847,662
Purchases of investment securities (65,506) (92,648)
Purchases of available for sale securities (3,593,515) (2,224,574)
Proceeds from sales of investment securities 982 -
Proceeds from sales of available for sale securities 2,158,216 548,025
Loans originated or acquired net of principal collected (841,462) (619,518)
Proceeds from derivative asset contracts 53,779 (36,372)
Net change in other investment assets 35 69
Proceeds from disposition of assets 37,174 44,475
Purchases of assets (65,202) (61,643)
Cash and equivalents of subsidiaries and branches acquired and sold, net - (47,258)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,540,197) (1,551,427)
---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in demand deposits, transaction deposits and savings accounts 639,979 (105,266)
Net change in time deposits 494,609 198,580
Net change in other borrowings 491,980 1,132,911
Payments on derivative liability contracts (140,428) 52,670
Net change in derivative margin accounts (85,570) 37,157
Change in amount receivable (due) on unsettled security transactions (149,530) (106,181)
Issuance of common and treasury stock, net 6,978 6,800
Issuance of subordinated debenture, net - 248,618
Pay down of subordinated debentures - (150,000)
Tax benefit on exercise of stock options 1,004 1,562
Repurchase of common stock (7,992) (15,583)
Dividends paid (43,834) (36,977)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,207,196 1,264,291
---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (114,905) (112,811)
Cash and cash equivalents at beginning of period 890,413 797,326
---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 775,508 $ 684,515
---------------------------------------------------------------------------------------------------------------------------
Cash paid for interest $ 329,982 $ 447,605
---------------------------------------------------------------------------------------------------------------------------
Cash paid for taxes $ 80,441 $ 84,561
---------------------------------------------------------------------------------------------------------------------------
Net loans transferred to repossessed real estate and other assets $ 25,532 $ 6,585
---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
38
Notes to Consolidated Financial Statements (Unaudited)
(1) Accounting Policies
Basis of Presentation
The unaudited consolidated financial statements of BOK Financial Corporation
("BOK Financial" or "the Company") have been prepared in accordance with
accounting principles for interim financial information generally accepted in
the United States and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The unaudited consolidated financial statements include accounts of BOK
Financial and its subsidiaries, principally Bank of Oklahoma, N.A. and its
subsidiaries ("BOk"), Bank of Texas, N.A., Bank of Arkansas, N.A., Bank of
Albuquerque, N.A., Colorado State Bank and Trust, N.A., Bank of Arizona, N.A.,
Bank of Kansas City, N.A., and BOSC, Inc. Certain prior period amounts have been
reclassified to conform to current period classification.
Previously, the Company had reported residential loans held for sale by its
mortgage banking division as part of its loan portfolio. These loans are now
reported separately on the consolidated balance sheet.
The Company revised the presentation of certain deposit accounts. Previously,
demand deposit accounts were shown net of adjustments made to manage its reserve
requirements. These adjustments were excluded from the current presentation to
provide a more meaningful presentation of the Company's deposit accounts. This
reclassification had no effect on total deposits, interest expense, net interest
revenue or net interest margin.
The financial information should be read in conjunction with BOK Financial's
2007 Form 10-K filed with the Securities and Exchange Commission, which contains
audited financial statements. Amounts presented as of December 31, 2007 have
been derived from BOK Financial's 2007 Form 10-K.
Newly Adopted and Pending Accounting Policies
The Company adopted Statement of Financial Accounting Standards No. 159, Fair
Value Option ("FAS 159") effective January 1, 2008. FAS 159 provides an option
to measure eligible financial assets and financial liabilities at fair value.
Certain certificates of deposit that were either currently designated as hedged
or had previously been designated as hedged, but no longer met the correlation
requirements of Statement of Financial Accounting Standards No. 133 were
designated as being reported at fair value. Adoption of FAS 159 increased
opening retained earnings for the first quarter of 2008 by $62 thousand.
Interest expense on certificates of deposit carried at fair value is based on
the instruments' contractual interest rates and outstanding principal balances.
As of January 1, 2008, the Company adopted Financial Accounting Standards Board
Staff Position FIN 39-1, which permits offsetting of cash collateral against the
fair value of derivative instruments executed with the same counterparty under a
master netting agreement. The total amount of derivative assets and liabilities
at September 30, 2008 was reduced by $19 million and $217 million, respectively,
of cash collateral.
Statement of Financial Accounting Standards No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB Statement No. 51," ("FAS
160") amends Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial
Statements," to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. FAS 160 clarifies that a non-controlling interest in a subsidiary,
which is sometimes referred to as minority interest, is an ownership interest in
the consolidated entity that should be reported as a component of equity in the
consolidated financial statements. Among other requirements, FAS 160 requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest. It also
requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the
non-controlling interest. FAS 160 is effective for the Company on January 1,
2009 and is not expected to have a significant impact on the Company's financial
statements.
Statement of Financial Accounting Standards No. 161, "Disclosures About
Derivative Instruments and Hedging Activities, an
39
Amendment of FASB Statement No. 133," ("FAS 161") amends and expands the
disclosure requirements of FAS 133, "Accounting for Derivative Instruments and
Hedging Activities," to provide greater transparency about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and related
hedge items are accounted for under SFAS 133 and its related interpretations,
and (iii) how derivative instruments and related hedged items affect an entity's
financial position, results of operations and cash flows. To meet those
objectives, FAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. FAS 161 is
effective for the Company on January 1, 2009 and is not expected to have a
significant impact on the Company's financial statements.
(2) Fair Value Measurements
Fair value measurements as of September 30, 2008 are as follows (in thousands):
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Total Instruments Inputs Inputs
----------- ---------------- --------------- ----------------
Assets:
Trading securities $92,588 $ 10,336 $82,252
Available for sale securities 6,279,530 55,079 6,224,451
Mortgage trading securities 198,201 198,201
Mortgage servicing rights 68,680 68,680 (1)
Derivative contracts 572,391 572,391
Liabilities:
Certificates of deposit 528,715 528,715
Derivative contracts 377,973 377,973
(1) A reconciliation of the beginning and ending fair value of mortgage
servicing rights and disclosures of significant assumptions used to
determine fair value are presented in Note 4, Mortgage Banking Activities.
The fair value of assets and liabilities based on significant other observable
inputs are generally provided to us by third-party pricing services and are
based on one or more of the following:
o Quoted prices for similar, but not identical, assets or liabilities in
active markets;
o Quoted prices for identical or similar assets or liabilities in inactive
markets;
o Inputs other than quoted prices that are observable, such as interest rate
and yield curves, volatilities, prepayment speeds, loss severities, credit
risks and default rates;
o Other inputs derived from or corroborated by observable market inputs.
The underlying methods used by the third-party pricing services are considered
in determining the primary inputs used to determine fair values.
At June 30, 2008, the fair value of derivative contracts with SemGroup LP of
$36.6 million was largely based on significant unobservable inputs. On July 22,
2008, SemGroup and 24 related entities filed for bankruptcy protection. BOK
Financial assessed a range of values for the derivative contracts with SemGroup
using information currently available, including information provided by a
nationally recognized financial advisor to SemGroup. During the third quarter of
2008, the fair value of these contracts decreased by $4.6 million. The decrease
in fair value, which was based largely on significant unobservable inputs and
changes in energy prices during the quarter, was recognized as a reduction of
fees and commissions revenue. All derivative contracts with SemGroup either
expired or were terminated during the third quarter. The fair value of amounts
due from SemGroup under these contracts totaled $32.0 million. This amount is
included in outstanding commercial loans at September 30, 2008.
No significant fair value measurements of significant assets or liabilities
measured on a non-recurring basis were made during the first three quarters of
2008. Assets measured on a non-recurring basis include pension plan assets,
which are based on quoted prices in active markets for identical instruments,
real property and other assets acquired to satisfy loans, which are based
primarily on comparisons of completed sales of similar assets, and goodwill,
which is based on significant unobservable inputs.
Certain certificates of deposit were designated as carried at fair value as
permitted by FAS 159. These certificates have been converted from fixed interest
rates to variable interest rates based on LIBOR with interest rate swaps. The
fair value election for these liabilities better represents the economic effect
of these instruments on the Company. At September 30, 2008, the fair value and
contractual principal amount of these certificates was $529 million and $537
million, respectively. Change in the fair value of these certificates of deposit
resulted in an unrealized gain during the third quarter and first three quarters
of 2008 of $7.1 million and $7.7 million, respectively, which is included in
Gain (Loss) on Derivatives, net on the Consolidated Statement of Earnings.
40
(3) Derivatives
The fair values of derivative contracts at September 30, 2008 are as follows (in
thousands):
Assets Liabilities
----------- --- ------------
Customer Risk Management Programs:
Interest rate contracts $96,364 $77,549
Energy contracts 433,438 453,248
Agriculture contracts 3,534 3,273
Foreign exchange contracts 53,019 53,019
CD options 3,947 3,947
--------------------------------------------- ----------- --- ------------
Fair value before cash collateral 590,302 591,036
Less: cash collateral (18,794) (216,912)
--------------------------------------------- ----------- --- ------------
Total Customer Derivatives 571,508 374,124
Interest Rate Risk Management Programs 883 3,849
--------------------------------------------- ----------- --- ------------
Total Derivative Contracts $ 572,391 $377,973
--------------------------------------------- ----------- --- ------------
As of January 1, 2008, the Company adopted Financial Accounting Standards Board
Staff Position FIN 39-1, which permits offsetting of cash collateral against the
fair value of derivative instruments executed with the same counterparty under a
master netting agreement. The total amount of derivative assets and liabilities
at September 30, 2008 were reduced by $19 million and $217 million,
respectively, of cash collateral.
41
(4) Mortgage Banking Activities
At September 30, 2008, BOK Financial owned the rights to service 57,970 mortgage
loans with outstanding principal balances of $5.8 billion, including $709
million serviced for affiliates. The weighted average interest rate and
remaining term was 6.16% and 283 months, respectively.
For the three and nine months ended September 30, 2008, mortgage banking revenue
includes servicing fee income of $4.4 million and $13.0 million, respectively.
For the three and nine months ended September 30, 2007, mortgage banking revenue
includes servicing fee income of $4.2 million and $12.7 million, respectively.
Activity in capitalized mortgage servicing rights and related valuation
allowance during the nine months ending September 30, 2008 is as follows (in
thousands):
Capitalized Mortgage Servicing Rights
------------------------------------------
Purchased Originated Total
--------------- ------------ -------------
Balance at December 31, 2007 $ 13,906 $ 56,103 $ 70,009
Additions, net - 15,406 15,406
Change in fair value due to loan runoff (1,719) (6,933) (8,652)
Change in fair value due to market changes (1,063) (7,020) (8,083)
-------------------------------------------- -- ---------- -- ---------- -- -----------
Balance at September 30, 2008 $ 11,124 $ 57,556 $ 68,680
-------------------------------------------- -- ---------- -- ---------- -- -----------
Changes in the fair value of mortgage servicing rights are included in Other
Operating Expense in the Consolidated Statements of Earnings (Unaudited).
Changes in fair value due to loan runoff are included in mortgage banking costs.
Changes in fair value due to market changes are reported separately. Changes in
fair value due to market changes during the period relate to assets held at the
reporting date.
Fair value is determined by discounting the projected net cash flows.
Significant assumptions used to determine fair value are:
September 30, 2008 December 31, 2007
--------------------- --------------------
Discount rate - risk-free rate plus a market premium 9.89% 10.02%
-------------
Prepayment rate - based upon loan interest rate,
---------------
original term and loan type 5.5% - 15.4% 6.8% - 15.2%
Loan servicing costs - annually per loan based upon
--------------------
loan type $43 - $73 $43 - $70
Escrow earnings rate - indexed to rates paid on deposit
--------------------
accounts with comparable average life 3.83% 5.01%
Stratification of the mortgage loan servicing portfolio and outstanding
principal of loans serviced by interest rate at September 30, 2008 follows (in
thousands):
< 5.51% 5.51% - 6.50% 6.51% - 7.50% > 7.50% Total
------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Fair value $ 12,244 $ 39,296 $ 14,437 $ 2,703 $ 68,680
------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
Outstanding principal of loans serviced (1) $ 950,900 $ 2,892,500 $ 1,061,600 $178,000 $5,083,000
------------------------------------------ ---------------- --------------- ---------------- ----------- -------------
(1) Excludes outstanding principal of $709 million for loans serviced for
affiliates and $36 million of mortgage loans for which there are no
capitalized mortgage servicing rights.
42
(5) Disposal of Available for Sale Securities
Sales of available for sale securities resulted in gains and losses as follows
(in thousands):
Nine Months Ended September 30,
-------------------------------------
2008 2007
-------------- ---------------
Proceeds $ 2,158,216 $ 548,025
Gross realized gains 12,763 2,169
Gross realized losses (8,623) (2,473)
Related federal and state income
tax expense (benefit) 1,310 (106)
(6) Employee Benefits
BOK Financial has sponsored a defined benefit Pension Plan for all employees who
satisfied certain age and service requirements. Pension Plan benefits were
curtailed as of April 1, 2006. The Company recognized no periodic pension cost
and made no Pension Plan contributions during the nine months ended September
30, 2008 and September 30, 2007.
Management has been advised that no minimum contribution will be required for
2008. The maximum allowable contribution for 2008 has not yet been determined.
(7) Shareholders' Equity
On October 28, 2008, the Board of Directors of BOK Financial Corporation
approved a $0.225 per share quarterly common stock dividend. The quarterly
dividend will be payable on December 2, 2008 to shareholders of record on
November 14, 2008.
Dividends declared during the three and nine month periods ended September 30,
2008 were $0.225 per share and $0.65 per share, respectively. Dividends declared
during the three and nine month periods ended September 30, 2007 were $0.20 per
share and $0.55 per share, respectively.
43
(8) Earnings Per Share
The following table presents the computation of basic and diluted earnings per
share (dollars in thousands, except share data):
Three Months Ended Nine Months Ended
-----------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
-----------------------------------------------------
Numerator:
Net income $ 56,685 $ 59,848 $ 117,789 $ 166,504
---------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share - weighted
average shares 67,263,317 67,078,378 67,252,296 67,092,549
Effect of dilutive potential common shares:
Employee stock compensation plans (1) 208,059 459,265 311,863 479,351
---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 67,471,376 67,537,643 67,564,159 67,571,900
---------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ 0.84 $ 0.89 $ 1.75 $ 2.48
---------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ 0.84 $ 0.89 $ 1.74 $ 2.46
---------------------------------------------------------------------------------------------------------------
(1) Excludes employee stock options with exercise
prices greater than current market price. 2,892,091 830,479 1,149,905 817,616
(9) Reportable Segments
Reportable segments reconciliation to the Consolidated Financial Statements for
the nine months ended September 30, 2008 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
------------ -- ------------ -- ------------- -- ----------- -- --------------
Total reportable segments $ 404,965 $ 310,142 $ 463,319 $ 116,719 $ 22,870,561
Unallocated items:
Tax-equivalent adjustment 6,165 - - 6,165 -
Funds management and other 59,285 (6,667) 13,643 (5,095) (1,487,382)
------------ -- ------------ -- ------------- -- ----------- -- --------------
BOK Financial consolidated $ 470,415 $ 303,475 $ 476,962 $ 117,789 $ 21,383,179
============ == ============ == ============= == =========== == ==============
(1) Excluding financial instruments gains/(losses).
Reportable segments reconciliation to the Consolidated Financial Statements for
the three months ended September 30, 2008 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
------------ -- ------------ -- ------------- -- ----------- -- --------------
Total reportable segments $ 138,253 $ 136,850 $ 159,682 $ 60,059 $ 22,987,156
Unallocated items:
Tax-equivalent adjustment 1,927 - - 1,927 -
Funds management and other 24,168 (11,023) 4,608 (5,301) (1,165,993)
------------ -- ------------ -- ------------- -- ----------- -- --------------
BOK Financial consolidated $ 164,348 $ 125,827 $ 164,290 $ 56,685 $ 21,821,163
============ == ============ == ============= == =========== == ==============
(1) Excluding financial instruments gains/(losses).
44
Reportable segments reconciliation to the Consolidated Financial Statements for
the nine months ended September 30, 2007 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Average
Revenue Revenue(1) Expense Income Assets
------------ -- ------------ -- ------------- -- ----------- -- --------------
Total reportable segments $ 412,223 $ 297,141 $ 406,108 $ 178,302 $ 19,803,536
Unallocated items:
Tax-equivalent adjustment 6,618 - - 6,618 -
Funds management and other (15,645) (4,485) 11,152 (18,416) (1,142,969)
------------ -- ------------ -- ------------- -- ----------- -- --------------
BOK Financial consolidated $ 403,196 $ 292,656 $ 417,260 $ 166,504 $ 18,660,567
============ == ============ == ============= == =========== == ==============
(1) Excluding financial instruments gains/(losses).
Reportable segments reconciliation to the Consolidated Financial Statements for
the three months ended September 30, 2007 is as follows (in thousands):
Net Other Other
Interest Operating Operating Net Income Average
Revenue Revenue(1) Expense Assets
------------ -- ------------ -- ------------- -- ----------- -- --------------
Total reportable segments $ 139,944 $ 106,489 $ 150,033 $ 59,431 $ 20,663,938
Unallocated items:
Tax-equivalent adjustment 2,464 - - 2,464 -
Funds management and other (2,963) (2,730) 985 (2,047) (1,327,563)
------------ -- ------------ -- ------------- -- ----------- -- --------------
BOK Financial consolidated $ 139,445 $ 103,759 $ 151,018 $ 59,848 $ 19,336,375
============ == ============ == ============= == =========== == ==============
(1) Excluding financial instruments gains/(losses).
(10) Commitments and Contingent Liabilities
In September 2006, BISYS settled the SEC's two-year investigation of BISYS Fund
Services Ohio, Inc. ("BISYS") marketing assistance agreements with 27 different
families of mutual funds, including a BISYS marketing arrangement with AXIA,
which had been terminated effective January 1, 2004. In the SEC settlement,
BISYS consented to an order in which the SEC determined that BISYS had
"willfully aided and abetted and caused" the 27 investment advisors to (i)
violate provisions of the Investment Advisors Act of 1940 that prohibit
fraudulent conduct; (ii) violate provisions of the 1940 Act that prohibit the
making of any untrue statement of a material fact in a registration statement
filed by the mutual fund with the SEC, and (iii) violate provisions of the 1940
Act that require the disclosure and inclusion of all distribution arrangements
and expenses in the fund's 12b-1 fee plan ("the SEC BYSIS Order"). AXIA was one
of the 27 advisors and the AP Funds one of the 27 mutual fund families to which
the SEC referred in its BISYS Order. On October 10, 2006, the Examinations
Division of the Securities and Exchange Commission (the "SEC") conducted an
examination of AXIA. The examination was concluded in July 2007 with no action
taken by the Examinations Division. In August 2007, AXIA settled all claims
relating to the BISYS marketing arrangements with the AP Funds for $2.2 million
and the AP Funds regard the matter as fully concluded. The settlement with the
AP Funds is not binding on the SEC.
On April 7, 2008, AXIA and its parent, BOK, received a Wells notice from the
regional office of the SEC in Los Angeles indicating that the staff is
considering recommending that the SEC bring a civil injunctive action against
AXIA and BOK for violations of Section 17(a) of the Securities Act of 1955,
Section 10(b) of the Securities Exchange Act of 1934, Sections 206(1) and (2) of
the Investment Advisors Act of 1940, and Sections 12(b) and 34(b) of the
Investment Company Act of 1940. BOK and AXIA have been cooperating fully with
45
the SEC in connection with these matters that arose prior to December 31, 2003.
BOK and AXIA are not bound by the SEC BISYS Order and disagree with the SEC
position as it relates to BOK and AXIA. On May 27, 2008, BOK and AXIA responded
to the Wells notice denying the SEC position. On June 26, 2008, BOK and AXIA
representatives met with SEC Staff at which time the SEC Staff advised that the
Staff had not determined whether to recommend any action to the Commission. On
September 25, 2008, The SEC Staff requested, and BOK and AXIA agreed to, a
tolling agreement for any action the SEC might take until January 15, 2009.
Nothing further has occurred as of the time of this filing.
As a member of Visa, BOK Financial is obligated for a proportionate share of
certain covered litigation losses incurred by Visa under a retrospective
responsibility plan. A contingent liability was recognized for the Company's
share of Visa's covered litigation liabilities. Visa funded an escrow account to
cover litigation claims, including covered litigation losses under the
retrospective responsibility plan, with proceeds from its initial public
offering in the first quarter of 2008. BOK Financial recognized a receivable for
its proportionate share of this escrow account which equals the contingent
liability previously recognized.
Subsequent to the third quarter of 2008, Visa announced an agreement to settle
covered litigation with Discover Financial Services for approximately $1.8
billion. BOK Financial recognized an additional contingent liability of $1.7
million for its proportionate share of this settlement in the third quarter of
2008. This additional liability is expected to be offset in future periods as
additional funds are provided to the escrow account.
BOK Financial received 410,562 Visa Class B shares as part of Visa's initial
public offering in the first quarter of 2008. A partial redemption of Class B
shares was completed and the Company received $6.8 million in cash in exchange
for 158,725 Class B shares. The remaining 251,837 Class B shares are convertible
into Visa Class A shares at the later of three years after the date of Visa's
initial public offering or the final settlement of all covered litigation. The
current exchange rate is approximately 0.71 Class A shares for each Class B
share. However, the Company's Class B shares may be diluted in the future if the
escrow fund is not adequate to cover future covered litigation costs. Therefore,
under currently issued accounting guidance, no value has been currently assigned
to the Class B shares and no value may be assigned until the Class B shares are
converted into a known number of Class A shares.
In the ordinary course of business, BOK Financial and its subsidiaries are
subject to legal actions and complaints. Management believes, based upon the
opinion of counsel, that the actions and liability or loss, if any, resulting
from the final outcomes of the proceedings, will not be material in the
aggregate.
During the third quarter of 2007, Bank of Oklahoma agreed to guarantee rents
totaling $28.4 million over 10 years to the City of Tulsa ("City") as owner of a
building immediately adjacent to the bank's main office. These rents are due for
space rented by third-party tenants in the building as of the date of the
agreement. All guaranteed space has been rented since the date of the agreement.
In return for this guarantee, Bank of Oklahoma will receive 80% of net rent as
defined in an agreement with the City over the next 10 years from space in the
same building that was vacant as of the date of the agreement. The maximum
amount that Bank of Oklahoma may receive under this agreement is $4.5 million.
The fair value of this agreement at inception was zero and no asset or liability
is currently recognized in the Company's financial statements.
46
(11) Federal and State Income Taxes
The reconciliations of income (loss) attributable to continuing operations at
the U.S. federal statutory tax rate to income tax expense are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
2008 2007 2008 2007
------------------------------------------------
Amount:
Federal statutory tax $ 27,875 $ 31,709 $ 60,317 $ 89,511
Tax exempt revenue (1,062) (1,042) (3,186) (3,125)
Effect of state income
taxes, net of federal
benefit 1,241 1,649 2,828 4,684
Utilization of tax credits (297) (284) (890) (852)
Bank-owned life insurance (987) (844) (2,961) (2,531)
Other, net (3,812) (438) (1,562) 1,556
------------------------------------------------------------------------------
Total $ 22,958 $ 30,750 $ 54,546 $ 89,243
------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
2008 2007 2008 2007
------------------------------------------------
Percent of pretax income:
Federal statutory tax 35% 35% 35% 35%
Tax exempt revenue (1) (1) (2) (1)
Effect of state income
taxes, net of federal
benefit 2 2 2 2
Bank-owned life insurance (1) (1) (2) (1)
Other, net (6) (1) (1) -
------------------------------------------------------------------------------
Total 29% 34% 32% 35%
------------------------------------------------------------------------------
(12) Financial Instruments with Off-Balance Sheet Risk
BOK Financial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to manage interest rate risk. Those financial instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in BOK
Financial's Consolidated Balance Sheets. Exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the notional
amount of those instruments.
As of September 30, 2008, outstanding commitments and letters of credit were as
follows (in thousands):
September 30,
2008
--------------
Commitments to extend credit $ 5,340,615
Standby letters of credit 600,689
Commercial letters of credit 20,793
(13) Related Parties
On July 21, 2008, the Company entered into a $188 million, unsecured revolving
credit agreement with George B. Kaiser, its Chairman and principal shareholder.
Interest on the outstanding balance is based on one-month LIBOR plus 125 basis
points and is payable quarterly. Additional interest in the form of a facility
fee is paid quarterly on the unused portion of the commitment at 25 basis
points. This agreement has no restrictive covenants. The outstanding balance at
September 30, 2008 was $50 million. This credit agreement matures on December 2,
2010.
47
-------------------------------------------------------------------------------------------------------------------------------
Nine Month Financial Summary - Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Nine Months Ended
-------------------------------------------------------------------------------------
September 30, 2008 September 30, 2007
------------------------------------------ ---------------------------------------
Average Revenue/ Yield Average Revenue/ Yield
Balance Expense(1) /Rate Balance Expense(1) /Rate
-------------------------------------------------------------------------------------
Assets
Taxable securities (3) $ 5,903,319 $ 226,044 5.09% $ 5,008,824 $ 181,401 4.88%
Tax-exempt securities (3) 259,507 12,520 6.49 346,261 14,204 5.69
-------------------------------------------------------------------------------------------------------------------------------
Total securities (3) 6,162,826 238,564 5.15 5,355,085 195,605 4.92
-------------------------------------------------------------------------------------------------------------------------------
Trading securities 71,792 3,637 6.77 28,955 1,459 6.74
Funds sold and resell agreements 77,688 1,485 2.55 74,838 3,177 5.68
Loans (2) 12,474,755 561,964 6.02 11,316,638 670,018 7.92
Less reserve for loan losses 153,372 - - 118,216 - -
-------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 12,321,383 561,964 6.09 11,198,422 670,018 8.00
-------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 18,633,689 805,650 5.77 16,657,300 870,259 7.00
-------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 2,749,490 2,003,267
-------------------------------------------------------------------------------------------------------------------------------
Total assets $ 21,383,179 $ 18,660,567
-------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 6,418,290 98,242 2.04% $ 5,389,967 145,259 3.60%
Savings deposits 158,872 533 0.45 167,603 1,151 0.92
Time deposits 4,366,120 124,755 3.82 4,576,805 163,017 4.76
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 10,943,282 223,530 2.73 10,134,375 309,427 4.08
-------------------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase
agreements 3,084,312 54,082 2.34 2,623,561 99,178 5.05
Other borrowings 1,665,046 34,685 2.78 805,802 32,647 5.42
Subordinated debentures 398,313 16,773 5.63 394,019 19,193 6.51
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 16,090,953 329,070 2.73 13,957,757 460,445 4.41
-------------------------------------------------------------------------------------------------------------------------------
Demand deposits 2,605,971 2,342,235
Other liabilities 720,886 575,892
Shareholders' equity 1,965,369 1,784,683
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 21,383,179 $ 18,660,567
-------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (3) 476,580 3.04% 409,814 2.59%
Tax-Equivalent Net Interest Revenue
To Earning Assets (3) 3.41 3.30
Less tax-equivalent adjustment (1) 6,165 6,618
-------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 470,415 403,196
Provision for credit losses 129,592 21,521
Other operating revenue 308,474 291,332
Other operating expense 476,962 417,260
-------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 172,335 255,747
Federal and state income tax 54,546 89,243
-------------------------------------------------------------------------------------------------------------------------------
Net Income $ 117,789 $ 166,504
-------------------------------------------------------------------------------------------------------------------------------
Earnings Per Average Common Share Equivalent:
Net Income:
Basic $ 1.75 $ 2.48
-------------------------------------------------------------------------------------------------------------------------------
Diluted $ 1.74 $ 2.46
-------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent at the statutory federal and state rates for the periods
presented. The taxable equivalent adjustments shown are for comparative
purposes.
(2) The loan averages included loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(3) Yield calculations exclude security trades that have been recorded on trade
date with no corresponding interest income.
48
------------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Summary - Unaudited
Consolidated Daily Average Balances, Average Yields and Rates
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
-------------------------------------------------------------------------------------
September 30, 2008 June 30, 2008
------------------------------------------ -------------------------------------
Average Revenue/ Yield / Average Revenue/ Yield /
Balance Expense(1) Rate Balance Expense(1) Rate
-------------------------------------------------------------------------------------
Assets
Taxable securities (3) $ 6,056,909 $ 78,030 5.09% $ 6,026,769 $ 75,959 5.08%
Tax-exempt securities (3) 254,803 4,166 6.64 259,410 4,165 6.46
------------------------------------------------------------------------------------------------------------------------------
Total securities (3) 6,311,712 82,196 5.15 6,286,179 80,124 5.14
------------------------------------------------------------------------------------------------------------------------------
Trading securities 66,419 937 5.61 74,058 1,267 6.88
Funds sold and resell agreements 79,862 290 1.44 72,444 355 1.97
Loans (2) 12,713,356 181,862 5.69 12,527,011 180,424 5.79
Less reserve for loan losses 182,844 - - 145,524 - -
------------------------------------------------------------------------------------------------------------------------------
Loans, net of reserve 12,530,512 181,862 5.77 12,381,487 180,424 5.86
------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 18,988,505 265,285 5.55 18,814,168 262,170 5.61
------------------------------------------------------------------------------------------------------------------------------
Cash and other assets 2,832,658 2,794,132
------------------------------------------------------------------------------------------------------------------------------
Total assets $ 21,821,163 $ 21,608,300
------------------------------------------------------------------------------------------------------------------------------
Liabilities And Shareholders' Equity
Transaction deposits $ 6,565,935 $ 28,312 1.72% $ 6,420,291 $ 27,755 1.74%
Savings deposits 159,856 147 0.37 159,798 148 0.37
Time deposits 4,792,366 40,810 3.39 4,076,167 38,211 3.77
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 11,518,157 69,269 2.39 10,656,256 66,114 2.50
------------------------------------------------------------------------------------------------------------------------------
Funds purchased and repurchase
agreements 3,061,186 15,253 1.98 3,126,110 15,180 1.95
Other borrowings 1,390,233 8,935 2.56 2,267,076 14,032 2.49
Subordinated debentures 398,361 5,553 5.55 398,336 5,821 5.88
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 16,367,937 99,010 2.41 16,447,778 101,147 2.47
------------------------------------------------------------------------------------------------------------------------------
Demand deposits 2,739,209 2,634,038
Other liabilities 787,420 541,693
Shareholders' equity 1,926,597 1,984,791
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 21,821,163 $ 21,608,300
------------------------------------------------------------------------------------------------------------------------------
Tax-Equivalent Net Interest Revenue (3) $ 166,275 3.14% $ 161,023 3.14%
Tax-Equivalent Net Interest Revenue
To Earning Assets (3) 3.48 3.44
Less tax-equivalent adjustment (1) 1,927 2,084
------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 164,348 158,939
Provision for credit losses 52,711 59,310
Other operating revenue 132,296 55,616
Other operating expense 164,290 159,268
------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 79,643 (4,023)
Federal and state income tax 22,958 (2,862)
------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 56,685 $ (1,161)
------------------------------------------------------------------------------------------------------------------------------
Earnings Per Average Common Share Equivalent:
Net income (loss):
Basic $ 0.84 $ (0.02)
------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.84 $ (0.02)
------------------------------------------------------------------------------------------------------------------------------
(1) Tax equivalent at the statutory federal and state rates for the periods
presented. The taxable equivalent adjustments shown are for comparative
purposes.
(2) The loan averages included loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(3) Yield calculations exclude security trades that have been recorded on trade
date with no corresponding interest income.
49
-------------------------------------------------------------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------------------------------------------------------------
March 31, 2008 December 31, 2007 September 30, 2007
-------------------------------------------------------------------------------------------------------------------------
Average Revenue/ Yield / Average Revenue/ Yield / Average Revenue/ Yield /
Balance Expense(1) Rate Balance Expense(1) Rate Balance Expense(1) Rate
-------------------------------------------------------------------------------------------------------------------------
$ 5,624,430 $ 72,055 5.11% $ 5,633,173 $ 68,670 4.86% $ 5,206,482 $ 62,531 4.84%
264,398 4,189 6.38 328,900 5,990 7.19 360,710 5,820 6.44
-------------------------------------------------------------------------------------------------------------------------
5,888,828 76,244 5.17 5,962,073 74,660 4.99 5,567,192 68,351 4.95
-------------------------------------------------------------------------------------------------------------------------
74,957 1,433 7.69 29,303 489 6.62 24,413 459 7.46
80,735 840 4.18 86,948 1,303 5.95 101,281 1,588 6.22
12,181,279 199,678 6.59 11,806,242 223,146 7.50 11,709,638 232,446 7.88
131,709 - - 125,996 - - 123,059 - -
-------------------------------------------------------------------------------------------------------------------------
12,049,570 199,678 6.66 11,680,246 223,146 7.58 11,586,579 232,446 7.96
-------------------------------------------------------------------------------------------------------------------------
18,094,090 278,195 6.17 17,758,570 299,598 6.70 17,279,465 302,844 6.99
-------------------------------------------------------------------------------------------------------------------------
2,402,963 2,224,045 2,056,910
-------------------------------------------------------------------------------------------------------------------------
$ 20,497,053 $ 19,982,615 $ 19,336,375
-------------------------------------------------------------------------------------------------------------------------
$ 6,267,021 $ 42,175 2.71% $ 5,861,544 $ 49,358 3.34% $ 5,593,043 $ 50,650 3.59%
156,953 238 0.61 160,170 348 0.86 200,362 410 0.81
4,225,141 45,734 4.35 4,544,802 53,613 4.68 4,798,812 58,436 4.83
-------------------------------------------------------------------------------------------------------------------------
10,649,115 88,147 3.33 10,566,516 103,319 3.88 10,592,217 109,496 4.10
-------------------------------------------------------------------------------------------------------------------------
3,061,783 23,649 3.11 3,158,153 35,169 4.42 2,603,372 32,484 4.95
1,340,846 11,718 3.51 936,353 11,611 4.92 880,894 11,789 5.31
398,241 5,399 5.45 398,109 5,708 5.69 471,458 7,166 6.03
-------------------------------------------------------------------------------------------------------------------------
15,449,985 128,913 3.36 15,059,131 155,807 4.10 14,547,941 160,935 4.39
-------------------------------------------------------------------------------------------------------------------------
2,443,201 2,448,011 2,390,293
618,721 580,574 577,161
1,985,146 1,894,899 1,820,980
-------------------------------------------------------------------------------------------------------------------------
$ 20,497,053 $ 19,982,615 $ 19,336,375
-------------------------------------------------------------------------------------------------------------------------
$ 149,282 2.81% $ 143,791 2.60% $ 141,909 2.60%
3.05
3.31 3.22 3.27
2,154 2,502 2,464
-------------------------------------------------------------------------------------------------------------------------
147,128 141,289 139,445
17,571 13,200 7,201
120,562 107,316 109,372
153,404 157,727 151,018
-------------------------------------------------------------------------------------------------------------------------
96,715 77,678 90,598
34,450 26,518 30,750
-------------------------------------------------------------------------------------------------------------------------
$ 62,265 $ 51,160 $ 59,848
-------------------------------------------------------------------------------------------------------------------------
$ 0.93 $ 0.76 $ 0.89
-------------------------------------------------------------------------------------------------------------------------
$ 0.92 $ 0.76 $ 0.89
-------------------------------------------------------------------------------------------------------------------------
50
PART II. Other Information
Item 1. Legal Proceedings
See discussion of legal proceedings at footnote 10 to the consolidated
financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases made by
or on behalf of the Company or any "affiliated purchaser" (as defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company's common
stock during the three months ended September 30, 2008.
------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
Total Number Average Price Total Number of Shares Purchased Maximum Number of Shares
of Shares Paid per Share as Part of Publicly Announced that May Yet Be Purchased
Period Purchased (2) Plans or Programs (1) Under the Plans
------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
July 1, 2008 to 75,000 $44.49 75,000 1,215,927
July 31, 2008
------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
-
August 1, 2008 to 2,254 $42.15 1,215,927
August 31, 2008
------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
-
September 1, 2008 to 3,939 $57.00 1,215,927
September 30, 2008
------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
Total 81,193 75,000
------------------------ ---------------- ---------------- ------------------------------------ -----------------------------
(1) The Company had a stock repurchase plan that was initially authorized by
the Company's board of directors on February 24, 1998 and amended on May
25, 1999. Under the terms of that plan, the Company could repurchase up to
800,000 shares of its common stock. As of March 31, 2005, the Company had
repurchased 638,642 shares under that plan. On April 26, 2005, the
Company's board of directors terminated this authorization and replaced it
with a new stock repurchase plan authorizing the Company to repurchase up
to two million shares of the Company's common stock. As of September 30,
2008, the Company had repurchased 784,073 shares under the new plan.
(2) The Company routinely repurchases mature shares from employees to cover the
exercise price and taxes in connection with employee stock option
exercises.
Item 6. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Items 1A, 3, 4 and 5 are not applicable and have been omitted.
51
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOK FINANCIAL CORPORATION
(Registrant)
Date: November 3, 2008 /s/ Steven E. Nell
------------------------------- ------------------------------------
Steven E. Nell
Executive Vice President and
Chief Financial Officer
/s/ John C. Morrow
------------------------------------
John C. Morrow
Senior Vice President and
Chief Accounting Officer